NBFC License Cancellation

RBI is vigilant in keeping a check on the NBFCs and their functioning. The RBI recently canceled the licenses of many NBFCs who were found to be contravening the provisions of the Act or guidelines issued by RBI. Therefore, all NBFCs must ensure that compliance is fulfilled as per the provisions.

The Reserve Bank of India (RBI, herein called “the bank) shall grant NBFC Certificate of Registration (CoR) to such companies, who make an application to the RBI for obtaining such certificate and comply with all the guidelines as prescribed in this regard. The guidelines for obtaining CoR include, the applicant company must be registered under the Companies Act, 2013, the company shall maintain minimum NoF amount as specified by the bank for different categories of NBFC, and fulfill the 50-50 criteria of assets and income.

After the bank receives the application along with all the necessary documents, then the concerned official makes thorough scrutiny of all the details mentioned in the application and other attached documents.

After scrutiny, when the Bank is of the opinion that the company has complied with all the guidelines, shall issue CoR to the company. After receiving CoR, the company can commence its NBFC activities. 

But, when it comes to the notice of the bank that the NBFC has contravened any provision of the Act or guidelines issued in this regard, RBI may cancel the certificate of such NBFC.

What are the grounds for the Cancellation of CoR by RBI?

Following Section 45-IA of the RBI Act, the bank may cancel CoR granted to an NBFC under the following events:

• The company ceases to continue NBFC activities;
• Failure to maintain the Net Owned Fund as provided by the bank for various classes of NBFC; 
• The company does not fulfill the condition/s in regards to the issuance of CoR;
• The activities of the company and the general character of the management are prejudicial to the public interest;
• Contravene the direction of RBI;
• Does not maintain accounts as per the specified provisions;
• Fails to cooperate with inspecting authority of the RBI;
• Contravene the provisions of repayment of the deposits.

How does RBI proceed with the Cancellation of CoR?

Before passing an order for cancellation of CoR, the Bank may provide;

• An opportunity to be heard to the defaulting company,
• Give direction to the company to take necessary steps to make the default good and comply with ten provisions/guidelines. 

The above-mentioned option may not be available to the company, where the bank is of the opinion that any delay in canceling the CoR can be prejudicial to the public/depositors' interest.

What action can be taken by aggrieved companies?

Where any company is aggrieved by the order of either rejection of application for registration or cancellation of certificate of registration may file an appeal, to the Central Government within thirty days from the date of communication of rejection/cancellation order.

Effect of the order/decision:

- Where an appeal has been made by the company, the decision of the Central Government; and

- Where an appeal has not been made, the order of the Bank, shall be final.