The Reserve Bank of India’s recent circular directing all entities to seek its approval before buying a stake of over 10% in a non-banking financial company is aimed at preventing trade in NBFC licences, industry sources told Cogencis.

“There have been recent instances where we have seen entities that the RBI may not consider as fit and proper to hold large stake or promote an NBFC, bypassing the regulatory process of seeking a NBFC licence by acquiring or attempting to buy an existing NBFC,” a senior industry official said.

Sources said that the RBI was likely to be extremely strict with any such instances and may even cancel licences of NBFCs that are acquired in such a manner by those seeking to avoid tougher norms that are in the works. The attempts to acquire NBFCs so as to benefit from their licences have started after the RBI announced a moratorium on issuance of fresh NBFC licences from Apr 1.

Very pointedly, the reason cited by the central bank for this moratorium had been to ensure a complete overhaul of the norms governing the NBFC sector.

The RBI felt there was a need to “review the regulatory framework and streamline the sector” before taking a view on allowing more entities into the sector.  The central bank also hinted at “major shift in the regulatory paradigm” for NBFCs following critical insights from the Nachiket Mor Committee on Comprehensive Financial Services for Small Businesses and Low Income Households.      -Cogencis

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