India’s central bank, the Reserve Bank of India (RBI) has cancelled the registration of 1,490 non-banking financial companies (NBFCs) in the last two years, that either voluntarily surrendered registration or flouted prudential norms, reports Business Standard.
Unlike commercial banks, NBFCs don’t accept deposits or issue cheque books to its customers. However, they undertake lending operations.
According to the RBI, among the cancelled NBFCs, Kolkata tops the list with 617 cancellations while New Delhi stood at second spot with 203, followed by Mumbai at 190.
Non-compliance with mandatory requirements like minimum net-owned funds (NoF) of Rs 20 million (Rs two crores), non-submission of statutory returns, and non-traceability of companies at the addresses submitted by them, are some of the reasons cited for the cancellation.
The banking regulator had earlier stated that the registered NBFCs were subject to on-site inspection and off-site monitoring through return submissions and statutory auditors’ reports.
However, financial sector experts have opined that that even though NBFCs are a crucial link in extending credit and other financial services to micro, small and medium enterprises (MSMEs), defaults by them in the second quarter of the current financial year (FY19) were a significant setback to the financial system and hit liquidity of financing companies.
The liquidity crisis in the NBFC market can be traced back to the September 2018 default of IL&FS, a NBFC giant operating in the infrastructure finance space.
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