Merger Of 3 NBFC Categories Leads To Harmonization

The Reserve Bank of India (RBI) through a notification in February 2019 effected the merger of 3 existing categories of NBFCs into a single category. Akshay Bhargav, partner at corporate law firm Khaitan & Co, outlines the benefits of the decision:

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N. Mohan: What is the significance of RBI’s recent notification merging 3 distinct types of NBFCs into a single category?

Akshay Bhargav: Over the years, there have been several categories of NBFCs and different sets of regulatory compliances. The recent notification, merging Asset Finance Companies (NBFC-AFC), Loan Companies (NBFC-LC) and Investment Companies (NBFC-IC) into one category called ‘Investment and Credit Company’ or ‘NBFC-ICC’, reduces the complexity arising out of multiplicity of categories and simplifies the regulatory regime to a certain extent. It is in line with RBI’s suggestion in the bi-monthly Monetary Policy Statement for 2018-19 on 7 February 2019. Accordingly, the RBI through a notification on 22 February 2019 effected the merger.

Now, any financial institution carrying on asset finance as its principal business whether by making loans or advances or otherwise for any activity other than its own and the acquisition of securities and is not any other category of NBFC as defined by the RBI in any of its Master Directions - will be an NBFC-ICC.

How will this bring in better operational flexibility and harmonization?