The Reserve Bank of India (“RBI”), vide Registration of Factors (Reserve Bank) Regulations, 2022 (“Regulations”), has notified regulations on manner of granting certificate of registration to companies proposing to do factoring business.
According to the Regulations, a Non-Banking Financial Company – Factor (“NBFC-Factor”) is a non-banking financial company that has been granted a certificate of registration under section 3 of the Factoring Regulation Act, 2011 (“Act”) and is in compliance of the principal business criteria. As per the principal business criteria, a NBFC-Factor shall ensure that its financial assets in the factoring business constitute at-least 50% (fifty percent) of its total assets and income from factoring business is not less than 50% (fifty percent) of its gross income. Further, every company seeking registration as NBFC-Factor shall have a minimum net owned fund of Rs. 5,00,00,000 (Rupees five crore) or as may be specified by the RBI (“NOF Requirement”).
Further any Non-Banking Financial Company – Investment and Credit Company (“NBFC-ICC”) which intends to undertake factoring business can either make an application to the RBI for grant of certificate of registration under the Act or seek conversion to NBFC-Factor. A NBFC-ICC is a company which is a financial institution - (i) carrying on its principal business – asset finance, providing finance by making loans, advances or otherwise for any activity other than its own and the acquisition of securities, (ii) has been granted a certificate of registration under section 45IA of the Reserve Bank of India Act, 1934, and (iii) is not any other category of non-banking financial company as defined by the RBI in any of its Master Directions.
An existing NBFC-ICC shall be eligible to apply to the RBI for grant of certificate of registration and undertake the factoring business, if it satisfies the following criteria – (i) not accepting or holding public deposits, (ii) total assets of Rs. 1000,00,00,000 (Rupees one thousand crore) and above as per the last audited balance sheet, (iii) NOF Requirement; and (iv) regulatory compliance.
Any entity which is not registered with the RBI under the Act, may conduct the factoring business if it is an entity mentioned under section 5 of the Act i.e., a bank, body corporate established under an Act of Parliament of State Legislature, or a Government Company.
Please find a copy of the notification, here.
This update has been contributed by Nidhi Arya (Partner) and Aditi Kashyap (Associate).
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