Registration of Factors (Reserve Bank) Regulations, 2022

Key Highlight: The manner of filing of particulars of transactions by a TReDS on behalf of Factors prescribed by RBI.

The RBI vide Notification no. No. DOR.FIN.081/CGM (JPS)–2022, dated 14.01.2022has notified the Registration of Assignment of Receivables (Reserve Bank) Regulations, 2022. On January 17, 2022, the Reserve Bank of India (RBI) has issued and published the Registration of Factors (Reserve Bank) Regulations, 2022 in official gazettevide Gazette Id CG-MH-E-17012022-232690 relating to the manner of granting Certificate of Registration to companies which propose to do factoring business.

Effective date: These regulations shall come into forcew.e.f. 17th January, 2022.

RBI, has eased guidelines for the Non-Banking Finance Companies, or NBFCs. In a recent notification, the banking regulator saidthat it had allowed select NBFCs to undertake factoring business subject to satisfaction of certainconditions. With this, the guidelines laid for factoring businesses have been simplified by the RBI. Thiscomes close in heels with analysts revising the growth outlook of retail to NBFCs to 5% -7% for the fiscal2022 from an earlier expectation of 8% to 10%.

1. Important Definitions:

A. “Non-Banking Financial Company – Factor (NBFC-Factor)” means a non – banking financial company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934, which has its principal business as per Regulation 4 of these regulations and has been granted a Certificate of Registration (CoR) under section 3 of the Act;

B. “Non-Banking Financial Company – Investment and Credit Company (NBFC-ICC)” means any company which is a financial institution carrying on as its principal business – asset finance, the providing of finance whether by making loans or advances or otherwise for any activity other than its own and the acquisition of securities, and granted a CoR under Section 45IA of the Reserve Bank of India Act, 1934 (2 of 1934); and is not any other category of NBFCs as defined by the Reserve Bank in any of its Master Directions.

2. Net Owned Fund (NOF):

Every company seeking registration as NBFC-Factor shall have a minimum Net Owned Fund (NOF) of ₹5 crore,or as specified by the Reserve Bank from time to time.

3. Principal Business Criteria (PBC):

An NBFC-Factor shall ensure that its financial assets in the factoring business constitute at least 50% ofits total assets and its income derived from factoring business is not less than 50% of its gross income.

4. Registration and matters incidental thereto

(a) Every company intending to undertake factoring business shall make an application to the Reserve Bank for grant of certificate of registration (CoR) as NBFC-Factor under the Act and shall ensure compliance with PBC as stipulated in regulation 4 of these regulations.

(b) Any existing NBFC-ICC, intending to undertake factoring business, shall make an application to the Reserve Bank for grant of CoR under the Act if it satisfies the following eligibility criteria:

  • not accepting or holding public deposits;
  • total assets of ₹1,000 crore and above, as per the last audited balance sheet;
  • meeting the NOF requirement as prescribed in regulation 3 of these regulations;
  • regulatory compliance

(c) Any existing NBFC-ICC, which does not satisfy the above conditions but intends to undertake factoring business, shall approach the Reserve Bank for conversion from NBFC-ICC to NBFC-Factor. Such NBFCICCs shall comply with the PBC as specified in regulation 4 of these regulations.

(d) NBFC-Factor or eligible NBFC-ICC which has been granted CoR by the Reserve Bank under theseregulations, shall commence factoring business within six months from the date of grant of CoR.

5. Conduct of business and prudential regulations

NBFC-Factors or eligible NBFC-ICCs which have been granted CoR under the Act shall conduct the factoringbusiness in accordance with the Act and rules and regulations framed under the Act or the directions andguidelines issued by the Reserve Bank from time to time

Conclusion:

With the introduction of the new regulations, RBI has widen the scope of companies that can undertake factoring business and to make room for more NBFCs to participate in business. Other NBFC-ICCs can also undertake factoring business by registering as NBFC-Factor. Eligible companies may apply to the Reserve Bank for seeking registration under the Act.

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