What changed
RBI issued two notifications amending the Prudential Norms Directions for deposit-accepting and non-deposit-accepting NBFCs. A new paragraph (19A for deposit-accepting, 20A for non-deposit-accepting) prohibits NBFCs from contributing capital to or being partners in partnership firms. Existing partnerships must be wound up early.
What it means for you
NBFCs can no longer use partnership structures for investments, closing a route that exposed them to unlimited liability and governance risks. Lenders must review and exit any existing partnership holdings immediately. This tightens NBFC risk management and aligns with RBI's focus on corporate structure transparency.
What you must do
- Identify all existing investments in or partnerships with partnership firms.
- Initiate early retirement from such partnerships and document the exit plan.
- Ensure no new capital contributions or partnership agreements are entered into.
- Update internal compliance policies to reflect this prohibition.
- Report compliance status to RBI as part of prudential norms adherence.
Who it affects
All deposit-accepting NBFCs, All non-deposit-accepting NBFCs, NBFC compliance and legal teams, Partnership firms with NBFC partners
Does this ban apply to all NBFCs or only deposit-taking ones?
It applies to both. Notification DNBS.227 covers deposit-accepting NBFCs, and DNBS.228 covers non-deposit-accepting NBFCs. Both are prohibited from contributing capital to or being partners in partnership firms.
What should an NBFC do if it is already a partner in a partnership firm?
The NBFC must seek early retirement from the partnership firm. The circular does not specify a deadline, but 'early retirement' implies prompt action. Document the exit process and ensure compliance.
Are there any exceptions or grandfathering provisions?
No exceptions or grandfathering are mentioned in the circular. The prohibition is immediate for new investments, and existing partnerships must be exited early.