What changed
RBI has clarified that the existing prohibition on NBFCs from being partners in partnership firms now explicitly covers Limited Liability Partnerships (LLPs) and Associations of Persons (AOPs). This amendment was made through notifications DNBS (PD).255 and DNBS (PD).256, both dated June 11, 2013, amending the prudential norms directions for deposit-accepting and non-deposit-accepting NBFCs respectively.
What it means for you
NBFCs must immediately review and divest any capital contributions or partnership interests in LLPs or AOPs, as these are now treated like traditional partnership firms. Non-compliance could lead to regulatory action, as the RBI has mandated early retirement from such entities. This tightens the regulatory perimeter around NBFC investments and structures.
What you must do
- Identify any existing investments or partnership roles in LLPs or AOPs within your NBFC.
- Initiate early retirement or divestment from such LLPs or AOPs immediately.
- Update internal compliance policies to explicitly prohibit future capital contributions or partnerships in LLPs and AOPs.
- Ensure board-level reporting on the status of exit from such entities.
Who it affects
All Non-Banking Financial Companies (NBFCs) in India, NBFCs with existing investments in LLPs or AOPs, Compliance and legal teams of NBFCs
Does this circular apply to all NBFCs, including those that do not accept deposits?
Yes, the prohibition applies to both deposit-accepting and non-deposit-accepting NBFCs, as separate amendments were made to the respective prudential norms directions.
What is the deadline for exiting existing LLP or AOP partnerships?
The circular advises NBFCs to seek early retirement from such entities, but does not specify a fixed deadline. Immediate action is recommended to avoid regulatory non-compliance.
Are there any exceptions to this prohibition?
No exceptions are mentioned in the circular. The prohibition is comprehensive for all NBFCs regarding partnerships in LLPs and AOPs.