What changed
RBI issued the NBFC-Factor (Reserve Bank) Directions, 2012, effective July 23, 2012, creating a new regulatory category for factoring companies. The Directions require all non-bank factoring entities to register with RBI as NBFC-Factors and follow prudential norms. Existing NBFCs wanting to become NBFC-Factors must apply to their Regional Office within six months, supported by a statutory auditor's certificate on asset and income patterns.
What it means for you
Banks and lenders dealing with factoring must now ensure their factoring arms or investee companies register as NBFC-Factors and comply with the new Directions. This brings factoring activities under tighter RBI supervision, aligning with the Factoring Regulation Act, 2011. Existing NBFCs have a limited window to reclassify, requiring prompt action and auditor certification.
What you must do
- Identify any factoring business within your group and ensure it applies for NBFC-Factor registration under Section 3 of the Factoring Regulation Act, 2011 (new companies) or approaches RBI Regional Office for reclassification (existing NBFCs).
- If you are an existing NBFC engaged in factoring, submit a reclassification request to your RBI Regional Office within six months from July 23, 2012, with a statutory auditor's certificate showing asset and income patterns.
- Review your asset and income composition to confirm that factoring constitutes at least 75% of total assets and 75% of gross income as per para 6 of the Directions.
- Update internal compliance frameworks to align with the prudential norms applicable to NBFC-Factors as per para 8 of the Directions.
Who it affects
All NBFCs currently engaged in factoring, Companies planning to start factoring business, Banks with factoring subsidiaries or associates, Statutory auditors of NBFCs
What is the deadline for existing NBFCs to reclassify as NBFC-Factor?
Existing NBFCs must approach their RBI Regional Office within six months from July 23, 2012, with the original certificate of registration and a statutory auditor's certificate showing asset and income patterns.
Which entities are exempt from registering as NBFC-Factor?
Banks, corporations established under an Act of Parliament or State Legislature, and Government Companies as defined under Section 617 of the Companies Act, 1956, are exempt from registration under these Directions.
What is the principal business criterion for an NBFC-Factor?
The Directions define principal business in para 6, requiring that factoring constitutes a substantial portion of the company's assets and income, as certified by a statutory auditor for reclassification.