What changed
RBI inserted a new definition of 'Non-Banking Financial Company - Factor' into the prudential norms directions for both deposit-accepting and non-deposit-accepting NBFCs. The definition requires factoring assets to be at least 75% of total assets and factoring income at least 75% of gross income, plus a certificate of registration under the Factoring Regulation Act, 2011. Additionally, the auditor's report directions were amended to require that certificates for NBFC-Factors explicitly mention this registration and the percentage of factoring assets and income.
What it means for you
NBFCs engaged in factoring must now meet specific asset and income thresholds to be classified as NBFC-Factors, bringing them under a dedicated regulatory framework. This classification ensures that factoring companies adhere to the Factoring Regulation Act, enhancing transparency and regulatory oversight. For lenders, this clarifies which NBFCs are subject to factoring-specific prudential norms, potentially affecting credit assessment and risk management.
What you must do
- Review your NBFC portfolio to identify entities that may qualify as NBFC-Factors based on the 75% asset and income thresholds.
- Ensure that any NBFC-Factor in your lending or investment portfolio holds a valid certificate of registration under the Factoring Regulation Act, 2011.
- Update internal compliance checklists to include verification of NBFC-Factor status and related prudential norms during due diligence.
- Train credit and risk teams on the new definition and its implications for exposure limits and reporting.
Who it affects
All NBFCs engaged in factoring business, Auditors of NBFCs
What is the threshold for an NBFC to be classified as an NBFC-Factor?
An NBFC must have at least 75% of its total assets in factoring business and at least 75% of its gross income from factoring, along with a certificate of registration under the Factoring Regulation Act, 2011.
When did these amendments take effect?
The amendments were issued on September 14, 2012, and took effect immediately from that date.
Do these changes affect all NBFCs or only those in factoring?
The changes specifically define and regulate NBFC-Factors, so they primarily affect NBFCs engaged in factoring. However, the prudential norms amendments apply to all NBFCs covered under the respective directions.