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    NBFC Registration and FEMA Compliances

    Revised Registration Process of NBFC with Reserve Bank of India (RBI) 

    As per the statement given in First Bi-monthly Monetary Policy Statement - 2016-17, RBI has simplified and rationalised the process of registration of NEW NBFCs. The number of documents to be submitted has reduced from 45 to 7-8 documents. From the date of press release, non-deposit taking NBFCs (NBFC-ND) based on Sources of Funds & Customer Interface are classified as follows: 

    • Type I - NBFC-ND not accepting public funds / not intending to accept public funds in the future and not having customer interface / not intending to have customer interface in the future.
    • Type II - NBFC-ND accepting public funds/ intending to accept public funds in the future and/or having customer interface/intending to have customer interface in the future. 

    In case if Type I- NBFC-ND companies intend to avail public fund or intend to have customer interface in the future, they are required to take approval from Reserve Bank of India, Department of Non-Banking Regulation. 

    Following forms have been revised and uploaded on the RBI website: 

    1. Application form
    2. Documents required for registration as Type I - NBFC-ND
    3. Documents required for registration as Type II - NBFC-ND (including new applications of NBFC-MFI, NBFC-factor, NBFC-IDF)
    • Inthecase of CIC-ND-SIs, a separate application form has been prescribed. 
    • Theapplication form mentioned above shall be applicable to new applications of Type I - NBFC-ND and Type II - NBFC-ND (including NBFC-MFI, NBFC-Factor and NBFC-IDF). 
    • Theapplication for new NBFCs may be submitted to Central Office, Department of Non-Banking Regulation directly. 
    • Itisfurther advised that the checklists mentioned are indicative and not exhaustive. ?Intheevent of the Reserve Bank calling for further documents in addition to those mentioned in the checklist, the applicant company must respond within a stipulated time of one month. 

    Investment by Indian party engaged in Financial services sector (ODI Regulation): 

    An Indian Party engaged in financial services sector in India may make investment in an entity outside India which is engaged in financial services sector subject to the following conditions; 

    Indian party: 

    • hasearned net profit during the preceding three financial years from the financial services activities; 
    • Isregistered with the regulatory authority in India for conducting the financial services activities Øhasobtained approval from the concerned regulatory authorities both in India and abroad, for venturing into such financial sector activity; 

    Any additional investment by an existing JV/WOS or its step down company in the Financial Services Sector shall be made only after complying with the above stipulated conditions. 

    Periodical Compliances under ODI (IP/RI): 

    • TofileAnnual Performance Report (Part II) on or before 31st December, following the financial year end.
    • Tosubmit the proof of receiving the share certificates evidencing the ownership of investment in JV/WOS.
    • Isalsorequired to file Closure / Disinvestment report (Part III) within 30 days of Disinvestment.
    • Tofile/include the details of Overseas Investments in FLA and file on or before 15th of July. 

    Foreign Direct Investment(FDI) in NBFC: 

    FDI is permitted in NBFCs listed as Other Financial Services, w.e.f 10-01-2017, as per the respective regulations. 

    • IftheNBFC is not registered/ regulated by any regulator – FDI is permitted with prior approval of the Government only 
    • Nominimum capitalisation norms under FDI Regulations 

    FDI Process flow: 

    Board Approval: 

    Convening of Board Meeting to consider issue of shares to Investor and calling of EGM for obtaining approval from Members (Section 42 read with Rules made there under). 

    Valuation Report: 

    • The company has to obtain valuation report from a Chartered Accountant to arrive at the value of shares proposed to be issued. 
    • In case of listed company, the valuation >= the value decided under SEBI regulations 
    • In case of Unlisted Companies, the valuation has to be done as per internationally recognized method of valuation (Ref RBI A. P. (DIR Series) Circular No. 4, dated 15/07/2014 and for justification of issue price, pursuant to provision to Sub rule (2) (a) of Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 

    Shareholders Meeting: 

    • The company needs to call General Meeting (EGM/AGM as the case may be) to obtain the approval of members by way of special resolution. 
    • The company shall file the approved members resolutions with ROC, within 30 days of Shareholder approval in Form MGT-14.

    Letter of Offer (LOO): 

    The Board has to approve the LOO (in PAS-4) along with share application (serially numbered) to be sent to the investor(s). The number of proposed offer to the investors cannot exceed 200 persons aggregate in a FY. 

    Filing of LOO with ROC: 

    Company has to prepare the details/record of LOO in Form PAS-5, and file the same with ROC along with the LOO, within 30 days of circulation of LOO. The value of such offer or invitation per person shall be with a minimum investment size of Rs. 20,000/- of face value of the securities. 

    Open Escrow bank a/c: 

    The company has to open separate bank account (escrow account) to receive the proposed subscription and can adjust such money only either for allotment of shares or for refund of money. 

    Remittance: 

    The investor remits the amount into the Company in eligible currency. 

    Intimation to RBI: 

    • The company shall intimate RBI through AD within 30 days of remittance
    • The intimation to be made in Part IV: Annex I to Master Direction dated 01/01/2016.
    • The reporting shall be made online through E-Biz portal w.e.f 08.02.2016 

    KYC: 

    • The company needs to facilitate the AD to obtain KYC information of the remitter from their counterpart bank. 
    • The KYC format is prescribed vide Part IV: Annex II to Master Direction dated 01/01/2016 

    UIN: 

    • RBI upon receipt of the intimation allots Unique Identification Number (UIN) for each such remittance and intimates the company. 
    • This UIN has to be quoted at the time of filing the FC-GPR / refund of the money 

    Allotment/ Refund: 

    • The company shall allot Shares / CCPS / CCD within 60 days of the remittance failing which the money shall be refunded within 15 days thereafter (Section 42 of Companies Act, 2013 read with rules made there under) 
    • As per FDI, the allotment has to be made within 180 days (w.e.f. 29-11-07) 

    PAS-3: 

    Return on allotment is required to be filed with the ROC within 30 days in Form PAS-3, along with the prescribed details/information of the Allottees [Filing pursuant to Sec. 42(9) and Rule 14 (4) of the Companies (Prospectus and Allotment of Securities) Rules, 2014]. 

    Form FC-GPR: 

    • The company after allotting the shares/ CCPS/CCD shall file form FC-GPR with AD through which received the remittance 
    • The intimation to be made in Part IV: Annex III to Master Direction dated 01/01/2016 

    Intimation from RBI: 

    Upon receipt of the Form FC-GPR, RBI after scrutiny of the form, allots UIN for FC-GPR which shall be used at the time repatriation by the investor. 

    NBFC Regulations – Branch/ Subsidiary/JV abroad 

    • RBIhasissued NBFC (Opening of Branch/ Subsidiary/ JV/ RO or Undertaking Investment abroad by NBFC) Directions, 2011 detailing the following: 
    • Opening of Branch by NBFCis not permitted 
    • Foropening of Subsidiary / JV / RO etc, by NBFC prior approval of RBI is mandatory ?Investment in Non-Financial Services sector, by NBFCis Prohibited ?Theforeign entity need to be regulated in Host Country 
    • Aggregate Investment Limit is 100% of NOF ?TheLiability of NBFC is restricted to Fund Based commitment only ?TheForeign entity shall be operating entity and shall not be a Shell Company ?RoundTripping of the funds shall not be involved 
    • Theforeign entity shall submit annual reports / periodical reports to NBFC ?Theforeign entity has to state suitable information in its Annual Reports related to exposure of NBFC

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