Corporate Affairs Ministry asks companies operating like NBFCs to comply with RBI norms

NEW DELHI: The corporate affairs ministry has launched a crackdown on fraudulent investment schemes. It has directed all non-banking financial institutions and financial companies registered under the Companies Act to comply with the guidelines of the Reserve Bank of India.

Besides, it has shared with the banking regulator a list of 34,754 companies which have clauses in their memorandum of association for undertaking business of a non banking financial institution or NBFC.

“A lot of these companies carry out financial business but don’t appear to have been registered with RBI as NBFCs. We are instructing all such companies to comply with the requirement of the banking regulator,” a senior ministry official said, requesting not to be named. “In recent cases, the promoters of such firms were found to be taking advantage of various norms.”

Not all NBFCs are entitled to accept public deposits. Only those NBFCs which have a specific authorisation from RBI can do so. A company incorporated under the Companies Act that wants to start business of an NBFC must be registered under Section 45 of the RBI Act, 1934. NBFCs must also adhere to the ceiling imposed by RBI on acceptance of public deposits and offer interest rate of not more than 12.5%.

There have been instances of companies such as West Bengal-based Saradha group and Rose Valley group raising illegal deposits from public that later turned out to be huge scams. The scams, wherein lakhs of investors in West Bengal and neighbouring states were defrauded of thousands of crores of rupees through illegal money pooling activities, came to light early lastyear.