Appeal Against NBFC Registration Cancellation

Facing NBFC registration cancellation? Affluence Advisory helps you appeal effectively and safeguard your business.

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What is NBFC Registration Cancellation?

In India, NBFC plays a crucial role in providing sound sources of funding to the economy. Hence, the RBI is solely responsible for regulating and supervising the NBFC to make sure healthy growth of the financial institutions. Also, the RBI has been empowered to use its power provided under the RBI Act, 1934 in the issuance and cancellation of NBFC License.

When an NBFC’s license is revoked, it must immediately stop all financial activities, including accepting deposits, granting loans, and providing financial assistance. It loses its NBFC status and is no longer permitted to function as a financial institution. The cancellation can result from non-compliance with RBI regulations, failure to conduct financial business, involvement in unethical practices, or posing a risk to depositors.

Before cancelling an NBFC’s license, RBI generally provides the company with a final opportunity to present its case. However, if the delay in cancellation is deemed harmful to depositors or financial stability, the RBI can proceed without further notice. If an NBFC wishes to challenge the decision, it can appeal to the Central Government within 30 days of the cancellation order.

To avoid license cancellation, NBFCs must adhere to RBI guidelines, maintain financial stability, and ensure compliance with all regulatory requirements.

What are the circumstances in which NBFC Registration cancellation can be done?

  • Deficit in the Net Owned Fund
  • Failed to re-pay the deposits
  • Have failed to meet the Minimum net owned fund
  • The Operation of NBFC is likely not in the interest of Public at Large
  • Have wilfully violated the Provisions of the Act.
  • Have not filled the require Annual /Quarterly returns to RBI
  • failed to Apply for C-KYC, and Membership of CIC
  • Ignorance with prohibitory orders of RBI
  • Not Carrying NBFC Activity or working on papers with No Actual borrowers

Is it possible for a company to surrender or cancel its NBFC license?

Yes, in the following circumstances, a firm or business entity can opt for its NBFC registration cancellation to the RBI:-

  • On the basis of Suo – Motu;
  • Has a Liquidity Crisis;
  • Is stressed by non-performing assets (NPAs);

Where to file Appeal against cancellation of NBFC License?

  1. An appeal may be filed before the Appellate Authority in the department of financial services, under sub-section (7) of Section 45-IA of the RBI Act, 1934. The time limit to file an appeal is 30 days starting from the date of receipt of order
  2. Writ Petition under Article 226 can be filed before the high court.

Challenges in obtaining a fresh NBFC license post cancellation

Obtaining a new NBFC license after the cancellation of a previous license can be a challenging and complex process. RBI is stringent in its regulatory requirements, and entities that have previously had their licenses cancelled are often scrutinized more closely. The difficulties faced in obtaining a new NBFC license after a cancellation include:

  1. Stricter Scrutiny by RBI:
    • •History of Non-Compliance: If the NBFC’s previous license was cancelled due to non-compliance with RBI regulations (such as failure to maintain Net Owned Funds, non-submission of reports, or violations of financial norms), the RBI would likely subject the new application to much more rigorous scrutiny. The regulatory body will carefully assess the applicant’s ability to comply with all necessary guidelines and demonstrate good corporate governance practices.
    • Reputation Risk: The cancellation of the previous license might affect the reputation of the entity and raise concerns among regulators about its future operations. This may create additional hurdles in the approval process.
  2. Eligibility Criteria
    • The applicant must meet all the eligibility criteria prescribed by the RBI for a new NBFC license. These criteria are usually strict, especially for those who have previously faced cancellation. The applicant must demonstrate:
      • Adequate financial health (meeting the minimum Net Owned Funds (NOF) requirement).
      • Sound management and corporate governance.
      • A viable and compliant business plan.
      • Clean legal and regulatory records.
    • If the previous NBFC was involved in financial irregularities or violations, the chances of meeting these criteria are diminished.
  3. Legal and Regulatory Hindrances:
    • Pending Legal Issues: If there were any legal actions or penalties associated with the cancelled NBFC license (e.g., ongoing litigation, penalties, or unresolved customer claims), the applicant might face delays in obtaining a new license. The RBI may require a resolution of such matters before considering a new application.
    • Reputational Concerns: A prior cancellation could raise red flags, and it might be difficult for the new entity to establish its credibility in the eyes of the RBI and other stakeholders.
  4. Regulatory Wait Period:
    • The RBI may impose a waiting period or additional regulatory checks before allowing the same entity (or its promoters) to reapply for an NBFC license. This waiting period could vary depending on the reason for the license cancellation and the circumstances surrounding the cancellation.
  5. Management and Ownership Changes:
    • If the license was cancelled due to mismanagement or governance issues, the RBI might require significant changes in the company’s management or ownership before even considering the application for a new license. A complete restructuring of the management team or changes in the ownership structure may be needed.

FAQ's

Central KYC Registry is a centralized repository of KYC records of customers in the financial sector with uniform KYC norms and inter-usability of the KYC records across the sector with an objective to reduce the burden of producing KYC documents and getting those verified every time when the customer creates a new relationship with a financial entity.

Central KYC Registry has the below salient features:

  1. Facilitates uniformity & inter-usability of KYC records & process across the financial sector.
  2. Unique KYC identifier linked with independent ID proofs.
  3. Substantial cost reduction by avoiding multiplicity of registration and data upkeep.
  4. KYC data and documents stored in a digitally secure electronic format.
  5. Facilitates KYC Search, Upload, Download, Update.
  6. Secure and advanced user authentication mechanisms for system access.
  7. Data de-duplication to ensure single KYC identifier per applicant.
  8. Real time notification to institutions on updation in KYC details.
  9. Seamless file exchange processes without the need for manual intervention.
  10. API’s for search and download allow for real time account opening for CKYC compliant customers.

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