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Nbfc norms

CA Tushar Singhania (Asst. Manager Accts & Fin.) (402 Points)

22 September 2012

Respected Sir/Madam

I would like to know what would happen if an NBFC Co.'s major portion of income is derived from rental income. The problem is that more than 50% of the income is derived in the form of rents. Further, when will it loose the NBFC status and what could be done to mitigate the same?

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Hitesh (CA) (459 Points)
Replied 26 September 2012

As per the RBI press release 1998-99/1269 dated April 08, 1999, A Company will be treated as a NBFC if both the following contitions are cumulatively satisfied: Condition 1: Its Financial Assets are more than 50 per cent of its Total Assets (net of Intangible Assets, if any); AND Condition 2: Its Income from Financial Assets is more than 50 per cent of the Gross Income. There conditions have to be verified every year and a certificate of the auditor is required to be given with the auditors report. Once a company becomes a NBFC it has to seek registration with the RBI. Subsequently if other than permissible activity is carried on (in this case renting) then company will loose its NBFC status. Further since it has lost NBFC status it cannot continue to new activities that a NBFC is allowed like giving loans, making investments etc. Further, the Reserve Bank of India (RBI) has come up with concept of CORE INVESTMENT COMPANIES (CIC's) regulations for NBFC companies. A reference to the link below may provide you further clarity on concept of CIC's & NBFC. https://www.cautility.in/Utility%20pages/index%20-%20Statutes%20-%20Regulatory%20-%20NBFC.html Hope this resolves your query. Regards, - show quoted text -