RBI exempts core investment companies from becoming members of credit bureaus

Aman Nijhawan 18 February 2015

Core investment companies registered as NBFCs mainly invest in assets of group companies rather than lending to borrowers. Therefore exempting them from providing borrowers’ data to credit bureaus is a welcome relief for such companies

The Reserve Bank of India (RBI) through a notification dated 28 January 2015, exempted non-banking financial companies (NBFCs), which are registered as core investment companies (CoreICs) and those not having any customer interface from providing current and historical data on borrowers to credit information companies or credit bureaus (CICs).

It must be noted that this provision (NBFCs to provide data on borrowers) was already redundant for CoreICs. This is because CoreICs mainly invest in assets of group companies rather than lending to borrowers. Hence, the exemption was the need of the hour and it’s good news for CoreICs. The intent of the Credit Information Companies (Regulation) Act, 2005 (Act) was undoubtedly noble, however, for companies such as CoreICs and investment NBFCs, this was an additional burden since the question of having any customer interface does not arise at all.

Background

In India, Credit Information companies are regulated under Credit Information Companies (Regulation) Act, 2005 (‘Act’), which lays down the registration, management etc. of CICs. The intent of mandating NBFCs to become members of CICs was to ensure a centralized pool of information on customers.

As per Section 2(f) of the Act “Credit institution” means a banking company and includes—

(i) a corresponding new bank, the State Bank of India, a subsidiary bank, a co-operative bank, the National Bank and regional rural bank;

(ii) a non-banking financial company as defined under clause (f) of Section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934);

(iii) a public financial institution referred to in Section 4-A of the Companies Act, 1956 (1 of 1956);

(iv) the financial corporation established by a State under Section 3 of the State Financial Corporation Act, 1951 (63 of 1951);

(v) the housing finance institution referred to in clause (d) of Section 2 of the National Housing Bank Act, 1987 (53 of 1987);

(vi) the companies engaged in the business of credit cards and other similar cards and companies dealing with distribution of credit in any other manner; (emphasis supplied)

Since NBFCs are covered under the definition of credit institution as is obvious from the definition of ‘credit institution’ above, all NBFCs were required become a member of at least one credit information company as per section 15 of the Act.

Presently, four CICs have been granted Certificate of Registration by RBI, viz. Credit Information Bureau (India) Ltd, Equifax Credit Information Services Pvt Ltd, Experian Credit Information Company of India Pvt Ltd and CRIF High Mark Credit Information Services Pvt Ltd.

Further, the RBI vide notification dated 15 January 2015 mandated all credit institutions to become members of all CICs which are in existence. Hence, all NBFCs were required to become member of all four CICs.

Why Was the Exemption Needed?

An NBFC fulfilling the following conditions is a core investment company:

a. 90% of its net assets are invested in securities or loans/debts in group companies.

b. 60% of its net assets are in form of equity investment (including convertible instruments convertible within a period of 10 years) in group companies.

c. The company is not trading in its investments except through block sale for the purpose of dilution or disinvestment.

d. The company is not carrying on any other financial activities as mentioned in section 45(I) of RBI Act except activities of investment, granting loans and issuing guarantees for its group companies.

(Aman Nijhawan works for Vinod Kothari & Co)

Comments

User

dilip241

5 years ago

Dear Sir,

Please read that notification again, it says "On a review it has been decided that NBFCs which are registered with the Bank as Core Investment Companies, Primary Dealers and those purely into investment activities without any customer interface are exempt from the applicability of the above mentioned circular." "circular number DNBS.(PD).CC.No.200/03.10.001/2010-11 dated September 17, 2010"
And the circular was "Submission of data to Credit Information Companies Format of data to be submitted by Credit Institutions ", that means a NBFC has to get itself registered with CIC but the qualified NBFC's does not need to submit the data to CIC.

Further another notification has come RBI/2014-15/458 DNBR(PD).CC.No 019/03.10.01/2014-15 in which it stated that all the NBFC's has to registered with Four CIC's.