The Reserve Bank of India (RBI), on Monday, introduced a new category of NBFCs, Non-Banking Financial Company-Factors and stipulated that every company seeking registration as NBFC-Factors would have a minimum net-owned fund (NOF) of Rs.5 crore.
Factoring is a financial transaction where an entity sells its receivable to a third-party called a ‘factor’ at discounted prices.
“Existing companies seeking registration as NBFC-Factor but do not fulfil the NOF criterion of Rs.5 crore may approach the RBI for time to comply with the requirement,” RBI said in a notification. An NBFC-Factor would ensure that its financial assets in the factoring business constitute at least 75 per cent of its total assets and its income derived from factoring business is not less than 75 per cent of its gross income. The RBI said that an existing NBFC registered with it and conducting factoring business that constitute less than 75 per cent of total assets / income shall have to submit to the RBI within six months from the date of this notification, a letter of its intention either to become a Factor or to unwind the business totally, and a road map to this effect.
However, the RBI said that these NBFCs should raise the asset/income percentage as required or unwind the factoring business within two years from the date of this notification. They would be granted CoR (Certificate of Registration) as NBFC-Factors only after they reached the required asset or income percentage, the RBI added.