Ozg NBFC Consultant
Ozg Center, New Delhi & Mumbai
Phone # 09811415831-37-61-72-84-92-94
Website: http://nbfc.ozg.in
Email: ask@nbfcregistration.com
Q.1. What is Factoring?
The Factoring Act, 2011 defines the ‘Factoring Business’ as “the
business of acquisition of receivables of assignor by accepting
assignment of such receivables or financing, whether by way of making
loans or advances or in any other manner against the security interest
over any receivables”. However, credit facilities provided by
banks in the ordinary course of business against security of
receivables and any activity undertaken as a commission agent or
otherwise for sale of agricultural produce or goods of any kind
whatsoever and related activities are expressly excluded from the
definition of Factoring Business. The Factoring Act has laid the basic
legal framework for factoring in India.
Q 2. What is an NBFC-Factor?
Ans. NBFC- Factor means a non-banking financial company
fulfilling the Principal business criteria i.e. whose financial assets
in the factoring business constitute at least 75 percent of its total
assets and income derived from factoring business is not less than 75
percent of its gross income, has Net Owned Funds of Rs. 5 crore and has
been granted a certificate of registration by RBI under section 3 of
the Factoring Regulation Act, 2011.
Q 3. What are the entry point norms for NBFC-Factor?
Ans, Every company registered under Section 3 of the Companies
Act 1956 seeking registration as NBFC-Factor shall have a minimum Net
Owned Fund (NOF) of Rs. 5 crore. Existing companies seeking registration
as NBFC-Factor but do not fulfil the NOF criterion of Rs. 5 crore may
approach the Bank for time to comply with the requirement.
Q 4. What would happen with the existing companies
registered with RBI as NBFCs and conducting factoring business that
constitute less than 75 percent of total assets / income?
Ans. Such a company shall have to submit to RBI, a letter of
its intention either to become a Factor or to unwind the business
totally, and a road map to this effect. The company would be granted CoR
as NBFC-Factor only after it complies with the twin criteria of
financial assets and income. If the company does not comply within the
period as specified by the Bank, it would have to unwind the factoring
business.
Q 5. Is it compulsory for all entities to get registered with RBI to conduct factoring business?
Ans. Yes. An entity not registered with the Bank may not
conduct the business of factoring unless it is an entity mentioned in
Section 5 of the Act i.e. a bank or any corporation established under
an Act of Parliament or State Legislature, or a Government Company as
defined under section 617 of the Companies Act, 1956.
Q.6. If a company does not fulfill the principal
business criteria for factoring and has no intention of getting itself
registered as a Factor with the Bank, can it continue to do factoring
activities with its group entities.
Ans : No. As per Section 3 of the Factoring Act 2011, no
Factor can commence or carry on the factoring business without a)
obtaining a CoR from the Reserve Bank, b) fulfilling the principal
business criteria.
Q.7. Can NBFC-Factors undertake Import and Export Factoring?
Ans : Yes, however, such NBFC-Factors will need to obtain the
necessary authorization from the Foreign Exchange Department of the
Bank under FEMA 1999 as amended and adhere to all the FEMA regulations
in this regard.
Q.8 Is it necessary for NBFC-Factors to register every factoring transaction with the Central Registry?
Under Section 19 of the Factoring Act, 2011 every Factor is
under obligation to file the particulars of every transaction of
assignment of receivables in his favour with the Central Registry to be
set-up under section 20 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (54 of
2002), within a period of thirty days from the date of such assignment
or from the date of establishment of such registry, as the case may be.
Q.9 Do NBFC-Factors have to comply with a separate set of prudential regulations?
Ans : No, The provisions of Non-Banking Financial (Non-deposit
Accepting or Holding) Companies Prudential Norms (Reserve Bank)
Directions, 2007 or Non-Banking Financial (Deposit Accepting or Holding)
Companies Prudential Norms (Reserve Bank) Directions, 2007, as the
case may be and as applicable to a loan company shall apply to an
NBFC-Factor.
Q.10. Are there a separate set of Returns that the NBFC-Factor has to submit?
Ans : The submission of returns to the Reserve Bank will be as specified presently in the case of registered NBFCs.
Ozg NBFC Consultant
Ozg Center, New Delhi & Mumbai
Phone # 09811415831-37-61-72-84-92-94
