The Pious Intent of Promoting Factoring

Preserve of a select few?  

Over the last two years, the regulatory developments vis-à-vis factoring, and more specifically, ‘who can be a factor’ has been a to-and-fro ride. With widening of the scope of entities eligible for factoring to its effective roll back vide the Registration of Factors (Reserve Bank) Regulations, 2022 (‘Registration Regulations’), the factoring market found itself stuck in ambiguity arising because of the disparity between the Factoring Regulation (Amendment) Act, 2021 (‘Amendment Act’) and the Registration Regulations. Ironically enough, only days after the notification of Registration Regulations, the Economic Survey 2021-22 was released, which held a rather positive outlook as regards the factoring market, in view of the reliefs provided vide the Amendment Act.

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Presentation on harmonisation of NPA recognition

Harmonisation of NPA recognition: 15th Feb. 22 clarification, to the 12th Nov. 21 clarification

Our analysis on the Feb. 15 clarification is available here: https://vinodkothari.com/2022/02/nbfc-npa-characterisation-a-reprieve-a-day-too-late/

Our write-up on RBI’s Clarifications on the NPA SMA Recognition: https://vinodkothari.com/2021/11/npa-classification-norms-2/

Our discussions on the topic are also available on Youtube:

Understanding ICAAP for NBFCs

– Qasim Saif | Manager | finserv@vinodkothari.com

Systemic risk of NBFCs has been an issue for discussion, specifically in India as there have been some major NBFC failures, and the issue of inter-connectivity between NBFCs and the rest of the financial sector became clearly evident. The issue is not limited to India, an annual publication of the Financial Stability Board, called Global Monitoring Report on Non-banking Financial Intermediation has been drawing attention to the increasing relevance of non-banking financial intermediaries and the risk they pose on a global level.[1]

In order to carry out the risk assessment, the banks are required to follow the Internal Capital Adequacy Assessment Process (ICAAP) as per Pillar II of the Basel II framework. However, with the increasing importance of non-banking financial institutions, the RBI has through its Revised Regulatory Framework for NBFCs (Revised Framework)[2] have inserted the ICAAP requirements to the middle layer NBFCs too from October 2022.

Under the existing regulatory framework, the NBFCs are required to carry out stress testing of only securitisation exposures or pool of loans acquired from other institutions.

Our services and Assistance for ICAAP Implementation can be viewed here – https://vinodkothari.com/2022/09/services-and-assistance-for-icaap-implementation/

As this would be a new requirement for NBFCs, and the specific directions in this respect are still awaited, the literature and guidance in this respect is scarce. In this article we have tried to discuss in brief, the expectations of the regulator along with a probable approach for NBFCs towards the ICAAP.

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NBFC NPA characterisation: A reprieve a day too late?

– Vinod Kothari, Director (Vinod Kothari Consultants P. Ltd.) | finserv@vinodkothari.com

The RBI, vide a so-called “clarification” dated February 15, 2022[1], relating to what itself was termed as a “clarification”, dated November 12, 2021[2], has effectively provided a reprieve to NBFCs for treating those assets as NPAs, which have historically had a default of 90 days or more, but are currently trailing by less than 90 days. Unfortunately however, the clarification comes on the 45th day of the end of 3rd quarter, by which all listed NBFCs, and debt-listed entities, would have already prepared and published their financial results for the quarter, which would have implemented the November 12 Clarification. Read more

CBDCs in India – A Leap of Faith?

Introduction

Right from RBI’s (in)famous March 2018 Circular (‘Circular’) banning all operations by virtual currency exchanges (VCEs) to the Hon’ble Supreme Court’s verdict upholding the constitutionality of cryptocurrency and its exchanges, the debate over the adaptability of cryptos has led to a demographic split in India.

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Factors’ Registration Regulations: Going back to Square-one?

– Megha Mittal

mittal@vinodkothari.com

On 14th January, 2022, the Reserve Bank of India (‘RBI’) notified the Registration of Factors (Reserve Bank) Regulations, 2022[1] (‘Registration Regulations’) laying down the manner of granting Certificate of Registration (‘CoR’) to companies which propose to do factoring business. Applicable with immediate effect, this may essentially seem like an undoing of the Factoring Regulation (Amendment) Act, 2021. One of the several objectives of the said Amendment was to allay a doubt, arising from the existing language of the Factoring Act, that entities either had to be principally into factoring business, or not do factoring at all. The RBI’s Regulations almost lead to the very result – either an entity has a Certificate of Registration (COR) as a factor, or it does not do factoring at all.

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Prompt Corrective Action Framework for NBFCs

– Team Finserv | finserv@vinodkothari.com

RBI Notification dated December 14, 2021 – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12208&Mode=0

Our recent write-ups around the financial services sector – https://vinodkothari.com/category/financial-services/

Round-up of regulatory updates during 2021

We have attempted to collate all major regulatory amendments notified throughout the year, with our resources on the same. Below we present a regulatory round-up for the year 2021, be it for MCA, SEBI, RBI or the like, along with the links to our major articles/ FAQs on the same.

Our youtube video giving a quick view on the same can be accessed at – https://www.youtube.com/watch?v=WJbJx2jgK9A

This version: 4th December, 2021

Presentation on changes in NPA-SMA Recognition

Our Article explaining changes in NPA-SMA classification can be read here: https://vinodkothari.com/2021/11/npa-classification-norms-2/