Time to say Wah! to Pravaah: New interface for regulatory approvals by NBFCs

– Vinod Kothari and Anita Baid

While the regulatory interface for NBFCs with the RBI is considerably easier than that for banks, considering the sheer number and small size of several NBFCs, there are very frequent occasions for approvals like change in management, change of directors, etc., for which NBFCs need to approach the RBI for approval. For an NBFC having 3 directors, if one dies or retires and a new director has to be appointed, this fits the regulatory definition of “change in management”, even though nothing may have changed on the shareholding front. 

Towards the end of May 2024, the RBI has introduced a platform for regulatory application, validation and authorisation, named Pravaah. Literally meaning flow or smooth flow, it is hoped that this new platform introduces harmony, consistency, tractability, and eventually, speeds up the regulatory approval process. For the regulator too, the use of regtech makes the process more standardised. While teething issues exist, the new interface has several user-friendly features like application history, chat window, create support request and a tracker where one may track the existing stage of the application.

The Pravaah app is to be used for new NBFC applications to the Department of Regulations as well as for change of control tot he Department for Supervision. 

Applications for NBFC registration are not often seen to have a good success rate, as the regulatory scrutiny is quite stringent. Most importantly, for a country that already has 8000+ NBFCs, the macro view may be that new entries are not all that needed. However, if one demonstrates credible plan, for example, for use of new or innovative financial technology, or catering to hitherto unserved borrowers or products, or opportunity for getting new flow of funds into the country, or otherwise serve a cause that is not well served currently, there is a stronger case for regulatory approval. However, it is very important to bring on table relevant experience, flawless credentials of the promoters, and a credible business plan.

As for change on control and consolidation applications, the time seems more opportune now than ever in the past. This is because FY 25 is the deadline for the first 250% increase in the net owned funds of the NBFCs, from Rs 2 crores to Rs 5 crores. For most of the NBFCs, meeting this requirement may not be easy. Therefore, roping in new investors may be the only option in the “fat is fit” regime.

The benefits of the Pravaah portal include having a one-stop solution for submission of the application, tracking and monitoring the status of the application/reference, responding to any clarification/query sought by the RBI in connection with the application/reference and receiving a decision from the RBI in a time bound manner.  

Various applications to various departments have been available, including the Department of Regulation, Department of Supervision, Department of Payment and Settlement Systems, Financial Markets Regulation Department and so on.

Given the increased level of supervision and compliance requirements, several NBFCs registered as Type 2 but not involved in lending activities and without access to public funds, have the option to apply online for conversion from Category-A NBFC to Category-B NBFC or even seek approval for Amalgamation or Merger.