RBI Revokes Registration of Four Non-Banking Financial Companies

Photo : Reuters

RBI Revokes Registration of Four NBFCs; Imposes Penalty on IDFC First Bank

In a recent development, the Reserve Bank of India (RBI) has taken significant regulatory actions, cancelling the registration certificates of four non-banking financial companies (NBFCs) and imposing a monetary penalty on IDFC First Bank Limited.

The four NBFCs whose registration certificates have been cancelled are Kundles Motor Finance Private Limited, based in Uttar Pradesh; Nithya Finance Limited, located in Tamil Nadu; Bhatia Hire Purchase Pvt Ltd, operating in Punjab; and Jiwanjyoti Deposits and Advances Limited, situated in Himachal Pradesh. With the cancellation of their registration, these companies are prohibited from conducting business as non-banking financial institutions as per the RBI Act.

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Simultaneously, the RBI has imposed a monetary penalty of Rs 1 crore on IDFC First Bank Limited for non-compliance with certain directives issued by the central bank regarding 'Loans and Advances - Statutory and Other Restrictions'. This penalty has been imposed under the provisions of the Banking Regulation Act, 1949.

The penalty follows supervisory findings indicating non-compliance with RBI directions and statutory provisions, prompting the central bank to issue a notice to IDFC First Bank. The notice called upon the bank to show cause as to why a penalty should not be imposed for its failure to adhere to the directives. After evaluating the bank's response and oral submissions made during a personal hearing, the RBI concluded that the charges against the bank were justified, warranting the imposition of a monetary penalty.

One of the key findings leading to the penalty was the bank's sanctioning of term loans to a public sector undertaking for infrastructure projects without conducting proper due diligence on their viability and bankability. Furthermore, the repayment or servicing of these term loans was facilitated from budgetary resources, rather than ensuring sufficient revenue streams from the projects to meet debt servicing obligations.

It's essential to note that the RBI's actions are primarily aimed at addressing regulatory compliance deficiencies and do not reflect on the validity of any transactions or agreements between the bank and its customers. Additionally, the imposition of the monetary penalty does not preclude further actions that the RBI may initiate against IDFC First Bank in the future.

Overall, these regulatory interventions underscore the RBI's commitment to ensuring the soundness and integrity of the financial system, promoting adherence to regulatory frameworks, and safeguarding the interests of stakeholders.

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