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Registration of Factors (Reserve Bank) Regulations, 2022

The Reserve Bank of India (‘RBI’) vide Notification No. DOR.FIN.080/CGM(JPS) – 2022, Dated: 14.01.2022, notified the Registration of Factors (Reserve Bank) Regulations, 2022 (‘Registration Regulations’) laying down the manner of granting Certificate of Registration (‘CoR’) to companies which propose to do factoring business.

The Registration Regulations essentially lay down regulations dealing with registration of factors. The Registration Regulations provide that factoring services can be carried out by either an NBFC-Factor or an NBFC-Investment and Credit Company (NBFC-ICC) after having obtained the CoR from RBI.

Prerequisites for making an application for NBFC-Factor to RBI

  • It shall ensure compliance with Principal Business Criteria (PBC) i.e. its financial assets in the factoring business constitute at least fifty per cent of its total assets and its income derived from factoring business is not less than fifty per cent of its gross income;
  • It shall have a minimum Net Owned Fund (NOF) of Rs. 5 Crores.

Prerequisites for making an application by NBFC-ICC to RBI

  • It shall not accept or hold public deposits;
  • Its total assets shall be Rs. 1,000 Crore and above, as per the last audited balance sheet;
  • It shall have a minimum Net Owned Fund (NOF) of Rs. 5 Crores;
  • It must be a Regulatory Compliant.

Other salient features of the Regulations are –

  • Any existing NBFC-ICC, which does not satisfy the conditions prescribed above, but intends to undertake factoring business, shall approach RBI for conversion from NBFC-ICC to NBFC-Factor. Such NBFC-ICCs shall comply with the Principal Business Criteria (PBC).
  • Application for such conversion shall be submitted with all supporting documents meant for new registration as NBFC-Factor, together with surrender of original CoR issued by the Reserve Bank to the NBFC-ICC
  • An entity not registered with the Reserve Bank under the Act, may conduct the business of factoring, if it is an entity mentioned in Section 5 of the Factoring Regulation Act, 2011 i.e. a bank or a body corporate established under an Act of Parliament or State Legislature, or a Government Company.
  • NBFC-Factor or eligible NBFC-ICC which has been granted CoR by the Reserve Bank under these regulations, shall commence factoring business within six months from the date of grant of CoR.

The notification shall come into force with immediate effect.

Sahil Goyal, Audit Associate, SW India

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