RBI in the year 2010 came out with the circular[1] according to which all NBFCs were required to provide current and historical data on borrowers to Credit information Companies (CICs). Now vide notification[2] dated January 28,2015, RBI has exempted NBFCs which are registered as Core Investment Companies and those not having any customer interface from providing data on borrowers to CICs.
Background
In India, Credit Information companies are regulated under Credit Information Companies (Regulation) Act, 2005[3](‘Act’) which lays down the registration, management etc. of CICs. The intent of mandating NBFCs to become members of CICs was to ensure a centralized pool of information on customers.
As per Section 2(f) of the Act “Credit institution” means a banking company and includes—
- a corresponding new bank, the State Bank of India, a subsidiary bank, a co-operative bank, the National Bank and regional rural bank;
- a non-banking financial company as defined under clause (f) of Section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934);
- a public financial institution referred to in Section 4-A of the Companies Act, 1956 (1 of 1956);
- the financial corporation established by a State under Section 3 of the State Financial Corporation Act, 1951 (63 of 1951);
- the housing finance institution referred to in clause (d) of Section 2 of the National Housing Bank Act, 1987 (53 of 1987);
- the companies engaged in the business of credit cards and other similar cards and companies dealing with distribution of credit in any other manner; (emphasis supplied)
Since NBFCs are covered under the definition of credit institution as is obvious from the definition of ‘credit institution’ above, all NBFCs were required become a member of at least one credit information company as per section 15 of the Act.
Presently, four CICs have been granted Certificate of Registration by RBI, viz. Credit Information Bureau (India) Limited, Equifax Credit Information Services Private Limited, Experian Credit Information Company of India Private Limited and CRIF High Mark Credit Information Services Private Limited
Further, the RBI vide notification[4] dated January 15, 2015 mandated all Credit Institutions to become members of all CICs which are in existence. Hence all NBFCs are required to become member of all four CICs.
Why Was The Exemption Needed?
An NBFC fulfilling the following conditions is a Core Investment Company:
a. 90% of its net assets are invested in securities or loans/debts in group companies.
b. 60% of its net assets are in form of equity investment (including convertible instruments convertible within a period of 10 years) in group companies.
c. The company is not trading in its investments except through block sale for the purpose of dilution or disinvestment.
d. The company is not carrying on any other financial activities as mentioned in section 45(I) of RBI Act except activities of investment, granting loans and issuing guarantees for its group companies.
In our view this provision was already redundant for Core Investment Companies since they mainly invest in assets of group companies rather than lending to borrowers. Hence the exemption was the need of the hour and it’s a good news for Core Investment Companies. The intent of the Act was undoubtedly noble, however, for companies such as Core Investment Companies, Investment NBFCs, this was an additional burden since the question of having any customer interface does not arise at all.
[1] http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=5999&Mode=0
[2] http://rbi.org.in/scripts/NotificationUser.aspx?Id=9524&Mode=0
[3] http://www.equifax.com/international/india/pdfs/Credit_Information_Companies_Act.pdf
[4] http://rbi.org.in/scripts/NotificationUser.aspx?Id=9485&Mode=0
(Author Aman Nijhawan is associated with Vinod Kothari & Company and can be reached at aman@vinodkothari.com)
