GROUNDS FOR NBFC LICENSE CANCELLATION

A. Following are the grounds which may lead to NBFC License cancellation [Section 45-
IA (6) of the RBI ACT, 1934]
1. In case the Non-Banking Financial Company ceases to carry on the business activities of
a non-banking financial institution in India. The NBFCs are required to perform financial
activities as prescribed in the Principal Business wherein financial activity as a principal
business means a situation where a company’s financial assets constitute more than 50%
of its total assets and where income adds from financial assets is more than 50% of its
gross income. A company that meets this criterion may continue as an NBFC by RBI.

2. In case of the NBFC failing to comply with the requirements or the conditions for the
registration specified under the Act and any other additional conditions mentioned by the
by the RBI at the time of issuance of the Certificate of NBFC Registration. For instance,
if the NBFC fails to maintain the minimum requirement of paid-up capital, that means
below two crore Rs. then it may lead to NBFC license cancellation.

3. In case the NBFC fails in fulfilling the conditions specified above relating to the affairs
and capital of the company.

4. If the NBFC fails in fulfilling or complying with the directions or notifications issued by
the Reserve Bank of India. If there is any form of disobedience by the NBFC to the
prohibitory orders issued by the RBI, it may lead to the cancellation of the license. Once
the orders are issued for the directors or the promoters of the NBFCs, the RBI makes an
inspection to know whether they are following the instructions or not.

5. In case the NBFC fails to maintain the books of accounts, records as per the provisions of
the RBI Act, 1934.

6. In case the NBFC fails in submitting the books of accounts, records and any other
relevant documents to the Reserve Bank of India for the purpose of inspections as per the
provisions of the RBI Act, 1934.

7. In case the NBFC has been prohibited from accepting deposits by an order made by the
RBI and such an order is in force.

8. In case where an NBFC is unable to repay deposits. The depositor has the option of
approaching the consumer forum or Company Law Board to recover their deposits. The
RBI shall provide such company an opportunity to clarify its stance before effecting an
NBFC license cancellation, in case it assesses the poor financial condition of an NBFC to
repay the deposits.

9. Every NBFC is required to operate in the public interest. The policies of the company
must align with the circulars, notifications, and master directions issued by the RBI.
 B. Procedure followed by the RBI for NBFC license cancellation-:

1. If at any point the RBI finds that an NBFC is performing its business activities in a
manner not specified under the provisions of the RBI Act, 1934 or if it is acting
against the interest of the public then the RBI is empowered to cancel the certificate
of registration or the license of such NBFC.

2. The RBI shall communicate to such a company regarding the decision of the RBI
concerning the NBFC License cancellation along with the reason or the ground for
doing so. In cancelling the registration of the NBFCs, the discretion exercised by
the RBI should manifest fair play, reasonableness, judiciousness and it must be
done within the parameters of the RBI law.

3. The RBI shall issue a show-cause notice to such a company and ask for reasons as
to why such an action should not be taken against it.

4. The RBI prior to passing an order of cancellation of NBFC license shall provide an
opportunity to the company of being heard and a chance to the company to set forth
its stance unless in the opinion of the RBI any delay in cancelling the certificate of
registration or the license shall be prejudicial to the public interest or the interest of
the depositors or the non-banking financial company.

INSPECTION CONDUCTED BY RBI [SECTION 45N]

(1) The Bank may, at any time, cause an inspection to be made by one or more of its officers
or employees or other persons (hereafter in this section referred to as the inspecting authority-
(i) of any non-banking institution, including a financial institution, for the purpose of
verifying the correctness or completeness of any statement, information or particulars
furnished to the Bank or for the purpose of obtaining any information or particulars which the
non-banking institution has failed to furnish on being called upon to do so; or
(ii) of any non-banking institution being a financial institution, if the Bank considers it
necessary or expedient to inspect that institution.
(2) It shall be the duty of every director or member of any committee or other body for the
time being vested with the management of the affairs of the nonbanking institution or other
officer or employee thereof to produce to the inspecting authority all such books, accounts
and other documents in his custody or power and to furnish that authority with any statements
and information relating to the business of the institution as that authority may require of him,
within such time as may be specified by that authority.
(3) The inspecting authority may examine on oath any director or member of any committee
or body for the time being vested with the management of the affairs of the non-banking
institution or other officer or employee thereof, in relation to its business and may administer
an oath accordingly.