NBFC regime continuous to be uncertain

My learned colleague Mr. Jayant Thakur has in his blog post analyzed the recent RBI circular I referred to earlier, which states that fixed deposits with banks do not count as financial assets for the purposes of NBFC regulations. Mr. Thakur's post goes on to examine the impact of this circular on existing NBFCs and other entities. I quote:


"this will create confusion to existing NBFCs already engaged in the business of finance. Bank Deposits are part of the portfolio of any NBFC. It may be recollected that the RBI had, vide its circular dated October 19, 2006, created a deeming condition regarding when a Company becomes an NBFC. It stated that, for a Company to qualify as an NBFC, at least 50% of its assets should be financial assets and 50% of its income should be from financial assets. If bank fixed deposits are excluded as financial assets for all companies, it may create problems for some NBFCs particularly in lean times and their auditors may have to qualify their reports.

And this circular may help out those companies who unwittingly became NBFCs on account when at a year end, they found that their assets consisted of financial assets including fixed deposits with banks being more than 50%. Since bank FDs are no more treated as financial assets, they may escape one or both of the conditions and thus escape the deeming provision which otherwise may have resulted in their requiring to apply for registration as NBFC."


The uncertainty created around the certificate of registration is also undesirable. Mr. Thakur has referred to the Usha Thorat Committee report which has made various liberal and realistic recommendations, which has not seen the light of day - I will write on this report soon. In contrast to the same, these measures seem quite retrograde in nature. Comments from readers welcome.