Tuesday, June 11, 2013

NBFCs not to be partners - Clarifications

The RBI noticed that some NBFCs have large investments in/ have contributed capital to partnership firms. In view of the risks involved in NBFCs associating themselves with partnership firms,
by way of a circular dated March 30,  2011, the RBI prohibited NBFCs from contributing capital to any partnership firm or to be partners in partnership firms. In cases of existing partnerships, NBFCs were advised to seek early retirement from the partnership firms.


By way of a circular dated June 11, 2013, certain additional clarifications have been made: 

(a) The prohibition on partnership firms will also include Limited Liability Partnerships (LLPs).

(b) The aforesaid prohibition will also be applicable with respect to associations of persons, these being similar in nature to partnership firms.


The RBI has advised NBFCs which have already contributed to the capital of a LLP/ association of persons or is a partner of a LLP/ association of persons to seek early retirement from such LLP/ association of persons. Logically, these restrictions are meant to prevent any adverse ripple-effect on the non-banking financial sector.

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