Norms for factoring biz come into play

Any company planning to undertake factoring business will have to register itself as a ‘NBFC-Factor’ with the Reserve Bank of India and should have a minimum net owned fund of Rs 5 crore, the central bank said on Monday.

Factoring is a financial transaction where an entity sells its receivable to a third-party called a ‘factor’ at discounted prices.

The RBI’s direction follow notification of ‘Factoring Regulation Act, 2011’, which aims to regulate Factors and assignment of receivables in favour of Factors. Under the Act, factoring companies other than banks and government companies would be registered with the RBI as NBFCs.

In accordance with the Act, RBI said it has been decided to introduce a new category of NBFCs — Non-Banking Financial Company–Factors — and issue separate Directions to them.

“Every company intending to undertake factoring business shall make an application for grant of certificate of registration(CoR) as NBFC-factor to the (Reserve) Bank,” the RBI said in a notification.

Also, every company seeking registration as NBFC-Factor should have a minimum NOF of Rs 5 crore, the RBI said.

However, existing companies seeking registration as NBFC-Factor but do not fulfil the NOF criteria may approach the RBI for time to comply with the requirement.

The apex bank further said that an NBFC-Factor should ensure that its financial assets in the factoring business constitute at least 75 per cent of its total assets and its income derived from factoring business is not less than 75 per cent of its gross income. The NBFC–Factor (Reserve Bank) Directions, 2012 come into operations with immediate effect.

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