Is My Company Required to Register as an NBFC with RBI for Holding Group Shares?

A company has invested its entire funds of Rs. 1.5 Crores in the shares of its Group Companies. The company is not engaged in any other activities besides holding these shares, and these investments were made in the year 2003. Does the company need to be registered with the RBI as an NBFC? Has the company defaulted in any way, and if so, what recourse is available?

Regards,
Hitesh Joshi
9899773378

Dear Mr. Joshi,

Your company is a "financial institution" within the meaning of Section 45-I(c) of the RBI Act and needs registration as an NBFC under Section 45-IA. The minimum net owned funds required for an NBFC is Rs. 2 crores.

Therefore, you have to make an application to the RBI for registration. If you do not wish to remain as an NBFC, you will have to start some other business within the company so that income from financial assets is less than 50% of its total income. The RBI press release dated April 8, 1999, regarding this matter is attached.

Regards,

A company has invested its entire funds of Rs. 3.00 Crores in acquiring shares of its Group Companies and making advances/loans without interest to group companies. The company is not engaging in any other activities besides holding these shares and loans/advances, and these investments were made in the year 2007. There is no dividend and/or interest income from the above activities.

Is the company required to be registered with the RBI as an NBFC? Has the company incurred any kind of default, and if so, what recourse is available?

The situation mentioned by you is still a grey area. If we strictly go by the provisions of the RBI Act and the volume of investments/loans made by the company, it appears that in this case registration as an NBFC is necessary. One could take the stand that as per the RBI press release dated 8.4.1999 cited above, the company does not have any income at all, and hence registration is not required. However, how far this stand will be valid is still not known. Further, if there is some little income from interest/dividend in any year, the company will carry the risk of non-registration. Hence, I feel it would be better to get the company registered as an NBFC.

Regards,
PC Agrawal