Non-banking finance companies which obtain registration, park their funds in fixed deposits with banks and do not commence business have come under the central bank's lens.
Investments in fixed deposits cannot be treated as financial assets. Receipt of interest income on fixed deposits with banks cannot be treated as income from financial assets, the central bank said in a notification.
Besides, bank deposits constitute near money and can be used only for temporary parking of idle funds, till commencement of NBFI business.
The Reserve Bank of India said it issues a Certificate of Registration (CoR) to NBFCs for the specific purpose of conducting non-banking financial institution (NBFI) activities.
The RBI said it has come across cases where some NBFCs obtain registration from the Bank, park their funds in fixed deposits with commercial banks but do not commence NBFI activities for several years thereafter.
NBCFs must necessarily commence business within six months of obtaining certificate of registration (CoR), the central bank said.
If the NBFC does not do so, the CoR will stand withdrawn automatically.
Further, there can be no change in ownership of the NBFC prior to commencement of business and regularisation of its CoR, the RBI said in a notification.
NBFCs can commence business or carry on the business of a non-banking financial institution only after obtaining a certificate of registration (CoR) from the RBI. They should have a net owned fund of Rs 25 lakh, which was increased to Rs. 200 lakh with effect from April 21, 1999.