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HomeBUSINESSNationalRBI cracks whip over high-risk NBFCs under money laundering act

RBI cracks whip over high-risk NBFCs under money laundering act

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The Reserve Bank of India, in exercise of powers conferred on it under Section 45-IA (6) of the RBI Act, 1934, has cancelled the Certificate of Registration and blacklisted over 82% of the 11,500 odd non-banking financial companies (NBFCs) categorized as high-risk financial institutions by the Finance Ministry, under the Prevention of Money Laundering Act (PMLA).

These NBFCs had been asked by the RBI to report all suspicious, cash transactions of over Rs 10 lakh to the Financial Intelligence Unit (FIU) but were found to be flouting the rules and illegally converting banned Rs.500 and Rs.1000 currency notes, by the Income Tax and Enforcement Directorate (ED) post demonetization.

The Financial Intelligence Unit (FIU), under the Finance Ministry, reportedly listed nearly 9,500 non-banking financial companies (NBFCs) as ‘high risk financial institution’.

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A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities like leasing, hire-purchase, insurance or chit fund.

A company which fulfils these criteria can be registered as NBFC by RBI.

Difference between banks & NBFCs

NBFCs have functions similar to banks – i.e. they lend and make investments like banks; but there are a few differences:

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  • NBFC cannot accept demand deposits;
  • NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
  • Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike banks.

The above companies now cannot transact the business of a Non-Banking Financial Institution, as defined in clause (a) of Section 45-I of the RBI Act, 1934.


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Taazakhabar News Bureau
Taazakhabar News Bureau
Taazakhabar News Bureau is a team of seasoned journalists led by Neeraj Mahajan. Trusted by millions readers worldwide.


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