RBI Tightens Norms for Investments in NBFCs from 17 Non-FATF Countries

The 17 countries (or jurisdictions) flagged by the Financial Action Task Force (FATF) under its publications of ” High-risk jurisdictions subject to a Call for Action “, and “jurisdictions under Increased Monitoring” will face restrictions on the fresh investments in India’s Non-Banking Finance Companies (NBFCs).

• The restrictions put in force by the Reserve Bank of India (RBI) will not treat the FATF-flagged countries at par with the compliant jurisdictions.

Countries under High-risk jurisdictions subject to a Call for Action:

Albania, Barbados, Botswana, Cambodia, Ghana, Jamaica, Mauritius, Myanmar, Nicaragua, Pakistan, Panama, Syria, Uganda, Yemen, and Zimbabwe

Countries under Increased Monitoring:

Democratic People’s Republic of Korea (DPRK), and Iran

Key Points:

—New Investors: The threshold for new Investors from FATF-flagged jurisdictions

as a whole should be smaller than 20% of the voting power (including potential 1 voting power) in the existing NBFCs or in the NBFCs seeking Certification of Registration (COR).

• The potential voting power could arise from instruments that are convertible into equity, other instruments with contingent voting rights, and contractual arrangements that grant investors voting rights in the future.

—Existing investors: The existing investors of NBFCs that now belong to FATF- flagged can continue to invest or make additional investments under existing regulations. This provision is in lieu of encouraging business continuity in India.

What is the Financial Action Task Force (FATF)?

Initiated in 1989, FATF is the inter-governmental watchdog for global money laundering and terrorist financing. It periodically identifies jurisdictions with weak measures to combat money laundering and terrorist financing.

• President– Dr. Marcus Pleyer (Germany)
• Member Countries– 39
• Observer– Indonesia
• Headquarters– In Organisation for Economic Co-operation and Development (OECD), Paris.

About Reserve Bank of India (RBI):

Formation– 1 April 1935
Governor– Shaktikanta Das
Headquarters– Mumbai, Maharashtra
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, and M Rajeswar Rao)