Thursday, 31 December 2015

Bajaj Finserv Blog

Deregistration of Bajaj Finserv limited as an NBFC.

Bajaj Finserv Limited is the holding company of Bajaj Finance Limited. Bajaj Finserv Limited is now classified as a “Core investment company” as it does not have any public funds including deposits or borrowings.

Core Investment Companies (CICs)

Core Investment Companies, (CIC) are those companies which have their assets predominantly as investments in shares for holding stake in group companies but not for trading, and also do not carry on any other financial activity. These companies a minimum 90% of their assets in the group concerns either in the form of equity, preference shares or convertibles bonds or loans. Further the component of equity holdings should not be less than 60% of their assets.

RBI has now recognized that such CICs justifiably deserve a differential treatment in the regulatory prescription applicable to Non-Banking Financial Companies which are non deposit taking and systemically important.  It is now decided by RBI that only those CICs having an asset size of Rs.100 crore and above would be treated as systemically important core investment companies. Systemically important core Investment Company means a Core Investment Company fulfilling both the following conditions:
  1. Having total assets of not less than Rs.100 crore, either individually or in aggregate along with other Core Investment Companies in the Group;
  2. Raises or holds public funds;
The rules covering Systemically important CICs are as under:
1. They would require registration with the Reserve Bank and would be given exemption from maintenance of net owned fund and exposure norms subject to certain conditions.

2.      Capital Requirements:  Every CIC-ND-SI shall ensure that at all times it maintains a minimum Capital Ratio whereby its Adjusted Net Worth shall not be less than 30% of its aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items as an the date of the last audited balance sheet as at the end of the financial year.

3.      Leverage Ratio:  Every CIC-ND-SI shall ensure that its outside liabilities at all times shall not exceed 2.5 times its Adjusted Net Worth as on the date of the last audited balance sheet as at the end of the financial year.

The Core Investment Companies (Reserve Bank) Directions, 2011: Extent of the directions

These directions shall apply to every Core Investment Company, that is to say, a non-banking financial company carrying on the business of acquisition of shares and securities and which satisfies the following conditions as on the date of the last audited balance sheet:-
(i) it holds not less than 90% of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies;
(ii) its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its net assets as mentioned in clause (i) above;
(iii) it does not trade in its investments in shares, bonds, debentures, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;
(iv) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the Reserve Bank of India Act, 1934 except investment in
i) bank deposits,
ii) money market instruments, including money market mutual funds
iii) government securities, and
iv) bonds or debentures issued by group companies,
granting of loans to group companies and
issuing guarantees on behalf of group companies.)

Due to this, Bajaj Finserv is not required to be registered with the Reserve Bank of India (RBI) and has surrendered its NBFC registration for cancellation as required by the RBI.
All lending and deposit business is carried out by Bajaj Finance Limited under the brand umbrella of Bajaj Finserv. Therefore, all lending and deposit businesses shall continue as usual under Bajaj Finance Limited which is registered with RBI as an NBFC.
Ref: 15th December 2015 advt by RBI

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