The Reserve Bank of India has directed non-banking finance companies that have net owned funds below the minimum stipulated Rs 25 lakh (Rs 2.5 million) to shut shop following the expiry of a deadline on Thursday.
According to industry experts, around 1,000 NBFCs will have to close after this directive.
NBFCs that did not have the minimum net owned funds on January 9, 1997, were allowed to meet the requirement and carry on business for three years or till such time as specified by the RBI.
According to RBI's Report on Trends and Progress of Banking in India as of June 30, 2002, the regulator had received 36,269 applications, of which 14,077 were approved and 19,111 were rejected.
The rest of the applications are pending. Of the total approvals, only 784 companies have been permitted to accept or hold public deposits.
The central bank directive applies to all NBFCs irrespective of whether they have been granted a certificate of registration or whether a decision is pending with the regulator.
However, this directive does not apply to entities exempted from the provisions of Section 45-IA of the RBI Act, 1934.
An obligation had been imposed on the company to inform the RBI within three months of its fulfilling the net owned funds requirement.
In terms of Section 45-IA(3), the RBI could, however, consider extensions only up to a period not exceeding in aggregate six years from the date of commencement of the RBI (Amendment) Act, 1997.
However, the RBI has clarified that NBFCs that have achieved the minimum Rs 25 lakh (Rs 2.5 million) net owned funds and informed the regulator of this can carry on business until a certificate of registration is issued to them or rejection of application for registration is communicated to them.