The Reserve Bank of India (RBI) has cancelled the Certificate of Registration (CoR) of four Non-Banking Financial Companies (NBFCs). As a result of this action, these entities are prohibited from transacting the business of a Non-Banking Financial Institution as defined in clause (a) of Section 45-I of the RBI Act, 1934.
1. Key Details of Impacted Entities
| Entity Name | Location | CoR No. | Action Status |
|---|---|---|---|
| Gem Investments & Trading Co Pvt Ltd | Kolkata, West Bengal | 05.02848 | CANCELLED |
| Shri Lakhavi Financial Services Ltd (MCA Name: Zenlabs Ethica Limited) |
Chandigarh | 13.00949 | CANCELLED |
| Vistar Financiers Pvt Ltd | Kolkata, West Bengal | B.05.04444 | CANCELLED |
| Ambica Barter Pvt Ltd | Kolkata, West Bengal | B.05.02430 | CANCELLED |
2. Root Cause Analysis (RCA)
Primary Trigger: Invocation of Section 45-IA (6) of the Reserve Bank of India Act, 1934.
While specific internal findings are confidential to the regulator, cancellation under this section is typically attributed to one or more of the following root causes:
- Capital Adequacy Failure: Inability to maintain the required Net Owned Fund (NOF) as stipulated by RBI regulations.
- Operational Dormancy: The entity may have ceased to carry on the business of a non-banking financial institution effectively.
- Regulatory Non-Compliance: Persistent failure to file statutory returns or comply with RBI directives regarding lending practices and governance.
- Public Interest Concerns: conducting business in a manner detrimental to the interest of depositors or the general public.
3. Preventive Controls
To mitigate the risk of similar regulatory action, financial institutions must implement the following controls:
- Automated NOF Monitoring: Implement real-time tracking of Net Owned Funds to ensure they never dip below the statutory minimum (currently ₹200 lakh for new entrants, varies by legacy status).
- Compliance Dashboarding: Establish a rigorous calendar for statutory returns (NBS returns) to the RBI’s COSMOS portal. Late or non-filing is a primary trigger for scrutiny.
- Business Continuity Proof: Maintain active loan books and verifiable financial activity to prove the entity is not dormant.
- Governance Audits: Conduct quarterly internal audits specifically focused on Section 45-IA compliance to identify gaps before the regulator does.
4. Lessons Learnt
Legacy is not protection: Several of the cancelled entities held licenses dating back to 1998. Historical standing does not exempt entities from current compliance norms.
Geographic Concentration Risk: With three out of four entities based in Kolkata, regional compliance officers in West Bengal should exercise heightened vigilance regarding local regulatory interpretations and enforcement drives.
Corporate Identity Consistency: The case of Shri Lakhavi Financial Services (operating as Zenlabs Ethica on MCA) highlights the critical need for alignment between RBI records and Ministry of Corporate Affairs (MCA) data. Discrepancies here can trigger regulatory red flags.