Big names in Finmin's list of high-risk NBFCs

Tata Industries (CIC), Tata Capital (CIC), Reliance Commercial Finance and Shriram Capital are among nearly 9,500 non-banking financial companies (NBFCs) which have been put under the ‘high risk financial institutions’ category by the Union finance ministry.

These companies have not been reporting their financials to the ministry.

The Financial Intelligence Unit (FIU) of the ministry has released the list of the high risk NBFCs which are not complying with the Prevention of Money Laundering Act (PMLA) rules. This comes in the wake of the Rs 11,300 crore Punjab National Bank scam involving billionaire diamond jewellers Nirav Modi and Mehul Choksi.

“Why it took them so many years to take action against these NBFCs,” asks former banking secretary D K Mittal, adding that the list has been lying with the ministry for so many years.

It is probably for the first time that the ministry has taken such action against the NBFCs. Putting them under high-risk category means that these companies are at a high risk of being used for money laundering purpose, experts said. Many of these could be shell companies, they said.

The erring companies could face problems in raising finance as banks are likely to question them. "The compliance, reporting requirement for these companies will go up," Mittal said.

Most of the NBFCs borrow money from bigger NBFCs, banks, including Sidbi, Nabard and offer credit to retail customers in the unbanked areas, mostly rural. Some core investment companies of the big groups like Tata, Reliance and Sriram are also among the ‘high risk companies’.

“But most companies on the list are small companies doing small business, while some are new ones,” said Raman Aggarwal, chairman of Financial Industry Development Council (FIDC).

“Calling them high risk is unnecessary and puts them in bad light. Though it is a kind of notice to the companies is creating panic,” he said. The FIDC has asked its members to immediately register with the FIU and comply with the rules.

As per the law, all the NBFCs are required to register with the FIU and also file returns. The principal officer has to inform the FIU about any cash transaction which is above Rs 10 lakh as well as about any suspicious transactions. In total, about 11,000 NBFCs are registered with the Reserve Bank of India. Of these, nearly 9,500 have not got themselves registered with the finance ministry’s FIU wing, violating the norms.

As per Section 12 of the PMLA, every NBFC has to maintain proper records of all the transactions, maintain the list of clients and the beneficiaries. They also have to ensure verification of the clients.

FIU can impose penalties on any financial institutions for non-compliance. The penalties can vary from Rs 10,000 to Rs 1 lakh.

RED-ZONED

• The Financial Intelligence Unit of the ministry has released the list of the high risk NBFCs which are not complying with the PMLA rules
   
• This comes in the wake of the Rs 11,300 crore Punjab National Bank scam involving billionaire diamond jewellers Nirav Modi and Mehul Choksi.