RBI to amend rules to control NBFCs turning LLPs

The Reserve Bank of India (RBI) plans to amend its rules to pre-empt non banking finance companies (NBFCs) from misusing the liberal rules governing limited liability partnership (LLP) firms.

In the interim, NBFCs that want to convert themselves to LLP firms will have to obtain a no-objection certificate from the central bank.

LLPs refer to a corporate structure introduced and actively promoted by the ministry of corporate affairs. They are gaining in popularity because they have easier winding up procedures and the liability of a partner is limited to the extent of his or her contribution to the LLP.

LLPs also do not have a minimum capital requirement in contrast to a private company which requires a minimum paid-up capital of Rs 1 lakh.

RBI wants to ensure that the easier rules and regulations governing LLPs do not encourage unhealthy practices among NBFCs.

Additionally, there is no mandate under current RBI rules to regulate an entity termed an LLP. The apex banking regulator has called for a meeting with the corporate affairs ministry's LLP team to frame sufficient guidelines and rules to incorporate LLP within the existing regulatory structure of RBI.

In addition to RBI, stock exchange regulator Securities and Exchanges Board of India and the Foreign Investment Promotion Board are also coordinating with their administrative ministries to amend existing rules to bring LLPs under their regulatory purview.

As on January 16, RBI had permitted 314 NBFCs across the country to accept public money.