By its circular number DBR.No.FSD.BC.32/24.01.007/2015-16 dated 30 July 2015 ("Circular"), the Reserve Bank of India ("RBI") has reviewed and modified existing RBI's instructions/ guidelines in relation to the factoring services by banks. In accordance with the Circular, the RBI has provided the following instructions:
(1) Banks may now carry out business of factoring departmentally, without obtaining a prior approval of RBI, subject to the conditions set out in the Circular. While carrying out the factoring business the Banks are inter alia required to adhere to the provisions of Factoring Regulation Act, 2011, KYC Guidelines, FEMA Guidelines, formulate a comprehensive factoring services policy and put in place proper and adequate control and reporting mechanisms.
(2) Setting up of factor subsidiaries or investments by banks in factoring companies will be subject to extant guidelines on investments by banks in subsidiaries and other companies. Provided further that investment of a bank in the shares of factoring companies including its subsidiary carrying on factoring business shall not in aggregate exceed 10% (ten percent) of the paid up capital and reserves of the bank.
(3) Subsidiaries and joint ventures of banks will be regulated as NBFC- Factors vide circular DNBS (PD) CC No.297/Factor/22.10.91/2012-13 dated 23 July 2012.
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