The RBI has notified that investments in NBFCs from Financial Action Task Force (FATF) non-compliant jurisdictions will not be treated at par with that from the compliant jurisdictions. Accordingly, new investors from or through non-compliant FATF jurisdictions, whether in existing NBFCs or in companies seeking Certification of Registration, cannot acquire, directly or indirectly, ‘significant influence’ in the investee, as defined in the applicable accounting standards. This means that fresh investors ( whether direct or indirect) from such jurisdictions, in aggregate, should be less than the threshold of 20 per cent of the voting power (including potential voting power) of the NBFC.

“Potential voting power” could arise from instruments that are convertible into equity, instruments with contingent voting rights, contractual arrangements etc. that grant investors voting rights (including contingent voting rights) in the future. In these situations, it is to be ensured that new investments from FATF non-compliant jurisdictions are less than both (i) 20 per cent of the existing voting powers and (ii) 20 per cent of existing and potential voting powers, assuming those potential voting rights have materialised.

Investors in existing NBFCs holding their investments prior to classification of the source or intermediate jurisdiction as FATF non-compliant, are, however, allowed to continue with the investments or bring in additional investments as per extant regulations, so as to support continuity of business in India.

To refer to the RBI notification dated 12 February 2021, click here.