Various related party transactions at family owned Non-Banking Financial Companies (NBFCs) have come under the scanner of Financial Intelligence Unit (FIU) for not reporting suspicious transactions. Actually, NBFCs are required to report any suspicious transactions both to the Reserve Bank of India (RBI) and the FIU. But, these NBFCs did not report these transactions. And, RBI found these when it conducted an annual inspection into the books of these NBFCs. RBI then alerted the FIU on this matter.
FIU is the Central Government Agency which reports to the Economic Intelligence Council headed by the Finance Ministry and is responsible for analyzing suspected financial transactions. In the present case, FIU thinks that the main purpose of these suspected transactions is to hide actual asset quality.
It has been noticed by the agency that loans given by the NBFCs to related parties have been paid just before the end of the financial year and then fresh loans are given to the same entities at the beginning of the next financial year. It is generally reckoned that such transactions are resorted to manipulate the accounting books. The agency also thinks that such transactions takes place because of ever greening of loans (giving fresh loans to pay back the previous loans) to certain promoter entities.
However, an expert viewed that when an NBFC is created keeping in mind the business interest of the group, its compliance should not be same in comparison to those NBFCs which give loans to thousands of entities.
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