L&T Finance, L&T Infra Credit, and Others: Saying Goodbye to NBFC Status

On March 11, 2024, the Reserve Bank of India (RBI) announced that 7 Non-Banking Financial Companies (NBFCs) had surrendered their Certificates of Registration (CoR). The RBI, in the exercise of powers conferred on it under Section 45-IA (6) of the Reserve Bank of India Act, 1934, has therefore cancelled CoR. Among these were prominent names like L&T Finance and L&T Infra Credit. But what does this development signify, and why would these companies give up their NBFC licenses?

Understanding NBFCs

NBFCs play a vital role in the Indian financial sector. They offer various financial products like loans, mutual funds, and credit cards, catering to a broader section of the population compared to traditional banks. However, unlike banks, NBFCs don’t have access to depositors’ money and rely on other sources for funding.

The Case of L&T and Others

In this instance, the NBFC status surrender wasn’t due to financial troubles. It stemmed from strategic restructuring within the L&T group. L&T Finance Holdings (LTFH) – the parent company of L&T Finance and L&T Infra Credit – merged these subsidiaries along with L&T Mutual Fund Trustee in December 2023. Since LTFH already held an NBFC license, the individual licenses of the merged entities became redundant.

The other five NBFCs that surrendered their CoRs likely underwent similar restructuring exercises like mergers, dissolutions, or voluntary strike-offs. These NBFCs included Marudhar Food & Credit Ltd, Creative Intra Limited, Jinvani Trading & Investment Company Pvt Ltd, Manjushree Fincap Private Limited, and Shruti Financial Services Private Limited.

What This Means for Existing Customers?

Customers of L&T Finance and L&T Infra Credit won’t be significantly impacted. The merger aimed to create a more robust financial services entity under the LTFH umbrella. Existing loan agreements, credit card terms, and investment products should continue as per their original terms.

Consolidation in the NBFC Space

This event highlights a trend of consolidation within the NBFC sector. Mergers and acquisitions allow companies to optimise operations, expand their product portfolio, and gain a competitive edge. This can ultimately benefit customers by offering a wider range of financial solutions.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.