RBI may cancel IL&FS Financial Services’ licence after SFIO report flags violations

With the Serious Fraud Investigation Office (SFIO) investigation into IL&FS Financial Services (IFIN) flagging ever-greening of loans and serious violation of norms relating to credit concentration and net owned funds, the Reserve Bank of India may look at cancelling the licence of the non-banking finance company (NBFC).

The central bank could invoke Section 45 of the RBI Act, 1934, against the wholly-owned subsidiary of infrastructure lender IL&FS, which itself is under the lens following loan defaults and its ripple impact on the financial system.

Before taking action against a regulated entity, the RBI issues a show-cause notice to it, gives it a hearing and then takes a decision on whether it should impose a penalty or cancel the licence/registration. Following the adverse findings in the SFIO investigation into IFIN, the regulator may take the extreme step, said sources aware of the developments.