This will effectively stymie the attempts of some of the NBFCs to turn into software or trading companies and continue to raise public deposits without attracting the NBFC provisions, industry analysts pointed out.

The two criteria -- assets and income pattern -- as per the last audited results would be considered together as a determinant factor for arriving at the principal business of a company, an RBI release said.

Section 451(C) of Reserve Bank of India Act, 1934, defines an NBFC as any company which carries on the business of a non-banking financial institution as its principal business but the act does not define the term `principal business'. The current amendment is aimed atremoving this anomaly, industry sources pointed out.

Given that an NBFC requires compulsory registration with the RBI to commence or carry on its business, the RBI has defined the term `principal business' for the purpose of identification of an NBFC, the statement added.

"The RBI act broadly defines the principal business for an NBFC as receiving of deposits and lending in any manner. This left a large gap pertaining to those companies which raise deposits, but do not lend in any form, evading the regulatory provisions defined by the RBI for the NBFC sector," Kotak Mahindra Finance executive director Shivaji Dam said.

With the present amendment in the definition of non-banking finance company's principal business, most such companies will come under RBI's net as NBFCs on the basis of their financial assets being more than 50 per cent of their total assets, Dam pointed out, adding that still a huge gap needed to be covered to curtail the operations of any such companies.