RBI decides to simplify and rationalize the process of registration of new NBFCs
( Compiled by Amit Dimri, Tapuriah Jain & Associates Chartered Accountants, New Delhi )
( Compiled by Amit Dimri, Tapuriah Jain & Associates Chartered Accountants, New Delhi )
Background: It may be recalled that in the First Bi-monthly Monetary Policy Statement – 2016-17, it was stated that in order to make the process of registration of new NBFCs smoother and hassle free, it has been decided to simplify and rationalise the process of registering new NBFCs. The new application forms will be simpler and the number of documents required to be submitted will be reduced to a minimum.
In order to make the process of registration of new NBFCs smoother and hassle free, the application form for registration of new NBFCs and the checklist of documents to be submitted have been revised. The number of documents to be Submitted by the NBFC application has been reduced from existing set of 45 documents to 7-8 in the revised process.
Secondly, from now onwards, there would be two different types of applications for non-deposit taking NBFCs (NBFC-ND) based on Sources of Funds & Customer Interface as follows:
a. Type I – NBFC-ND not accepting public funds 1 / not intending to accept public funds in the future and not having customer interface 2 / not intending to have customer interface in the future.
b. Type II – NBFC-ND accepting public funds/ intending to accept public funds in the future and/or having customer interface/intending to have customer interface in the future.
The processing of cases for Type I – NBFC-ND applicants would be on fast track mode. As these companies will not have access to public fund and will not have customer interface, they will be subjected to less intensive scrutiny / due diligence. However, CoR issued to Type I – NBFC-ND companies will be conditional. These companies will be prohibited from accessing public funds and having customer interface. In case these companies intend to avail public fund or intend to have customer interface in the future, they are required to take approval from Reserve Bank of India, Department of Non-Banking Regulation.
Following forms have been revised and uploaded on the RBI website-
a. Application form
b. Documents required for registration as Type I – NBFC-ND
c. Documents required for registration as Type II – NBFC-ND (including new applications of NBFC-MFI, NBFC-factor, NBFC-IDF)
Application form has been changed in the online COSMOS Application of the Reserve Bank of India, except in the case of CIC-ND-SIs where a separate application form has been prescribed. The application form mentioned above shall be applicable to new applications of Type I – NBFC-ND and Type II – NBFC-ND (including NBFC-MFI, NBFC-Factor and NBFC-IDF).
Furthermore, with the aim to centralise the process, the application for new NBFCs may be submitted to Central Office, Department of Non-Banking Regulation directly at the following address:
Chief General Manager
Department of Non-Banking Regulation
Reserve Bank of India
Centre I, World Trade Centre
Mumbai-400005
It is further advised that the checklists mentioned are indicative and not exhaustive. The Reserve Bank, may, if necessary, call for any further documents to satisfy itself on the eligibility of the company seeking registration as NBFC. In the event of the Reserve Bank calling for further documents in addition to those mentioned in the checklist, the applicant company must respond within a stipulated time of one month.
2. What does conducting financial activity as “principal business” mean?
Financial activity as principal business is when a company’s financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income. A company which fulfils both these criteria will be registered as NBFC by RBI. The term 'principal business' is not defined by the Reserve Bank of India Act. The Reserve Bank has defined it so as to ensure that only companies predominantly engaged in financial activity get registered with it and are regulated and supervised by it. Hence if there are companies engaged in agricultural operations, industrial activity, purchase and sale of goods, providing services or purchase, sale or construction of immovable property as their principal business and are doing some financial business in a small way, they will not be regulated by the Reserve Bank. Interestingly, this test is popularly known as 50-50 test and is applied to determine whether or not a company is into financial business.
4. Is it necessary that every NBFC should be registered with RBI?
In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can commence or carry on business of a non-banking financial institution without a) obtaining a certificate of registration from the Bank and without having a Net Owned Funds of Rs. 25 lakhs (Rs. Two crore since April 1999). However, in terms of the powers given to the Bank, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking companies/Stock broking companies registered with SEBI, Insurance Company holding a valid Certificate of Registration issued by IRDA, Nidhi companies as notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982,Housing Finance Companies regulated by National Housing Bank, Stock Exchange or a Mutual Benefit company.
5. What are the requirements for registration with RBI?
A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should comply with the following:
6. What is the procedure for application to the Reserve Bank for Registration?
The applicant company is required to apply online and submit a physical copy of the application along with the necessary documents to the Regional Office of the Reserve Bank ofIndia
7. What are the essential documents required to be submitted along with the application form to the Regional Office of the Reserve Bank?
The application form and an indicative checklist of the documents required to be submitted along with the application is available at www.rbi.org.in → Site Map → NBFC List → Forms/ Returns.
NBFCs whose asset size is of Rs. 500 cr or more as per last audited balance sheet are considered as systemically important NBFCs. The rationale for such classification is that the activities of such NBFCs will have a bearing on the financial stability of the overall economy.
9. Does the Reserve Bank regulate all financial companies?
No. Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies are NBFCs but they have been exempted from the requirement of registration under Section 45-IA of the RBI Act, 1934 subject to certain conditions.
Housing Finance Companies are regulated by National Housing Bank, Merchant Banker/Venture Capital Fund Company/stock-exchanges/stock brokers/sub-brokers are regulated by Securities and Exchange Board of India, and Insurance companies are regulated by Insurance Regulatory and Development Authority. Similarly, Chit Fund Companies are regulated by the respective State Governments and Nidhi Companies are regulated by Ministry of Corporate Affairs, Government of India. Companies that do financial business but are regulated by other regulators are given specific exemption by the Reserve Bank from its regulatory requirements for avoiding duality of regulation.
It may also be mentioned that Mortgage Guarantee Companies have been notified as Non-Banking Financial Companies under Section 45 I(f)(iii) of the RBI Act, 1934. Core Investment Companies with asset size of less than Rs. 100 crore, and those with asset size of Rs. 100 crore and above but not accessing public funds are exempted from registration with the RBI.
10. What are the different types/categories of NBFCs registered with RBI?
NBFCs are categorized a) in terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs, b) non deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and c) by the kind of activity they conduct. Within this broad categorization the different types of NBFCs are as follows:
I. Asset Finance Company (AFC) : An AFC is a company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising there from is not less than 60% of its total assets and total income respectively.
IV. Infrastructure Finance Company (IFC): IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of Rs. 300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.
(a) it holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies;
(b) its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its Total Assets;
(d) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.
(e) Its asset size is Rs. 100 crore or above and
(f) It accepts public funds
VII . Non-Banking Financial Company
- Micro Finance Institution (NBFC-MFI): NBFC-MFI is a non-deposit taking NBFC
having not less than 85% of its assets in the nature of qualifying assets which
satisfy the following criteria:
LTV would be computed at
portfolio level.
IRF may be used to hedge
interest rate risk associated with single asset/ liability or a group of
assets/ liabilities. Hence, NBFCs are permitted to use duration based hedging
for managing interest rate risk.
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Frequently Asked Questions - FAQs
A. Definitions
1. What is a Non-Banking Financial Company (NBFC)?
A Non-Banking Financial
Company (NBFC) is a company registered under the Companies Act, 1956 engaged in
the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/securities issued by Government or local
authority or other marketable securities of a like nature, leasing,
hire-purchase, insurance business, chit business but does not include any
institution whose principal business is that of agriculture activity,
industrial activity, purchase or sale of any goods (other than securities) or
providing any services and sale/purchase/construction of immovable property. A
non-banking institution which is a company and has principal business of
receiving deposits under any scheme or arrangement in one lump sum or in
installments by way of contributions or in any other manner, is also a
non-banking financial company (Residuary non-banking company).
2. What does conducting financial activity as “principal business” mean?
Financial activity as principal business is when a company’s financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income. A company which fulfils both these criteria will be registered as NBFC by RBI. The term 'principal business' is not defined by the Reserve Bank of India Act. The Reserve Bank has defined it so as to ensure that only companies predominantly engaged in financial activity get registered with it and are regulated and supervised by it. Hence if there are companies engaged in agricultural operations, industrial activity, purchase and sale of goods, providing services or purchase, sale or construction of immovable property as their principal business and are doing some financial business in a small way, they will not be regulated by the Reserve Bank. Interestingly, this test is popularly known as 50-50 test and is applied to determine whether or not a company is into financial business.
3. NBFCs are doing functions similar to banks. What is difference
between banks & NBFCs?
NBFCs lend and make
investments and hence their activities are akin to that of banks; however there
are a few differences as given below:
i. NBFC cannot accept
demand deposits;
ii. NBFCs do not form
part of the payment and settlement system and cannot issue cheques drawn on
itself;
iii. deposit
insurance facility of Deposit Insurance and Credit Guarantee Corporation is not
available to depositors of NBFCs, unlike in case of banks.
4. Is it necessary that every NBFC should be registered with RBI?
In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can commence or carry on business of a non-banking financial institution without a) obtaining a certificate of registration from the Bank and without having a Net Owned Funds of Rs. 25 lakhs (Rs. Two crore since April 1999). However, in terms of the powers given to the Bank, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking companies/Stock broking companies registered with SEBI, Insurance Company holding a valid Certificate of Registration issued by IRDA, Nidhi companies as notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982,Housing Finance Companies regulated by National Housing Bank, Stock Exchange or a Mutual Benefit company.
5. What are the requirements for registration with RBI?
A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should comply with the following:
i. it should be a
company registered under Section 3 of the companies Act, 1956
ii. It should have a
minimum net owned fund of Rs. 200 lakh. (The minimum net owned fund (NOF)
required for specialized NBFCs like NBFC-MFIs, NBFC-Factors, CICs is indicated
separately in the FAQs on specialized NBFCs)
6. What is the procedure for application to the Reserve Bank for Registration?
The applicant company is required to apply online and submit a physical copy of the application along with the necessary documents to the Regional Office of the Reserve Bank of
7. What are the essential documents required to be submitted along with the application form to the Regional Office of the Reserve Bank?
The application form and an indicative checklist of the documents required to be submitted along with the application is available at www.rbi.org.in → Site Map → NBFC List → Forms/ Returns.
8. What are systemically important NBFCs?
NBFCs whose asset size is of Rs. 500 cr or more as per last audited balance sheet are considered as systemically important NBFCs. The rationale for such classification is that the activities of such NBFCs will have a bearing on the financial stability of the overall economy.
B. Entities Regulated
by RBI and applicable regulations
9. Does the Reserve Bank regulate all financial companies?
No. Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies are NBFCs but they have been exempted from the requirement of registration under Section 45-IA of the RBI Act, 1934 subject to certain conditions.
Housing Finance Companies are regulated by National Housing Bank, Merchant Banker/Venture Capital Fund Company/stock-exchanges/stock brokers/sub-brokers are regulated by Securities and Exchange Board of India, and Insurance companies are regulated by Insurance Regulatory and Development Authority. Similarly, Chit Fund Companies are regulated by the respective State Governments and Nidhi Companies are regulated by Ministry of Corporate Affairs, Government of India. Companies that do financial business but are regulated by other regulators are given specific exemption by the Reserve Bank from its regulatory requirements for avoiding duality of regulation.
It may also be mentioned that Mortgage Guarantee Companies have been notified as Non-Banking Financial Companies under Section 45 I(f)(iii) of the RBI Act, 1934. Core Investment Companies with asset size of less than Rs. 100 crore, and those with asset size of Rs. 100 crore and above but not accessing public funds are exempted from registration with the RBI.
10. What are the different types/categories of NBFCs registered with RBI?
NBFCs are categorized a) in terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs, b) non deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and c) by the kind of activity they conduct. Within this broad categorization the different types of NBFCs are as follows:
I. Asset Finance Company (AFC) : An AFC is a company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising there from is not less than 60% of its total assets and total income respectively.
II. Investment
Company (IC) : IC means any company which is a financial institution carrying
on as its principal business the acquisition of securities,
III. Loan Company
(LC): LC means any company which is a financial institution carrying on as its
principal business the providing of finance whether by making loans or advances
or otherwise for any activity other than its own but does not include an Asset
Finance Company.
IV. Infrastructure Finance Company (IFC): IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of Rs. 300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.
V. Systemically
Important Core Investment Company (CIC-ND-SI): CIC-ND-SI is an NBFC carrying on
the business of acquisition of shares and securities which satisfies the
following conditions:-
(a) it holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies;
(b) its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its Total Assets;
(c) it does not trade
in its investments in shares, debt or loans in group companies except through
block sale for the purpose of dilution or disinvestment;
(d) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.
(e) Its asset size is Rs. 100 crore or above and
(f) It accepts public funds
VI. Infrastructure
Debt Fund: Non- Banking Financial Company (IDF-NBFC) : IDF-NBFC is a company
registered as NBFC to facilitate the flow of long term debt into infrastructure
projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated
bonds of minimum 5 year maturity. Only Infrastructure Finance Companies (IFC)
can sponsor IDF-NBFCs.
a. loan disbursed by
an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs.
1,00,000 or urban and semi-urban household income not exceeding Rs. 1,60,000;
b. loan amount does
not exceed Rs. 50,000 in the first cycle and Rs. 1,00,000 in subsequent cycles;
c. total indebtedness
of the borrower does not exceed Rs. 1,00,000;
d. tenure of the loan
not to be less than 24 months for loan amount in excess of Rs. 15,000 with
prepayment without penalty;
e. loan to be
extended without collateral;
f. aggregate amount
of loans, given for income generation, is not less than 50 per cent of the
total loans given by the MFIs;
g. loan is repayable
on weekly, fortnightly or monthly instalments at the choice of the borrower
VIII. Non-Banking
Financial Company – Factors (NBFC-Factors): NBFC-Factor is a non-deposit taking
NBFC engaged in the principal business of factoring. The financial assets in
the factoring business should constitute at least 50 percent of its total
assets and its income derived from factoring business should not be less than
50 percent of its gross income.
IX. Mortgage
Guarantee Companies (MGC) - MGC are financial institutions for which at least
90% of the business turnover is mortgage guarantee business or at least 90% of
the gross income is from mortgage guarantee business and net owned fund is Rs.
100 crore.
X. NBFC-
Non-Operative Financial Holding Company (NOFHC) is financial institution
through which promoter / promoter groups will be permitted to set up a new bank
.It’s a wholly-owned Non-Operative Financial Holding Company (NOFHC) which will
hold the bank as well as all other financial services companies regulated by
RBI or other financial sector regulators, to the extent permissible under the
applicable regulatory prescriptions.
11. What are the powers of the Reserve Bank with regard to
'Non-Bank Financial Companies’, that is, companies that meet the 50-50
Principal Business Criteria?
The Reserve Bank has
been given the powers under the RBI Act 1934 to register, lay down policy,
issue directions, inspect, regulate, supervise and exercise surveillance over
NBFCs that meet the 50-50 criteria of principal business. The Reserve Bank can
penalize NBFCs for violating the provisions of the RBI Act or the directions or
orders issued by RBI under RBI Act. The penal action can also result in RBI
cancelling the Certificate of Registration issued to the NBFC, or prohibiting
them from accepting deposits and alienating their assets or filing a winding up
petition.
12. What action can be taken against persons/financial companies
making false claim of being regulated by the Reserve Bank?
It is illegal for any
financial entity or unincorporated body to make a false claim of being
regulated by the Reserve Bank to mislead the public to collect deposits and is
liable for penal action under the Indian Penal Code. Information in this regard
may be forwarded to the nearest office of the Reserve Bank and the Police.
13. What action is taken if financial companies which are lending
or making investments as their principal business do not obtain a Certificate
of Registration from the Reserve Bank?
If companies that are
required to be registered with the Reserve Bank as NBFCs, are found to be
conducting non-banking financial activity, such as, lending, investment or
deposit acceptance as their principal business, without seeking registration,
the Reserve Bank can impose penalty or fine on them or can even prosecute them
in a court of law. If members of public come across any entity which does
non-banking financial activity but does not figure in the list of authorized
NBFC on RBI website, they should inform the nearest Regional Office of the
Reserve Bank, for appropriate action to be taken for contravention of the
provisions of the RBI Act, 1934.
14. Where can one find list of Registered NBFCs and instructions
issued to NBFCs?
The list of
registered NBFCs is available on the web site of Reserve Bank of India
15. What are the
regulations applicable on non-deposit accepting NBFCs with asset size of less
than Rs. 500 crore?
The regulation on
non-deposit accepting NBFCs with asset size of less than Rs. 500 crore would be
as under:
(i) They shall not be
subjected to any regulation either prudential or conduct of business
regulations viz., Fair Practices Code (FPC), KYC, etc., if they have not
accessed any public funds and do not have a customer interface.
(ii) Those having
customer interface will be subjected only to conduct of business regulations
including FPC, KYC etc., if they are not accessing public funds.
(iii) Those accepting
public funds will be subjected to limited prudential regulations but not
conduct of business regulations if they have no customer interface.
(iv)Where both public
funds are accepted and customer interface exist, such companies will be
subjected both to limited prudential regulations and conduct of business regulations.
16. What does the
term public funds include? Is it the same as public deposits?
Public funds are not
the same as public deposits. Public funds include public deposits,
inter-corporate deposits, bank finance and all funds received whether directly
or indirectly from outside sources such as funds raised by issue of Commercial
Papers, debentures etc. However, even though public funds include public
deposits in the general course, it may be noted that CICs/CICs-ND-SI cannot
accept public deposits.
Further, indirect
receipt of public funds means funds received not directly but through
associates and group entities which have access to public funds.
17. What are the various prudential regulations applicable to
NBFCs?
The Bank has issued
detailed directions on prudential norms, vide Non-Banking Financial (Deposit
Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions,
2007, Non-Systemically Important Non-Banking Financial (Non-Deposit Accepting
or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015 and
Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding)
Companies Prudential Norms (Reserve Bank) Directions, 2015. Applicable
regulations vary based on the deposit acceptance or systemic importance of the
NBFC.
The directions inter
alia, prescribe guidelines on income recognition, asset classification and
provisioning requirements applicable to NBFCs, exposure norms, disclosures in
the balance sheet, requirement of capital adequacy, restrictions on investments
in land and building and unquoted shares, loan to value (LTV ) ratio for NBFCs predominantly engaged in
business of lending against gold jewellery, besides others. Deposit accepting
NBFCs have also to comply with the statutory liquidity requirements. Details of
the prudential regulations applicable to NBFCs holding deposits and those not
holding deposits is available in the section ‘Regulation – Non-Banking –
Notifications - Master Circulars’ in the RBI website.
18. Please explain the terms ‘owned fund’ and ‘net owned fund’ in
relation to NBFCs?
‘Owned Fund’ means
aggregate of the paid-up equity capital, preference shares which are
compulsorily convertible into equity, free reserves, balance in share premium
account and capital reserves representing surplus arising out of sale proceeds
of asset, excluding reserves created by revaluation of asset, after deducting
therefrom accumulated balance of loss, deferred revenue expenditure and other
intangible assets. 'Net Owned Fund' is the amount as arrived at above, minus
the amount of investments of such company in shares of its subsidiaries,
companies in the same group and all other NBFCs and the book value of
debentures, bonds, outstanding loans and advances including hire purchase and
lease finance made to and deposits with subsidiaries and companies in the same
group, to the extent it exceeds 10% of the owned fund.
19. What are the responsibilities of the NBFCs registered with
Reserve Bank, with regard to submission on compliances and other information?
A. Returns to be
submitted by deposit taking NBFCs
NBS-1 Quarterly
Returns on deposits in First Schedule.
NBS-2 Quarterly
return on Prudential Norms is required to be submitted by NBFC accepting public
deposits.
NBS-3 Quarterly
return on Liquid Assets by deposit taking NBFC.
NBS-4 Annual return
of critical parameters by a rejected company holding public deposits. (NBS-5
stands withdrawn as submission of NBS 1 has been made quarterly.)
NBS-6 Monthly return
on exposure to capital market by deposit taking NBFC with total assets of Rs.
100 crore and above.
Half-yearly ALM
return by NBFC holding public deposits of more than Rs. 20 crore or asset size
of more than Rs. 100 crore
Audited Balance sheet
and Auditor’s Report by NBFC accepting public deposits.
Branch Info Return.
B. Returns to be
submitted by NBFCs-ND-SI
NBS-7 A Quarterly
statement of capital funds, risk weighted assets, risk asset ratio etc., for
NBFC-ND-SI.
Monthly Return on
Important Financial Parameters of NBFCs-ND-SI.
ALM returns:
(i) Statement of
short term dynamic liquidity in format ALM [NBS-ALM1] -Monthly,
(ii) Statement of
structural liquidity in format ALM [NBS-ALM2] Half yearly,
(iii) Statement of
Interest Rate Sensitivity in format ALM -[NBS-ALM3], Half yearly
Branch Info return
C. Quarterly return
on important financial parameters of non deposit taking NBFCs having assets of
more than Rs. 50 crore and above but less than Rs. 100 crore
Basic information
like name of the company, address, NOF, profit / loss during the last three
years has to be submitted quarterly by non-deposit taking NBFCs with asset size
between Rs. 50 crore and Rs. 100 crore.
There are other
generic reports to be submitted by all NBFCs as elaborated in Master Circular
on Returns to be submitted by NBFCs as available on www.rbi.org.in →
Notifications → Master Circulars → Non-banking and Circular DNBS (IT)
CC.No.02/24.01.191/2015-16 dated July 9, 2015 as available on www.rbi.org.in →
Notifications.
20. Whether the circular on Lending against shares dated August
21, 2014 is applicable to existing loans also?
The Circular is
applicable from the date of the circular and therefore the Circular shall not
apply on those transactions which have been entered into prior to the date of
the Circular. However, the guidelines will be applicable in case of roll-over/
renewal of loans. Guidelines will not apply to transactions where documents
have been executed prior to the date of the circular and disbursement is
pending.
21. Will the circular on Lending against shares be applicable on
restructured accounts?
No. the Circular will
not be applicable on restructured accounts
22. Will the Circular on Lending against shares be applicable on
those loans where the primary security is not shares?
Loans which are
against the collateral of multiple securities and it is specifically agreed to
in the agreement that primary security would be something other than shares, LTV would not be applicable. However, reporting
requirements shall remain. In cases where such differentiation is not made (thereby
NBFCs can off-load shares at the instance of a default), LTV would be applicable.
23. Whether LTV for loans issued against the collateral of
shares is to be computed at scrip level or at portfolio level?
24. Whether PoA/
Non-Disposal undertaking structure by whatever name called is covered under the
Circular on Lending against shares?
Yes, the Circular would be applicable and the type of encumbrance
created is immaterial.
25. Does the definition of “companies in a group” as given in
Systemically Important Non-Banking Financial (non-deposit accepting or holding)
companies Prudential Norms Directions, 2015 apply in respect of concentration
of credit/ investment norms.
No, the definition of
“companies is a group” is only for the purpose of determining the applicability
of prudential norms on multiple NBFCs in a group.
26. Whether acquisition/ transfer of shareholding of 26 per cent
or more of the paid up equity capital of an NBFC within the same group i.e. intra
group transfers require prior approval of the Bank?
Ans. Yes, prior
approval would be required in all cases of acquisition/ transfer of
shareholding of 26 per cent or more of the paid up equity capital of an NBFC.
In case of intra-group transfers, NBFCs shall submit an application, on the
company letter head, for obtaining prior approval of the Bank. Based on the
application of the NBFC, it would be decided, on a case to case basis, whether
the NBFC requires to submit the documents as prescribed at para 3 of DNBR (PD)
CC.No. 065/03.10.001/2015-16 dated July 9, 2015 for processing the application of the
company. In cases where approval is granted without the documents, the NBFC
would be required to submit the same after the process of transfer is complete.
27. NBFCs are charging high interest rates from their borrowers.
Is there any ceiling on interest rate charged by the NBFCs to their borrowers?
Reserve Bank of India
28. RBI permits NBFCs to hedge their exposure through dealing in
IRFs. Currently, IRFs are on single stock 10 yr 8.40% 2024 security. The
Composition of Balance Sheet is mix of fixed/ floating interest rate and
different credit profile. Whether 10 yr single security can be used for hedging
2-3 yr liability and asset (Duration adjusted) or can be used for investment in
other long tenor securities or corporate bonds. Alternatively, whether IRFs can
be used holistically for hedging assets and liabilities in dynamic interest
rate scenarios within total Balance Sheet amount and within hedging definition?
29. Whether NBFCs as trading member can participate in the IRF market only for hedging or can also take
trading position?
As per extant
guidelines NBFCs with asset size of Rs. 1,000 cr and above are permitted to
participate in IRF as trading
members. While, trading members of stock exchanges are permitted to execute
trades on their own account as well as on account of their clients, banks and
PDs have been allowed to deal in IRF
for both hedging and trading on own account and not on client’s account.
Similarly, NBFCs as trading members are permitted to execute their proprietary
trades and not to undertake transactions on behalf of clients.
C. Residuary
Non-Banking Companies (RNBCs)
30. What is a Residuary Non-Banking Company (RNBC)? In what way it
is different from other NBFCs?
Residuary Non-Banking
Company is a class of NBFC which is a company and has as its principal business
the receiving of deposits, under any scheme or arrangement or in any other
manner and not being Investment, Asset Financing, Loan Company. These companies
are required to maintain investments as per directions of RBI, in addition to
liquid assets. The functioning of these companies is different from those of
NBFCs in terms of method of mobilization of deposits and requirement of
deployment of depositors' funds as per Directions. Besides, Prudential Norms
Directions are applicable to these companies also.
31. We understand that there is no ceiling on raising of deposits
by RNBCs, then how safe is deposit with them?
It is true that there
is no ceiling on raising of deposits by RNBCs. However, every RNBC has to
ensure that the amounts deposited with it are fully invested in approved
investments. In other words, in order to secure the interests of depositor,
such companies are required to invest 100 per cent of their deposit liability
into highly liquid and secure instruments, namely, Central/State Government
securities, fixed deposits with scheduled commercial banks (SCB), Certificate
of Deposits of SCB/FIs, units of Mutual Funds, etc.
32. Can RNBC forfeit deposit if deposit instalments are not paid
regularly or discontinued?
No. Residuary
Non-Banking Company cannot forfeit any amount deposited by the depositor, or
any interest, premium, bonus or other advantage accrued thereon.
33. What is the rate of interest that an RNBC must pay on deposits
and what should be maturity period of deposits taken by them?
The minimum interest
an RNBC should pay on deposits should be 5% (to be compounded annually) on the
amount deposited in lump sum or at monthly or longer intervals; and 3.5% (to be
compounded annually) on the amount deposited under daily deposit scheme.
Interest here includes premium, bonus or any other advantage, that an RNBC
promises to the depositor by way of return. An RNBC can accept deposits for a
minimum period of 12 months and maximum period of 84 months from the date of
receipt of such deposit. They cannot accept deposits repayable on demand.
However, at present, the only RNBCs in existence (Peerless) has been directed
by the Reserve Bank to stop collecting deposits, repay the deposits to the
depositor and wind up their RNBC business as their business model is inherently
unviable.
D. Definition of
deposits, Eligible / Ineligible Institutions to accept deposits and Related
Matters
34. What is ‘deposit’ and ‘public deposit’? Is it defined
anywhere?
The term ‘deposit’ is
defined under Section 45 I(bb) of the RBI Act, 1934. ‘Deposit’ includes and
shall be deemed always to have included any receipt of money by way of deposit
or loan or in any other form but does not include:
i. amount raised by
way of share capital, or contributed as capital by partners of a firm;
ii. amount received
from a scheduled bank, a co-operative bank, a banking company, Development bank,
State Financial Corporation, IDBI or any other institution specified by RBI;
iii. amount received
in ordinary course of business by way of security deposit, dealership deposit,
earnest money, advance against orders for goods, properties or services;
iv. amount received
by a registered money lender other than a body corporate;
v. amount received by
way of subscriptions in respect of a ‘Chit’.
Paragraph 2(1)(xii)
of the Non-Banking Financial Companies Acceptance of Public Deposits ( Reserve
Bank) Directions, 1998 defines a ‘ public deposit’ as a ‘deposit’ as defined
under Section 45 I(bb) of the RBI Act, 1934 and further excludes the following:
a. amount received
from the Central/ State Government or any other source where repayment is
guaranteed by Central/ State Government or any amount received from local
authority or foreign government or any foreign citizen/ authority/ person;
b. any amount
received from financial institutions specified by RBI for this purpose;
c. any amount
received by a company from any other company;
d. amount received by
way of subscriptions to shares, stock, bonds or debentures pending allotment or
by way of calls in advance if such amount is not repayable to the members under
the articles of association of the company;
e. amount received
from directors of a company or from its shareholders by private company or by a
private company which has become a public company;
f. amount raised by
issue of bonds or debentures secured by mortgage of any immovable property or
other asset of the company subject to conditions;
fa. any amount raised
by issuance of non-convertible debentures with a maturity more than one year
and having the minimum subscription per investor at Rs. 1 crore and above,
provided it is in accordance with the guidelines issued by the Bank.
g. the amount brought
in by the promoters by way of unsecured loan;
h. amount received
from a mutual fund;
i. any amount
received as hybrid debt or subordinated debt;
j. amount received
from a relative of the director of an NBFC;
k. any amount
received by issuance of Commercial Paper.
l. any amount
received by a systemically important non-deposit taking non-banking financial
company by issuance of ‘perpetual debt instruments’
m. any amount raised
by the issue of infrastructure bonds by an Infrastructure Finance Company
Thus, the directions
exclude from the definition of public deposit, amount raised from certain set
of informed lenders who can make independent decision.
35. Which entities can legally accept deposits from public?
Banks, including
co-operative banks, can accept deposits. Non-bank finance companies, which have
been issued Certificate of Registration by RBI with a specific licence to
accept deposits, are entitled to accept public deposit. In other words, not all
NBFCs registered with the Reserve Bank are entitled to accept deposits but only
those that hold a deposit accepting Certificate of Registration can accept
deposits. They can, however, accept deposits, only to the extent permissible.
Housing Finance Companies, which are again specifically authorized to collect
deposits and companies authorized by Ministry of Corporate Affairs under the
Companies Acceptance of Deposits Rules framed by Central Government under the
Companies Act can also accept deposits also upto a certain limit. Cooperative
Credit Societies can accept deposits from their members but not from the
general public. The Reserve Bank regulates the deposit acceptance only of
banks, cooperative banks and NBFCs.
It is not legally
permissible for other entities to accept public deposits. Unincorporated bodies
like individuals, partnership firms, and other association of individuals are
prohibited from carrying on the business of acceptance of deposits as their
principal business. Such unincorporated bodies are prohibited from even
accepting deposits if they are carrying on financial business.
36. Can all NBFCs accept deposits? Is there any ceiling on
acceptance of Public Deposits? What is the rate of interest and period of
deposit which NBFCs can accept?
All NBFCs are not
entitled to accept public deposits. Only those NBFCs to which the Bank had
given a specific authorisation and have an investment grade rating are allowed
to accept/ hold public deposits to a limit of 1.5 times of its Net Owned Funds.
All existing unrated AFCs that have been allowed to accept deposits shall have
to get themselves rated by March
31, 2016 . Those AFCs that do not get an investment grade rating by
March 31, 2016, will not be allowed to renew existing or accept fresh deposits
thereafter. In the intervening period, i.e. till March 31, 2016 , unrated AFCs or those with a
sub-investment grade rating can only renew existing deposits on maturity, and
not accept fresh deposits, till they obtain an investment grade rating.
However, as a matter
of public policy, Reserve Bank has decided that only banks should be allowed to
accept public deposits and as such has since 1997 not issued any Certificate of
Registration (CoR) to new NBFCs for acceptance of public deposits.
Presently, the
maximum rate of interest an NBFC can offer is 12.5%. The interest may be paid
or compounded at rests not shorter than monthly rests. The NBFCs are allowed to
accept/renew public deposits for a minimum period of 12 months and maximum
period of 60 months. They cannot accept deposits repayable on demand.
37. In respect of companies which do not fulfill the 50-50
criteria but are accepting deposits – do they come under RBI purview?
A company which does
not have financial assets which is more than 50% of its total assets and does not
derive at least 50% of its gross income from such assets is not an NBFC. Its
principal business would be non-financial activity like agricultural
operations, industrial activity, purchase or sale of goods or
purchase/construction of immoveable property, and will be a non-banking
non-financial company. Acceptance of deposits by a Non-Banking Non-Financial
Company are governed by the rules and regulations issued by the Ministry of
Corporate Affairs.
38. Why is the RBI so restrictive in allowing NBFCs to raise
public deposits?
The Reserve Bank's
overarching concern while supervising any financial entity is protection of
depositors' interest. Depositors place deposit with any entity on trust unlike
an investor who invests in the shares of a company with the intention of
sharing the risk as well as return with the promoters. Protection of
depositors' interest thus is supreme in financial regulation. Banks are the
most regulated financial entities. The Deposit Insurance and Credit Guarantee
Corporation pays insurance on deposits up to Rs. One lakh in case a bank
failed.
39. Which are the NBFCs specifically authorized by RBI to accept
deposits?
The Reserve Bank
publishes the list of NBFCs that hold a valid Certificate of Registration for
accepting deposits on its website: www.rbi.org.in → Sitemap → NBFC List → List
of NBFCs Permitted to Accept Deposits. At times, some companies are temporarily
prohibited from accepting public deposits. The Reserve Bank publishes the list
of NBFCs temporarily prohibited also on its website. The Reserve Bank keeps
both these lists updated. Members of the public are advised to check both these
lists before placing deposits with NBFCs.
40. Whether NBFCs can accept deposits from NRIs?
Effective from April 24, 2004 , NBFCs
cannot accept deposits from NRIs except deposits by debit to NRO account of NRI
provided such amount does not represent inward remittance or transfer from
NRE/FCNR (B) account. However, the existing NRI deposits can be renewed.
41. Can a Co-operative Credit Society accept deposits from the
public?
No. Co-operative
Credit Societies cannot accept deposits from general public. They can accept
deposits only from their members within the limit specified in their bye laws.
42. Can a Salary Earners’ Society accept deposits from the public?
No. These societies
are formed for salaried employees and hence they can accept deposit only from
their own members and not from general public.
43. Is nomination facility available to the Depositors of NBFCs?
Yes, nomination
facility is available to the depositors of NBFCs. The Rules for nomination
facility are provided for in section 45QB of the Reserve Bank of India Act,
1934. Non-Banking Financial Companies have been advised to adopt the Banking
Companies (Nomination) Rules, 1985 made under Section 45ZA of the Banking
Regulation Act, 1949. Accordingly, depositor/s of NBFCs are permitted to
nominate one person to whom the NBFC can return the deposit in the event of the
death of the depositor/s. NBFCs are advised to accept nominations made by the
depositors in the form similar to one specified under the said rules, viz Form
DA 1 for the purpose of nomination, and Form DA2 and DA3 for cancellation of
nomination and change of nomination respectively.
44. How does the Reserve Bank come to know about unauthorized
acceptance of deposits by companies not registered with it or of NBFCs engaged
in lending or investment activities without obtaining the Certificate of
Registration from it?
NBFCs that ought to
have sought registration from RBI but are functioning without doing so are
committing a breach of law. Such companies are liable for action as envisaged
under the RBI Act, 1934. To identify such entities, RBI has multiple sources of
information. These include market intelligence, complaints received from
affected parties, industry sources, and exception reports submitted by
statutory auditors in terms of Non-Banking Financial Companies Auditor’s Report
(Reserve Bank) Directions, 2008. Further, the State Level Co-ordination
Committees (SLCC) is convened by RBI in all the States/UTs on quarterly basis.
The SLCC is now chaired by the Chief Secretary/ Administrator of the concerned
State/UT and has, as its members, apart from the Reserve Bank, the Regional
Directorate of the MCA/ ROC, local unit of SEBI, NHB, Registrar of Chits, ICAI,
Economic Intelligence Unit of the State Police and officials from Law and Home
Ministries of the State Government. As all the relevant financial sector
regulators and enforcement agencies participate in the SLCC, it is possible to
quickly share the information and agree on an effective course of action to be
taken against entities indulging in unauthorized and suspect businesses
involving funds mobilization from public.
45. Can Proprietorship/Partnership Concerns associated/not
associated with registered NBFCs accept public deposits?
No. Proprietorship
and partnership concerns are un-incorporated bodies. Hence they are prohibited
under the RBI Act 1934 from accepting public deposits.
46. There are many jewellery shops taking money from the public in
instalments. Is this amounting to acceptance of deposits?
It depends on whether
the money is received as advance for delivering jewellery at a future date or
whether the money is received with a promise to return the same with interest.
The money accepted by Jewellery shops in instalments for the purpose of
delivering jewellery at the end of the period of contract is not deposit. It
will amount to acceptance of deposits if in return for the money received, the
jewellery shop promises to return the principal amount along with interest.
47. What action can be taken if such unincorporated entities
accept public deposits? What if NBFCs which have not been authorized to accept
public deposits use proprietorship/partnership firms floated by their promoters
to collect deposits?
Such unincorporated
entities, if found accepting public deposits, are liable for criminal action.
Further NBFCs are prohibited by RBI from associating with any unincorporated
bodies. If NBFCs associate themselves with proprietorship/partnership firms
accepting deposits in contravention of RBI Act, they are also liable to be
prosecuted under criminal law or under the Protection of Interest of Depositors
(in Financial Establishments) Act, if passed by the State Governments.
48. What is the difference between acceptance of money by Chit
Funds and acceptance of deposits?
Deposits are defined
under the RBI Act 1934 as acceptance of money other than that raised by way of
share capital, money received from banks and other financial institutions,
money received as security deposit, earnest money and advance against goods or
services and subscriptions to chits. All other amounts, received as loan or in
any form are treated as deposits. Chit Funds activity involves contributions by
members in instalments by way of subscription to the Chit and by rotation each
member of the Chit receives the chit amount. The subscriptions are specifically
excluded from the definition of deposits and cannot be termed as deposits. While
Chit funds may collect subscriptions as above, they are prohibited by RBI from
accepting deposits with effect from August 2009.
E. Depositor
Protection Issues
49. What are the salient features of NBFC regulations which the
depositor may note at the time of investment?
Some of the important
regulations relating to acceptance of deposits by NBFCs are as under:
The NBFCs are allowed
to accept/renew public deposits for a minimum period of 12 months and maximum
period of 60 months. They cannot accept deposits repayable on demand.
NBFCs cannot offer
interest rates higher than the ceiling rate prescribed by RBI from time to
time. The present ceiling is 12.5 per cent per annum. The interest may be paid
or compounded at rests not shorter than monthly rests.
NBFCs cannot offer
gifts/incentives or any other additional benefit to the depositors.
NBFCs should have
minimum investment grade credit rating.
The deposits with
NBFCs are not insured.
The repayment of
deposits by NBFCs is not guaranteed by RBI.
Certain mandatory
disclosures are to be made about the company in the Application Form issued by
the company soliciting deposits.
50. What precautions should a depositor take before placing
deposit with an NBFC?
A depositor wanting
to place deposit with an NBFC must take the following precautions before
placing deposits:
That the NBFC is
registered with RBI and specifically authorized by the RBI to accept deposits.
A list of deposit taking NBFCs entitled to accept deposits is available at
www.rbi.org.in → Sitemap → NBFC List. The depositor should check the list of
NBFCs permitted to accept public deposits and also check that it is not
appearing in the list of companies prohibited from accepting deposits, which is
available at www.rbi.org.in → Sitemap → NBFC List → NBFCs who have been issued
prohibitory orders, winding up petitions filed and legal cases under Chapter
IIIB, IIIC and others.
NBFCs have to
prominently display the Certificate of Registration (CoR) issued by the Reserve
Bank on its site. This certificate should also reflect that the NBFC has been
specifically authorized by RBI to accept deposits. Depositors must scrutinize
the certificate to ensure that the NBFC is authorized to accept deposits.
The maximum interest
rate that an NBFC can pay to a depositor should not exceed 12.5%. The Reserve
Bank keeps altering the interest rates depending on the macro-economic
environment.
The depositor must
insist on a proper receipt for every amount of deposit placed with the company.
The receipt should be duly signed by an officer authorized by the company and
should state the date of the deposit, the name of the depositor, the amount in
words and figures, rate of interest payable, maturity date and amount.
In the case of
brokers/agents etc collecting public deposits on behalf of NBFCs, the
depositors should satisfy themselves that the brokers/agents are duly
authorized by the NBFC.
The depositor must
bear in mind that public deposits are unsecured and Deposit Insurance facility
is not available to depositors of NBFCs.
The Reserve Bank of India
51. Does RBI guarantee the repayment of the deposits collected by
NBFCs?
No. The Reserve Bank
does not guarantee repayment of deposits by NBFCs even though they may be
authorized to collect deposits. As such, investors and depositors should take
informed decisions while placing deposit with an NBFC.
52. In case an NBFC defaults in repayment of deposit what course
of action can be taken by depositors?
If an NBFC defaults
in repayment of deposit, the depositor can approach Company Law Board or
Consumer Forum or file a civil suit in a court of law to recover the deposits.
NBFCs are also advised to follow a grievance redress procedure as indicated in
reply to question 57 below. Further, at the level of the State Government, the
State Legislations on Protection of Interest of Depositors (in Financial
Establishments) empowers the State Governments to take action even before the
default takes place or complaints are received from depositors. If there is
perpetration of an offence and if the intention is to defraud, the State
Government can even attach properties.
53. What is the role of Company Law Board in protecting the
interest of depositors? How can one approach it?
When an NBFC fails to
repay any deposit or part thereof in accordance with the terms and conditions
of such deposit, the Company Law Board (CLB) either on its own motion or on an
application from the depositor, directs by order the Non-Banking Financial
Company to make repayment of such deposit or part thereof forthwith or within
such time and subject to such conditions as may be specified in the order.
After making the payment, the company will need to file the compliance with the
local office of the Reserve Bank of India
As explained above,
the depositor can approach CLB by mailing an application in prescribed form to
the appropriate bench of the Company Law Board according to its territorial
jurisdiction along with the prescribed fee.
54. Can you give the addresses of the various benches of the
Company Law Board (CLB) indicating their respective jurisdiction?
The details of
addresses and territorial jurisdiction of the bench officers of CLB are as
under:
S. No.
|
Benches
|
Jurisdiction
|
Telephone No.
|
1
|
Company Law Board Principal Bench Paryavaran Bhawan, B-
Block, 3rd Floor, C. G. O.
Complex Lodhi Road, New Delhi – 110003
|
All States & Union
Territories
|
011-24366126
|
2
|
Company Law Board, New Delhi Bench, Paryavaran Bhawan, B-Block,
3rd Floor, C.G.O Complex, Lodhi Road, New Delhi – 110003
|
States of Delhi, Haryana,
Himachal Pradesh, Jammu & Kashmir, Punjab, Rajasthan, Uttar Pradesh,
Uttarakhand and Union Territories of Chandigarh.
|
011-24363671,
011-24362324
|
3
|
Company Law Board, Kolkata
Bench 5, Esplande Row (West), Kolkata - 700001
|
States of Arunachal
Pradesh, Assam, Bihar, Manipur, Meghalaya, Nagaland, Orissa, Sikkim, Tripura,
West Bengal, Jharkhand and Union Territories of Andaman and Nicobar Island
and Mizoram.
|
033-22486330
|
4
|
Company
Law Board
Mumbai
Bench
N.T.C.
House, 2ND Floor,
15
Narottam Morarjee Marg,
Ballard
Estate,
Mumbai – 400 038
|
States of Goa, Gujarat,
Madhya Pradesh, Maharashtra, Chhattisgarh and (Union Territories of Dadra and
Nagar Haveli and Damman and Diu)
|
022-22619636
|
5
|
Company
Law Board,
Chennai
Bench Corporate Bhawan (
|
States of Andhra Pradesh,
Karnataka, Kerala, Tamil Nadu and Union Territories of Pondicherry and
Lakshadweep Island.
|
044-25262791
|
55. We hear that in a number of cases Official Liquidators have
been appointed on the defaulting NBFCs. What is the procedure adopted by the
Official Liquidator?
An Official
Liquidator is appointed by the court after giving the company reasonable
opportunity of being heard in a winding up petition. The liquidator performs
the duties of winding up of the company and such duties in reference thereto as
the court may impose. Where the court has appointed an official liquidator or
provisional liquidator, he becomes custodian of the property of the company and
runs day-to-day affairs of the company. He has to draw up a statement of affairs
of the company in prescribed form containing particulars of assets of the
company, its debts and liabilities, names/residences/occupations of its
creditors, the debts due to the company and such other information as may be
prescribed. The scheme is drawn up by the liquidator and same is put up to the
court for approval. The liquidator realizes the assets of the company and
arranges to repay the creditors according to the scheme approved by the court.
The liquidator generally inserts advertisement in the newspaper inviting claims
from depositors/investors in compliance with court orders. Therefore, the
investors/depositors should file the claims within due time as per such notices
of the liquidator. The Reserve Bank also provides assistance to the depositors
in furnishing addresses of the official liquidator.
56.
The Consumer Court Civil Court
Yes, a depositor can
approach any or all of the redressal authorities i.e consumer forum, court or
CLB.
57.
Is there an Ombudsman for hearing complaints against NBFCs or Does RBI have any
grievance redressal mechanism in place for NBFCs?
No, there is no
Ombudsman for hearing complaints against NBFCs. However, in respect of credit
card operations of an NBFC, which is a subsidiary of a bank, if a complainant
does not get satisfactory response from the NBFC within a maximum period of
thirty (30) days from the date of lodging the complaint, the customer will have
the option to approach the Office of the concerned Banking Ombudsman for
redressal of his grievance/s.
If complaints or
grievances against the NBFCs are submitted to the nearest office of the Reserve
Bank of India India
58.
Companies registered with MCA but not registered with RBI as NBFCs also
sometimes default in repayment of deposit/ amounts invested with them? What is
the recourse available to the investors in such an event? Does RBI have any
role to play in such cases?
Companies registered
with MCA but not required to be registered with RBI as NBFC are not under the
regulatory domain of RBI. Whenever RBI receives any such complaints about the
companies registered with MCA but not registered with RBI as NBFCs, it forwards
the complaints to the Registrar of Companies (ROC) of the respective state for
any action. The complainants are advised that the complaints relating to
irregularities of such companies should be promptly lodged with ROC concerned
for initiating corrective action. However, in case it comes to the knowledge of
RBI those companies were required to be registered with the RBI, but have not
done so and have accepted deposits as defined under RBI Act, such action as is
deemed necessary under the provisions of the RBI Act will be taken.
59.
The NBFCs have been made liable to pay interest on the overdue matured deposits
if the company has not been able to repay the matured public deposits on
receipt of a claim from the depositor. Please elaborate the provisions.
As per Reserve Bank’s
Directions, overdue interest is payable to the depositors in case the company
has delayed the repayment of matured deposits, and such interest is payable
from the date of receipt of such claim by the company or the date of maturity
of the deposit whichever is later, till the date of actual payment. If the
depositor has lodged his claim after the date of maturity, the company would be
liable to pay interest for the period from the date of claim till the date of
repayment. For the period between the date of maturity and the date of claim it
is the discretion of the company to pay interest. In cases where NBFCs are
required to freeze the term deposits of customer based on the orders of the
enforcement authorities or the deposit receipts are seized by the enforcement
authorities, they shall follow the procedure as given below:
request letter may be
obtained from the customer on maturity. While obtaining the request letter from
the depositor for renewal, NBFCs should also advise him to indicate the term
for which the deposit is to be renewed. In case the depositor does not exercise
his option of choosing the term for renewal, NBFCs may renew the same for a
term equal to the original term.
No new receipt is
required to be issued. However, suitable note may be made regarding renewal in
the deposit ledger.
Renewal of deposit
may be advised by registered letter / speed post / courier service to the
concerned Government department under advice to the depositor. In the advice to
the depositor, the rate of interest at which the deposit is renewed should also
be mentioned.
If overdue period
does not exceed 14 days on the date of receipt of the request letter, renewal
may be done from the date of maturity. If it exceeds 14 days, NBFCs may pay
interest for the overdue period as per the policy adopted by them, and keep it
in a separate interest free sub-account which should be released when the
original fixed deposit is released.
However the final
repayment of the principal and the interest so accrued should be done only
after the clearance regarding the same is obtained by the NBFCs from the
respective Government agencies.
60.
Can a company pre-pay its public deposits?
An NBFC accepts
deposits under a mutual contract with its depositors. In case a depositor
requests for pre-mature payment, Reserve Bank of India has prescribed
Regulations for such an eventuality in the Non-Banking Financial Companies Acceptance
of Public Deposits (Reserve Bank) Directions, 1998 wherein it is specified that
NBFCs cannot grant any loan against a public deposit or make premature
repayment of a public deposit within a period of three months (lock-in period)
from the date of its acceptance. However, in the event of death of a depositor,
the company may, even within the lock-in period, repay the deposit at the
request of the joint holders with survivor clause / nominee / legal heir only
against submission of relevant proof, to the satisfaction of the company
An NBFC, (which is
not a problem company) subject to above provisions, may permit after the
lock–in period, premature repayment of a public deposit at its sole discretion,
at the rate of interest prescribed by the Bank
A problem NBFC is
prohibited from making premature repayment of any deposits or granting any loan
against public deposit/deposits, as the case may be. The prohibition shall not,
however, apply in the case of death of depositor or repayment of tiny deposits
i.e. up to Rs. 10000/- subject to lock in period of 3 months in the latter
case.
61.
What is the liquid assets requirement for the deposit taking companies? Where
are these assets kept? Do depositors have any claims on them?
In terms of Section
45-IB of the RBI Act, 1934, the minimum level of liquid assets to be maintained
by NBFCs is 15 per cent of public deposits outstanding as on the last working
day of the second preceding quarter. Of the 15%, NBFCs are required to invest
not less than ten percent in approved securities and the remaining 5% can be in
unencumbered term deposits with any scheduled commercial bank. Thus, the liquid
assets may consist of Government securities, Government guaranteed bonds and
term deposits with any scheduled commercial bank.
The investment in
Government securities should be in dematerialised form which can be maintained
in Constituents’ Subsidiary General Ledger (CSGL) Account with a scheduled
commercial bank (SCB) / Stock Holding Corporation of India Limited (SHICL). In
case of Government guaranteed bonds the same may be kept in dematerialised form
with SCB/SHCIL or in a dematerialised account with depositories [National
Securities Depository Ltd. (NSDL)/Central Depository Services (India
NBFCs have been
directed to maintain the mandated liquid asset securities in a dematerialised
form with the entities stated above at a place where the registered office of
the company is situated. However, if an NBFC intends to entrust the securities
at a place other than the place at which its registered office is located, it
may do so after obtaining the permission of RBI in writing. It may be noted
that liquid assets in approved securities will have to be maintained in
dematerialised form only. The liquid assets maintained as above are to be
utilised for payment of claims of depositors. However, deposits being unsecured
in nature, depositors do not have direct claim on liquid assets.
62.
What does RBI do to protect the interest of NBFC depositors?
RBI has issued
detailed regulations on deposit acceptance, including the quantum of deposits
that can be collected, mandatory credit rating, mandatory maintenance of liquid
assets for repayment to depositors, manner of maintenance of its deposit books,
prudential regulations including maintenance of adequate capital, limitations
on exposures, and inspection of the NBFCs, besides others, to ensure that the
NBFCs function on sound lines. If the Bank observes through its inspection or
audit of any NBFC or through complaints or through market intelligence, that a
certain NBFC is not complying with RBI directions, it may prohibit the NBFC
from accepting further deposits and prohibit it from selling its assets. In
addition, if the depositor has complained to the Company Law Board (CLB) which
has ordered repayment and the NBFC has not complied with the CLB order, RBI can
initiate prosecution of the NBFC, including criminal action and winding up of
the company.
More importantly, RBI
initiates prompt action, including imposing penalties and taking legal action
against companies which are found to be violating RBI's instructions/norms on
basis of Market Intelligence reports, complaints, exception reports from
statutory auditors of the companies, information received through SLCC
meetings, etc. The Reserve Bank immediately shares such information with all
the financial sector regulators and enforcement agencies in the State Level
Coordination Committee Meetings.
As a premier public
policy institution, as part of its public policy measure, the Reserve Bank of India
63.
Who rates deposit taking NBFCs for acceptance of deposit?
NBFCs may get itself
rated by any of the six rating agencies namely, CRISIL, CARE ,
ICRA, FITCH Ratings India Pvt. Ltd, Brickwork Ratings India Pvt. Ltd. and
SMERA.
64.
What are the symbols of minimum investment grade rating of different companies?
When a company’s rating is downgraded, does it have to bring down its level of
public deposits immediately or over a period of time?
The symbols of
minimum investment grade rating of the Credit rating agencies are:
Name of the rating
agencies
|
Nomenclature
of minimum investment
grade credit rating (MIGR)
|
CRISIL
|
FA-
(FA MINUS)
|
ICRA
|
MA-
(MA MINUS)
|
FITCH
Ratings India Pvt. Ltd.
SMERA
|
tA-(ind)(FD)
SMERA
A
|
Brickwork Ratings India
Pvt. Ltd.
|
BWR
FBBB
|
It may be added that
A- is not equivalent to A, AA- is not equivalent to AA and AAA- is not
equivalent to AAA.
However, if rating of
an NBFC is downgraded to below minimum investment grade rating, it has to stop
accepting public deposits, report the position within fifteen working days to
the RBI and bring within three years from the date of such downgrading of
credit rating, the amount of public deposit to nil. With the introduction of
revised regulatory framework in November 2014 deposit taking NBFCs have to
mandatorily get investment grade credit rating for being eligible to accept
public deposits.
65.
What is the purpose of enacting Protection of Interest of Depositors in
Financial Establishments Act by the State Governments?
The purpose of
enacting this law is to protect the interests of the depositors. The provisions
of RBI Act are directed towards enabling RBI to issue prudential regulations that
make the financial entities function on sound lines. RBI is a civil body and
the RBI act is a civil Act. Both do not have specific provisions to effect
recovery by attachment and sale of assets of the defaulting companies, entities
or their officials. It is the State government machinery which can effectively
do this. The Protection of Interest of Depositors in Financial Establishments
Acts, confers adequate powers on the State Governments to attach and sell
assets of the defaulting companies, entities and their officials.
66.
Will the passage of the Protection of Interest of Depositors in Financial
Establishments by the State Governments help in nailing unincorporated entities
and companies from unauthorisedly accepting deposits?
Yes, to a large extent.
The Act makes offences, such as, unauthorized acceptance of deposits by any
entity, firm or company a cognizable offence, that is entities that are
indulging in unauthorized deposit acceptance or unlawful financial activities
can be immediately imprisoned and prosecuted. Under the Act, the State
Governments have been given vast powers to attach the property of such
entities, dispose them off under the orders of special courts and distribute
the proceeds to the depositors. The widespread State Government / State Police
machinery is best positioned to take quick action against the culprits. The
Reserve Bank has, therefore, been urging all the State Governments to pass the
legislation on Protection of Interest of Depositors in Financial Establishment
Act.
67.
Still there are cases of unscrupulous financial entities cheating public time
and again. How does RBI plan to strengthen its surveillance on unauthorized
acceptance of deposits/unauthorized conduct of NBFI business by companies?
The Reserve Bank is
strengthening its market intelligence function in various Regional Offices and
is constantly examining the financials of companies, references for which have
been received through market intelligence or complaints to the Reserve Bank. In
this, context, members of public can contribute a great deal by being vigilant
and lodging a complaint immediately if they come across any financial entity
that contravenes the RBI Act. For example, if they are accepting deposits
unauthorisedly and/conducting NBFC activities without obtaining due permission
from the RBI. More importantly, these entities will not be able to function if
members of public start investing wisely. Members of the public must know that
high returns on investments will also have high risks. And there can be no
assured return for speculative activities. Before investing the public must
ensure that the entity they are investing in is a regulated entity with one of
the financial sector regulators.
F. Collective
Investment Schemes (CIS) and Chit Funds
68. Are
Collective Investment Schemes (CIS) regulated by the Reserve Bank of India
No. CIS are schemes
where money is exchanged for units, be it time share in resorts, profit from
sale of wood or profits from the developed commercial plots and buildings and so
on. Collective Investment Schemes (CIS) do not fall under the regulatory
purview of the Reserve Bank.
69.
Which is the authority that regulates Collective Investment Schemes (CIS)?
SEBI is the regulator
of CIS. Information on such schemes and grievances against the promoters may be
immediately forwarded to SEBI as well as to the EOW/Police Department of the
State Government.
70.
Is the conducting of Chit Fund business permissible under law?
The chit funds are
governed by Chit Funds Act, 1982 which is a Central Act administered by state
governments. Those chit funds which are registered under this Act can legally
carry on chit fund business.
71.
If Chit Fund companies are financial entities, why are they not regulated by
RBI?
Chit Fund companies
are regulated under the Chit Fund Act, 1982, which is a Central Act, and is
implemented by the State Governments. RBI has prohibited chit fund companies
from accepting deposits from the public in 2009. In case any Chit Fund is
accepting public deposits, RBI can prosecute such chit funds.
G. Money
Circulation/Multi-Level Marketing (MLM )/
Ponzi Schemes/ Unincorporated Bodies (UIBs)
72.
There are some companies like Multi-Level Marketing companies, Direct Selling
Companies, Online Selling Companies. Do they come under the purview of RBI?
No, Multi-Level
Marketing companies, Direct Selling Companies, Online Selling Companies do not
fall under the purview of RBI. Activities of these companies fall under the
regulatory/administrative domain of respective state government. The list of
regulators and the entities regulated by them are as provided in Annex I.
73.
What are money circulation/Ponzi/multi-level marketing schemes?
Money circulation,
multi level marketing / Chain Marketing or Ponzi schemes are schemes promising
easy or quick money upon enrollment of members. Income under Multi level
marketing or pyramid structured schemes do not come from the sale of products
they offer as much as from enrolling more and more members from whom hefty
subscription fees are taken. It is incumbent upon all members to enroll more
members, as a portion of the subscription amounts so collected are distributed
among the members at the top of the pyramid. Any break in the chain leads to
the collapse of the pyramid, and the members lower in the pyramid are the ones
that are affected the most. Ponzi schemes are those schemes that collect money
from the public on promises of high returns. As there is no asset creation,
money collected from one depositor is paid as returns to the other. Since there
is no other activity generating returns, the scheme becomes unviable and
impossible for the people running the scheme to meet the promised return or
even return the principal amounts collected. The scheme inevitably fails and
the perpetrators disappear with the money.
74.
Is acceptance of money under Money Circulation/Multi-level Marketing/Pyramid
structured schemes allowed? Does RBI regulates such schemes?
No. Acceptance of
money under Money Circulation/Multi-level Marketing/Pyramid structured schemes
and Ponzi schemes is not allowed as acceptance of money under those schemes is
a cognizable offence under the Prize Chit and Money Circulation (Banning) Act
1978 and are hence banned. The Reserve Bank has no role in implementation of
this Act, except advising and assisting the Central Government in framing the
Rules under this Act.
75.
Then who regulates entities that run such schemes?
Money
Circulation/Multi-level Marketing /Pyramid structured schemes are an offence
under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. The
Act prohibits any person or individual to promote or conduct any prize chit or
money circulation scheme or enrol as member to its schemes or anyone to
participate in it by either receiving or remitting any money in pursuance of
such chit or scheme. Contravention of the provisions of this Act, is monitored
and dealt with by the State Governments.
76.
What if someone operates such a scheme?
Any
information/grievance relating to such schemes should be given to the police /
Economic Offence Wing (EOW) of the concerned State Government or the Ministry
of Corporate Affairs. If brought to RBI notice – we will inform the same to the
concerned State Government authorities.
77.
What are Unincorporated Bodies (UIBs)? Has RBI any role to play in curbing
illegal deposit acceptance activities of UIBs? Who has the power to take action
against Unincorporated Bodies (UIBs) accepting deposits?
Unincorporated bodies
(UIBs) include an individual, a firm or an unincorporated association of
individuals. In terms of provision of section 45S of RBI act, these entities
are prohibited from accepting any deposit. The Act makes acceptance of deposits
by such UIBs punishable with imprisonment or fine or both. The State government
has to play a proactive role in arresting the illegal activities of such
entities to protect interests of depositors/investors.
UIBs do not come
under the regulatory domain of RBI. Whenever RBI receives any complaints
against UIBs, it immediately forwards the same to the state government police
agencies (Economic Offences Wing (EOW)). The complainants are advised to lodge
the complaints directly with the State government police authorities (EOW) so
that appropriate action against the culprits is taken immediately and the
process is hastened.
As per Section 45T of
RBI Act, both the RBI and State Governments have been given concurrent powers.
Nonetheless, in order to take immediate action against the offender, the
information should immediately be passed on to the State Police or the Economic
Offences Wing of the concerned State who can take prompt and appropriate
action. Since the State Government machinery is widespread and the State
Government is also empowered to take action under the provisions of RBI Act,
1934, any information on such entities accepting deposits may be provided
immediately to the respective State Government’s Police Department/EOW.
Many of the State
Governments have enacted the State Protection of Interests of Depositors in
Financial Establishments Act, which empowers the State Government to take
appropriate and timely action.
RBI on its part has
taken various steps to curb activities of UIBs which includes spreading
awareness through advertisements in leading newspapers to sensitise public, organize
various investors awareness programmes in various districts of the country,
keeps close liaison with the law enforcing agencies (Economic Offences Wing).
78.
There are some entities (not companies) which carry on activities like that of
NBFCs. Are they allowed to take deposits? Who regulates them?
Any person who is an
individual or a firm or unincorporated association of individuals cannot accept
deposits except by way of loan from relatives, if his/its business wholly or
partly includes loan, investment, hire-purchase or leasing activity or
principal business is that of receiving of deposits under any scheme or
arrangement or in any manner or lending in any manner.
79.
What precautions have to be taken by the public to forewarn themselves about
the likelihood of losing money in schemes that offer high rates of interest?
Before investing in
schemes that promise high rates of return investors must ensure that the entity
offering such returns is registered with one of the financial sector regulators
and is authorized to accept funds, whether in the form of deposits or
otherwise. Investors must generally be circumspect if the interest rates or
rates of return on investments offered are high. Unless the entity accepting
funds is able to earn more than what it promises, the entity will not be able
to repay the investor as promised. For earning higher returns, the entity will
have to take higher risks on the investments it makes. Higher the risk, the
more speculative are its investments on which there can be no assured return.
As such, the public should forewarn themselves that the likelihood of losing
money in schemes that offer high rates of interest are more.
80.
Who can the Depositor/Investor turn to in case of grievances?
The two Charts given
at Annex I and II depict the activities and the regulators overseeing the same.
Complaints may hence be addressed to the concerned regulator. If the activity
is a banned activity, the aggrieved person can approach the State
Police/Economic Offences Wing of the State Police and lodge a suitable
complaint.
81.
What constitutes Commercial Real Estate exposure?
An exposure to be
classified as CRE, the essential feature would be that the funding will result
in the creation/ acquisition of real estate (such as, office buildings to let,
retail space, multifamily residential buildings, industrial or warehouse space,
and hotels) where the prospects for repayment would depends primarily on the
cash flows generated by the asset. Additionally, the prospect of recovery in
the event of default would also depend primarily on the cash flows generated
from such funded asset which is taken as security, as would generally be the
case. The primary source of cash flow (i.e. more than 50% of cash flows) for
repayment would generally be lease or rental payments or the sale of the assets
as also for recovery in the event of default where such asset is taken as
security.
These guidelines will
also be applicable to certain cases where the exposure may not be directly
linked to the creation or acquisition of CRE but the repayment would come from
the cash flows generated by CRE. For example, exposures taken against existing
commercial real estate whose prospects of repayments primarily depend on
rental/ sale proceeds of the real estate should be classified as CRE. Other
such cases may include: extension of guarantees on behalf of companies engaged
in commercial real estate activities, exposures on account of derivative
transactions undertaken with real estate companies, corporate loans extended to
real estate companies and investment made in the equity and debt instruments of
real estate companies.
Q82.
In terms of para 7.1 of the revised regulatory framework issued vide CC No. 002
dated November 10, 2014, total assets of NBFCs in a group including deposit
taking NBFCs, if any, will be aggregated to determine if such consolidation
falls within the asset sizes of the two categories viz., NBFCs-ND (those with
assets of less than Rs. 500 crore) and NBFCs-ND-SI (those with assets of Rs.
500 crore and above). Regulations as applicable to the two categories will be
applicable to each of the NBFC-ND within the group. Will this aggregation of
assets apply to exempted category of CICs in the group?
Ans. No, the group
requires to aggregate total assets of only those NBFCs which have been granted
Certificate of Registration by the Bank. However, it must be ensured that the
capital of the exempted category of CIC has not come, directly or indirectly,
from an entity/ group company which has accessed public funds.
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