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NBFCs

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NBFC does not include any institution whose principal

business is that of :

agriculture activity, industrial activity, sale / purchase / construction of immovable property.

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Difference between Ba nk s & NBFCs

NBFCs are doing functions akin to that of banks,however there are a few differences:

i. NBFC cannot accept demand deposits;ii. it is not a part of the payment and settlement system

and as such cannot issue cheques to its customers ;

andiii. deposit insurance facility is not available for NBFC

depositors unlike in case of banks.

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Registration of NBFCs

In terms of Section 45-IA of the RBI Act, 1934, it ismandatory that every NBFC should be registered with RBI to commence or carry on any business of non-banking financial institution as defined in clause(a) of Section 45 I of the RBI Act, 1934.

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H owever, to o bvi a te du al regu la tio n , certain category of

NBFCs which are regulated by other regulators areexempted from the requirement of registration with RBI :(a) Venture Capital Fund / Merchant Banking companies / Stock

broking companies registered with SE BI ,(b) Insurance Company holding a valid Certificate of Registration

issued by IR DA(c) Nidhi companies as notified under Section 620 A of the

C omp a nie s Act, 1956(d) Chit companies as defined in clause (b) of Section 2 of the

Ch it F und s Act, 1982(e) H ousing Finance Companies regulated by Na tio n al Ho u s ing

Ba nk(f) Stock Broking Company S ebi(g) Merchant Banking Company S ebi

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D ifferent types of NBFCs registered with RBI

i. equipment leasing company;ii. hire-purchase company;iii. loan company;iv. investment company;

The above type of companies may be further classifiedinto those accepting deposits or those not acceptingdeposits.

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R equire m ent s f o r R egi s tr a tio n wit h RBI

A company incorporated under the Companies Act, 1956 anddesirous of commencing business of non-banking financialinstitution as defined under Section 45 I (a) of the RBI Act, 1934

Should have a m ini m u m net o wned fund of Rs 25 lakh (raisedto Rs 200 la kh wef April 21, 1999).

The company is required to submit its application for registration in the prescribed format along with necessarydocuments for Banks consideration.

The Bank issues Certificate of Registration after satisfying itself that the conditions as enumerated in Section 45-IA of the RBI

Act, 1934 are satisfied.

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NBFCs a nd Pub lic De po s its

All NBFCs are not entitled to accept public deposits.

Only those NBFCs holding a valid Certificate of Registration with authorization to accept PublicD eposits can accept / hold public deposits.

The NBFCs accepting public deposits should haveminimum stipulated Net Owned Fund and comply withthe D irections issued by the Bank.

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C ei ling o n Acce p ta nce o f Pub lic De po s it s

A NBFC maintaining required NOF and complying with the prudential

norms can accept public deposits as follows:

Ca teg o ry o f NBFC C ei ling o n Pub lic de po s its

EL / HP C omp a nie s m a int a ining CR AR o f 15%wit h o ut credit r a ting

EL / HP C omp a nie s wit h CR AR o f 12% a nd ha ving

m ini m u m inve s tm ent gr a decredit r a ting

1.5 ti m e s o f NOF o r Rs 10cr o re s w h ic h ever i s le ss

4 tim e s o f NOF

LC / IC wit h CR AR o f 15%a nd ha ving m ini m u m

inves

tm

ent gr a

de creditr a ting

1.5 ti m e s o f NOF

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Presently, the m ax im u m r a te o f intere s t a NBFC c a n o ffer i s 11%. The interest may be paid or compounded.

The NBFCs are allowed to a cce p t / renew p ub lic de po s its f o r a m ini m u m p eri o d o f 12 mo nt hs a nd m ax im u m p eri o d o f 60mo nt hs .

They c a nn o t a cce p t de po s it s re p a ya b le o n de m a nd .

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Impo rt a nt R egu la tio n s re la ting t o Acce p ta nce o f De po s it s byNBFCs

i. The NBFCs are allowed to accept / renew public depositsfor a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable ondemand.

ii. NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time . The presentceiling is 11 per cent per annum. The interest may be paid or compounded at rests not shorter than monthly rests.

iii. NBFCs cannot offer gifts / incentives or any other additional benefit to the depositors.

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iv. NBFCs (except certain equipment leasing / hire-purchase

finance companies) should have minimum investment gradecredit rating.

v. The deposits with NBFCs are not insured .

vi. The repayment of deposits by NBFCs is not guaranteed by RBI.

vii. There are certain mandatory disclosures about the companyin the Application Form issued by the company soliciting deposits.

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S ub m iss io n o f R eturn s to RBI

The NBFCs accepting public deposits should furnish to RBI

i. Audited balance sheet of each financial year and anaudited profit and loss account in respect of that year aspassed in the general meeting together with a copy of thereport of the Board of D irectors and a copy of the report andthe notes on accounts furnished by its Auditors;

ii. Statutory Annual Return on Deposits

iii. Certificate from the Auditors that the company is in a position to repay the deposits as and when the claims

arise;

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iv. Q u a rter ly R eturn on liquid ass et s ;

v. Hal f-ye a r ly R eturn on p rudenti al n o r m s ;

vi. Hal f-ye a r ly A LM R eturn s by companies having publicdeposits of Rs. 20 crores and above or with assets of Rs. 100crores and above irrespective of the size of deposits ;

vii. Mo nt hl y return on e x po s ure t o c a p ital m a rket by companieshaving public deposits of Rs. 50 crores and above; and

viii. A c op y o f t h e C redit Ra ting obtained once a year along withone of the H alf-yearly Returns on prudential norms as at (v)

above.

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T ha nk y o u