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It is an heterogeneous group of institutions (other than commercial and cooperative banks) performing financial intermediation in a variety of ways, like accepting deposits, making loans and advances, leasing, hire purchase, etc. They raise funds from the public, directly or indirectly, and lend them to ultimate spenders. They advance loans to the various wholesale and retail traders, small-scale industries and self-employed persons. Thus, they have broadened and diversified the range of products and services offered by a financial sector. Gradually, they are being recognised as complementary to the banking sector due to their customer-oriented services; simplified procedures; attractive rates of return on deposits; flexibility and timeliness in meeting the credit needs of specified sectors; etc. The working and operations of NBFCs are regulated by the Reserve Bank of India (RBI) within the framework of the Reserve Bank of India Act, 1934 (Chapter III B) and the directions issued by it under the Act. As per the RBI Act, a 'non-banking financial company' is defined as:- (i) a financial institution which is a company; (ii) a non banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; (iii) such other non-banking institution or class of such institutions, as the bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify. Under the Act, it is mandatory for a NBFC to get itself registered with the RBI as a deposit taking company. This registration authorises it to conduct its business as an NBFC. For the registration with the RBI, a company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution, should have a minimum net owned fund (NOF) of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999). The term 'NOF' means, owned funds (paid-up capital and free reserves,minus accumulated losses, deferred revenue expenditure and other intangible assets) less, (i) investments in shares of subsidiaries/companies in the same group/ all other NBFCs; and (ii) the book value of debentures/bonds/ outstanding loans and advances, including hire-purchase and lease finance made to, and deposits with, subsidiaries/ companies in the same group, in excess of 10% of the owned funds. The registration process involves submission of an application by the company in the prescribed format along with the necessary documents for RBI's consideration. If the bank is satisfied that the conditions enumerated in the RBI Act, 1934 are fulfilled, it issues a 'Certificate of Registration' to the company. Only those NBFCs holding a valid Certificate of Registration can accept/hold public deposits. The NBFCs accepting public deposits should comply with the NonBanking Financial Companies Acceptance of Public Deposits ( Reserve Bank) Directions, 1998, as issued by the bank. Some of the important regulations relating to acceptance of deposits by the NBFCs are: They 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. They cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. They cannot offer gifts/incentives or any other additional benefit to the depositors. They should have minimum investment grade credit rating.
Their deposits are not insured. The repayment of deposits by NBFCs is not guaranteed by RBI. The types of NBFCs registered with the RBI are: Equipment leasing company:- is any financial institution whose principal business is that of leasing equipments or financing of such an activity. Hire-purchase company:- is any financial intermediary whose principal business relates to hire purchase transactions or financing of such transactions. Loan company:- means any financial institution whose principal business is that of providing finance, whether by making loans or advances or otherwise for any activity other than its own (excluding any equipment leasing or hire-purchase finance activity). Investment company:- is any financial intermediary whose principal business is that of buying and selling of securities. Now, these NBFCs have been reclassified into three categories: Asset Finance Company (AFC) Investment Company (IC) and Loan Company (LC). Under this classification, 'AFC' is defined as a financial institution whose principal business is that of financing the physical assets which support various productive/economic activities in the country. ^ Top
Reserve Bank of India NBFC's Forms FAQs on NBFC Non-Banking Financial Companies Acceptance of Public Deposits ( Reserve Bank) Directions, 1998 Non Banking Financial Companies What Does Non-Banking Financial Company - NBFC Mean? Non-banking financial companies, or NBFCs, are financial institutions that provide banking services, but do not hold a banking license. These institutions are not allowed to take deposits from the public. Nonetheless, all operations of these institutions are still covered under banking regulations.
Investopedia explains Non-Banking Financial Company - NBFC NBFCs do offer all sorts of banking services, such as loans and credit facilities, retirement planning, money markets, underwriting, and merger activites. The number of non-banking
V. under the stewardship of Mr. towns and villages of India. commitment and rewarding excellence is a key element in our human resource initiatives.muthootfincorp. We identify and promote local talent. Integrity and quality We provide sound advice and adopt the finest practices keeping the welfare of our customers in mind. www. Our people We believe our people are our strength. Every member of the Group is responsible for upholding our principles in the workplace. nurturing creativity.com With the Trust. We believe in respecting the individual and being open to continuous learning. Commitment and Transparency extending over 61 years. Fostering teamwork. integrity. Muthoot Fincorp’s long-standing experience. is a proactive Non-Banking Finance Company (NBFC) registered with the Reserve Bank of India. The Company serves 30. The loan products of Muthoot Fincorp Ltd are uniquely structured to serve people who do not have easy access to mainstream commercial banks. with strong fundamentals. Total customer satisfaction and growth is our objective. Today with 7 companies under its fold.450 . rules. Nandakumar.. responsibility toward the environment and upliftment of local communities in areas we operate. We rigourously adhere to applicable laws. Manappuram Group has emerged as a force to reckon with. regulations. the flagship Company of the Group. Muthoot Fincorp is a mass provider of finance in the form of gold and other loans with branches spread across the cities. retail and industrial companies have entered the lending business. we have ongoing training programs that ensure our team is equipped to service our customers with efficiency.000 customers a day on average. expertise and stronghold in the semi urban and rural areas have enabled the Company to provide quick. To keep our workforce on the competitive edge. codes and standards of good business practices. maximizing returns to the population. having more than 1. Core Values Truth We are committed to truth. Finance Muthoot Fincorp Ltd.P. encouraging hard work. the Chairman of the company. honesty and a pleasant demeanour. transparency and fair dealing in all our ventures.financial companies has expanded greatly in the last several years as venture capital companies. customised finance options and investment products. Social responsibility We promote sustainable development. dedication.
Mr. In a short span of time. Nandakumar was working as an officer of the erstwhile Nedungadi Bank.000 and a customer base of over 3. We are involved in providing a wide range of financial solutions to our customers that will make their life easy. V.P. Nandakumar has put this organization on the launching pad. before he took over the captaincy of the company. Mr. The company was founded in 1949 by late Mr. The principal asset of the company was the impeccable integrity devotion and foresight of its founder. The company soon established itself as a safe haven for investments of the people of the area providing absolute safety and assured returns. Padmanabhan. MAGFIL had several Firsts.5 Million. Nandakumar has been instrumental in taking the organization to its present level. Known for his sharp business acumen and professionalism. Nandakumar. a workforce of over 10. the present Chairman took over the reins.branches spread over 16 States of India and a total business over Rs. He believes that the future belongs to those who can advantageously use the technology to serve the customers by evolving customized products and services. 57 Billion. we are India`s Largest Listed and Highest Credit rated Gold Loan Company. Under his dynamic leadership. The company commenced its operations at Valapad. a great visionary of his times. the company never had to look back. Manappuram General Finance and Leasing Limited (MAGFIL) was established in 1992 in the wake of economic reforms launched by the Government of India mainly to take advantage of the importance assigned to Leasing as a vehicle to promote decentralized pattern of Economic Growth through small and medium enterprises. . The Group`s flag-ship Company. With an alert mind and unconventional methods of problem solving. V. his illustrious son.C. mainly with money lending activity on a very modest scale. Mr. On the sad demise of the founder in 1986. Mr.
(a credit rating agency approved by RBI) which signifies the company`s ability to make timely repayment of the principal and interest under its Public Deposit Programme.1. The company has been consistently making profit and paying dividends from the first full year of its operations. It is the FIRST NBFC from Kerala to have received Adequate Safety rating for its Secured Non. 5. First NBFC from Kerala to receive AD. First NBFC from Kerala to receive a Certificate of Registration issued by RBI mainly on the strength of the company`s ability to settle the depositors` claim in full. First NBFC from Kerala to obtain Broker`s License from IRDA (Insurance Regulatory & Development Authority). First NBFC from Kerala to receive Foreign Direct Investment (FDI). The company was awarded "MA+" by . 9. These are the Highest Short Term Rating awarded by ICRA and CRISIL to any Corporate in India and Long term rating of LA+ for its working capital limit. the company accepts deposits. 8. First NBFC from Kerala to issue bonus shares at the ratio 1:1.convertible Redeemable Debenture issue for Rs. 2. 7. Within a short span of time MAGFIL recorded a phenomenal growth to become a premier NBFC from South India.II (Authorised Dealer . First NBFC from Kerala to go for public issue. Bonds and Non-convertible Debentures with attractive interest rates.II) License from RBI. First NBFC from Kerala to get a credit rating of "MA+" from ICRA. First NBFC in the country to receive a Short-term rating of A1+ by ICRA and P1+ by CRISIL. To facilitate the fund based activities. 50 million. 6. 4. 3.
Instant Cash. company was awarded Broker`s License by IRDA to sell insurance.1 billion under BASEL II norms. was set up in the year 2000. Instant Money Transfers being the fastest method of inward and outward remittance of funds will be useful to NRIs for remitting money to or from their relatives in India.ICRA which signifies adequate safety for customers` deposits. Today. this Group set up Manappuram Benefit Fund Limited. who will be able to receive the proceeds within a few minutes of remittance. Zoha. As an Insurance broker. where most of the Chit Fund Companies in Kerala found it difficult to conform to the discipline of this central legislation. the company is able to offer its customers a wide variety of products tailor-made to their requirements. The company also commenced in a big way for instant money transfer facility. a NIDHI Company to provide specialized services to its members. Chennai and Cochin Stock Exchanges and are actively traded in BSE at levels far above par. it is one of the topmost Nidhi Companies in South India. As a part of its diversification. it has entered very aggressively into fee-based activities especially in the wake of opening up of insurance sector allowing private participation. Whilst the company`s core activity continues to be Gold Loan. Manappuram Chits (I) Limited. in collaboration with Xpress Money. The shares of the company are listed in Mumbai. Coinstar. a central legislation enacted by Government of India. . a chit fund company registered under the Chit Fund Act 1982. the company also started Forex business upon the Reserve Bank of India granting it a full-fledged money changers licence in the year 2002. In November 2006. Ezremit and MoneyGram. In 1993. It also achieved the credit rating of "LA+" from ICRA for its working capital limit of Rs.
both these investment companies together will be holding Rs. Being an organization with a vision.284 (Rupees Four Million. where in-house training courses are conducted almost continuously in a very professional manner for upgradation of the skills and for enhancement of functional efficiency so as to make the organization a "Customers` Delight". In order to look after the fee-based activities exclusively. It is a matter of considerable pride that the company has a fullfledge training establishment with very few parallels in the NBFC sector. The setting of Manappuram Institute of Management (MAINMA) in September. 10/. The Company has signed an agreement with M/s.667. 234 million each. Six Hundred and Sixty Seven Thousand. Every employee has been given very clear idea of his role which enables them to function more efficiently and produce better results. 4.Thus the company has emerged as a one-stop financial Super Market. the company has recognized that the best of investments are investment in people and has accordingly assigned considerable importance in the matter of training its staff.272 . the flagship company of the Group. 2005 to be groomed into a management institution of all India repute was dictated by this social responsibility. The Group functions with a tremendous sense of social responsibility. Two Hundred and Eighty Four) equity shares of Rs. aggregating to Rs.each at a price of Rs.each for Rs.100/. When converted into equity. 468 million to be converted into equity shares later. Hudson Equity Holdings Limited and Sequoia Capital India Investment Holdings for preferential issue of compulsorily convertible preferential shares of Rs. 100. As a premier organization. the Group has promoted a separate company called Manappuram Insurance Brokers Private Limited (MAIBRO) as wholly owned subsidiary of MAGFIL. the company has derived its strength from the dedication of its highly motivated staff. The Group has received ISO 9001-2000 certification in the year 1993 as a hallmark of its having attained the International Quality Standards.
» Security Loan Security Loan is given in the security of LIP.79% of paid. AA Development Capital India Fund. These funds have been raised for expanding our business in gold loan and vehicle loan by opening of more branches across the country. » Gold Coin We design and sell gold coins to suit your specification. an internationally reputed firm as our auditors. Vehicle Loan Finance amount 85% of invoice value » » » » » • . Gold Overdraft Keep your jewellery in our lockers free of cost (No lockerage charges!). with a wide Branch network across the entire country to serve its customers as a one-stop financial super » Gold Loan / Loan Against Gold Quickest and hassle free loans. Manappuram is awarded AD-II License from RBI to trade on currencies. 320 million through its Mauritius-based investment vehicle. » Insurance Insure your life at very low premium. Deposits Invest at Manappuram and get the highest rate of return for your investments. The UKbased Ashmore Alchemy. 1 Billion and 80 Million from UK and the US-based equity firms. Swarnanidhi We help you purchase gold upon the invoice from the concerned jewellery shop. » Money Transfer Send or Receive money Instantly through Manappuram Finance. » Business Loan We are dedicated to provide loans to meet your every business need. rediff. KVP. the company has also received capital infusion of Rs. Considering the increase in the size and volume of operations of the company. we have appointed Earnest & Young.up equity share capital of the company. NSC.com News » Foreign Exchange Exchange your currencies. a joint venture between Ashmore and Alchemy has invested Rs. Chits Manappuram Chits India Ltd (MACIL) registered under Chits Fund Act 1982 for its chit operation.constituting a maximum of 29. LLC. In November 2008. with participation from its promoters. The company`s vision in the short term is to emerge as a strong national player.
industrial activity. 1956 and is engaged in the business of loans and advances. insurance business.• • • • Business Movies Sports Get Ahead Hi Guest Sign in | Create a Rediffmail account Top of Form rediff. A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner. but does not include any institution whose principal business is that of agriculture activity. What is difference between banks & NBFCs ? NBFCs are doing functions akin to that of banks. chit business. hire-purchase. leasing.com Bottom of Form web Search All you wanted to know about NBFCs July 20. or lending in any manner is also a non-banking financial company (residuary non-banking company). What is a non-banking financial company (NBFC)? A non-banking financial company (NBFC) is a company registered under the Companies Act. acquisition of shares/stock/bonds/debentures/securities issued by government or local authority or other securities of like marketable nature. however there are a few differences: . sale/purchase/construction of immovable property. 2007 14:47 IST Share this Ask Users Write a Comment What is a non-banking financial company (NBFC)? How does it differ from a bank? Get the answers to these and many more questions on NBFCs. NBFCs are doing functions similar to banks.
(ii) hire-purchase company. . generator sets. Nidhi companies as notified under Section 620A of the Companies Act.like your current or savings accounts. chit companies as defined in clause (b) of Section 2 of the Chit Funds Act.immediately or within a very short period -. However. tractors. 1956. certain category of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. and (iii) deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks. 1934. venture capital fund/merchant banking companies/stock broking companies registered with Sebi. to obviate dual regulation. 1934. insurance company holding a valid certificate of registration issued by IRDA. What are the different types of NBFCs registered with RBI? The NBFCs that are registered with RBI are: • • • • (i) equipment leasing company.) (ii) it is not a part of the payment and settlement system and as such cannot issue cheques to its customers. 1982 or housing finance companies regulated by National Housing Bank. moving on own power and general purpose industrial machines. lathe machines. such as automobiles. it is mandatory 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. earth moving and material handling equipments. 2006 the above NBFCs registered with RBI have been reclassified as • • • (i) Asset Finance Company (AFC) (ii) Investment Company (IC) (iii) Loan Company (LC) AFC would be defined as any company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive / economic activity. Is it necessary that every NBFC should be registered with RBI? In terms of Section 45-IA of the RBI Act. (iii) loan company.• • • (i) a NBFC cannot accept demand deposits (demand deposits are funds deposited at a depository institution that are payable on demand -. With effect from December 6. (iv) investment company.
Where one can find a 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 [ Get Quote ] and can be viewed at www. The NBFCs accepting public deposits should have minimum stipulated net owned fund and comply with the directions issued by the bank. 1934 are satisfied. instructions are also issued through Official Gazette notifications. The bank issues certificate of registration after satisfying itself that the conditions as enumerated in Section 45-IA of the RBI Act.Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively. there is ceiling on acceptance of public deposits. Press releases are also issued to draw attention of the public/NBFCs. Only those NBFCs holding a valid certificate of registration with authorisation to accept public deposits can accept/hold public deposits. The above type of companies may be further classified into those accepting deposits or those not accepting deposits. Besides the above class of NBFCs the Residuary Non-Banking Companies are also registered as NBFC with the Bank. Can all NBFCs accept deposits and what are the requirements for accepting public deposits? All NBFCs are not entitled to accept public deposits.in. The instructions issued to NBFCs from time to time are also hosted at the above site. 1934 should have a minimum net owned fund of Rs 25 lakh (raised to Rs 2 crore from April 21.rbi. Is there any ceiling on acceptance of public deposits? What is the rate of interest and period of deposit which NBFCs can accept? Yes.org. 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act. An NBFC maintaining required NOF/CRAR and complying with the prudential norms can accept public deposits as follows: • • • Category of NBFC Ceiling on public deposits AFCs maintaining CRAR of 15% without credit rating . Besides. What are the requirements for registration with RBI? A company incorporated under the Companies Act. The company is required to submit its application for registration in the prescribed format alongwith necessary documents for bank's consideration. 1999).
The present ceiling is 11 per cent per annum. IDBI or any other institution specified by RBI. The RNBCs have different norms for acceptance of deposits which are explained elsewhere in this booklet.5 times of NOF Presently. vi) The repayment of deposits by NBFCs is not guaranteed by RBI. '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: • • • • amount raised by way of share capital. dealership deposit. v) The deposits with NBFCs are not insured. the maximum rate of interest a NBFC can offer is 11%. advance against orders for goods. or contributed as capital by partners of a firm. The interest may be paid or compounded at rests not shorter than monthly rests. a banking company. . co-operative bank. The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months.• • • AFCs with CRAR of 12% and having minimum investment grade credit rating 1. What is 'deposit' and 'public deposit'? Is it defined anywhere? The term 'deposit' is defined under Section 45 I(bb) of the RBI Act.5 times of NOF or Rs 10 crore whichever is less 4 times of NOF LC/IC with CRAR of 15% and having minimum investment grade credit rating 1. 1934. What are the salient features of NBFCs regulations which the depositor may note at the times of investment? Some of the important regulations relating to acceptance of deposits by NBFCs are as under: • • • • • • • i) The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. amount received in ordinary course of business by way of security deposit. properties or services. earnest money. State Financial Corporation. vii) There are certain mandatory disclosures about the company in the Application Form issued by the company soliciting deposits. amount received from scheduled bank. They cannot accept deposits repayable on demand. They cannot accept deposits repayable on demand. iii) NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors. amount received by a registered money lender other than a body corporate. iv) NBFCs (except certain AFCs) should have minimum investment grade credit rating. ii) NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The interest may be paid or compounded at rests not shorter than monthly rests.
• • amount received by way of subscriptions in respect of a 'Chit'. The Rules for nomination facility are provided for in section 45QB of the Reserve Bank of India Act. amount received from directors or relative of the director of a NBFC. amount received from a mutual fund. 1998. 1934. nomination facility is available to the depositors of NBFCs. the amount brought in by the promoters by way of unsecured loan. NBFCs cannot accept deposits from NRI except deposits by debit to NRO account of NRI provided such amount do not represent inward remittance or transfer from NRE/FCNR (B) account. 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. any amount received from other company as inter-corporate deposit. stock. However. 1998 defines a ' public deposit' as a 'deposit' as defined under Section 45 I(bb) of the RBI Act. amount received by way of subscriptions to shares. any amount received as hybrid debt or subordinated debt. amount received from shareholders by private company. 1934 and further excludes the following: 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. Are Secured debentures treated as Public Deposit? If not who regulates them? Debentures secured by the mortgage of any immovable property or other asset of the company if the amount raised does not exceed the market value of the said immovable property or other asset are excluded from the definition of 'public deposit' in terms of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions. Secured debentures are debt instruments and are regulated by Securities & Exchange Board of India. Whether NBFCs can accept deposits from NRIs? Effective from April 24. Non-Banking . any amount received from financial institutions. Paragraph 2(1)(xii) of the Non-Banking Financial Companies Acceptance of Public Deposits ( Reserve Bank) Directions. • • • • • • • • • • Thus. any amount received by issuance of Commercial Paper. 2004. amount raised by issue of bonds or debentures secured by mortgage of any immovable property or other asset of the company subject to conditions. the existing NRI deposits can be renewed. Is nomination facility available to the Depositors of NBFCs? Yes. the directions have sought to exclude from the definition of public deposit amount raised from certain set of informed lenders who can make independent decision.
Can a NBFC which is yet to be rated accept public deposit? .is not equivalent to AAA. What are the symbols of minimum investment grade rating of different companies? The symbols of minimum investment grade rating of the Credit rating agencies are: Name of rating agencies : Level of minimum investment grade credit rating (MIGR) • • • • • CRISIL: FA. and Form DA2 and DA3 for cancellation of nomination and variation of nomination. (iii) The Reserve Bank of India does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company. (ii) A proper deposit receipt which should. besides the name of the depositor/s state the date of deposit. 1985 made under Section 45ZA of the Banking Regulation Act. CARE. rate of interest payable and the date of maturity should be insisted. respectively.Financial Companies have been advised to adopt the Banking Companies (Nomination) Rules. AA. Accordingly.(MA MINUS) CARE: CARE BBB (FD) FITCH Ratings India Pvt. • It is said that rating of NBFCs is necessary before it accepts deposit? Is it true? Who rates them? An unrated NBFC.is not equivalent to AA and AAA. Ltd: tA-(ind)(FD) It may be added that A. the NBFC can return the deposit in the event of the death of the depositor/s. Ltd. the amount in words and figures. viz Form DA 1 for the purpose of nomination. except certain Asset Finance companies (AFC). depositor/s of NBFCs are permitted to nominate.(FA MINUS) ICRA: MA. NBFCs are advised to accept nominations made by the depositors in the form similar to one specified under the said rules.5 times of the NOF or Rs 10 crore whichever is lower without having a credit rating. ICRA and FITCH Ratings India Pvt. 1949. The receipt shall be duly signed by an officer authorised by the company in that behalf. CRISIL. An exception is made in case of unrated AFC companies with CRAR of 15% which can accept public deposit up to 1. one person to whom. A NBFC may get itself rated by any of the four rating agencies namely. cannot accept public deposits.is not equivalent to A. the following aspects should be borne in mind: • • (i) Public deposits are unsecured. What else should a depositor bear in mind while depositing money with NBFCs? While making deposits with a NBFC.
it has to stop accepting public deposit. however such NBFC can renew the matured public deposits subject to repayment stipulations specified above and compliance with other conditions for acceptance of deposits. does it have to bring down its level of public deposits immediately or over a period of time? If rating of a NBFC is downgraded to below minimum investment grade rating. a NBFC cannot accept deposit without rating except an EL/HP company complying with prudential norms and having CRAR of 15%. may accept public deposit up to 1. 1998. We hear that in a number of cases official liquidators have been appointed on the defaulting NBFCs. In case a NBFC defaults in repayment of deposit what course of action can be taken by depositors? If a NBFC defaults in repayment of deposit.No. . What is their role and how one can approach them? Official Liquidator is appointed by the court after giving the company reasonable opportunity of being heard in a winding up petition. 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. The liquidator performs duties of winding up and such duties in reference thereto as the court may impose. the depositor can approach Company Law Board or Consumer Forum or file a civil suit to recover the deposits. Where the court has appointed an official liquidator or provisional liquidator. 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 with the prescribed fee. When a company's rating is downgraded. though not rated. the amount of excess public deposit to nil or to the appropriate extent permissible under paragraph 4(4) of NonBanking Financial Companies Acceptance of Public Deposits ( Reserve Bank) Directions. by order. What is the role of Company Law Board in protecting the interest of depositors? How one can approach it? Where a non-banking financial company 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. report the position within fifteen working days to the RBI and reduce within three years from the date of such downgrading of credit rating.5 times of NOF or Rs 10 crore whichever is less. he becomes custodian of the property of the company and runs the day-to-day affairs of the company.
names/residences/occupations of its creditors. Consumer courts play a useful role in attending to depositors problems. the debts due to the company and such other information as may be prescribed. constitution of audit committee. The liquidator realises the assets of the company and arranges to repay the creditors according to the scheme approved by the court. deferred revenue expenditure and other intangible assets. The amount of investments of such company in shares of its subsidiaries. The liquidator generally inserts advertisement in the newspaper inviting claims from depositors/investors in compliance with court orders. vide Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions. requirement of capital adequacy. The Reserve Bank also provides assistance to the depositors in furnishing addresses of the official liquidator. to the extent it exceeds 10% of the owned fund. Please explain the terms 'owned fund' and 'net owned fund' in relation to NBFCs? 'Owned Fund' means aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance sheet of the company after deducting therefrom accumulated balance of loss. prescribe guidelines on income recognition. outstanding loans and advances made to and deposits with subsidiaries and companies in the same group is arrived at. Can one approach consumer forum. . The amount thus calculated. asset classification and provisioning requirements applicable to NBFCs. Is there an Ombudsman for hearing complaints against NBFCs? No. exposure norms. disclosures in the balance sheet. The scheme is drawn up by the liquidator and same is put up to the court for approval. is reduced from the amount of owned fund to arrive at 'Net Owned Fund'. 1998. CLB simultaneously? Yes. a depositor can approach any or all of the redressal authorities i. civil court. bonds. there is no Ombudsman for hearing complaints against NBFCs. its debts and liabilities. restrictions on investments in land and building and unquoted shares. What are various prudential regulations applicable to NBFCs? The Bank has issued detailed directions on prudential norms.e consumer forum.He has to draw up a statement of affairs of the company in prescribed form containing particulars of assets of the company. Therefore. companies in the same group and all other NBFCs and the book value of debentures. court or CLB. The directions interalia. the investors/depositors should file the claims within due time as per such notices of the liquidator.
Half-yearly ALM Returns by companies having public deposits of Rs 20 crore and above or with assets of Rs 100 crore and above irrespective of the size of deposits . all NBFCs (including non-deposit taking) should submit a certificate from their Statutory Auditors every year to the effect that they continue to undertake the business of NBFI requiring holding of CoR under Section 45-IA of the RBI Act. vii. However. address of the company and its directors and the name/s and official designations of its principal officers and the name and office address of its auditors. and ix. viii. Quarterly Return on liquid assets. For this purpose. With effect from April 1. iv. • • • • • • • What are the documents or the compliance required to be submitted to the Reserve Bank of India by the NBFCs not accepting/holding public deposits? The NBFCs having assets size of Rs 100 crore and above but not accepting public deposits are required to submit a Monthly Return on important financial parameters of the company. iii. 2007 non-deposit taking NBFCs with assets size of Rs 100 crore and . 1934. RBI has powers to cause Inspection of the books of any company and call for any other information about its business activities. ii. Further. v. All companies not accepting public deposits have to pass a board resolution to the effect that they have neither accepted public deposit nor would accept any public deposit during the year. Certificate from the Auditors that the company is in a position to repay the deposits as and when the claims arise. Half-yearly Return on prudential norms. the NBFC is required to furnish the information in respect of any change in the composition of its board of directors. A copy of the Credit Rating obtained once a year along with one of the Half-yearly Returns on prudential norms as at (v) above. Statutory Annual Return on deposits . all the NBFCs (other than those exempted) are required to be registered with RBI and also make sure that they continue to be eligible to remain Registered.NBS 1. Monthly return on exposure to capital market by companies having public deposits of Rs 50 crore and above.What are the responsibilities of the NBFCs accepting/holding public deposits with regard to submission of Returns and other information to RBI? The NBFCs accepting public deposits should furnish to RBI: • i. Audited balance sheet of each financial year and an audited profit and loss account in respect of that year as passed in the general meeting together with a copy of the report of the Board of Directors and a copy of the report and the notes on accounts furnished by its Auditors.
An NBFC subject to above provisions. even within the lock . the company may. Please elaborate the provisions.in period. to the satisfaction of the company. The prohibition shall not.e. till the date of actual payment. 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. . may permit after the lockin period premature repayment of a public deposit at its sole discretion. overdue interest is payable to the depositors in case the company has delayed the repayment of matured deposits. apply in the case of death of depositor or repayment of tiny deposits i. In case a depositor requests for pre-mature payment. A problem NBFC is prohibited from making premature repayment of any deposits or granting any loan against public deposits/deposits. If the depositor has lodged his claim after the date of maturity. Can a company pre-pay its public deposits? A NBFC accepts deposits under a mutual contract with its depositors. As per Reserve Bank's directions. 1934 the minimum level of liquid asset to be maintained by NBFCs is 15 per cent of public deposits outstanding as on the last working day of the second preceding quarter. at the rate of interest prescribed by the Bank.000 subject to lock-in period of 3 months in the latter case. 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. up to Rs 10. if it is not a problem company. as the case may be. What is the liquid asset requirement for the deposit taking companies? Where these assets are kept? Does Depositors have any claims on them? In terms of Section 45-IB of the RBI Act. 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. Reserve Bank of India has prescribed Regulations for such an eventuality in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions. however. however in the event of death of a depositor.above have been advised to maintain minimum CRAR of 10% and shall also be subject to single/group exposure norms. 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. repay the deposit at the request of the joint holders with survivor clause / nominee / legal heir only against submission of relevant proof.
. Insurance companies are regulated by Insurance Regulatory and Development Authority. Thus. 1934 subject to certain conditions. The liquid assets maintained as above are to be utilised for payment of claims of depositors. 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. deposit being unsecured in nature depositors do not have direct claim on liquid assets. However in case there are Government bonds which are in physical form the same may be kept in safe custody of SCB/SHCIL. Venture Capital Fund Companies. if a NBFC intends to entrust the securities at a place other than the place at which its registered office is located. 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.Of the 15%. 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. However. It may be noted that the liquid assets in approved securities will have to be maintained in dematerialised form only. Government of India. Companies engaged in the business of stock-broking/sub-broking. Housing Finance Companies are regulated by National Housing Bank. However. Chit Companies are regulated by the respective State Governments and Nidhi Companies are regulated by Ministry of Company Affairs. NBFCs are required to invest not less than 10% in approved securities and the remaining 5% can be in unencumbered term deposits with any scheduled commercial bank. but are exempted from registration? Housing Finance Companies. Merchant Banker/Venture Capital Fund Company/stock-exchanges/stock brokers/sub-brokers are regulated by Securities and Exchange Board of India. the liquid assets may consist of government securities. 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). government guaranteed bonds and term deposits with any scheduled commercial bank. Please tell us something about the companies which are NBFCs. Nidhi Companies. Stock Exchanges. Merchant Banking Companies. Similarly. (NSDL)/Central Depository Services (India) Ltd. it may do so after obtaining in writing the permission of RBI. (CDSL)] through a depository participant registered with Securities & Exchange Board of India (SEBI).
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. Prudential Norms Directions are applicable to these companies also. by whatever name called by a residuary non-banking company in respect of deposits received shall not be less than the amount calculated at the rate of 5% (to be compounded annually) on the amount deposited in . bonus or other advantage accrued thereon. or any interest. However. The functioning of these companies is different from those of NBFCs in terms of method of mobilisation of deposits and requirement of deployment of depositors' funds. bonus or other advantage. Certificate of deposits of SCB/FIs. hire-purchase or leasing company or principal business is that of receiving of deposits under any scheme or arrangement or in any manner or lending in any manner. Can RNBC forfeit deposit if deposit installments are not paid regularly or discontinued? No Residuary Non-Banking Company shall forfeit any amount deposited by depositor. in addition to liquid assets. premium.There are some entities (not companies) which carry on activities like that of NBFCs. Central/State Government securities. fixed deposit of scheduled commercial banks (SCB). under any scheme or arrangement or in any other manner and not being investment. then how safe is deposit with them? It is true that there is no ceiling on raising of deposits by RNBCs but every RNBC has to ensure that the amounts deposited and investments made by the company are not less that the aggregate amount of liabilities to the depositors. loan company. if his/its business wholly or partly includes business that of loan. asset financing. such companies are required to invest in a portfolio comprising of highly liquid and secured instruments viz. investment. units of Mutual Funds. We understand that there is no ceiling on raising of deposits by RNBCs. To secure the interest of depositor. Are they allowed to take deposit? Who regulates them? Any person who is an individual or a firm or unincorporated association of individual cannot accept deposit except by way of loan from relatives. These companies are required to maintain investments as per directions of RBI. premium. etc. Please tell us something on rate of interest payable by RNBCs on deposits and maturity period of deposits? The amount payable by way of interest.
Almost 90% of the asset financing NBFCs are engaged in financing transportation equipments and the balance are in financing equipments for infrastructure projects. Needless to mention. In fact. around 350. follow stringent prudential norms prescribed by RBI in the matters of capital adequacy. asset classification. a well-trained collection machinery. The number of asset financing NBFCs would be even lower. NBFCs are characterised by their . which has helped it grow and become an essential part of the financial sector for accelerated economic growth of the countries. Besides this. RBI’s latest report titled “Report on trends on progress of banking in India 2002-2003" observes: “Notwithstanding their diversity. Now. provisioning for NPA and several disclosure requirements. income recognition. NBFCs. They are a vital link in the system. asset-liability management. This is more than evident from the fact that most of the developed economies in the world have relied heavily on lease finance route in their developmental process. RBI also supervises the functioning of NBFCs by conducting annual on-site audits through its officials. as an entity. The role of NBFCs in creation of productive national assets can hardly be undermined. It is. are in a better position to cater to these segments. the rest are investment and loan companies. particularly in a developing economy like ours. down from 40000 in early 1990s. A conducive and enabling environment has been created for the NBFC industry globally. the road transport sector accounts for nearly 70% of goods movement and 80% of passenger movement across the length and breadth of the country and the role of NBFCs in the growth and development of this sector has been historically acknowledged by several committees set up by the Government and RBI. This is not the case in our country. the NBFCs witnessed consolidation and now the number of NBFCs eligible to accept deposits is around 600. NBFCs due to their inherent strengths in the areas of fast and easy access to market information for credit appraisal. NBFCs are very well regulated and supervised. SMEs and other unorganized sectors. After the proliferation phase of 1980s and early 90s. the role of non-banking sector in both manufacturing and services sector is significant and they play the role of an intermediary by facilitating the flow of credit to end consumers particularly in transportation.have a definite and very important role in the financial sector. aid in the development of the road transport industry. e. Therefore. close monitoring of individual borrowers & personalized attention to each client as well as minimum overhead costs. unlike in the past. lease penetration for asset creation in the US is as high as 30% as against 3-4% in India. over the years. Just like banks they are required to be registered with RBI.. credit/investment norms. Thus in all respect the monitoring of NBFCs is similar to or in some case more stringent than banks. play a very useful role in channelising funds towards acquisition of commercial vehicles and consequently. accounting standards. obvious that the development process of the Indian economy shall have to include NBFCs as one of its major constituents with a very significant role to play. Such a rigorous regulatory framework ensures that NBFCs function properly and follow all the guidelines of RBI.g. therefore.
from both the macro economic perspective and the structure of the Indian financial system. it is better to look back to the history of the regulation of NBFCs. the role of NBFCs has become increasing ly important. While there is a class in the industry strongly opposing the strengthening of regulatory framework and focusing closer supervisory attention.45.439 crore.995 crore.883 crore (excluding HFCs) which comes out to 4. to design a supervisory framework that is able to ensure financial stability without dampening the very spirit of manoeuvrability and innovativeness that sustains the sector. The resultant capital formation is important for our economic growth and development. the another urging Reserve Bank to intervene and enhance the image quotient of the industry so that a moderate level of sustainable growth is as sured of. such as equipment leasing/hire purchase finance companies. Such deposits stood at Rs. especially during late 80s and early 90s. It is interesting to note that as at the end of March 1996 the regulated deposits (deposits which RBI regulates) of 10194 NBFCs amounted to Rs.25 per cent of the total deposits of scheduled commercial banks. ostensibly in support of principle of free market. In this process. they have influenced the direction of savings and investment. This enables them to build up a clientele that ranges from small borrowers to established corporates. 3. thus. While NBFCs have often been leaders in financial innovations. The momentum of recent developments in non-banking financial sector has evinced considerable debate. the scheme of regulation of NBFCs originated in mid-sixties when sudden upsurge in deposit mobilisation by Non-Banking Companies was noticed. Because of their relative organisational flexibility leading to a better response mechanism. One of the most impor tant component of these deposits/ borrowings is deposits from public in which RBI is more concerned. the `intermediation' is being conducted by a wide range of financial institution through plethora of customer friendly financial products. “The regulatory challenge is. instances of unsustainability. The focus continued to be the same till early 90s. The borrowing of these companies stood at Rs.62. underscore the need for reinforcing their financial viability. However. The Indian economy is going through a period of rapid `financial isation'. Today.” The report further adds. Over a period of time. To appreciate and understand the present predicament. often on account of high rates of interest on their deposits and periodic bankruptcies. The segment consisting of Non-Banking Financial Companies (NBFCs). have made great strides in recent years and are meeting the diverse financial needs of the economy. To briefly recapitulate. Thus. the focus of regulation was mainly intended to ensure that it serves as an adjunct to monetary and credit policy and also provides an indirect protection to the depositors.” 1.ability to provide niche financial services in the Indian economy. NBFCs have penetrated into the main stream of financial sector and have established themselves as complements of banking industry . which are capable of enhancing the functional efficiency of the financial system. 2. they are often able to provide tailor-made services relatively faster than banks and financial institutions.17.