Whether NBFC can accept deposit & its related Regulations

Can all NBFCs accept deposits?

All NBFCs are not enti­tled to accept pub­lic deposits. Only those NBFCs to which the Bank had giv­en a spe­cif­ic autho­ri­sa­tion are allowed to accept/hold pub­lic deposits.

Ceil­ing Lim­it on accep­tance of Pub­lic Deposits & rate of inter­est and peri­od of deposit which NBFCs can accept?

Yes, there is a ceil­ing on accep­tance of Pub­lic Deposits by NBFCs autho­rized to accept deposits.. An NBFC main­tain­ing required min­i­mum NOF,/Capital to Risk Assets Ratio (CRAR) and com­ply­ing with the pru­den­tial norms can accept pub­lic deposits as follows:

Cat­e­go­ry of NBFC hav­ing min­i­mum NOF of Rs 200 lakhs	Ceil­ing on pub­lic deposit
AFC* main­tain­ing CRAR of 15% with­out cred­it rating	1.5 times of NOF or Rs 10 crore whichev­er is less
AFC with CRAR of 12% and hav­ing min­i­mum invest­ment grade cred­it rating	4 times of NOF
LC/IC** with CRAR of 15% and hav­ing min­i­mum invest­ment grade cred­it rating	1.5 times of NOF
* AFC = Asset Finance Company ** LC/IC = Loan company/Investment Company

As has been noti­fied on June 17, 2008 the ceil­ing on lev­el of pub­lic deposits for NBFCs accept­ing deposits but not hav­ing min­i­mum Net Owned Fund of Rs 200 lakh is revised as under:

Cat­e­go­ry of NBFC hav­ing NOF more than Rs 25 lakh but less than Rs 200 lakh	Revised Ceil­ing on pub­lic deposits
AFCs main­tain­ing CRAR of 15% with­out cred­it rating	Equal to NOF
AFCs with CRAR of 12% and hav­ing min­i­mum invest­ment grade cred­it rating	1.5 times of NOF
LCs/ICs with CRAR of 15% and hav­ing min­i­mum invest­ment grade cred­it rating	Equal to NOF

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

Salient fea­tures of NBFCs reg­u­la­tions for deposits 

Some of the impor­tant reg­u­la­tions relat­ing to accep­tance of deposits by NBFCs are as under:

1. 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.
2. 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.

1. NBFCs (except cer­tain AFCs) should have min­i­mum invest­ment grade cred­it rating.
2. The deposits with NBFCs are not insured.
3. 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.

‘Deposit’ and ‘Pub­lic Deposit’

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:

1. amount raised by way of share cap­i­tal, or con­tributed as cap­i­tal by part­ners of a firm;
2. 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;

• amount received in ordi­nary course of busi­ness by way of secu­ri­ty deposit, deal­er­ship deposit, earnest mon­ey, advance against orders for goods, prop­er­ties or services;

1. amount received by a reg­is­tered mon­ey lender oth­er than a body corporate;
2. 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:

1. 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;
2. any amount received from finan­cial insti­tu­tions spec­i­fied by RBI for this purpose;

• any amount received by a com­pa­ny from any oth­er company;

1. 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;
2. amount received from share­hold­ers by pri­vate company;
3. amount received from direc­tors or rel­a­tive of the direc­tor of an NBFC;

• 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 amount brought in by the pro­mot­ers by way of unse­cured loan;

1. amount received from a mutu­al fund;
2. any amount received as hybrid debt or sub­or­di­nat­ed debt;
3. any amount received by issuance of Com­mer­cial Paper.

• any amount received by a sys­tem­i­cal­ly impor­tant non-deposit tak­ing non-bank­ing finan­cial com­pa­ny by issuance of ‘per­pet­u­al debt instruments’
• 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.

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.

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.