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Updated FAQs on Non-Banking Financial Companies (NBFCs) (as on April 10, 2015)

Dated:- 27-6-2015 - FOREWORD The Reserve Bank of India is entrusted with the responsibility of regulating and supervising the Non-Banking Financial Companies by virtue of powers vested in Chapter III B of the Reserve Bank of India Act, 1934. The regulatory and supervisory objective, is to: a) ensure healthy growth of the financial companies; b) ensure that these companies function as a part of the financial system within the policy framework, in such a manner that their existence and functioning .....

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rifications in the form of questions and answers, is being brought out by the Reserve Bank of India (Department of Non-Banking Supervision) with the hope that it will provide better understanding of the regulatory framework. The information given in the FAQ is of general nature for the benefit of depositors/public and the clarifications given do not substitute the extant regulatory directions/instructions issued by the Bank to the NBFCs. Frequently Asked Questions on NBFCs 1. What is a Non-Banki .....

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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. NBFCs are doing functions similar to banks. What is difference between banks & NBFCs ? N .....

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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 ₹ 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 registr .....

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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: Asset Finance Company(AFC) : An AFC is a company which is a financial institution carrying on as its princi .....

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y (IC) : IC means any company which is a financial institution carrying on as its principal business the acquisition of securities, 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. Infrastructure Finance Company (IFC): IFC is a non-banking finance company a) which deploys at lea .....

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r 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 .....

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tructure 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. 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: a. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not .....

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r income generation, is not less than 75 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 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 75 percent of its total assets and its income derived from factoring business should not be .....

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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 India. The application can be submitted online by accessing RBI s secured website https://cosmos.rbi.org.in . At this stage, the .....

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Regional Office in the field C-8 of the Annex-Identification Particulars in the Excel application form. The company would then get a Company Application Reference Number for the CoR application filed on-line. Thereafter, the company has to submit the hard copy of the application form (indicating the online Company Application Reference Number, along with the supporting documents, to the concerned Regional Office. The company can then check the status of the application from the above mentioned .....

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eturns → Documents required for registration as NBFCs. 8. 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 and can be viewed at www.rbi.org.in → Sitemap → NBFC List. The instructions issued to NBFCs from time to time are also hosted at www.rbi.org.in → Sitemap → NBFC List. → NBFC Notifications, besides, being issued through Official Gazette notifications a .....

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al to Risk Assets Ratio (CRAR) and complying with the prudential norms can accept public deposits as follows: Category of NBFC having minimum NOF of ₹ 200 lakhs Ceiling on public deposit AFC* maintaining CRAR of 15% without credit rating 1.5 times of NOF or ₹ 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 o .....

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n 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 T .....

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annot 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 (except certain AFCs) should have minimum investment grade credit rating. The deposits with NBFCs are not insured. The repayment of .....

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tal, or contributed as capital by partners of a firm; 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; amount received by a registered money lender other than a body corporate; amount received by way of .....

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tizen/authority/person; any amount received from financial institutions specified by RBI for this purpose; any amount received by a company from any other company; 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; amount received from shareholders by private company; amount received from directors or relative of the dire .....

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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. 13. Are Secured debentures treated as Public Deposit? If not who regulatesthem? Debentures secured by the mortgage of any immovable property of the company or by any other asset or with an option to convert them into shares in the comp .....

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ts 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. 15. 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 .....

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. 16. What else should a depositor bear in mind while depositing money with NBFCs? While making deposits with an NBFC, the following aspects should be borne in mind: Public deposits are unsecured. A proper deposit receipt is issued, giving details such as the name of the depositor/s, the date of deposit, the amount in words and figures, rate of interest payable and the date of repayment of matured deposit along with the maturity amount. Depositor/s should insist on the above and also ensure th .....

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pinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company. Deposit Insurance facility is not available to the depositors of NBFCs. 17. It is said that rating of NBFCs is necessary before it accepts deposit? Is it true? Who rates them? An unrated NBFC, except certain Asset Finance companies (AFC), cannot accept public deposits. An exception is made in case of unrated AFC companies with CRAR of 15% which can accept public deposit without having a c .....

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nt grade credit rating (MIGR) CRISIL FA- (FA MINUS) ICRA MA- (MA MINUS) CARE CARE BBB (FD) FITCH Ratings India Pvt. Ltd. tA-(ind)(FD) Brickwork Ratings India Pvt. Ltd. BWR FBBB SMERA SMERA A It may be added that A- is not equivalent to A, AA- is not equivalent to AA and AAA- is not equivalent to AAA. 19. Can an NBFC wh .....

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ithin 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 or to the appropriate extent permissible under paragraph 4(4) of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998. 21. 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 La .....

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rt 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. 23. Can you give the addresses of the various benche .....

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All States & Union Territories 011 - 24366126 011- 24363451 011 - 24366125 011 - 24366123 011 - 24366126 2. Company Law Board New Delhi Bench Paryavaran Bhawan B-Block, 3rd Floor C.G.O. Complex Lodhi Road, New Delhi - 110 003 States of Delhi, Haryana, Himachal Pradesh, Jammu & Kashmir, Punjab, Rajasthan, Uttar Pradesh, Uttaranchal and Union Territories of Chandigarh. 011 - 24363 .....

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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 Daman and Diu) 022 - 22619636/ 022 - 22611456 022 - 22619636 5. Company Law Board Chennai Bench Corporate Bhawan (UTI Building), 3rd Floor, No. 29 Rajaji Salai, Chennai - 600001. .....

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rforms 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 .....

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r such notices of the liquidator. The Reserve Bank also provides assistance to the depositors in furnishing addresses of the official liquidator. 25. The Consumer Court plays useful role in attending to depositors problems. Can one approach Consumer Forum, Civil Court, CLB simultaneously? Yes, a depositor can approach any or all of the redressal authorities i.e consumer forum, court or CLB. 26. Is there an Ombudsman for hearing complaints against NBFCs? No, there is no Ombudsman for hearing comp .....

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FCs. The grievance can be taken up with the Grievance Redressal Officer. In case the complainant is not satisfied with the settlement of the complaint by the Grievance Redressal Officer of the NBFC, he/she may approach the nearest office of the Reserve Bank of India with the complaint. The details of the Office of the Reserve Bank has also to be mandatorily displayed in the premises of the NBFC. 27. What are various prudential regulations applicable to NBFCs? The Bank has issued detailed directi .....

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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 NBFC holding deposits and those not holding deposits is available in the DNBS section of master Circulars in the RBI website www.rbi.org.in → sitemap → Master Circulars. 28. Please explainthe terms owned fund and net owned fund in relation to NBFCs? Owned Fund means aggregate of the paid-u .....

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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. 29. 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 t .....

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S 2; Quarterly Return on liquid assets-NBS 3; Annual return of critical parameters by a rejected company holding public deposits - NBS4 Half-yearly ALM Returns by companies having public deposits of ₹ 20 crore and above or asset size of ₹ 100 crore and above irrespective of the size of deposits holding Monthly return on exposure to capital market by deposit taking NBFC with total assets of ₹ 100 crore and above-NBS6; and A copy of the Credit Rating obtained once a year 30. .....

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ment of short term dynamic liquidity in format ALM [NBS-ALM1] -Monthly, (v) Statement of structural liquidity in format ALM [NBS-ALM2] Half Yearly (vi) Statement of Interest Rate Sensitivity in format ALM -[NBS-ALM3], Half yearly B. The non deposit taking NBFCs having assets of more than ₹ 50 crore and above but less than ₹ 100 crore are required to submit Quarterly return on important financial parameters of the company. Basic information like name of the company, address, NOF, prof .....

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n the Registration. Further, 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, 1934 NBFCs are also required to furnish the information in respect of any change in the composition of its Board of Directors, address of the company and its Directors and the name/s and official designations of its principal officer .....

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e 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 th .....

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, 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, .....

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t to lock in period of 3 months in the latter case. 33. 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 .....

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ernment 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) Ltd. (CDSL)] through a depository participant registered with Securities & Exchange Board of India (SEBI). However in case there are Government bonds which are in physical form the same may be kept in safe custody of SCB/SHCIL. NBFCs have been directed to maintain the mandated liqui .....

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ised for payment of claims of depositors. However, deposits being unsecured in nature, depositors do not have direct claim on liquid assets. 34. Please tell us something about the companies which are NBFCs, but are exempted from registration? 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 .....

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nd Nidhi Companies are regulated by Ministry of Corporate Affairs, Government of India. 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. 35. 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 depo .....

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der 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. 37. We understa .....

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securities, fixed deposits with scheduled commercial banks (SCB), Certificate of deposits of SCB/FIs, units of Mutual Funds, etc. to the extent of 100 per cent of their deposit liability. 38. Can RNBC forfeit deposit if deposit installments are not paid regularly or discontinued? No Residuary Non-Banking Company shall forfeit any amount deposited by the depositor, or any interest, premium, bonus or other advantage accrued thereon. 39. Please tell us something on rate of interest payable by RNBCs .....

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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. 40. There are some companies like Multi-Level Marketing companies, Chit funds etc. Do they come under the purview of RBI? No, Multi-Level Marketing companies, Direct Selling Companies, Online Selling Companies don t fall under the purview of RBI. Activities of these companies fall under the regulatory/administrative domain of respective state government. .....

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es Ministry of corporate affairs, Government of India 41. What are Unincorporated Bodies (UIBs)? Has RBI any role to play in curbing illegal deposit acceptance activities of UIBs? 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 state government has to play a proactive role in arresting the illegal activities .....

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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). 42. 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 i .....

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