Limited Rules For Nbfcs Not Raising Public Deposits

The Reserve Bank of India, in its new regulatory framework for NBFCs, has decided to have only limited regulation for NBFCs not accepting public deposits. The framework, which has been devised for protection of depositors' interest and more effective supervision, first classifies the NBFCs into three broad categories

1. NBFCs accepting public deposits

2. NBFCs not accepting public deposits but engaged in loan, investment, hire purchase etc.

3. Non-banking finance companies not accepting deposits but having a share holding in their own companies of not less than 90 per cent (which essentially would be non-banking finance companies floated by manufacturing firms)

 

Excepting the first category, both the others have been exempt from all provisions of directions relating to capital adequacy and credit / classification norms.

The pre-condition here is that an NBFC has to get a board resolution passed by their board of directors to the effect that they will not accept any public deposit.

But says an non-banking finance company source, What stops these companies from coming up with 18 month debentures which could be a fixed deposit in disguise. This way, they not only get away with the deposit ceilings but also with the interest rate ceiling. The advantage for the depositor will be the fact that these instruments, being secured in nature, have more comfort than a fixed deposit which is an unsecured instrument.

As far as the non-banking financial arms of manufacturing companies are concerned, they have to, in addition to the board resolution, submit the names of their holding / group/ subsidiary companies whose shares/securities they hold or propose to invest during the year.

The auditors of both these classes of NBFCs have to comment in their report in the annual accounts that these companies have not accepted public deposits, and have complied with other norms like board resolutions etc. It is expected that any non-compliance on the part of non-banking finance companies should be reported by the statutory auditors.