salient features of NBFCs regulations

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. They cannot accept deposits repayable on demand.
• ii) NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling 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.
• iv) NBFCs (except certain AFCs) should have minimum investment grade credit 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 company in the Application Form issued by the company soliciting deposits.

What is 'deposit' and 'public deposit'? Is it defined anywhere?

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:

• amount raised by way of share capital, or contributed as capital by partners of a firm;
• amount received from scheduled bank, co-operative bank, a banking company, 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 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: 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;
• any amount received from financial institutions;
• any amount received from other company as inter-corporate deposit;
• 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 director of a 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;
• amount received from a mutual fund;
• any amount received as hybrid debt or subordinated debt;
• any amount received by issuance of Commercial Paper.

Thus, 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.