RBI Guidelines for Non-Banking Finance Companies (NBFCs) to Accept Deposits

With a view to protect the depositors’ interest the Reserve Bank of India has issued guidelines for the NBFCs for acceptance of public deposits.

Who Can Accept Deposits?

1. Not all NBFCs can accept public deposits. Only those NBFCs to which the RBI has issued a Certificate of Registration and a license to accept deposits are entitled to accept public deposits. Also deposits can be accepted only to the extent permissible. RBI publishes a list of NBFCs that are permitted to accept deposits in its site. This list is updated frequently.
2. NBFCs must also have minimum investment grade credit rating to accept/hold public deposits.
3.  Housing Finance Companies which are specifically authorized to collect deposits and those companies which are authorized by Ministry of Corporate Affairs under the Companies Acceptance of Deposits Rules of the Companies Act are also eligible to collect deposits. There is a limit on the deposit too.
4. Cooperative credit societies can accept deposits from its members and not from the general public.
5. Besides banks, cooperative banks and NBFCs, no other entities can accept public deposits. The RBI prohibits individuals, partnership firms and association of individuals from accepting public deposits.

Guidelines for NBFCs to accept FDs

1. NBFCs can only collect deposits up to a permissible limit. Currently as per RBI regulations NBFCs can accept deposits to a limit of 1.5 times their Net Owned Funds.
2. The interest rates for the fixed deposits cannot be more than the ceiling rate prescribed by RBI. This is revised from time to time and this currently stands at 12.5%.
3. The tenure of the deposits cannot be less than 1 year and more than five years.
4. NBFCs cannot accept deposits payable on demand.
5. No Gifts or Incentives or any other kind of benefits can be given to the depositors by the NBFCs.
6. Nomination facility is available to the depositors of NBFCs. This means that depositors of NBFCs can nominate one person to whom the NBFC will return the deposit in the eventuality of the death of the depositor. Section 45QB of the Reserve Bank of India Act, 1934 provides the rules for nomination facility.
7. NBFCs are not permitted to accept deposits from NRIs by debit to their non-resident        external (NRE) or foreign currency non-resident (bank) (FCNR-B) account.  Deposits from NRIs by debit to their non-resident ordinary (NRO) accounts can be however accepted.
8. The Deposits with the NBFCs are not insured and their repayment is not guaranteed by the RBI.

As the deposits with the NBFCS are unsecured and their repayment is not guaranteed investors must be cautious and do a proper research before investing. RBI has prescribed the following precautions which a depositor must take before placing their money in a deposit with an NBFC.

1. The depositor must ensure that the NBFC is registered and is authorized to collect deposits. They have to specifically look out for the Certificate of Registration issued by the RBI. The NBFC must display it on its site.
2. The NBFC must issue a duly signed receipt for every deposit to the customer.
3. It is the depositor’s responsibility to study the company thoroughly- its financial stability, accuracy of the statements made etc. This is needed to make sure that there will not be any problem in repaying the deposits.
4. The depositor can approach the Company Law Board or Consumer Forum or file a civil suit if a NBFC defaults in repayment of the deposit.