NBFC DEPOSITS IN INDIA
What NBFC stands for ? Meaning of NBFC
Non-banking financial institutions (NBFIs), engaged in varied financial activities are part of the Indian financial system providing a range of financial services. NBFCs are incorporated under the Companies Act, 1956. NBFCs can be classified into two broad categories, viz.,
(i) NBFCs accepting public deposit (NBFCs-D) and
(ii) NBFCs not accepting/holding public deposit (NBFCs-ND).
Residuary Non-Banking Companies(RNBCs) are another category of NBFCs whose principal business is acceptance of deposits and investing in approved securities. In the interest of depositors, NBFC s are regulated by RBI . RBI has evolved a regulatory framework the salient features of which are outlined below for the guidance of depositors.. However, the investors must carefully evaluate their investment decisions while investing in NBFCs .
Rules governing NBFC
NBFCs include a loan company, an investment company, asset finance company ( i.e. a company conducting the business of equipment leasing or hire purchase finance) and Residuary Non-Banking Companies.
An NBFC must be registered with the Reserve Bank of India (RBI) and have specific authorization to accept deposits from the public.
NBFC must display the Certificate of Registration or a certified copy thereof at the Registered office and other offices/branches.
Registration of an NBFC with the RBI merely authorizes it to conduct the business of NBFC. RBI does not guarantee the repayment of deposits accepted by NBFCs. NBFCs cannot use the name of the RBI in any manner while conducting their business.
The NBFC whose application for grant of Certificate of Registration (CoR) has been rejected or cancelled by the RBI is neither authorized to accept fresh deposits nor renew existing deposit. Such rejection or cancellation is also published in newspapers from time to time . Besides, a list of NBFCs permitted to accept public deposits, NBFCs whose applications for CoR has been rejected or whose CoR has been cancelled by the RBI is available on the RBI's web site www.rbi.org.in( go to site map and then NBFC list)
NBFCs which accept deposits should have minimum investment grade credit rating granted by an approved credit rating agency for deposit collection, except certain Asset Finance (equipment leasing and hire purchase finance) companies and Residuary Non-Banking Companies (RNBCs), . The following Credit Rating Agencies have been approved to issue the ratings to NBFCs .
Name of the agency Minimum Investment Grade Credit Rating
(a) The Credit Rating Information Services of India Ltd. (CRISIL)FA- (FA Minus)
(b) ICRA Ltd. MA- (MA Minus)
(c) Credit Analysis & Research Ltd. (CARE) CARE BBB (FD)
(d) Fitch Ratings India Private Ltd. tA-(ind)(FD)
(e) Brickwork Ratings India Pvt. Ltd. (Brickwork) BWR FBBB
(f) Acuite Ratings & Research Limited ACUITE A
(g) Infomerics Valuation and Rating Private Limited (IVRPL) IVR BBBWhat are the restrictions for NBFCs and RNBCs ?
NBFCs excluding RNBCs cannot
-Offer a rate of interest on deposits more than that approved by RBI from time to time (at present 12.5%).
-Accept deposit for a period less than 12 months and more than 60 months
-Offer any gifts/incentives to solicit deposits from public.
RNBCs should
-offer a rate of interest of not less than 5% per annum on term deposits and 3.5% on daily deposits, both compounded annually, under extant directions.
-RNBCs cannot accept deposits for a period less than 12 months and more than 84 months.
-RNBCs cannot offer any gifts/incentives to solicit deposits from public
Refer : RBI Master Direction updated as of 22.02.20219
What are the restrictions for NBFCs and RNBCs ?
NBFCs excluding RNBCs cannot
-Offer a rate of interest on deposits more than that approved by RBI from time to time (at present 12.5%).
-Accept deposit for a period less than 12 months and more than 60 months
-Offer any gifts/incentives to solicit deposits from public.
RNBCs should
-offer a rate of interest of not less than 5% per annum on term deposits and 3.5% on daily deposits, both compounded annually, under extant directions.
-RNBCs cannot accept deposits for a period less than 12 months and more than 84 months.
-RNBCs cannot offer any gifts/incentives to solicit deposits from public
Refer : RBI Master Direction updated as of 22.02.20219
Deposit receipt of NBFCs :
NBFCs including RNBCs can accept deposit only against issue of proper receipt. The receipt should bear the name of the company and should be signed by an authorized official of the company. The receipt should mention the name of the depositor, the amount in words as well as figures, the rate of interest payable on the deposit amount and the date of repayment of matured deposit along with the maturity amount.
In the case of brokers/agents etc collecting public deposits on behalf of NBFCs, the depositors should satisfy themselves that the brokers/agents are duly authorized by the NBFC.
If a deposit taking NBFC fails to repay the deposit or the interest accrued thereon in accordance with the terms and conditions of acceptance of such deposit, redressal of grievance can be through the Regional Bench of the Company Law Board at Chennai/Delhi/Kolkata/Mumbai
NBFC EXAMPLES - LEADING NBFCs IN INDIA :
LIST OF NBFC IN INDIA AUTHORIZED TO TAKE PUBLIC DEPOSITS :
As on 31st, January 2022 , RBI has issued permission to 49 NBFC companies to accept Public Deposits . You may go through the list ,by CLICKING here , to know whether the company in which you want to deposit is in the lit or not .
Some of the active and leading NBFC who take public deposits are :
1. Shriram Transport Finance Corporation Limited
2. Sundaram Finance Limited
3. Bajaj Finance Limited
4. Mahindra & Mahindra Financial Services Limited
5. Muthoot Finance Limited
How do you know whether an NBFC accepting deposit is genuine or not? :
Verify whether the name of NBFC appears in the list of deposit taking NBFCs entitled to accept deposits, available at https://rbi.org.in and to ensure that it is not appearing in the list of companies prohibited from accepting deposits.
➢ NBFCs must prominently display the Certificate of Registration (CoR) issued by the Reserve Bank on its site / in its office. This certificate should also reflect that the NBFC has been specifically authorised by RBI to accept deposits. Scrutinize the certificate to
ensure that the NBFC is authorised to accept deposits.
➢ NBFCs cannot accept deposits for a period less than 12-months and more than 60 months and the maximum interest rate that an NBFC can pay to a depositor should not exceed 12.5%.
➢ The Reserve Bank publishes the change in the interest rates on https://rbi.org.in → Sitemap → NBFC List → FAQs.
( Extracted from the RBI Booklet BE(A)WARE – A Booklet on Modus Operandi of Financial Frauds )
Precautions while placing deposits with NBFC :
Precautions to be taken by depositors
➢ When depositing money, insist on a proper receipt for each and every deposit made
with the bank / NBFC / company.
➢ The receipt should be duly signed by an officer authorised by the company and should
state, inter alia, the date of the deposit, the name of the depositor, the amount in words
and figures, rate of interest payable, maturity date and amount.
➢ In the case of brokers / agents, etc., collecting public deposits on behalf of NBFCs,
verify that the brokers / agents are duly authorised for the purpose by the concerned
NBFC.
➢ Remember that the Deposit Insurance facility from DICGC is not available to depositors of NBFCs.
Are NBFC Deposits Safe ? :
NBFCs are regulated by Reserve Bank of India and has put various conditions to be followed for accepting public deposits . RBI does not guarantee the repayment of deposits accepted by NBFCs , even though it has stipulated various condition for doing business by them . Further NBFC deposits do not carry DICGC guarantee , which is issued to Bank deposits . Hence one has to understand the risks involved in placing deposits with NBFCs and take extra precautions before investing in them .