The RBI issues directions to regulate acceptance of deposits by NBIs/ FIs. These directions contain provisions regulating the amount/ period of deposits, rates of interest, brokerage etc. They also exempt from their purview certain types of borrowings/ money received by these companies. Main provisions related to deposit acceptance are as under.
on quantum of public deposits: The RBI prescribes how much deposits an NBFC can accept, depending upon the nature of business, NOF and credit rating given the NBFC. At present following norms are applicable:
Loan and investment companies : If the company has NOF of Rs. 25 Lakh, minimum investment grade (MIG) credit rating, complies with all the prudential norms and has CRAR of 15 percent – 1.56 times of NOF
Equipment leasing and hire purchase finance companies : If company has NOF of Rs. 25 Lakh and complies with all the prudential norms (a) with MIG credit rating and 12% CRAR – 4 times of NOF (b) without MIG credit rating but CRAR 15% or above – 1.5 times of NOF or Rs. 10 crore whichever is less.
Down grading of credit rating: In the event of downgrading of credit rating below the minimum specified investment grade the excess deposit should be regularized in the manner specified. An ELC/HPFC must immediately stop accepting deposits and report the position within 15 days to the RBI and reduce within three years from the date of such downgrading of credit rating the amount of excess public deposit to nil or the appropriate extent permissible to which it is entitled to accept by repayment as and when such deposit falls due or otherwise. A LC/IC must stop immediately accepting the deposits, report to RBI within 15 days and reduce within three years the amount of excess to nil by repayment as and when such deposit fall due or otherwise. In the event of excess public deposit arising out of the regulatory ceiling or downgrading of credit rating, the NBFC may renew the maturing public deposit subject to the compliance of the repayment stipulations and other provisions of these directions. No matured public deposit should be renewed without the voluntary consent of the depositor.
Ceiling of Interest Rates: There was a ceiling of 12.5% per annum on the rate of interest on deposits with effect from November 1, 2001. For RNBCs minimum interest rate is 4% on daily deposits and 6% on other than daily deposits. It may be paid or compounded at rests not shorter than monthly rests. (Check RBI web site for latest ceiling).
Period of Deposits: All the NBFCs cannot accept demand deposits. For other deposits periods are (i) NBFC – 12 to 60 months (ii) RNBCs – 12 to 84 months and (iii) MNBCs (chit funds) – 6 to 36 months.
Payment of brokerage: The permissible brokerage, commission, incentives or any other benefit on deposits with all NBFCs is 2% of the deposit. The expenses by way of reimbursement on the basis of related vouchers/ bills produced up to 0.5 % of the deposits are also permitted.
Renewal of deposits : The NBFCs can permit the existing depositors to renew their deposits before maturity to avail of the benefit of a higher rate of interest provided (i) the deposit is renewed in accordance with the other provisions of these directions and for a longer duration than the remaining period of the original contract and (ii) the interest on the expired period of the deposit is reduced by 1 percent from the rate which the NBFC would have ordinarily paid had the deposit been accepted for the period for which it has run; any interest paid earlier in excess of such reduced rate is recovered/ adjusted. In this context, a depositor means any person who has made a deposit with a company; or a heir, legal representative, administrator or assignee of the depositor.
Advertisements and statements in lieu of advertisement: All NBFCs have to mandatorily comply with the provisions of the NBFC/MNBC Advertisement Rules, 1977. They also should specify in every advertisement the following:
Actual rate of return by way of interest, premium, bonus and other advantages to the depositors.
Mode of repayment of deposit.
Maturity period of deposit
Interest payable on deposits
Rate of interest payable on withdrawal of the deposits
Terms and conditions for the renewal of deposits
Any other special feature relating to the terms and conditions for the acceptance/ renewal of deposits and
The information relating to the aggregate dues (including the non-fund bases facilities provided to) from companies in the same group or other entities/ business venture in which directors and or the NBFC are holding substantial interest and the total amount of exposure to such companies.
Where a NBFC intends to accept deposits without inviting such deposits, it has to file a statement in lieu of the advertisement with the RBI containing all the particulars specified above and duly signed in the specified manner. Such a statement is valid for six months. Fresh statements would have to be delivered in each succeeding year before accepting public deposit in that financial year.
Repayment of deposits: The directions do not permit premature withdrawal of deposits within three months from the date of acceptance. The NBFCs are required to pay interest on withdrawal before maturity at the request of the depositor at the specified rates, namely (i) no interest on withdrawal between three and six months, (ii) not more than 10% p.a. between 6- 12 months and (iii) 1% less than the contracted rate on withdrawals after 12 months but before maturity. In case of MNBCs, the interest on such withdrawals is nil between 3-6 months and 1% less than the contracted rate after 6 months but before maturity. The RNBCs can deduct 2% from the rate, which they would have normally paid to the depositors upon maturity, on withdrawal after one year but before expiry of the period of deposit.