RBI/2014-15/35
DNBS (PD) CC No. 389/03.10.001/2014-15

July 1, 2014
(As amended up to May 25, 2015)

To

All Non-Banking Financial Companies (NBFCs)

Dear Sirs,

Master Circular - Allied activities - Entry into insurance business, issue of credit card and marketing and distribution of certain products

In order to have all current instructions in one place, the Reserve Bank of India issues updated circulars/notifications to NBFCs on various subjects. It is advised that instructions on various allied activities carried out by NBFCs till the date as indicated above are reproduced below, have been compiled herein and enclosed for ready reference. The Notifications have also been placed on the RBI web-site (/en/web/rbi).

Yours faithfully,

(K.K.Vohra)
Principal Chief General Manager

Table of Contents

Instructions on Allied Activities

I. ¹Entry into insurance business

(1) In the statement of Monetary and Credit Policy announced by our Governor on April 27, 2000 it was indicated, inter alia, that the guidelines for entry of NBFCs into insurance business would be announced. Accordingly, the Bank issued on June 9, 2000 the final guidelines after taking into account the views/suggestions/comments of the market participants as given below. The aspirant NBFCs are advised to make an application along with necessary particulars duly certified by their statutory auditors to the Regional Office of Department of Non-Banking Supervision under whose jurisdiction the registered office of the NBFCs is situated.

(a) NBFCs registered with Reserve Bank of India may take up insurance agency business on fee basis and without risk participation, without the approval of Reserve Bank of India subject to the certain conditions;

(b) NBFCs registered with RBI which satisfy the eligibility criteria will be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards. The maximum equity contribution such an NBFC can hold in the joint venture company will normally be 50 per cent of the paid-up capital of the insurance company. On a selective basis, the Reserve Bank of India may permit a higher equity contribution by a promoter NBFC, pending divestment of equity within the prescribed period. ²In case more than one company (irrespective of doing financial activity or not) in the same group of the NBFC wishes to take a stake in the insurance company, the contribution by all companies in the same group shall be counted for the limit of 50 percent prescribed for the NBFC in an insurance JV. ³In cases where IRDA issues calls for capital infusion into the Insurance JV company, the Bank may, on a case to case basis, consider need based relaxation of the 50% group limit specified in CC No 221 dated May 27, 2011. The relaxation, if permitted, will be subject to compliance by the NBFC with all regulatory conditions specified in DNBS(PD) CC.No.35/10.24/2003-04 dated February 10, 2004 and such other conditions as may be necessary in the specific case. Application for such relaxation along with supporting documents are to be submitted by the NBFC to the Regional Office of the Reserve Bank under whose jurisdiction its registered office is situated;

(c) NBFCs registered with RBI which are not eligible as joint venture participants, as above can make investments up to 10 per cent of the owned fund of the NBFC or Rs.50 crore, whichever is lower, in the insurance company subject to eligibility criteria for such investment.

(2)(a) No NBFC would be allowed to conduct such business departmentally. A subsidiary or company in the same group of an NBFC or of another NBFC engaged in the business of an non-banking financial institution or banking business will not normally be allowed to join the insurance company on risk participation basis.

(b) All NBFCs registered with RBI entering into insurance business as investors or on risk participation basis will be required to obtain prior approval of the Reserve Bank. The Reserve Bank will give permission to NBFCs on case to case basis keeping in view all relevant factors. It should be ensured that risks involved in insurance business do not get transferred to the NBFC and that the NBFC business does not get contaminated by any risks which may arise from insurance business.

⁴Note: The term "Companies in the same group shall mean an arrangement involving two or more entities related to each other through any of the following relationships: Subsidiary – parent (defined in terms of AS 21), Joint venture (defined in terms of AS 27), Associate (defined in terms of AS 23), Promoter-promotee (as provided in the SEBI (Acquisition of Shares and Takeover) Regulations, 1997) for listed companies, a related party (defined in terms of AS 18), Common brand name, and investment in equity shares of 20% and above.

(3)⁵In view of the unique business model of Core Investment Companies(CICs), separate set of guidelines have been issued for their entry into insurance business. While the eligibility criteria, in general, are similar to that for other NBFCs, no ceiling has been stipulated for CICs in their investment in an insurance joint venture. Further, it is clarified that CICs cannot undertake insurance agency business. CICs exempted from registration with RBI do not require prior approval provided they fulfill all the necessary conditions of exemption as provided in CC No.206 dated January 05, 2011. Their investment in insurance joint venture would be guided by IRDA norms.

II. ⁶Issue of Credit card

NBFCs registered with RBI are not allowed to undertake credit card business without prior approval of RBI. Any company including a non-deposit taking company intending to engage in this activity requires a ⁷Certificate of Registration, apart from specific permission to enter into this business, the pre-requisite for which is a minimum net owned fund of Rs.100 crore and subject to such terms and conditions as the Bank may specify in this behalf from time to time. NBFCs are not permitted to issue debit cards, smart cards, stored value cards, charge cards, etc. as advised explicitly in February 21, 2005. Further, NBFCs have to comply also with the instructions issued by Bank to commercial banks vide DBOD.FSD.BC.49/24.01.011/2005-06 dated November 21, 2005.

III. ⁸Issue of Co-branded Credit Cards

IV. ⁹Distribution of Mutual Fund (MF) products by NBFCs

¹⁰NBFCs registered with RBI are allowed to distribute mutual funds subject to compliance with the SEBI guidelines / regulations, including its code of conduct, for distribution of mutual fund products.

Appendix

List of Circulars

¹Details in DNBS.(PD).CC. No. 13/02.01/99-2000 dated June 30, 2000, DNBS(PD).CC.No.18/02.01/2001-02 dated January 1, 2002 read with DNBS (PD) C.C. No. 35 / 10.24 / 2003-04 dated February 10, 2004

²Inserted vide DNBS.PD.CC.No.221/03.02.002/2010-11dated May 27, 2011

³Inserted vide DNBS.PD.CC.No 361/03.02.002/2013-14 dated November 28, 2013

⁴DNBS.PD.CC.No.221/03.02.002/2010-11 dated May 27, 2011

⁵Details inDNBS (PD) CC.No.322/03.10.001/2012-13 dated April 1, 2013

⁶Details in DNBS (PD) C.C. No.41/10.27/2004-05 dated July 7, 2004, DBOD.FSD.BC. 49/24.01.011/ 2005-06 dated November 21, 2005

⁷Foot Note: In terms of Press Release 2013-2014/1931 dated April 01, 2014, with effect from April 01, 2014, the issue of Certificate of Registration (COR) to the companies proposing to conduct business of NBFI in terms of Section 45IA of the RBI Act, 1934 has been kept in abeyance by RBI, for a period of one year.

⁸Details in DNBS (PD) CC No. 83/03.10.27/2006-07 dated December 04, 2006

⁹Details in DNBS (PD) CC No. 84/03.10.27/2006-07 dated December 04, 2006

¹⁰ Details in DNBR. (PD).CC.No. 033/03.10.001/2014-15 dated April 30,2015