RBI amends NBFC Directions

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Published on January 13, 2000

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RBI amends NBFC Directions

The Governor had announced in his Statement on 'Mid Term Review of Monetary and Credit Policy for the Year 1999-2000' issued on October 29, 1999, three major decisions in relation to Non-Banking Financial Companies (NBFCs) whereby borrowings from mutual funds are to be treated outside the purview of public deposits, the NBFCs are required to give public notice of three months prior to the closure of a branch and/or transfer of control/management by them. The RBI today announced certain amendments to NBFC Acceptance of Public Deposits (Reserve Bank) Directions 1998, NBFCs Prudential Norms (Reserve Bank) Directions 1998, Residuary Non-Banking Companies (Reserve Bank) Directions 1987 and NBFCs Auditor’s Report (Reserve Bank) Directions and the Reserve Bank of India (NBFCs) Returns Specifications 1997, and also exemptions to certain classes of companies from the provisions of RBI Act, 1934. In addition, it has also issued clarifications on directions issued by it earlier. The major modifications announced by the Reserve Bank today are:

The Reserve Bank has allowed exemption to companies engaged in micro-financing activities from the provisions of entire Chapter III B including registration; exemption to all Government companies from maintenance of liquid assets, creation of reserve fund and all provisions of NBFC Directions except registration; and exemption to potential nidhi companies from the requirements of registration, liquid assets and reserve fund and also certain provisions of the NBFC Directions.

The Reserve Bank has introduced certain regulations over opening and closing of branches with an obligation of the auditors to report non-compliance of these directions to the Reserve Bank; certain provisions that relate to need for introduction of depositors, deposits from first named joint shareholders only to be treated outside the purview of public deposits, minimum period of hybrid or subordinated debt, disclosure requirements about the exposures to the companies in the same Group, etc.; NBFCs have also been directed to constitute Audit Committee, consisting of not less than three members of its Board of Directors, if they have assets of more than Rs. 50 crore as per the last audited Balance Sheet. NBFCs would be required to follow a uniform accounting year of March 31 every year with effect from the accounting year ending with March 31, 2001.They would also furnish information on suit filed and decreed debts in their Reporting Formats submitted to the Reserve Bank.

Other major items of changes relate to providing that a part of the liquid assets (up to 5 per cent of public deposits) may be maintained by NBFCs in the form of unencumbered bank term deposits with scheduled commercial banks.

It has been reiterated that the NBFCs having NOF below Rs.25 lakh may not be granted general exemption and their applications for Certificates Of Registration may not be considered;

It has also been clarified that NBFCs not holding public deposits are no longer required to submit liquid asset return, NBFCs should carefully appoint their agents for soliciting deposits because they are responsible as principals for the acts of omission and commission of their agents, etc.