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Indian Currency

F) COINS

6. Who is responsible for changing the design of coins from time to time? +

The Government of India is responsible for the designing and minting of coins in various denominations.

FAQs on Non-Banking Financial Companies

Prudential Norms

52 Whether the credit concentration norms are applicable to commercial transactions only or are applicable to the advance deposit with the landlords, other authorities and for other purposes, as well? +

The credit concentration norms are applicable to commercial transactions only. Advance deposits of money as security for performance of some contract between the two parties, like office premises, advance deposits with the Government authorities towards services, etc. are not governed by the credit concentration norms.

All you wanted to know about NBFCs

E. Depositor Protection Issues

52. In case an NBFC defaults in repayment of deposit what course of action can be taken by depositors? +

If an NBFC defaults in repayment of deposit, the depositor can approach Company Law Board or Consumer Forum or file a civil suit in a court of law to recover the deposits. NBFCs are also advised to follow a grievance redress procedure as indicated in reply to question 57 below. Further, at the level of the State Government, the State Legislations on Protection of Interest of Depositors (in Financial Establishments) empowers the State Governments to take action even before the default takes place or complaints are received from depositors. If there is perpetration of an offence and if the intention is to defraud, the State Government can even attach properties.

53. What is the role of Company Law Board in protecting the interest of depositors? How can one approach it? +

When an NBFC fails to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the Company Law Board (CLB) either on its own motion or on an application from the depositor, directs by order the Non-Banking Financial Company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order. After making the payment, the company will need to file the compliance with the local office of the Reserve Bank of India.

As explained above, the depositor can approach CLB by mailing an application in prescribed form to the appropriate bench of the Company Law Board according to its territorial jurisdiction along with the prescribed fee.

Domestic Deposits

VII. Service charges

53. Is there any ceiling on service charges to be levied by the banks? +

Indian Banks’ Association (IBA) has dispensed with the practice of prescribing service charges to be levied by banks for various services rendered by them. With effect from September 1999, the Reserve Bank has granted freedom to banks to prescribe service charges with the approval of respective Board of Directors.

Indian Currency

F) COINS

7. Who decides on the quantity of coins to be minted? +

The Government of India decides on the quantity of coins to be minted on the basis of indent received from the Reserve Bank on yearly basis.

FAQs on Non-Banking Financial Companies

Prudential Norms

53. Whether the Prudential Norm Return can be certified by any Chartered Accountant ? +

No. The Prudential Norm Return should be certified by the companys Statutory Auditors only and not by any other Chartered Accountant.

Depositor Awareness

54. If the Reserve Bank regulations are made for protecting depositors' interest, does it mean that public deposit with NBFCs are guaranteed by RBI or covered under insurance of RBI? +

A The RBI regulations are aimed at protecting the depositors' interest indirectly. The Bank also exercises Off-site Surveillance and/or On-site Inspection of NBFCs. The RBI, however, does not guarantee or offer insurance cover to public deposits of NBFCs.

Indian Currency

F) COINS

8. Can coins be accepted in all the transactions as legal tender? +

The Reserve Bank has instructed the banks to accept coins for transactions and exchange at all their branches. The public can continue to accept these coins as legal tender in all their transactions without any hesitation. A press release in this regard can be accessed at the following link: /en/web/rbi/-/press-releases/public-can-continue-to-accept-all-the-coins-as-legal-tender-rbi-47414

All you wanted to know about NBFCs

E. Depositor Protection Issues

54. Can you give the addresses of the various benches of the Company Law Board (CLB) indicating their respective jurisdiction? +

The details of addresses and territorial jurisdiction of the bench officers of CLB are as under:

S. No.	Benches	Jurisdiction	Telephone No.
1.	Company Law Board Principal Bench Paryavaran Bhawan B-Block, 3rd Floor C.G.O. Complex Lodhi Road,New Delhi – 110 003	All States & Union Territories	011 – 24366126
2.	Company Law Board New Delhi Bench Paryavaran Bhawan B-Block, 3rd Floor C.G.O. Complex Lodhi Road,New Delhi – 110 003	States of Delhi, Haryana, Himachal Pradesh, Jammu & Kashmir, Punjab, Rajasthan, Uttar Pradesh, Uttarakhand and Union Territories of Chandigarh.	011 – 24363671, 011 – 24362324
3.	Company Law Board Kolkata Bench 5, Esplande Row(West) Kolkata – 700 001	States of Arunachal Pradesh, Assam, Bihar, Manipur, Meghalaya, Nagaland, Orissa, Sikkim, Tripura, West Bengal, Jharkhand and Union Territories of Andaman and Nicobar Island and Mizoram.	033 – 22486330
4.	Company Law Board Mumbai Bench N.T.C. House, 2ND Floor, 15 Narottam Morarjee Marg, Ballard Estate, Mumbai – 400 038	States of Goa, Gujarat, Madhya Pradesh, Maharashtra, Chhattisgarh and (Union Territories of Dadra and Nagar Haveli and Damman and Diu)	022 – 22619636
5.	Company Law Board, Chennai Bench Corporate Bhawan (UTI Building), 3rd Floor, No. 29 Rajaji Salari, Chennai – 600001.	States of Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Union Territories of Pondicherry and Lakshadweep Island.	044 – 25262791

Indian Currency

F) COINS

9. From where can one get commemorative coins? +

For commemorative coins, you may refer to the website of SPMCIL at http://www.spmcil.com or contact SPMCIL.

FAQs on Non-Banking Financial Companies

Depositor Awareness

55. What should the depositors ensure while depositing their money with NBFCs? +

A. The NBFC has been in existence for at least two years. (New NBFCs are not permitted to mobilise public deposits during first two years of existence) The NBFC has a minimum credit rating of A- (CRISIL AND ICRA),BBB(CARE), BBB- (DCR India) if it is an Equipment Leasing/Hire Purchase Company and a minimum rating of A if it is a Loan/Investment Company. The NBFC does not have overdue deposits, except unclaimed deposits, while soliciting fresh deposits. The NBFC is a profit making company. The NBFC has declared that it has complied with the RBI Directions.

All you wanted to know about NBFCs

E. Depositor Protection Issues

55. We hear that in a number of cases Official Liquidators have been appointed on the defaulting NBFCs. What is the procedure adopted by the Official Liquidator? +

An Official Liquidator is appointed by the court after giving the company reasonable opportunity of being heard in a winding up petition. The liquidator performs the duties of winding up of the company and such duties in reference thereto as the court may impose. Where the court has appointed an official liquidator or provisional liquidator, he becomes custodian of the property of the company and runs day-to-day affairs of the company. He has to draw up a statement of affairs of the company in prescribed form containing particulars of assets of the company, its debts and liabilities, names/residences/occupations of its creditors, the debts due to the company and such other information as may be prescribed. The scheme is drawn up by the liquidator and same is put up to the court for approval. The liquidator realizes the assets of the company and arranges to repay the creditors according to the scheme approved by the court. The liquidator generally inserts advertisement in the newspaper inviting claims from depositors/investors in compliance with court orders. Therefore, the investors/depositors should file the claims within due time as per such notices of the liquidator. The Reserve Bank also provides assistance to the depositors in furnishing addresses of the official liquidator.

Indian Currency

F) COINS

10. Where can one complaint against non-acceptance of coins or exchange of notes and coins by Banks? +

In case of grievance against a specific bank, a complaint may be lodged with the bank branch concerned. If not satisfied with their reply, a complaint may be lodged with Nodal Officers/Principal Nodal Officers at Controlling Office/Head Office of the bank branch, appointed under the Banking Ombudsman Scheme, 2006, for redressal of complaints. If the complaint is not redressed within one month, a complaint can be made to Banking Ombudsman, under the Banking Ombudsman Scheme, 2006. Non-acceptance, without sufficient cause, of coins tendered and charging of commission in respect thereof is a valid ground for lodging complaints against a bank under the Banking Ombudsman Scheme 2006.The details of the Banking Ombudsman Scheme are available on RBI's website www.rbi.org.in. The name and contact details of the Nodal Officers of the banks are available in their respective official website.

For the complaints not covered under Banking Ombudsman Scheme, 2006, the complainants may approach to Consumer Education and Protection Cell, Reserve Bank of India (at cms.rbi.org.in) of respective region with their grievance about deficiency in customer service by RBI regulated entities.

FAQs on Non-Banking Financial Companies

Depositor Awareness

56. Where will a depositor find the above information? +

A This information is required to be printed in the Application Form issued by the company soliciting deposits.

All you wanted to know about NBFCs

E. Depositor Protection Issues

56. The Consumer Court plays useful role in attending to depositors problems. Can one approach Consumer Forum, Civil Court, CLB simultaneously? +

Yes, a depositor can approach any or all of the redressal authorities i.e consumer forum, court or CLB.

FAQs on Non-Banking Financial Companies

Depositor Awareness

57. Are there any other precautions that depositors should take? +

A Please note that: The NBFCs are allowed to accept public deposits in any form only for periods ranging between 12 months and 60 months. NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 16 per cent per annum. The interest may be paid or compounded at rests not shorter than monthly rests. NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.

All you wanted to know about NBFCs

E. Depositor Protection Issues

57. Is there an Ombudsman for hearing complaints against NBFCs or Does RBI have any grievance redressal mechanism in place for NBFCs? +

No, there is no Ombudsman for hearing complaints against NBFCs. However, in respect of credit card operations of an NBFC, which is a subsidiary of a bank, if a complainant does not get satisfactory response from the NBFC within a maximum period of thirty (30) days from the date of lodging the complaint, the customer will have the option to approach the Office of the concerned Banking Ombudsman for redressal of his grievance/s.If complaints or grievances against the NBFCs are submitted to the nearest office of the Reserve Bank of India, the same are taken up with the NBFC concerned to facilitate resolution of the grievance/complaint. Further, all NBFCs have in place a Grievance Redressal Officer, whose name and contact details have to be mandatorily displayed in the premises of the NBFCs. The grievance can be taken up with the Grievance Redressal Officer. In case the complainant is not satisfied with the settlement of the complaint by the Grievance Redressal Officer of the NBFC, he/she may approach the nearest office of the Reserve Bank of India with the complaint. The details of the Office of the Reserve Bank has also to be mandatorily displayed in the premises of the NBFC.

FAQs on Non-Banking Financial Companies

Depositor Awareness

58. What view could be taken when an NBFC offers much higher interest rate? +

A It should be noted that higher the interest, the higher is the risk. Particularly, the NBFCs offering interest or incentives (which are not permitted under the regulations) should be viewed with caution.

All you wanted to know about NBFCs

E. Depositor Protection Issues

58. Companies registered with MCA but not registered with RBI as NBFCs also sometimes default in repayment of deposit/ amounts invested with them? What is the recourse available to the investors in such an event? Does RBI have any role to play in such cases? +

Companies registered with MCA but not required to be registered with RBI as NBFC are not under the regulatory domain of RBI. Whenever RBI receives any such complaints about the companies registered with MCA but not registered with RBI as NBFCs, it forwards the complaints to the Registrar of Companies (ROC) of the respective state for any action. The complainants are advised that the complaints relating to irregularities of such companies should be promptly lodged with ROC concerned for initiating corrective action. However, in case it comes to the knowledge of RBI those companies were required to be registered with the RBI, but have not done so and have accepted deposits as defined under RBI Act, such action as is deemed necessary under the provisions of the RBI Act will be taken.

FAQs on Non-Banking Financial Companies

Depositor Awareness

59. What else should a depositor bear in mind while depositing money with NBFCs? +

A While making deposits with an NBFC the following aspects should also be borne in mind. Note that all public deposits are unsecured. Insist on a proper deposit receipt which should, besides the name of the depositor/s state the date of deposit, the amount in words and figures, rate of interest payable and the date of maturity. Amounts taken under any other nomenclature may not be treated as public deposits and may not be governed by RBI regulations.

All you wanted to know about NBFCs

E. Depositor Protection Issues

59. The NBFCs have been made liable to pay interest on the overdue matured deposits if the company has not been able to repay the matured public deposits on receipt of a claim from the depositor. Please elaborate the provisions. +

As per Reserve Bank’s Directions, overdue interest is payable to the depositors in case the company has delayed the repayment of matured deposits, and such interest is payable from the date of receipt of such claim by the company or the date of maturity of the deposit whichever is later, till the date of actual payment. If the depositor has lodged his claim after the date of maturity, the company would be liable to pay interest for the period from the date of claim till the date of repayment. For the period between the date of maturity and the date of claim it is the discretion of the company to pay interest. In cases where NBFCs are required to freeze the term deposits of customer based on the orders of the enforcement authorities or the deposit receipts are seized by the enforcement authorities, they shall follow the procedure as given below:

request letter may be obtained from the customer on maturity. While obtaining the request letter from the depositor for renewal, NBFCs should also advise him to indicate the term for which the deposit is to be renewed. In case the depositor does not exercise his option of choosing the term for renewal, NBFCs may renew the same for a term equal to the original term.
No new receipt is required to be issued. However, suitable note may be made regarding renewal in the deposit ledger.
Renewal of deposit may be advised by registered letter / speed post / courier service to the concerned Government department under advice to the depositor. In the advice to the depositor, the rate of interest at which the deposit is renewed should also be mentioned.
If overdue period does not exceed 14 days on the date of receipt of the request letter, renewal may be done from the date of maturity. If it exceeds 14 days, NBFCs may pay interest for the overdue period as per the policy adopted by them, and keep it in a separate interest free sub-account which should be released when the original fixed deposit is released.

However the final repayment of the principal and the interest so accrued should be done only after the clearance regarding the same is obtained by the NBFCs from the respective Government agencies.

FAQs on Non-Banking Financial Companies

RNBCs

60. Why regulations have not been framed for another class of NBFCs viz. RNBCs ? +

A. The deposit acceptance activities of the class of NBFCs, popularly known as RNBCs, are governed by the provisions of Residuary Non- Banking Companies (Reserve Bank) Directions, 1987. That the functioning of these companies (which are very few in number) is entirely different from those of the NBFCs in terms of method of mobilisation of deposits and requirement of deployment of depositors funds. These companies are required to invest not less than 80 per cent of their aggregate deposit liabilities according to the prescribed investment pattern. Only 20 per cent of the deposits or ten times the NOF, whichever is lower, can be deployed in other assets. These companies are characterised by poor NOF and as such they are obliged to invest the entire deposit funds as directed by RBI. Serious action has been taken against the erring RNBCs and more than 200 such companies have so far been prohibited from acceptance of deposits.

All you wanted to know about NBFCs

E. Depositor Protection Issues

60. Can a company pre-pay its public deposits? +

An NBFC accepts deposits under a mutual contract with its depositors. In case a depositor requests for pre-mature payment, Reserve Bank of India has prescribed Regulations for such an eventuality in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 wherein it is specified that NBFCs cannot grant any loan against a public deposit or make premature repayment of a public deposit within a period of three months (lock-in period) from the date of its acceptance. However, in the event of death of a depositor, the company may, even within the lock-in period, repay the deposit at the request of the joint holders with survivor clause / nominee / legal heir only against submission of relevant proof, to the satisfaction of the companyAn NBFC, (which is not a problem company) subject to above provisions, may permit after the lock–in period, premature repayment of a public deposit at its sole discretion, at the rate of interest prescribed by the BankA problem NBFC is prohibited from making premature repayment of any deposits or granting any loan against public deposit/deposits, as the case may be. The prohibition shall not, however, apply in the case of death of depositor or repayment of tiny deposits i.e. up to ₹ 10000/- subject to lock in period of 3 months in the latter case.

FAQs on Non-Banking Financial Companies

Nomination facility

All you wanted to know about NBFCs

E. Depositor Protection Issues

61. What is the liquid assets requirement for the deposit taking companies? Where are these assets kept? Do depositors have any claims on them? +

In terms of Section 45-IB of the RBI Act, 1934, the minimum level of liquid assets to be maintained by NBFCs is 15 per cent of public deposits outstanding as on the last working day of the second preceding quarter. Of the 15%, NBFCs are required to invest not less than ten percent in approved securities and the remaining 5% can be in unencumbered term deposits with any scheduled commercial bank. Thus, the liquid assets may consist of Government securities, Government guaranteed bonds and term deposits with any scheduled commercial bank.The investment in Government securities should be in dematerialised form which can be maintained in Constituents’ Subsidiary General Ledger (CSGL) Account with a scheduled commercial bank (SCB) / Stock Holding Corporation of India Limited (SHICL). In case of Government guaranteed bonds the same may be kept in dematerialised form with SCB/SHCIL or in a dematerialised account with depositories [National Securities Depository Ltd. (NSDL)/Central Depository Services (India) Ltd. (CDSL)] through a depository participant registered with Securities & Exchange Board of India (SEBI). However in case there are Government bonds which are in physical form the same may be kept in safe custody of SCB/SHCIL.NBFCs have been directed to maintain the mandated liquid asset securities in a dematerialised form with the entities stated above at a place where the registered office of the company is situated. However, if an NBFC intends to entrust the securities at a place other than the place at which its registered office is located, it may do so after obtaining the permission of RBI in writing. It may be noted that liquid assets in approved securities will have to be maintained in dematerialised form only. The liquid assets maintained as above are to be utilised for payment of claims of depositors. However, deposits being unsecured in nature, depositors do not have direct claim on liquid assets.

62. What does RBI do to protect the interest of NBFC depositors? +

RBI has issued detailed regulations on deposit acceptance, including the quantum of deposits that can be collected, mandatory credit rating, mandatory maintenance of liquid assets for repayment to depositors, manner of maintenance of its deposit books, prudential regulations including maintenance of adequate capital, limitations on exposures, and inspection of the NBFCs, besides others, to ensure that the NBFCs function on sound lines. If the Bank observes through its inspection or audit of any NBFC or through complaints or through market intelligence, that a certain NBFC is not complying with RBI directions, it may prohibit the NBFC from accepting further deposits and prohibit it from selling its assets. In addition, if the depositor has complained to the Company Law Board (CLB) which has ordered repayment and the NBFC has not complied with the CLB order, RBI can initiate prosecution of the NBFC, including criminal action and winding up of the company.More importantly, RBI initiates prompt action, including imposing penalties and taking legal action against companies which are found to be violating RBI's instructions/norms on basis of Market Intelligence reports, complaints, exception reports from statutory auditors of the companies, information received through SLCC meetings, etc. The Reserve Bank immediately shares such information with all the financial sector regulators and enforcement agencies in the State Level Coordination Committee Meetings.As a premier public policy institution, as part of its public policy measure, the Reserve Bank of India has been in the forefront in taking several initiatives to create awareness among the general public on the need to be careful while investing their hard earned money. The initiatives include issue of cautionary notices in print media and distribution of informative and educative brochures/pamphlets and close interaction with the public during awareness/outreach programs, Townhall events, participation in State Government sponsored trade fairs and exhibitions. At times, it even requests newspapers with large circulation (English and vernacular) to desist from accepting advertisements from unincorporated entities seeking deposits.

63. Who rates deposit taking NBFCs for acceptance of deposit? +

NBFCs may get itself rated by any of the six rating agencies namely, CRISIL, CARE, ICRA, FITCH Ratings India Pvt. Ltd, Brickwork Ratings India Pvt. Ltd. and SMERA.

64. What are the symbols of minimum investment grade rating of different companies? When a company’s rating is downgraded, does it have to bring down its level of public deposits immediately or over a period of time? +

The symbols of minimum investment grade rating of the Credit rating agencies are:

Name of rating agencies	Nomenclature of minimum investment grade credit rating (MIGR)
CRISIL	FA- (FA MINUS)
ICRA	MA- (MA MINUS)
CARE	CARE BBB (FD)
FITCH Ratings India Pvt. Ltd. SMERA	tA-(ind)(FD) SMERA A
Brickwork Ratings India Pvt. Ltd.	BWR FBBB

It may be added that A- is not equivalent to A, AA- is not equivalent to AA and AAA- is not equivalent to AAA.

However, if rating of an NBFC is downgraded to below minimum investment grade rating, it has to stop accepting public deposits, report the position within fifteen working days to the RBI and bring within three years from the date of such downgrading of credit rating, the amount of public deposit to nil. With the introduction of revised regulatory framework in November 2014 deposit taking NBFCs have to mandatorily get investment grade credit rating for being eligible to accept public deposits.

65. What is the purpose of enacting Protection of Interest of Depositors in Financial Establishments Act by the State Governments? +

The purpose of enacting this law is to protect the interests of the depositors. The provisions of RBI Act are directed towards enabling RBI to issue prudential regulations that make the financial entities function on sound lines. RBI is a civil body and the RBI act is a civil Act. Both do not have specific provisions to effect recovery by attachment and sale of assets of the defaulting companies, entities or their officials. It is the State government machinery which can effectively do this. The Protection of Interest of Depositors in Financial Establishments Acts, confers adequate powers on the State Governments to attach and sell assets of the defaulting companies, entities and their officials.

66. Will the passage of the Protection of Interest of Depositors in Financial Establishments by the State Governments help in nailing unincorporated entities and companies from unauthorisedly accepting deposits? +

Yes, to a large extent. The Act makes offences, such as, unauthorized acceptance of deposits by any entity, firm or company a cognizable offence, that is entities that are indulging in unauthorized deposit acceptance or unlawful financial activities can be immediately imprisoned and prosecuted. Under the Act, the State Governments have been given vast powers to attach the property of such entities, dispose them off under the orders of special courts and distribute the proceeds to the depositors. The widespread State Government / State Police machinery is best positioned to take quick action against the culprits. The Reserve Bank has, therefore, been urging all the State Governments to pass the legislation on Protection of Interest of Depositors in Financial Establishment Act.

67. Still there are cases of unscrupulous financial entities cheating public time and again. How does RBI plan to strengthen its surveillance on unauthorized acceptance of deposits/unauthorized conduct of NBFI business by companies? +

The Reserve Bank is strengthening its market intelligence function in various Regional Offices and is constantly examining the financials of companies, references for which have been received through market intelligence or complaints to the Reserve Bank. In this, context, members of public can contribute a great deal by being vigilant and lodging a complaint immediately if they come across any financial entity that contravenes the RBI Act. For example, if they are accepting deposits unauthorisedly and/conducting NBFC activities without obtaining due permission from the RBI. More importantly, these entities will not be able to function if members of public start investing wisely. Members of the public must know that high returns on investments will also have high risks. And there can be no assured return for speculative activities. Before investing the public must ensure that the entity they are investing in is a regulated entity with one of the financial sector regulators.F. Collective Investment Schemes (CIS) and Chit Funds

F. Collective Investment Schemes (CIS) and Chit Funds

68. Are Collective Investment Schemes (CIS) regulated by the Reserve Bank of India? +

No. CIS are schemes where money is exchanged for units, be it time share in resorts, profit from sale of wood or profits from the developed commercial plots and buildings and so on. Collective Investment Schemes (CIS) do not fall under the regulatory purview of the Reserve Bank.

69. Which is the authority that regulates Collective Investment Schemes (CIS)? +

SEBI is the regulator of CIS. Information on such schemes and grievances against the promoters may be immediately forwarded to SEBI as well as to the EOW/Police Department of the State Government.

70. Is the conducting of Chit Fund business permissible under law? +

The chit funds are governed by Chit Funds Act, 1982 which is a Central Act administered by state governments. Those chit funds which are registered under this Act can legally carry on chit fund business.

71. If Chit Fund companies are financial entities, why are they not regulated by RBI? +

Chit Fund companies are regulated under the Chit Fund Act, 1982, which is a Central Act, and is implemented by the State Governments. RBI has prohibited chit fund companies from accepting deposits from the public in 2009. In case any Chit Fund is accepting public deposits, RBI can prosecute such chit funds.G. Money Circulation/Multi-Level Marketing (MLM)/ Ponzi Schemes/ Unincorporated Bodies (UIBs)

G. Money Circulation/Multi-Level Marketing (MLM)/ Ponzi Schemes/ Unincorporated Bodies (UIBs)

72. There are some companies like Multi-Level Marketing companies, Direct Selling Companies, Online Selling Companies. Do they come under the purview of RBI? +

No, Multi-Level Marketing companies, Direct Selling Companies, Online Selling Companies do not fall under the purview of RBI. Activities of these companies fall under the regulatory/administrative domain of respective state government. The list of regulators and the entities regulated by them are as provided in Annex I.

73. What are money circulation/Ponzi/multi-level marketing schemes? +

Money circulation, multi level marketing / Chain Marketing or Ponzi schemes are schemes promising easy or quick money upon enrollment of members. Income under Multi level marketing or pyramid structured schemes do not come from the sale of products they offer as much as from enrolling more and more members from whom hefty subscription fees are taken. It is incumbent upon all members to enroll more members, as a portion of the subscription amounts so collected are distributed among the members at the top of the pyramid. Any break in the chain leads to the collapse of the pyramid, and the members lower in the pyramid are the ones that are affected the most. Ponzi schemes are those schemes that collect money from the public on promises of high returns. As there is no asset creation, money collected from one depositor is paid as returns to the other. Since there is no other activity generating returns, the scheme becomes unviable and impossible for the people running the scheme to meet the promised return or even return the principal amounts collected. The scheme inevitably fails and the perpetrators disappear with the money.

74. Is acceptance of money under Money Circulation/Multi-level Marketing/Pyramid structured schemes allowed? Does RBI regulates such schemes? +

No. Acceptance of money under Money Circulation/Multi-level Marketing/Pyramid structured schemes and Ponzi schemes is not allowed as acceptance of money under those schemes is a cognizable offence under the Prize Chit and Money Circulation (Banning) Act 1978 and are hence banned. The Reserve Bank has no role in implementation of this Act, except advising and assisting the Central Government in framing the Rules under this Act.

75. Then who regulates entities that run such schemes? +

Money Circulation/Multi-level Marketing /Pyramid structured schemes are an offence under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. The Act prohibits any person or individual to promote or conduct any prize chit or money circulation scheme or enrol as member to its schemes or anyone to participate in it by either receiving or remitting any money in pursuance of such chit or scheme. Contravention of the provisions of this Act, is monitored and dealt with by the State Governments.

76. What if someone operates such a scheme? +

Any information/grievance relating to such schemes should be given to the police / Economic Offence Wing (EOW) of the concerned State Government or the Ministry of Corporate Affairs. If brought to RBI notice – we will inform the same to the concerned State Government authorities.

77. What are Unincorporated Bodies (UIBs)? Has RBI any role to play in curbing illegal deposit acceptance activities of UIBs? Who has the power to take action against Unincorporated Bodies (UIBs) accepting deposits? +

Unincorporated bodies (UIBs) include an individual, a firm or an unincorporated association of individuals. In terms of provision of section 45S of RBI act, these entities are prohibited from accepting any deposit. The Act makes acceptance of deposits by such UIBs punishable with imprisonment or fine or both. The State government has to play a proactive role in arresting the illegal activities of such entities to protect interests of depositors/investors.

UIBs do not come under the regulatory domain of RBI. Whenever RBI receives any complaints against UIBs, it immediately forwards the same to the state government police agencies (Economic Offences Wing (EOW)). The complainants are advised to lodge the complaints directly with the State government police authorities (EOW) so that appropriate action against the culprits is taken immediately and the process is hastened.

As per Section 45T of RBI Act, both the RBI and State Governments have been given concurrent powers. Nonetheless, in order to take immediate action against the offender, the information should immediately be passed on to the State Police or the Economic Offences Wing of the concerned State who can take prompt and appropriate action. Since the State Government machinery is widespread and the State Government is also empowered to take action under the provisions of RBI Act, 1934, any information on such entities accepting deposits may be provided immediately to the respective State Government’s Police Department/EOW.

Many of the State Governments have enacted the State Protection of Interests of Depositors in Financial Establishments Act, which empowers the State Government to take appropriate and timely action.

RBI on its part has taken various steps to curb activities of UIBs which includes spreading awareness through advertisements in leading newspapers to sensitise public, organize various investors awareness programmes in various districts of the country, keeps close liaison with the law enforcing agencies (Economic Offences Wing).

78. There are some entities (not companies) which carry on activities like that of NBFCs. Are they allowed to take deposits? Who regulates them? +

Any person who is an individual or a firm or unincorporated association of individuals cannot accept deposits except by way of loan from relatives, if his/its business wholly or partly includes loan, investment, hire-purchase or leasing activity or principal business is that of receiving of deposits under any scheme or arrangement or in any manner or lending in any manner.

79. What precautions have to be taken by the public to forewarn themselves about the likelihood of losing money in schemes that offer high rates of interest? +

Before investing in schemes that promise high rates of return investors must ensure that the entity offering such returns is registered with one of the financial sector regulators and is authorized to accept funds, whether in the form of deposits or otherwise. Investors must generally be circumspect if the interest rates or rates of return on investments offered are high. Unless the entity accepting funds is able to earn more than what it promises, the entity will not be able to repay the investor as promised. For earning higher returns, the entity will have to take higher risks on the investments it makes. Higher the risk, the more speculative are its investments on which there can be no assured return. As such, the public should forewarn themselves that the likelihood of losing money in schemes that offer high rates of interest are more.

80. Who can the Depositor/Investor turn to in case of grievances? +

The two Charts given at Annex I and II depict the activities and the regulators overseeing the same. Complaints may hence be addressed to the concerned regulator. If the activity is a banned activity, the aggrieved person can approach the State Police/Economic Offences Wing of the State Police and lodge a suitable complaint.

81. What constitutes Commercial Real Estate exposure? +

An exposure to be classified as CRE, the essential feature would be that the funding will result in the creation/ acquisition of real estate (such as, office buildings to let, retail space, multifamily residential buildings, industrial or warehouse space, and hotels) where the prospects for repayment would depends primarily on the cash flows generated by the asset. Additionally, the prospect of recovery in the event of default would also depend primarily on the cash flows generated from such funded asset which is taken as security, as would generally be the case. The primary source of cash flow (i.e. more than 50% of cash flows) for repayment would generally be lease or rental payments or the sale of the assets as also for recovery in the event of default where such asset is taken as security.These guidelines will also be applicable to certain cases where the exposure may not be directly linked to the creation or acquisition of CRE but the repayment would come from the cash flows generated by CRE. For example, exposures taken against existing commercial real estate whose prospects of repayments primarily depend on rental/ sale proceeds of the real estate should be classified as CRE. Other such cases may include: extension of guarantees on behalf of companies engaged in commercial real estate activities, exposures on account of derivative transactions undertaken with real estate companies, corporate loans extended to real estate companies and investment made in the equity and debt instruments of real estate companies.

Q 82. In terms of para 7.1 of the revised regulatory framework issued vide CC No. 002 dated November 10, 2014, total assets of NBFCs in a group including deposit taking NBFCs, if any, will be aggregated to determine if such consolidation falls within the asset sizes of the two categories viz., NBFCs-ND (those with assets of less than ₹ 500 crore) and NBFCs-ND-SI (those with assets of ₹ 500 crore and above). Regulations as applicable to the two categories will be applicable to each of the NBFC-ND within the group. Will this aggregation of assets apply to exempted category of CICs in the group? +

No, the group requires to aggregate total assets of only those NBFCs which have been granted Certificate of Registration by the Bank. However, it must be ensured that the capital of the exempted category of CIC has not come, directly or indirectly, from an entity/ group company which has accessed public funds.

83. Whether LTV of 50% will also apply to lending against units of mutual funds? +

Loans against units of mutual funds (except units of exclusively debt oriented mutual funds) would attract LTV requirements as are applicable to loans against shares. Further, the LTV requirement for loans/ advances against units of exclusively debt-oriented mutual funds may be decided by individual NBFCs in accordance with their loan policy.

84. Is prior written approval required in cases of merger of an NBFC ‘A’, with another NBFC/ entity ‘B’? +

In this case prior written approval of the Reserve Bank is to be obtained by ‘A’. Where ‘B’ is an NBFC, as a result of merger if there is change in shareholding pattern of paid up equity capital of ‘B’ by 26% or more, prior written approval of the Reserve Bank is required. If ‘B’ is not an NBFC but is likely to meet PBC post-merger, it would also need to approach the Reserve Bank for prior written approval as well as registration as an NBFC.

85. Is prior written approval required in cases of merger of an entity (not an NBFC) with an NBFC? +

Where a non-NBFC mergers with an NBFC, prior written approval of the Reserve Bank would be required if such a merger satisfies any one or both the conditions viz., (i) any change in the shareholding of the NBFC consequent on the merger which would result change in shareholding pattern of 26 per cent or more of the paid up equity capital of the NBFC (ii) any change in the management of the NBFC which would result in change in more than 30 per cent of the directors, excluding independent directors.