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FAQs on Non-Banking Financial Companies

Net owned fund

13. The NBFCs have been advised that the definition of Net Owned Fund (NOF) has been modified to include preference shares. Whether the entire preference share capital would be included in the NOF ? It may also be clarified whether the new definition of NOF would be applicable to minimum entry point norm of Rs. 25.00 lakh for Registration . +

The definition of NOF has been provided in Section 45IA of the Reserve Bank of India Act, 1934. This definition would be applicable to the computation of minimum capital fund for the purpose of Statutory Registration of an NBFC with the Reserve Bank of India. For the purpose of acceptance of public deposit and compliance of the prudential norms, the definition of NOF has been modified and it would include the paid up amount of preference shares which are compulsorily convertible into equity. However, the redeemable preference share capital would not be included in the definition of NOF or the Owned Fund.

External Commercial Borrowings (ECB) and Trade Credits

E. AVERAGE MATURITY PERIOD

13. Can door-to-door maturity be used in lieu of average maturity? +

No.

Business restrictions imposed on Paytm Payments Bank Limited vide Press Releases dated January 31 and February 16, 2024

Paytm Payments Bank Wallet

13. I have a cashback due in my wallet with Paytm Payments Bank. Can I receive this cashback after March 15, 2024? +

Yes. Refunds and cashbacks are allowed to be credited.

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Eligible entities and requirements to submit the FLA return

Q13. Is it required to submit Annual Performance Report for ODI if we have submitted FLA Return? +

Ans: FLA return and Annual Performance Report (APR) for ODI are two different returns and monitored by two different departments of RBI. So, you are required to submit both the returns if these are applicable for your entity. For more information on APR, please refer to the Master Direction – Reporting under Foreign Exchange Management Act, 1999 on RBI’s website.

Government Securities Market in India – A Primer

13. Why does the price of G-Sec change? +

The price of a G-Sec, like other financial instruments, keeps fluctuating in the secondary market. The price is determined by demand and supply of the securities. Specifically, the prices of G-Secs are influenced by the level and changes in interest rates in the economy and other macro-economic factors, such as, expected rate of inflation, liquidity in the market, etc. Developments in other markets like money, foreign exchange, credit, commodity and capital markets also affect the price of the G-Secs. Further, developments in international bond markets, specifically the US Treasuries affect prices of G-Secs in India. Policy actions by RBI (e.g., announcements regarding changes in policy interest rates like Repo Rate, Cash Reserve Ratio, Open Market Operations, etc.) also affect the prices of G-Secs.

Retail Direct Scheme

Know Your Customer (KYC) related queries

13. What are the ways of doing my KYC verification for Retail Direct Gilt (RDG) account? +

There are two ways of doing KYC verification – CKYC based and video KYC.

Housing Loans

13. Can you repay your loan ahead of schedule? Is pre-payment of loan allowed? +

Yes, most banks allow you to repay the loan ahead of schedule by making lump sum payments. However, many banks charge early repayment penalties up to 2-3% of the principal amount outstanding. Prepayment penalty may vary according to the reasons and source of funds - if you obtain a loan from another bank for pre-payment the charges are usually higher than when you pay from your own sources. However, you may credit more than your EMI amount into your loan account on a periodic basis and bring down your interest burden as and when funds are available with you. Most banks do not charge a pre-payment penalty if you deposit more than your EMI payable on a periodic basis. Please check such stipulations while availing the loan.

All you wanted to know about NBFCs

B. Entities Regulated by RBI and applicable regulations

13. What action is taken if financial companies which are lending or making investments as their principal business do not obtain a Certificate of Registration from the Reserve Bank? +

If companies that are required to be registered with the Reserve Bank as NBFCs, are found to be conducting non-banking financial activity, such as, lending, investment or deposit acceptance as their principal business, without obtaining Certificate of Registration from the Reserve Bank, the same would be treated as contravention of the provisions of the RBI Act, 1934 and would invite penal action viz., penalty or fine or even prosecution in a Court of Law. If members of public come across any entity which undertakes non-banking financial activity but does not figure in the list of authorized NBFCs on the Reserve Bank’s website, they should inform the nearest Regional Office of the Reserve Bank, for appropriate action to be taken for contravention of the provisions of the RBI Act, 1934.

Core Investment Companies

B. Registration and related matters:

13. A CIC should have 90% investment within the group, and in terms of current exposure norms, NBFCs in Middle Layer and Upper layer are permitted to have exposures (both credit/ investments) only to the extent of 40% of Tier -I capital and 25% of available eligible capital, respectively, within any group. Therefore, no NBFC (ML/ UL) as it stands, would be able to become a CIC without breaching the NOF, CRAR or Concentration Norms, since its entire business is in a subsidiary. However, an NBFC may voluntarily seek to become a CIC since it brings clarity to the holding structure in their organization. How would this issue be resolved? Could NBFCs be provided exemption from Capital adequacy/exposure norms during the transition period, just as unregistered CICs are given 6 months’ time.

Ans: The NBFC would have to apply to RBI with full details of the plan and exemptions could be considered on a selective basis on the merits of the case.