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Indian Currency

D) Soiled and Mutilated Banknotes

6. What if a banknote is found to be non-payable? +

Non-payable banknotes are retained by the receiving banks and sent to the Reserve Bank where they are destroyed.

All you wanted to know about NBFCs

D. Definition of deposits, Eligible / Ineligible Institutions to accept deposits and Related Matters

36. Can all NBFCs accept deposits? Is there any ceiling on acceptance of Public Deposits? What is the rate of interest and period of deposit which NBFCs can accept? +

All NBFCs are not entitled to accept public deposits. Only those NBFCs to which the Bank had given a specific authorisation and have an investment grade rating are allowed to accept/ hold public deposits to a limit of 1.5 times of its Net Owned Funds. All existing unrated AFCs that have been allowed to accept deposits shall have to get themselves rated by March 31, 2016. Those AFCs that do not get an investment grade rating by March 31, 2016, will not be allowed to renew existing or accept fresh deposits thereafter. In the intervening period, i.e. till March 31, 2016, unrated AFCs or those with a sub-investment grade rating can only renew existing deposits on maturity, and not accept fresh deposits, till they obtain an investment grade rating.

However, as a matter of public policy, Reserve Bank has decided that only banks should be allowed to accept public deposits and as such has since 1997 not issued any Certificate of Registration (CoR) to new NBFCs for acceptance of public deposits.

Presently, the maximum rate of interest an NBFC can offer is 12.5%. The interest may be paid or compounded at rests not shorter than monthly rests. The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand.

FAQs on Non-Banking Financial Companies

Liquid Asset requirement

36. Whether the liquid assets are required to be maintained only on the principal amount of public deposits or the interest accrued on such deposits should be included in the deposit liabilities? +

The liquid assets are required to be maintained in relation to the deposit outstanding together with the amount of interest accrued but not paid.

Core Investment Companies

Core Investment Companies (CICs)

36. If one of the small CICs in a group does not access public funds why should it register based on the condition of aggregate asset size? +

Ans: As already clarified in the FAQs, a CIC that does not access public funds is exempt from registration irrespective of having other CICs in the Group that access public funds. Illustratively, if A is a CIC and B and C are also CICs and Group Companies of A provided A does not access any form of public funds including any funds from any Group Company including B and C, it would not require to register as a CIC. If A, B and C do not access public funds in any form none of them would be required to register as a CIC.

Government Securities Market in India – A Primer

Annex 4 +

Sample of Auction notification

Annex 5 +

Specimen of Deal slip

Domestic Deposits

III. Advances

37. What rate of interest is chargeable on loans/ advances granted to Staff Members of the banks or Staff Members of Co-operative Credit Societies? +

The interest rate directives on advances granted by banks will not be applicable to loans or advances or other financial accommodation made or provided or renewed by a scheduled bank, inter alia, to its own employees. Where the advances are provided by the bank to co-operative credit societies formed by the bank’s staff members for lending to constituents (i.e. staff of the bank), the interest rate directives of the RBI will not apply in such advances.

Retail Direct Scheme

Investment and Account holdings related queries

37. Is markup a fee charged for investing through the Retail Direct portal? +

No. Markup is not a fee charged by RBI. It is refundable depending upon the price at which the bids are allotted in the auction.

Indian Currency

D) Soiled and Mutilated Banknotes

7. Have guidelines been issued to deposit/exchange mutilated/soiled banknotes of new notes issued under Mahatma Gandhi (New) Series? +

Guidelines for the exchange of mutilated/torn notes are available in our Master Circular on “Facility for Exchange of Notes & Coins” DCM(NE) No.G-2/08.07.18/2019-20 dated July 01, 2019 which is available on our website www.rbi.org.in under Notifications>Master Circulars>Issuer of Currency. Mutilated notes can be exchanged at all bank branches in terms of RBI (Note Refund) Amendment Rules, 2018.

All you wanted to know about NBFCs

D. Definition of deposits, Eligible / Ineligible Institutions to accept deposits and Related Matters

37. In respect of companies which do not fulfill the 50-50 criteria but are accepting deposits – do they come under RBI purview? +

A company which does not have financial assets which is more than 50% of its total assets and does not derive at least 50% of its gross income from such assets is not an NBFC. Its principal business would be non-financial activity like agricultural operations, industrial activity, purchase or sale of goods or purchase/construction of immoveable property, and will be a non-banking non-financial company. Acceptance of deposits by a Non-Banking Non-Financial Company are governed by the rules and regulations issued by the Ministry of Corporate Affairs.

Foreign Investment in India

III. Investment in other securities

Q.37: Who is an FVCI ? +

Answer: Foreign Venture Capital Investor’ (FVCI) means an investor incorporated and established outside India and registered with Securities and Exchange Board of India under Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000

FAQs on Non-Banking Financial Companies

Liquid Asset requirement

37. What is the ratio of liquid asset requirement and the base of deposits to which the liquid asset are linked ? +

The minimum level of liquid asset between January 1 and March 31, 1998 remains unchanged at 10 per cent and 5 per cent of the regulated deposits outstanding as on September 30, 1997 for equipment leasing/hire purchase finance companies and loan/investment companies respectively, depending upon their Registration status under erstwhile Registration Scheme. However, on and from April 1, 1998, the requirement of liquid assets would be uniform for all these NBFCs except RNBCs at 12.5 per cent of the "public deposits". The ratio will be 15 per cent of public deposits on and from April 1, 1999. For RNBCs, the ratio shall remain unchanged at 10 per cent of the deposits outstanding.

External Commercial Borrowings (ECB) and Trade Credits

J. Reporting

37. How are actual transactions of an ECB reported to RBI? +

The borrowers are required to report actual ECB transactions, correctly and fully, through duly certified Form ECB 2 through the Authorised Dealer Category-I bank to DSIM as per the periodicity specified by the RBI. None of the columns in Form ECB 2 should be left blank (such columns which are not applicable for the borrowing or against which ‘nil’ information has to be given, should be suitably covered). The Form ECB 2 should reach DSIM within seven working days from the close of month to which it relates. Changes, if any, in ECB parameters should also be incorporated in Form ECB 2 suitably. Any failure to comply with reporting guidelines in respect of Form ECB 2, including failure to adhere to periodicity of reporting, may invite penal action under FEMA.

Core Investment Companies

Core Investment Companies (CICs)

37. Will adjusted net worth of all the CICs in the Group also be aggregated for compliance purposes? +

Ans: Adjusted net worth (ANW) is a concept akin to capital requirement wherein the ANW should not be less than 30% of the risk weighted assets (RWA). In cases where asset size is aggregated, all the CICs within the group will be registered as CIC-ND-SI ANW will be applicable individually.

Retail Direct Scheme

Investment and Account holdings related queries

38. Why do I have to pay a markup during my primary auction bid? +

In the non-competitive segment of primary auctions, the price at which the securities are allotted is the weighted average price of the successful competitive bids in the auction. Since this weighted average price can be calculated only after the auction is over, the price of the security through the non-competitive segment is unknown during the time of bidding. To cover for this uncertainty, a markup is applied in case the weighted average price comes out to be higher.

External Commercial Borrowings (ECB) and Trade Credits

J. Reporting

38. In light of the New ECB framework, does the borrower need to file revised Form ECB? +

No, in case no changes are made in terms and conditions of ECB, there is no need to file revised Form ECB (erstwhile Form 83).

All you wanted to know about NBFCs

D. Definition of deposits, Eligible / Ineligible Institutions to accept deposits and Related Matters

38. Why is the RBI so restrictive in allowing NBFCs to raise public deposits? +

The Reserve Bank's overarching concern while supervising any financial entity is protection of depositors' interest. Depositors place deposit with any entity on trust unlike an investor who invests in the shares of a company with the intention of sharing the risk as well as return with the promoters. Protection of depositors' interest thus is supreme in financial regulation. Banks are the most regulated financial entities. The Deposit Insurance and Credit Guarantee Corporation pays insurance on deposits up to ₹ One lakh in case a bank failed.

Domestic Deposits

IV. Advances against shares and debentures

38. Whether banks can sanction loans to Trust and Endowments against the security of shares and debentures? +

No.

Indian Currency

D) Soiled and Mutilated Banknotes

8. Is the serial number essential when assessing the value of a damaged banknote? +

The presence or absence of a serial number or other specific feature is not a determining factor when assessing damaged banknotes for value under the RBI (Note Refund) Amendment Rules, 2018.

Foreign Investment in India

III. Investment in other securities

Q.38: Where can a Foreign Venture Capital Investor (FVCI) invest ? +

Answer: A SEBI registered Foreign Venture Capital Investor may make investment in terms of schedule 7 of FEMA 20(R) as per the conditions prescribed therein.