FOREWORD

The Reserve Bank of India is entrusted with the responsibility of regulating and supervising the Non-Banking Financial
Companies by virtue of powers vested in Chapter III B of the Reserve Bank of India Act, 1934.  The regulatory and
supervisory objective,  is to:

a) ensure healthy growth of the financial companies;

b) ensure  that  these  companies  function  as  a  part  of  the financial system within the policy framework, in
such a manner that their existence and functioning do not lead to systemic aberrations; and that

c) the quality of surveillance and supervision exercised by the Bank over the NBFCs is sustained by keeping
pace with the developments that take place in this sector  of the financial system.
It has been felt necessary to explain the rationale underlying the regulatory changes and provide clarification on certain
operational matters for the benefit of the NBFCs, members of public, rating agencies, Chartered Accountants   etc.  To
meet this need, the clarifications in the form of questions and answers, is being brought out by the Reserve Bank of
India (Department of Non-Banking Supervision) with the hope that it will provide better understanding of the
regulatory framework.

The information given in the FAQ is of general nature for the benefit of depositors/public and the clarifications given
do not substitute the extant regulatory directions/instructions issued by the Bank to the NBFCs.

 (P Krishnamurthy)
Chief General Manager In-Charge

September 16, 2008

Frequently Asked Questions on NBFCs

QUES -1   What is a Non-Banking Financial Company (NBFC)?

ANS -1  A Non-Banking Financial Company (NBFC) is a  company registered under the Companies Act, 1956 and is
engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by
Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business,
chit business but does not include any institution whose principal business is that of agriculture activity, industrial
activity, sale/purchase/construction of immovable property. A non-banking institution which is a company and which
has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any
manner is also a non-banking financial company (Residuary non-banking company).

QUES 2.  NBFCs are doing functions similar to banks. What is difference between banks & NBFCs ?

ANS 2. NBFCs are doing functions akin to that of banks; however there are a few differences:

(i) an NBFC cannot accept demand deposits;

 (ii) an NBFC is not a part of the payment and settlement system and as such an NBFC cannot issue cheques
drawn on itself; and

(iii) deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available for NBFC
depositors unlike in case of banks.

QUES-3.  Is it necessary that every NBFC should be registered with RBI?

ANS 3.  In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be registered with
RBI to commence or carry on any business of non-banking financial institution as defined in clause (a) of Section 45 I
of the RBI Act, 1934.

However, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted
from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking companies/Stock broking
companies registered with SEBI, Insurance Company holding a valid Certificate of Registration issued by IRDA, Nidhi
companies as notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause (b) of
Section 2 of the Chit Funds Act, 1982 or Housing Finance Companies regulated by National Housing Bank.

QUES 4.  What are the different types of NBFCs registered with RBI?

ANS 4.  Originally, NBFCs registered with RBI were classified as:

(i) equipment leasing company;

(ii) hire-purchase company;
(iii) loan company;
(iv) investment company.
However, with effect from December 6, 2006 the above NBFCs registered with RBI have been reclassified as

(i) Asset Finance Company (AFC)

(ii) Investment Company (IC)
(iii) Loan Company  (LC)

AFC would be defined as  any company which is a financial institution carrying on as its principal business the
financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines,
generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial
machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting
economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively.  

The above type of companies may be further classified into those accepting deposits or those not accepting deposits.

QUES 5. Updated on February 10, 2009 What are the requirements / is the procedure for registration with RBI?

ANS 5. A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking
financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should have a minimum net owned fund of
Rs 25 lakh (raised to Rs 200 lakh w.e.f  April 21, 1999).
The company is required to submit its application   online by accessing RBI’s secured website
https://secweb.rbi.org.in/COSMOS/rbilogin.do (the applicant companies do not need to log on to the COSMOS
application and hence user ids for these companies are not required). The company has to click on “CLICK” for
Company Registration on the login page. A window showing the Excel application forms available for download
would be displayed.  The company can then download suitable application form (i.e. NBFC or SC/RC) from the above
website, key in the data and upload the application form. The company may note to indicate the name of the correct
Regional Office in the field “C-8” of the “Annx-Identification Particulars” worksheet of the Excel application form.
The company would then get a Company Application Reference Number for the CoR application filed on-line.
Thereafter, the company has to submit the hard copy of the application form (indicating the Company Application
Reference Number of its on-line application), along with the supporting documents, to the concerned Regional Office. 
The company can then check the status of the application based on the acknowledgement number. The Bank would
issue Certificate of Registration after satisfying itself that the conditions as enumerated in Section 45-IA of the RBI
Act, 1934 are satisfied. 

QUES 6. Where can one find list of Registered NBFCs and instructions issued to NBFCs?

ANS 6.  The list of registered NBFCs is available on the web site of Reserve Bank of India and can be viewed at
www.rbi.org.in. The instructions issued to NBFCs from time to time are also hosted at the above site. Besides,
instructions are also issued through Official Gazette notifications. Press Release is also issued to draw attention of the
public/NBFCs.

QUES 7.  Can all NBFCs accept deposits and what are the requirements for accepting Public Deposits?

ANS 7.  All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid Certificate of
Registration with authorisation to accept Public Deposits can accept/hold public deposits. NBFCs authorised to
accept/hold public deposits besides having minimum stipulated Net Owned Fund (NOF) should also comply with the
Directions such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by the Bank. 

QUES 8. Is there any ceiling on acceptance of Public Deposits?  What is the rate of interest and period of deposit
which NBFCs can accept?

ANS 8.  Yes, there is a ceiling on acceptance of Public Deposits. An NBFC maintaining required NOF/Capital to Risk
Assets Ratio (CRAR) and complying with the prudential norms can accept public deposits as follows:

Category of NBFC having minimum Ceiling on public

NOF of Rs 200 lakhs deposit
AFC* maintaining CRAR of 15% without credit rating  1.5 times of NOF or Rs 10
crore whichever is less

AFC with CRAR of 12% and having  minimum investment grade 4 times of NOF
credit rating
LC/IC** with CRAR of 15% and having minimum investment 1.5 times of NOF
grade credit rating  
* AFC = Asset Finance Company
** LC/IC = Loan company/Investment Company

As has been notified on June 17, 2008 the ceiling on level of public deposits for NBFCs accepting deposits but not
having minimum Net Owned Fund of Rs 200 lakh is revised as under:

Revised Ceiling on public

Category of NBFC having NOF more deposits
than Rs 25 lakh but less than Rs 200 lakh
AFCs maintaining CRAR of 15% without credit    rating and Equal to  NOF
AFCs with CRAR of 12% and having  minimum investment 1.5 times of NOF
grade credit rating
LCs/ICs with CRAR of 15% and having minimum investment Equal to  NOF
grade credit rating  
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.

The RNBCs have different norms for acceptance of deposits which are explained elsewhere in this booklet.

QUES 9.  What are the salient features of NBFCs regulations which the depositor may note at the times of investment?

ANS 9.  Some of the important regulations relating to acceptance of deposits by NBFCs are as under:

i. 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.
ii. NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present
ceiling is 12.5 per cent per annum. The interest may be paid or compounded at rests not shorter than monthly
rests.
iii. NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.
iv. NBFCs (except certain AFCs) should have minimum investment grade credit rating.
v. The deposits with NBFCs are not insured.
vi. The repayment of deposits by NBFCs is not guaranteed by RBI.
vii. Certain mandatory disclosures are to be made about the company in the Application Form issued by the
company soliciting deposits.

QUES 10.  What is ‘deposit’ and ‘public deposit’? Is it defined anywhere?

ANS 10. The term ‘deposit’ is defined under Section 45 I(bb) of the RBI Act, 1934. ‘Deposit’ includes and shall be
deemed always to have included any receipt of money by way of deposit or loan or in any other form but does not
include:

 amount raised by way of share capital, or contributed as capital by partners of a firm;

 amount received from scheduled bank, co-operative bank, a banking company, State Financial Corporation,
 IDBI or any other institution specified by RBI;
 amount received in ordinary course of business by way of security deposit, dealership deposit, earnest money,
advance against orders for goods, properties or services;
 amount received by a registered money lender other than a body corporate;
 amount received by way of subscriptions in respect of a ‘Chit’.

Paragraph 2(1)(xii) of the Non-Banking Financial Companies Acceptance of Public Deposits ( Reserve Bank)
Directions, 1998  defines a ‘ public deposit’ as a ‘deposit’ as defined under Section 45 I(bb) of the RBI Act, 1934 and
further excludes the following:

 amount received from the Central/State Government or any other source where repayment is guaranteed by
Central/State Government or any amount received from local authority or foreign government or any foreign
citizen/authority/person;
 any amount received from financial institutions;
 any amount received from other company as inter-corporate deposit;
 amount received by way of subscriptions to shares, stock, bonds or debentures pending allotment or by way of
calls in advance if such amount is not repayable to the members under the articles of association of the
company;
 amount received from shareholders by private company;
 amount received from directors or relative of the director of an NBFC;
 amount raised by issue of  bonds or debentures secured by mortgage of any immovable property or other asset
of the company subject to conditions;
 the amount brought in by the promoters by way of unsecured loan;
 amount received from a mutual fund;
 any amount received as hybrid debt or subordinated debt;
 any amount received by issuance of Commercial Paper.

Thus, the directions exclude from the definition of public deposit, amount raised from certain set of informed lenders
who can make independent decision.

QUES 11. Are Secured debentures treated as Public Deposit?  If not who regulates them?

ANS 11. Debentures secured by the mortgage of any immovable property or other asset of the company, if the amount
raised does not exceed the market value of the said immovable property or other asset, are excluded from the definition
of ‘Public Deposit’ in terms of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank)
Directions, 1998. Secured debentures are debt instruments and are regulated by Securities & Exchange Board of India.

QUES 12. Whether NBFCs can accept deposits from NRIs?

ANS 12. Effective from April 24, 2004, NBFCs cannot accept deposits from NRIs except deposits by debit to NRO
account of NRI provided such amount does not represent inward remittance or transfer from NRE/FCNR (B) account. 
However, the existing NRI deposits can be renewed.  

QUES 13 Is nomination facility available to the Depositors of NBFCs?

ANS 13. Yes, nomination facility is available to the depositors of NBFCs. The Rules for nomination facility are
provided for in section 45QB of the Reserve Bank of India Act, 1934. Non-Banking Financial Companies have been
advised to adopt the Banking Companies (Nomination) Rules, 1985 made under Section 45ZA of the Banking
Regulation Act, 1949. Accordingly, depositor/s of NBFCs are permitted to nominate one person to whom the NBFC
can return the deposit in the event of the death of the depositor/s. NBFCs are advised to accept nominations made by
the depositors in the form similar to one specified under the said rules, viz Form DA 1 for the purpose of nomination,
and Form DA2 and DA3 for cancellation of nomination and change of nomination respectively. 

QUES 14. What else should a depositor bear in mind while depositing money with NBFCs?

ANS 14. While making deposits with an NBFC, the following aspects should be borne in mind:

(i) Public deposits are unsecured.

(ii) 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. Depositor/s should insist on the
above and also ensure that the receipt is duly signed by an officer authorised by the company in that behalf.

(iii) The Reserve Bank of India does not accept any responsibility or guarantee about the present position as to
the financial soundness of the company or for the correctness of any of the statements or representations made
or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the
company.
QUES 15.  It is said that rating of NBFCs is necessary before it accepts deposit? Is it true? Who rates them?

ANS 15. An unrated NBFC, except certain Asset Finance companies (AFC), cannot accept public deposits. An
exception is made in case of unrated AFC  companies with CRAR of 15% which can accept public deposit without
having a credit rating upto a  certain ceiling depending upon its Net Owned Funds (c.f Ans to Q 8).   AN NBFC may
get itself rated by any of the four rating agencies namely, CRISIL, CARE, ICRA and FITCH Ratings India Pvt. Ltd.

QUES 16.  What are the symbols of minimum investment grade rating of different companies?

ANS 16. 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. tA-(ind)(FD)
It may be added that A- is not equivalent to A, AA- is not equivalent to AA and AAA- is not equivalent to AAA.

QUES 17.  Can an NBFC which is yet to be rated accept public deposit?

ANS 17. No, an NBFC cannot accept deposit without rating (except an Asset Finance  Company complying with
prudential norms and having CRAR of 15%, as explained above at  Ans. to Q 8).
QUES 18.  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?

ANS 18. If rating of an NBFC is downgraded to below minimum investment grade rating, it has to stop accepting
public deposit, report the position within fifteen working days to the RBI and reduce within three years from the date of
such downgrading of credit rating, the amount of excess public deposit to nil or to the appropriate extent permissible
under paragraph 4(4) of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions,
1998.

QUES 19.  In case an NBFC defaults in repayment of deposit what course of action can be taken by depositors?

ANS 19. 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.

QUES 20. What is the role of Company Law Board in protecting the interest of depositors?  How one can approach it?

ANS 20. Where 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.

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 alongwith the prescribed fee.

QUES 21. Can you give the addresses of the various benches of the Company Law Board (CLB) indicating their
respective jurisdiction?

ANS 21. The details of addresses and territorial jurisdiction of the bench officers of CLB are as under:

Addresses Territorial Jurisdiction

Sr.No.
1. Bench Officer, Company Law Board, Uttar Pradesh, Jammu & Kashmir, Punjab, Himachal
Northern Region Bench, Pradesh, Rajasthan, Haryana and Union Territories
Shastri Bhavan, ‘A’ Wing, 5th Floor, of Chandigarh and Delhi
Dr. Rajendra Prasad Road,
New Delhi 110 001.
2. Bench Officer, Company Law Board, Tamil Nadu, Andhra Pradesh, Kerala, Karnataka,
Southern Region Bench, Union Territories of Amindivi, Minicoy and
Shastri Bhavan, ‘A’ Wing, 5th Floor, Lakshadweep Islands and Pondicherry
Block 8, No 26, Haddows Road,
Chennai 600 006.
3. Bench Officer, Company Law Board, Maharashtra, Gujarat, Madhya Pradesh, Goa and
Western Region Bench, Union Territories of Dadra & Nagar Haveli, Daman
2nd Floor, N.T.C. House, and Diu.
15,  Narottam Morarjee Marg,
 Ballard Estate,
Mumbai-400 038.
4. Bench Officer, Company Law Board, West Bengal, Orissa, Bihar, Assam, Tripura,
Eastern Region Bench, Manipur, Nagaland, Meghalaya, Arunachal Pradesh,
9,  Old Post Office Street, Mizoram, Union Territories of Andaman and
6th Floor, Nicobar Islands.
Kolkata 700 001.
5. Bench Officer, Company Law Board, All Principal Bench matters all over India.
Principal Bench at New Delhi, Shastri
Bhavan, ‘A’ Wing, 5th Floor, Dr.
Rajendra Prasad Road,
New Delhi 110 001.
QUES 22.  We hear that in a number of cases official liquidators have been appointed on the defaulting NBFCs. What
is their role and how one can approach them?

ANS 22. Official Liquidator is appointed by the court after giving the company reasonable opportunity of being heard
in a winding up petition.  The liquidator performs duties of winding up 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 the 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.

QUES 23. Consumer Court play useful role in attending to depositors problems. Can one approach Consumer Forum,
Civil Court, CLB  simultaneously?

ANS 23. Yes, a depositor can approach any or all of the redressal authorities i.e consumer forum, court or CLB.

QUES 24.  Is there an Ombudsman for hearing complaints against NBFCs?

ANS 24. No, there is no Ombudsman for hearing complaints against NBFCs. However, in respect of credit card
operations of an NBFC, 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.

QUES 25. What are various prudential regulations applicable to NBFCs?

ANS 25. The Bank has issued detailed directions on prudential norms, vide Non-Banking Financial Companies
Prudential Norms (Reserve Bank) Directions, 1998. The directions interalia, prescribe guidelines on income
recognition, asset classification and provisioning requirements applicable to NBFCs, exposure norms, constitution of
audit committee, disclosures in the balance sheet, requirement of capital adequacy, restrictions on investments in land
and building and unquoted shares.   

QUES 26.  Please explain  the terms ‘owned fund’  and ‘net owned fund’ in relation to NBFCs?

ANS 26. ‘Owned Fund’ means aggregate of the paid-up equity  capital and free reserves as disclosed in the latest
balance sheet of the company after deducting therefrom  accumulated balance of loss, deferred revenue expenditure
and  other intangible assets.
 'Net Owned Fund' is the amount as arrived at above minus the amount of investments of such company in shares of its
subsidiaries, companies in the same group and all other NBFCs and the book value of debentures, bonds, outstanding
loans and advances made to and deposits with subsidiaries and companies in the same group, to the extent it exceeds
10% of the owned fund.

QUES 27.  What are the responsibilities of the NBFCs accepting/holding public deposits with regard to submission of
Returns and other information to RBI?

ANS 27.  The NBFCs accepting public deposits should furnish to RBI

i. Audited balance sheet of each financial year and an audited profit and loss account in respect of that year as
passed in the annual general meeting together with a copy of the report of the Board of Directors and a copy of
the report and the notes on accounts furnished by its Auditors;
ii. Statutory Annual Return on deposits - NBS 1;
iii. Certificate from the Auditors that the  company is in a position to   repay the deposits as and when the claims
arise;
iv. Quarterly Return on liquid assets;
v. Half-yearly Return on prudential norms;
vi. Half-yearly ALM Returns by companies having public deposits of Rs. 20 crore and above or with assets of Rs.
100 crore and above irrespective of the size of deposits ;
vii. Monthly return on exposure to capital market by companies  having public deposits  of Rs. 50 crore and above;
and
viii. A copy of the Credit Rating obtained once a year along with one of the Half-yearly Returns on prudential norms
as at (v) above.

QUES 28.  What are the documents or the compliance required to be submitted to the Reserve Bank of India by the
NBFCs not accepting/holding public deposits?

ANS 28.  The NBFCs having assets of Rs. 100 crore and above but not accepting public deposits are required   to
submit a Monthly Return on important financial parameters of the company. All companies not accepting public
deposits have to pass a board resolution to the effect that they have neither accepted public deposit nor would accept
any public deposit during the year.

However, all the NBFCs (other than those exempted) are required to be registered with RBI and also make sure that
they continue to be eligible to retain the Registration. Further, all NBFCs (including non-deposit taking) should submit
a certificate from their Statutory Auditors every year to the effect that they continue to undertake the business of NBFI
requiring holding of CoR under Section 45-IA of the RBI Act, 1934.
RBI has powers to cause Inspection of the books of any company and call for any other information about its business
activities. For this purpose, the NBFC is required to furnish the information in respect of any change in the composition
of its Board of Directors, address of the company and its Directors and the name/s and official designations of its
principal officers and the name and office address of its Auditors. With effect from April 1, 2007, non-deposit taking
NBFCs with assets of Rs 100 crore and above were advised to maintain minimum CRAR of 10% and also comply with
single/group exposure norms. The companies have to achieve CRAR of 12% by March 31, 2009 and 15% by March
31, 2010.

QUES 29.  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.

ANS 29. 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.

QUES 30.  Can a company pre-pay its public deposits?

ANS 30. 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 company.

An NBFC subject to above provisions, which is not a problem company, 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 Bank.

A 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 Rs. 10000/- subject to lock in period of 3 months in the latter case.

QUES 31.  What is the liquid asset requirement for the deposit taking companies?  Where these assets are kept? Do
depositors have any claims on them?

ANS 31.  In terms of Section 45-IB of the RBI Act, 1934, the minimum level of liquid asset 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, deposit being
unsecured in nature, depositors do not have direct claim on liquid assets.

QUES 32. Please tell us something about the companies which are NBFCs, but are exempted from registration? 

ANS 32. Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the
business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and
Chit Fund Companies are NBFCs but they have been exempted from the requirement of registration under Section 45-
IA of the RBI Act, 1934 subject to certain conditions.
 
Housing Finance Companies are regulated by National Housing Bank, Merchant Banker/Venture Capital Fund
Company/stock-exchanges/stock brokers/sub-brokers are regulated by Securities and Exchange Board of India, and
Insurance companies are regulated by Insurance Regulatory and Development Authority. Similarly, Chit Fund
Companies are regulated by the respective State Governments and Nidhi Companies are regulated by Ministry of
Corporate Affairs, Government of India.

It may also be mentioned that Mortgage Guarantee Companies have been notified as Non-Banking Financial
Companies under Section 45 I(f)(iii) of the RBI Act, 1934.

QUES 33.  There are some entities (not companies) which carry on activities like that of NBFCs. Are they allowed to
take deposits? Who regulates them?

ANS 33. 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.

QUES 34. What is a Residuary Non-Banking Company (RNBC)? In what way it is different from other NBFCs?

ANS 34.  Residuary Non-Banking Company is a class of NBFC which is a company and has as its principal business
the receiving of deposits, under any scheme or arrangement or in any other manner and not being Investment, Asset
Financing, Loan Company. These companies are required to maintain investments as per directions of RBI, in addition
to liquid assets.   The functioning of these companies is different from those of NBFCs in terms of method of
mobilisation of deposits and requirement of deployment of depositors' funds as per Directions. Besides, Prudential
Norms Directions are applicable to these companies also.

QUES 35.  We understand that there is no ceiling on raising of deposits by RNBCs, then how safe is deposit with
them?

ANS 35.  It is true that there is no ceiling on raising of deposits by RNBCs but every RNBC has to ensure that the
amounts deposited and investments made by the company are not less than the aggregate amount of liabilities to the
depositors.

To secure the interest of depositor, such companies are required to invest in a portfolio comprising of highly liquid and
secure instruments viz. Central/State Government securities, fixed deposits with scheduled commercial banks (SCB),
Certificate of deposits of  SCB/FIs, units of Mutual Funds, etc. 

QUES 36. Can RNBC forfeit deposit if deposit installments are not paid regularly or discontinued?

ANS 36.  No Residuary Non-Banking Company shall forfeit any amount deposited by the depositor, or any interest,
premium, bonus or other advantage accrued thereon.

QUES 37. Please tell us something on rate of interest payable by RNBCs on deposits and maturity period of deposits?

ANS 37. The amount payable by way of interest, premium, bonus or other advantage, by whatever name called by a
RNBC in respect of deposits received shall not be less than the amount calculated at the rate of 5% (to be compounded
annually) on the amount deposited in lump sum or at monthly or longer intervals; and at the rate of 3.5% (to be
compounded annually) on the amount deposited under daily deposit scheme.  Further, a RNBC can accept deposits for
a minimum period of 12 months and maximum period of 84 months from the date of receipt of such deposit. They
cannot accept deposits repayable on demand.