What is a Non-Banking Financial Company (NBFC)?
1.1 Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares /stocks /bonds /debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business. 1.2 A non-banking institution, which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non- banking financial company (Residuary non-banking company).
NBFCs are doing functions similar to banks. What is difference between banks & NBFCs?
NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below: NBFC cannot accept demand deposits; ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.
What are the different types/categories of NBFCs registered with RBI?
NBFCs are categorized a) in terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs, b) non deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and c) by the kind of activity they conduct. Within this broad categorization the different types of NBFCs are as follows: ? Asset Finance Company ? Investment Company ? Loan Company ? Infrastructure Finance Company
Can all NBFCs accept deposits?
All NBFCs are not entitled to accept public deposits. Only those NBFCs to which the Bank had given a specific authorization are allowed to accept/hold public deposits.
What are the salient features of NBFCs regulations, which the depositor may note at the time of investment?
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. 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. NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors. NBFCs (except certain AFCs) should have minimum investment grade credit rating. The deposits with NBFCs are not insured. The repayment of deposits by NBFCs is not guaranteed by RBI. Certain mandatory disclosures are to be made about the company in the Application Form issued by the company soliciting deposits.
What else should a depositor bear in mind while depositing money with NBFCs?
While making deposits with an NBFC, the following aspects should be borne in mind: A proper deposit receipt is issued, giving details such as the name of the depositor/s, the date of deposit, the amount in words and figures, rate of interest payable and the date of repayment of matured deposit along with the maturity amount. Depositor/s should insist on the above and also ensure that the receipt is duly signed and stamped by an officer authorized by the company on its behalf. In the case of brokers/agents etc collecting public deposits on behalf of NBFCs, the depositors should satisfy themselves that the brokers/agents are duly authorized by the NBFC. 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. Deposit Insurance facility is not available to the depositors of NBFCs
It is said that rating of NBFCs is necessary before it accepts deposit? Is it true? Who rates them?
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 up to a certain ceiling depending upon its Net Owned Funds. NBFC may get itself rated by any of the five rating agencies namely, CRISIL, CARE, ICRA and FITCH, Ratings India Pvt. Ltd and Brickwork Ratings India Pvt. Ltd.
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.
What is the role of National Company Law Tribunal ( erstwhile 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.
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.
Is there an Ombudsman for hearing complaints against NBFCs?
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. 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.
There are some companies like Multi-Level Marketing companies, Chit funds etc. Do they come under the purview of RBI?
No, Multi-Level Marketing companies, Direct Selling Companies, Online Selling Companies don?t fall under the purview of RBI. Activities of these companies fall under the regulatory/administrative domain of respective state government.
Please tell us something about the companies which are NBFCs, but are exempted from registration?
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(NHB), Merchant Banker/Venture Capital Fund Company/stock-exchanges/stock brokers/sub-brokers are regulated by Securities and Exchange Board of India (SEBI), 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.
Do?s for Consumers
1. Investor need to check that the NBFC ? has the specific authorization issued by RBI to accept Public Deposit. 2. The depositor should check and ensure the Deposit scheme offer is as stipulated by RBI- especially in context of its Period, Rate of interest etc. 3.The depositor needs to check the correctness on their Deposit Receipt- especially Name (s) of the Depositor(s),Date 0f Deposit & its Maturity, Rate of interest offered,(with its compounding, if any), Amount in Words and Figures. Most important ?signatures of the Authorized Officials. 4. In the case of brokers/agents etc collecting public deposits on behalf of NBFCs, The identity / credentials of the agent must be verified. 5. The depositor should check the rating of NBFCs before they deposit with the said NBFC , as RBI does not accept any responsibility. Rating is mandatory. So, it must be ascertained. Please note ,Only 5 rating agencies namely, CRISIL, CARE, ICRA and FITCH, Ratings India Pvt. Ltd and Brickwork Ratings India Pvt. Ltd are authorised. 6. Depositor need to do discrete inquiry about the financial soundness of the NBFC. 7. No investment needs to be made in NBFC having downgraded rating. 8 In case an NBFC defaults in repayment of deposit, The depositor should approach Company Law Board or Consumer Forum or file a civil suit in a court of law to recover the deposits. Please note, a depositor can approach any or all of the redressal authorities i.e consumer forum, court or CLB. 9. There is no Ombudsman for hearing complaints against NBFCs, however , in respect of credit card operations of an NBFC, The consumer should approach Banking Ombudsman, 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. 10 . In case of Overdue Deposits of NBFC, The Depositor must claim the interest as on Date of Maturity of his Deposit with NBFC, otherwise the overdue Interest will be paid only from the date of claim. 11. Customers should note the Name, Address of the Grievance Redressal Officer and controlling Office of the Reserve Bank of India. It must be made available in the premises of the NBFC .
Don?ts for Consumers
1. Do not get lured by any gift or incentives, along with the interest on deposits. 2. NBFCs cannot accept deposits from NRI, so NRI Consumers need not invest in NBFC afresh. 3. Do not over commit on any repayment.