RBI to tighten deposit norms for NBFCs
22 May 2007
Mumbai: Reserve Bank proposes to bar non-banking finance companies (NBFCs) with net owned funds of less than Rs2 crore from accepting deposits from public.
"No deposit-taking NBFC will be permitted to accept deposit, if its net owned fund is less than Rs2 crore", RBI said in a draft circular, posted on its website.
The central bank also proposes to give two year time to existing deposit accepting NBFCs to increase their net owned funds to a minimum of Rs2 crore.
The draft circular also stipulates that NBFCs that fail to meet the revised norms even after the transition period of two years will be automatically converted into non-deposit taking category and will be required to repay the deposits held by them within three years.
The central bank had in 1999 raised the minimum net owned fund limit from Rs25 lakh to Rs2 crore for new companies seeking certificate of registration as NBFC.
NBFCs and stakeholders can send their comments and feedback to the RBI's draft circular by June 7.
The RBI had earlier banned NBFCs from extending loans to its directors and their relatives to eliminate any conflict of interest in the lending operations of the finance companies.
NBFCs with deposit size of Rs20 crore or more and non-deposit taking NBFCs with assets of Rs100 crore and above also cannot provide any non-fund based facility or any other financial accommodation to firms in which directors hold interest as partner or guarantor.
In case of loans extended to directors without any repayment date, the RBI directed the NBFCs to recover them within one year. In other cases, the NBFCs will be required to recover the loan with interest as soon as it falls due for repayment.
The RBI had also asked the NBFCs to submit a quarterly statement about the loans and advances granted to their directors, relatives and other entities within 15 days from the close of the quarter.
The RBI laid out the guidelines to ensure greater transparency in the operations of NBFCs and adoption of best practices. It has asked the deposit taking NBFCs to establish 'fit and proper' status of proposed as well existing directors.
