NBFC

Jitendra (Querist) 01 June 2009 This query is : Resolved
What are the periodical compliances to be done by Loan Company and Investment company - viz. monthly, quarterly, half yearly, yearly etc.

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A V Vishal (Expert) 01 June 2009
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.
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.

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
NOF of Rs 200 lakhs Ceiling on public
deposit

AFC* maintaining CRAR of 15% without credit rating

AFC with CRAR of 12% and having minimum investment grade credit rating
1.5 times of NOF or Rs 10 crore whichever is less

4 times of NOF

LC/IC** with CRAR of 15% and having minimum investment grade credit rating
1.5 times of NOF

* 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:

Category of NBFC having NOF more
than Rs 25 lakh but less than Rs 200 lakh
Revised Ceiling on public deposits

AFCs maintaining CRAR of 15% without credit rating and
Equal to NOF

AFCs with CRAR of 12% and having minimum investment grade credit rating
1.5 times of NOF

LCs/ICs with CRAR of 15% and having minimum investment grade credit rating
Equal to NOF

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.

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

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.