2.4.5. Steps Taken by RBI Regarding NBFCs

In November 2014, in a bid to bring NBFC norms in line with those of banks, RBI had unleashed tighter rules for NBFCs. According to the new guidelines, NBFCs will require higher minimum capital, have less time to declare bad loans, and a board-approved fit and proper criteria for appointment of directors.

The new norms, which would be implemented in a phased manner, were made applicable for NBFCs that manage funds worth Rs 500 crore and for those that accept public deposits.

In the interest of depositors, RBI has evolved a regulatory framework the salient features of which are outlined below

♤ Registration of an NBFC with the RBI merely authorizes it to conduct the business of NBFC. RBI does not guarantee the repayment of deposits accepted by NBFCs. NBFCs cannot use the name of the RBI in any manner while conducting their business.

♤ NBFCs which accept deposits should have minimum investment grade credit rating granted by an approved credit rating agency for deposit collection, except certain Asset Finance (equipment leasing and hire purchase finance) companies and Residuary Non-Banking Companies (RNBCs),

♤ NBFCs cannot offer

o A rate of interest on deposits more than that approved by RBI from time to time (at present 12.5%).

o Accept deposit for a period less than 12 months and more than 60 months

o Offer any gifts/incentives to solicit deposits from public.