What changed
The ceiling on interest payable on public deposits by NBFCs (other than RNBCs) was increased by 150 basis points from 11% to 12.5% per annum. This revision, effective from April 24, 2007, applies to fresh deposits and renewals of matured deposits. The same ceiling also applies to Miscellaneous Non-Banking Companies (chit fund companies).
What it means for you
NBFCs can now offer higher rates to attract depositors, aligning with market developments and prevailing interest rates. This may increase competition for deposits among NBFCs and between NBFCs and banks. Lenders must ensure compliance with the new ceiling and continue to adhere to existing conditions on compounding rests and brokerage.
What you must do
- Update your deposit interest rate policies to ensure no public deposit offers exceed 12.5% per annum.
- Apply the new ceiling to all fresh public deposits and renewals of matured deposits from April 24, 2007.
- Ensure interest compounding rests are not shorter than monthly, as per unchanged conditions.
- Communicate the revised ceiling to all branches and deposit-taking staff immediately.
Who it affects
All Non-Banking Financial Companies (NBFCs) accepting public deposits, Miscellaneous Non-Banking Companies (chit fund companies), Deposit-taking NBFCs (excluding Residuary Non-Banking Financial Companies)
Does the new 12.5% ceiling apply to existing deposits?
No, it applies only to fresh public deposits and renewals of matured public deposits from April 24, 2007 onward.
Can NBFCs offer interest rates lower than 12.5%?
Yes, 12.5% is the maximum permissible rate; NBFCs may offer lower rates at their discretion.
Are RNBCs covered by this circular?
No, the circular explicitly excludes Residuary Non-Banking Financial Companies (RNBCs) from this ceiling revision.