What changed
RBI issued a Master Circular consolidating all existing directions on NBFC public deposit acceptance as of June 30, 2007. The circular reproduces the updated 1998 Directions, including definitions for Asset Finance Company, free reserves, and lending public financial institutions. It supersedes the earlier January 2, 1998 notification.
What it means for you
NBFCs must now refer to this single Master Circular for all public deposit acceptance rules, ensuring compliance with updated definitions and limits. The circular clarifies which entities qualify as Asset Finance Companies, impacting how they classify their business and deposit-taking capacity. Lenders and auditors should use this as the definitive reference for NBFC deposit regulations.
What you must do
- Review the Master Circular to ensure your NBFC's public deposit acceptance aligns with the updated 1998 Directions.
- Verify your company's classification (Asset Finance, Loan, Investment) as per the new definitions to determine applicable deposit limits.
- Update internal compliance manuals and training materials to reference this circular as the single source for deposit rules.
- Ensure all deposit-related disclosures and reporting reflect the definitions of free reserves and lending public financial institutions as specified.
Who it affects
All Non-Banking Financial Companies (except residuary and miscellaneous NBFCs), NBFC compliance officers and legal teams, Auditors and consultants advising NBFCs on deposit regulations
What is an Asset Finance Company under this circular?
An Asset Finance Company is an NBFC whose principal business is financing physical assets that support productive or economic activity, such as automobiles, tractors, generator sets, and industrial machinery.
Does this circular apply to all NBFCs?
No, it applies to all NBFCs except Residuary Non-Banking Companies and Miscellaneous Non-Banking Companies, as specified in the circular's address.
What are 'free reserves' as defined here?
Free reserves include the balance in share premium account, capital and debenture redemption reserves, and any other reserve created from profit allocations—excluding reserves for future liabilities, asset depreciation, bad debts, or revaluation reserves.