What changed
RBI issued a master circular consolidating all notifications up to June 30, 2007, exempting certain NBFCs from provisions of Chapter III-B of the RBI Act, 1934. Housing finance institutions are fully exempt. Merchant banking companies are exempt from registration, liquid assets, and reserve fund requirements if SEBI-registered and not holding public deposits. Micro finance companies are exempt from Sections 45-IA, 45-IB, 45-IC if they meet credit limits (Rs. 50,000 for business, Rs. 1.25 lakh for dwelling), are licensed under Section 25 of Companies Act, and do not accept public deposits. Mutual benefit companies are exempt from the same sections if they are not notified under Section 620A of Companies Act, have net owned funds and preferential share capital of at least Rs. 10 lakhs, applied for registration by July 9, 1997, and comply with Nidhi company directions.
What it means for you
Banks and lenders dealing with these exempt NBFCs must verify their compliance with conditions like SEBI registration, lending caps (Rs. 50,000 for business, Rs. 1.25 lakh for dwelling), and no public deposits. This reduces regulatory burden for eligible entities but requires careful due diligence to avoid misclassification. The master circular simplifies reference but original notifications remain authoritative for operations.
What you must do
- Review the master circular to identify exempt NBFCs in your portfolio.
- Verify that merchant banking clients are SEBI-registered and not accepting public deposits.
- Check micro finance borrowers meet the credit limits of Rs. 50,000 for business and Rs. 1.25 lakh for dwelling, and that the company is licensed under Section 25 of Companies Act and does not accept public deposits.
- Ensure mutual benefit companies are not notified under Section 620A of Companies Act, have net owned funds and preferential share capital of at least Rs. 10 lakhs, applied for registration by July 9, 1997, and comply with Nidhi company directions, and do not accept public deposits.
- Refer to original notifications for operational details, not just the master circular.
Who it affects
Housing finance institutions, Merchant banking companies, Micro finance companies, Mutual benefit companies, NBFCs seeking exemptions, Banks lending to these entities
Are housing finance institutions fully exempt from RBI Act Chapter III-B?
Yes, as per the master circular, housing finance institutions as defined under NHB Act, 1987 are exempt from all provisions of Chapter III-B of the RBI Act, 1934.
What are the key conditions for merchant banking companies to get exemptions?
They must be SEBI-registered, acquire securities only as part of merchant banking, not engage in other financial activities, and not accept public deposits.
What lending limits apply to micro finance companies for exemption?
Credit must not exceed Rs. 50,000 for a business enterprise and Rs. 1,25,000 for a dwelling unit, and the company must be licensed under Section 25 of Companies Act and not accept public deposits.
What conditions apply to mutual benefit companies for exemption?
They must not be notified under Section 620A of Companies Act, have net owned funds and preferential share capital of at least Rs. 10 lakhs, have applied for registration by July 9, 1997, comply with Nidhi company directions, and not accept public deposits.