What changed
RBI issued a master circular consolidating all previous notifications on exemptions from Chapter III-B of the RBI Act, 1934, up to June 30, 2008. It clarifies that housing finance institutions are fully exempt, while merchant banking companies, micro finance companies, mutual benefit companies, government companies, and venture capital fund companies are exempt from specific sections (45-IA, 45-IB, 45-IC) subject to conditions.
What it means for you
Banks and NBFCs must verify that counterparties claiming exemptions meet the specified conditions, such as SEBI registration for merchant bankers or lending limits for micro finance companies. This circular simplifies compliance by providing a single reference, but operational reliance should be on original notifications.
What you must do
- Review the master circular to identify exempt entities and their conditions.
- Ensure merchant banking clients are SEBI-registered and do not accept public deposits.
- Verify micro finance companies have Section 25 company status and adhere to loan limits (Rs. 50,000 for business, Rs. 1,25,000 for dwelling).
- Cross-check with original notifications for operational accuracy.
- Update internal compliance checklists for NBFC due diligence.
Who it affects
Non-Banking Financial Companies (NBFCs), Housing Finance Institutions, Merchant Banking Companies, Micro Finance Companies, Mutual Benefit Companies, Government Companies, Venture Capital Fund Companies, Banks dealing with exempt NBFCs
Which sections of the RBI Act are exempted for merchant banking companies?
Merchant banking companies are exempt from Sections 45-IA (registration and net owned fund), 45-IB (liquid assets maintenance), and 45-IC (reserve fund creation) of the RBI Act, 1934, subject to conditions like SEBI registration and no public deposits.
What are the loan limits for micro finance companies under this exemption?
Micro finance companies are exempt if they provide credit not exceeding Rs. 50,000 for a business enterprise and Rs. 1,25,000 for meeting the cost of a dwelling unit to poor persons.
Does this master circular replace original notifications?
No, the master circular is for reference only. For operational purposes, entities must refer to the original notifications listed in the annex.