What changed
RBI amended the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977, to ban acceptance of public deposits by MNBCs. Shareholder deposits are now capped at 15% of net owned funds, and all existing public deposits must be repaid on maturity without renewal. Earlier provisions allowing public deposits and certain exemptions for debentures/bonds have been deleted.
What it means for you
MNBCs can no longer rely on public deposits for funding, which tightens their liquidity and forces them to seek alternative capital sources. Banks and lenders dealing with MNBCs should reassess credit risk, as these firms face reduced funding flexibility. The cap on shareholder deposits also limits related-party funding, potentially impacting MNBCs' balance sheets.
What you must do
- Review all deposit portfolios of MNBC clients to ensure compliance with the public deposit ban.
- Update internal credit policies to reflect the reduced funding capacity of MNBCs.
- Advise MNBC clients to plan repayment of existing public deposits on maturity without renewal.
- Monitor shareholder deposit levels to ensure they stay within the 15% of net owned funds limit.
Who it affects
Miscellaneous Non-Banking Companies (MNBCs), Banks and financial institutions lending to MNBCs, Depositors of MNBCs
Can MNBCs accept any deposits after this circular?
Yes, only from shareholders, and the total outstanding shareholder deposits must not exceed 15% of the company's net owned funds.
What happens to existing public deposits held by MNBCs?
They must be repaid on their maturity date and cannot be renewed. No new public deposits can be accepted.
Does this affect non-convertible bonds or debentures issued by MNBCs?
Yes, the amendment deletes the exemption for such instruments, so they are now treated as prohibited deposits unless from shareholders.