NBFC Public Deposit Directions 1998 as amended upto June 30, 2011

RBI/2011-12/17 DNBS (PD) CC No  223/03.02.001/2011-12 July 1, 2011 To The Chairman/CEOs of all Non-Banking Financial Companies (except Residuary Non-Banking Companies and Miscellaneous Non-Banking Companies) Dear Sir, Notification as amended upto June 30, 2011 – “Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998” As you are aware, in order to have all current instructions on the subject at one place, the Reserve Bank of India issues updated Circulars / notifications. The instructions contained in the Notification No.DFC.118/DG (SPT)-98 dated January 31, 1998 updated as on June 30, 2011 are reproduced below. The updated Notification has also been placed on the RBI web-site ( http://www.rbi.org.in ). Yours sincerely, (Uma Subramaniam ) Chief General Manager -in-Charge RESERVE BANK OF INDIA DEPARTMENT OF NON-BANKING SUPERVISION CENTRAL OFFICE CENTRE I, WORLD TRADE CENTRE, CUFFE PARADE, COLABA, MUMBAI- 400 005. Notification No.DFC.118/DG (SPT)-98 dated January 31, 1998 The Reserve Bank of India having considered it necessary in the public interest and being satisfied that for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to give the directions set out below, hereby, in exercise of the powers conferred by sections 45J, 45K, 45L and 45MA of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, and in supersession of the earlier directions contained in Notification No.DFC.114/DG(SPT)-98 dated January 2, 1998 gives to every non-banking financial company the directions hereinafter specified. PART I - PRELIMINARY Short title and commencement of the directions 1. These directions shall be known as the “Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998”.  They shall come into force with effect from January 31, 1998 and any reference in these directions to the date of commencement thereof shall be deemed to be a reference to that date. Definitions 2. (1)   For the purpose of  these directions, unless the context otherwise requires, - (ia) “Asset Finance Company” means any company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive / economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines. 1 (ii) Deleted 2 (iii) "free reserves" means the aggregate of the balance in the share premium account, capital and debenture redemption reserves and any other reserve shown or published in the balance sheet of a company and created through an allocation of profits not being  a reserve  created  for  repayment  of  any  future liability or for depreciation in assets or for bad debts or  a reserve created by revaluation of the assets of the company; (iv) Deleted 3 (v) "insurance company" means any company registered under section 3 of the Insurance Act, 1938 (4 of 1938); (vi) "investment company" means any company which is a financial institution carrying on as its principal business the acquisition of securities; (vii)  “lending public financial institution” means - (a) a public financial institution specified in or under section 4A of the Companies Act, 1956 (1 of 1956); or (b) a State Financial, Industrial or Investment  Corporation; or (c) a scheduled commercial bank ; or (d) the General Insurance Corporation of India established in pursuance of the   provisions of   section 9   of   the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972); or (e) any other Institution which the Reserve Bank of India may, by  notification, specify in this behalf; (viii) "loan company" means any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances  or otherwise for any activity other than its own but does not  include an Asset Finance Company. 4 (ix)"mutual benefit financial company" means any company which is a financial institution notified by the Central Government under section 620A of the Companies Act, 1956 (1 of 1956); 5 [(ixa) “mutual benefit company” means a company not notified under section 620A of the Companies Act, 1956 (1 of 1956) and carrying on the business of a non-banking financial institution, - (a) on 9th January 1997; and (b) having the aggregate of net owned funds and preferential share capital of not less than ten lakhs of rupees; and (c) has applied for issue of certificate of registration to the Bank on or before 9th July 1997; and (d) is complying with the requirements contained in the relevant provisions of the Directions issued under Section 637A of the Companies Act, 1956 to Nidhi Companies by the Central Government] ; (x)`net owned fund’ means net owned fund as defined under section 45-IA of the Reserve Bank of India Act, 1934 (2 of 1934)  including the paid up preference shares which are compulsorily convertible into equity ; (xi)“non-banking financial company” means only the non-banking  institution which is a loan company or an investment company or an asset finance company 6 or a mutual benefit financial company; (xii)`public deposit’, means a deposit as defined under section 45 I(bb) of the Reserve Bank of India Act, 1934 (2 of 1934) excluding the following : (a) any  amount  received  from  the Central Government or a State Government or any amount received from any other source and whose repayment is guaranteed by the Central Government or a State Government or any amount received from a local authority or a foreign Government or any other foreign citizen, authority or person; (b) any amount received from the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964), or the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or the General Insurance Corporation of India and its subsidiaries established in pursuance of the provisions of section 9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), or the Small Industries Development Bank of India established under the Small Industries Development Bank of India Act, 1989 (39 of 1989), or the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or National Bank for Agriculture and Rural Development established under the National Bank for Agriculture and Rural Development Act, 1982, or an Electricity Board constituted under the Electricity (Supply) Act, 1948, or the Tamil Nadu Industrial Investment Corporation Ltd., or the National Industrial Development Corporation of India Ltd., or the Rehabilitation Industries Corporation of India Ltd., or the Industrial Credit & Investment Corporation of India  Ltd., or the Industrial Finance Corporation of India Ltd., or  the Industrial Investment Bank of India Ltd.,  or the State Trading Corporation of India Ltd., or the Rural Electrification Corporation Ltd., or the Minerals and Metals Trading Corporation of India Ltd., or the Agricultural Finance Corporation Ltd., or the State Industrial and Investment Corporation of Maharashtra Ltd., or the Gujarat Industrial Investment Corporation Ltd., or Asian Development Bank or International Finance Corporation or any other institution that may be specified by the Reserve Bank  of India in this behalf ; (c) any amount received by  a  company  from any other  company; (d) any amount received by way of subscriptions to any shares, stock, bonds   or debentures pending the allotment of the said shares, stock, bonds or debentures and any amount received by way of calls-in-advance on shares, in accordance with the Articles of Association of the company so long as such amount is   not  repayable  to   the  members  under  the  Articles  of Association of the company; (e) any amount received from a person who  at the time of receipt of the amount   was  a director of the company  or any amount  received from its shareholders by a private company or by a private company which has become a public company under section 43A of the Companies Act, 1956 and continues to include in its Articles of Association provisions relating to the  matters specified in  clause  (iii) of  sub-section (1)  of  section  3 of  the  Companies Act, 1956 (1 of 1956): Provided that the director or shareholder, as the case may be, from whom the money is received furnishes to the company at the time of  giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others; 7 [provided further, that in the case of joint shareholders of a private company, monies received from or in the name of the joint shareholders except the first named shareholder shall not be eligible to be treated as the receipt of money from the shareholder of the company ;] (f) any amount raised by the issue of bonds or debentures secured by the mortgage of any immovable property of the company; or by any other asset or  with an option to convert them into shares in the company provided that in the case of such bonds or debentures secured by the mortgage of any immovable property or secured by other assets, the amount of such bonds or debentures shall not exceed  the market value of such immovable property/other assets; (g) any amount brought in by  the  promoters by way of unsecured loan in pursuance of stipulations of lending institutions subject to the fulfilment of the following conditions, namely:- (i) the loan is brought in pursuance of the  stipulation imposed by  the lending public financial institution in fulfilment of the obligation of the promoters to contribute such finance, (ii) the loan is provided by the promoters themselves and/or by their relatives, and not from their friends and business associates, and (iii) the exemption under this sub-clause shall be available only till the loan of financial institution is repaid and not  thereafter; 8 [(h) any amount received from a Mutual Fund which is governed by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996; ] 9 [(i) any amount received as hybrid debt or subordinated debt the minimum maturity period of which is not less than sixty months;] 10 [(j) any amount received from a relative of a director of an NBFC Note : The deposit shall be accepted only  on an application made by the  depositor containing therein that as on the date of deposit, he is related to the specific director in the capacity of a relative as defined under Companies Act, 1956 (1 of 1956).] 11 [(k) any amount received by issuance of commercial paper, in accordance with the guidelines issued by the Bank, vide Circular No. IECD.3/08.15.01/2000-2001 dated October 10, 2000 ]; 12 (l) any amount received by a Systemically important non-deposit taking non-banking financial company by issuance of 'perpetual debt instruments'  in accordance with Company Circular DNBS (PD) CC. No.131 /03.05.002 /2008-2009 dated October 29, 2008 as amended from time to time ; “(m) any amount raised by the issue of infrastructure bonds by an Infrastructure Finance Company, as specified in the notification issued from time to time by the Central Government under section 80CCF of the Income Tax Act, 1961.” 13 (xiii) "securities" means securities as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (xiv)  “stock broking company” means a company doing the business of a stock-broker or sub-broker holding a valid certificate of registration obtained under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992); and (xv) “stock exchange” means a company recognised as a stock exchange under section 4 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). (2) Words or expressions used but not defined herein and defined in the Reserve Bank of India Act, 1934 (2 of 1934) or in the Companies Act, 1956 (Act No.1 of 1956) 14 [or Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 or the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987] shall have the same meaning as assigned to them in those Acts. (3) (i) If any question arises as to whether a company is a financial institution or not, such question shall be decided by the Reserve Bank  of India in   consultation with the Central Government and such decision shall be final and be binding on all the parties concerned. If any question arises as to whether a company which is a financial institution is a loan company or an investment company or an asset finance company 15 such question shall be decided by the Reserve Bank of India, having regard to the principal business of the company and other relevant factors and such decision shall be final and be binding on all the parties concerned. NOTE : Deleted 16 PART II - ACCEPTANCE OF PUBLIC DEPOSITS Restrictions on acceptance of  public deposits  by mutual benefit financial companies 3. (1) [deleted ] 17 (2) [The provisions contained in these directions shall not apply to a Mutual Benefit Financial Company or a Mutual Benefit Company; Provided that the application of Mutual Benefit Company is not rejected by Government of India under the provisions of the Companies Act, 1956 ( Act 1 of 1956).] 18 Restrictions on a cceptance of public deposits by non-banking financial companies 4.   Minimum Credit Rating (1) On and from January 31, 1998, - (i) no non-banking financial company having Net Owned Fund (hereinafter referred  to as `NOF’) of twenty five lakh of rupees and above shall accept public deposit unless it has obtained  minimum  investment grade or other specified credit rating  for fixed deposits from any one of the approved credit rating agencies at least once a year and a copy of the rating is sent to the Reserve Bank of India  along with return on prudential norms : 19 [Provided that this clause shall not apply to an Asset Finance Company 20 referred to in clause (a) of sub-paragraph (4) hereunder;]. (ii) in the event of upgrading or downgrading of credit rating of any non-banking financial company to any level from the level previously held by the non-banking financial company, it shall within fifteen working days of its being so rated inform, in writing, of such upgrading/downgrading to the Reserve Bank of India. Approved Credit Rating Agencies and Minimum Investment Grade Credit Rating The names of approved credit rating agencies and the minimum credit rating shall be as follows:-   Name of the agency

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2011-12/17 · issued 01 Jul 2011. The plain-English explanation above is BankPulse’s own independent summary.

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