What changed
RBI issued an updated Master Circular (No. 336) on July 1, 2013, consolidating all exemptions from Chapter III-B of the RBI Act, 1934, as of June 30, 2013. This replaces the earlier Master Circular No. 282 and includes exemptions for housing finance institutions, merchant banking companies, micro finance companies, mutual benefit companies, and others.
What it means for you
Banks and NBFCs must note that certain entities are exempt from registration, liquid asset maintenance, and reserve fund requirements under the RBI Act, subject to conditions. For example, merchant bankers must be SEBI-registered and not accept public deposits, while micro finance companies must lend up to Rs. 50,000 for business and Rs. 1.25 lakh for housing to poor individuals. This circular provides a single reference point for compliance checks.
What you must do
- Review the updated Master Circular to ensure your institution correctly identifies exempt entities under Chapter III-B.
- Verify that exempt counterparties, like merchant bankers or micro finance companies, meet all specified conditions (e.g., SEBI registration, lending limits).
- Update internal compliance manuals to reference this circular for exemption-related decisions.
- Train staff on the conditions for exemptions, especially for micro finance and merchant banking entities.
Who it affects
Non-Banking Financial Companies (NBFCs), Housing Finance Institutions, Merchant Banking Companies, Micro Finance Companies, Mutual Benefit Companies, Banks dealing with exempt entities
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 (maintenance of liquid assets), and 45-IC (creation of reserve fund) of the RBI Act, 1934, provided they are SEBI-registered and do not accept public deposits.
What are the lending limits for micro finance companies under this exemption?
Micro finance companies exempted under this circular must provide credit not exceeding Rs. 50,000 for a business enterprise and Rs. 1,25,000 for a dwelling unit to poor persons, and must be licensed under Section 25 of the Companies Act, 1956.
Does this circular apply to housing finance institutions?
Yes, housing finance institutions as defined in the National Housing Bank Act, 1987 are exempt from the provisions of Chapter III-B of the RBI Act, 1934.