NBFC Entry into Insurance, Credit Cards & Mutual Fund Distribution

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It may be noted that the Master Circular consolidates and updates all the instructions contained in the notifications listed in the Appendix in so far they relate to the subject. The Master Circular has also been placed on the RBI web-site ( http://www.rbi.org.in ). Yours faithfully, (N. S. Vishwanathan) Principal Chief General Manager Table of Contents Para No Particulars I Entry into insurance business II Issue of Credit card III Issue of Co-branded Credit Cards IV Distribution of Mutual Fund products by NBFCs Appendix I. Entry into insurance business In the statement of Monetary and Credit Policy for the year 2000-2001 announced by our Governor on April 27, 2000 it was indicated, inter alia, that the guidelines for entry of NBFCs into insurance business would be announced. Accordingly, the Bank issued on June 9, 2000 the final guidelines after taking into account the views/suggestions/comments of the market participants as given below. The aspirant NBFCs are advised to make an application along with necessary particulars duly certified by their statutory auditors to the Regional Office of Department of Non-Banking Supervision under whose jurisdiction the registered office of the NBFCs is situated. (a) NBFCs registered with Reserve Bank of India may take up insurance agency business on fee basis and without risk participation, without the approval of Reserve Bank of India subject to the certain conditions; (b) NBFCs registered with RBI which satisfy the eligibility criteria will be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards. The maximum equity contribution such an NBFC can hold in the joint venture company will normally be 50 per cent of the paid-up capital of the insurance company. 1 It was clarified that in case more than one company (irrespective of doing financial activity or not) in the same group of the NBFC wishes to take a stake in the insurance company, the contribution by all companies in the same group shall be counted for the limit of 50 percent prescribed for the NBFC in an insurance JV. On a selective basis, the Reserve Bank of India may permit a higher equity contribution by a promoter NBFC initially, pending divestment of equity within the prescribed period. 2 In view of the unique business model of Core Investment Companies (CICs), it has been decided to issue a separate set of guidelines for their entry into insurance business. While the eligibility criteria, in general, are similar to that for other NBFCs, no ceiling is being stipulated for CICs in their investment in an insurance joint venture. Further it is clarified that CICs cannot undertake insurance agency business. The Guidelines are issued for meticulous compliance.(Annex I) CICs exempted from registration with RBI do not require prior approval provided they fulfil all the necessary conditions of exemption as provided under/ in CC No.206 dated January 05, 2011. Their investment in insurance joint venture would be guided by IRDA norms. (c) NBFCs registered with RBI which are not eligible as joint venture participant, as above can make investments up to 10 per cent of the owned fund of the NBFC or Rs.50 crore, whichever is lower, in the insurance company subject to eligibility criteria for such investment. 2. No NBFC would be allowed to conduct such business departmentally. A subsidiary or company in the same group of an NBFC or of another NBFC engaged in the business of an non-banking financial institution or banking business will not normally be allowed to join the insurance company on risk participation basis. All NBFCs registered with RBI entering into insurance business as investors or on risk participation basis will be required to obtain prior approval of the Reserve Bank. The Reserve Bank will give permission to NBFCs on case to case basis keeping in view all relevant factors. It should be ensured that risks involved in insurance business do not get transferred to the NBFC and that the NBFC business does not get contaminated by any risks which may arise from insurance business. 3 The term "Companies in the same group shall mean an arrangement involving two or more entities related to each other through any of the following relationships : Subsidiary – parent (defined in terms of AS 21), Joint venture (defined in terms of AS 27), Associate (defined in terms of AS 23), Promoter-promotee (as provided in the SEBI (Acquisition of Shares and Takeover) Regulations, 1997) for listed companies, a related party (defined in terms of AS 18), Common brand name, and investment in equity shares of 20% and above". [Details in DNBS.(PD).CC. No. 13 /02.01/99-2000 dated June 30, 2000 , DNBS(PD).CC.No.18/02.01/2001-02 dated January 1, 2002 read with DNBS (PD) C.C. No. 35 / 10.24 / 2003-04 dated February 10, 2004 ] II. Issue of Credit card 3. NBFCs are not allowed to undertake credit card business without prior approval of Reserve Bank of India. In regard to credit card business, it is clarified that any company including a non-deposit taking company intending to engage in this activity requires a Certificate of Registration, apart from specific permission to enter into this business, the pre-requisite for which is a minimum net owned fund of Rs.100 crore and subject to such terms and conditions as the Bank may specify in this behalf from time to time. NBFCs are not permitted to issue debit cards, smart cards, stored value cards, charge cards, etc. as advised explicitly in February 21, 2005. Further, NBFCs have to comply also with the instructions issued by Bank to commercial banks vide DBOD.FSD.BC. 49/ 24.01.011/ 2005-06 dated November 21, 2005 . [Details in DNBS (PD) C.C. No. 41 / 10.27 / 2004-05 dated July 7, 2004 , DBOD.FSD.BC. 49/ 24.01.011/ 2005-06 dated November 21, 2005 ] III. Issue of Co-branded Credit Cards 4. It has been decided to allow NBFCs, selectively, registered with the Reserve Bank of India to issue co-branded credit cards with scheduled commercial banks, without risk sharing, with prior approval of the Reserve Bank , for an initial period of two years and a review thereafter. NBFCs fulfilling the minimum eligibility requirements and adhering to certain stipulations are eligible to apply. [Details in DNBS (PD) CC No. 83 / 03.10.27 / 2006-07 dated December 04, 2006 ] IV. Distribution of Mutual Fund products by NBFCs 5. Further, it has been decided to allow NBFCs, selectively, to market and distribute mutual fund products as agents of mutual funds, with prior approval of Reserve Bank, for an initial period of two years and a review thereafter. NBFCs fulfilling the certain minimum requirements are eligible to apply. The permission is liable to be withdrawn with a notice period of 3 months in the event of any undesirable / unhealthy operations coming to the notice of the Bank. [Details in DNBS (PD) CC No. 84 / 03.10.27 / 2006-07 dated December 04, 2006 ] Appendix Sr. No. Circular No. Date 1 DNBS.(PD).CC. No. 13 /02.01/99-2000 June 30, 2000. 2 DNBS(PD).CC.No.18/02.01/2001-02 January 1, 2002 3 DNBS (PD) C.C. No. 35 / 10.24 / 2003-04 February 10, 2004 4 DNBS (PD) C.C. No. 41 / 10.27 / 2004-05 July 7, 2004 5 DNBS (PD) CC No.83 / 03.10.27 / 2006-07 December 04, 2006 6 DNBS (PD) CC No. 84 / 03.10.27 / 2006-07 December 4, 2006 7 DNBS.PD.CC.No.221/03.02.002/2010-11 May 27, 2011 1 Inserted vide DNBS.PD.CC.No.221/03.02.002/2010-11dated May 27, 2011 2 Inserted vide DNBS (PD) CC.No.322/03.10.001/2012-13 dated April 1, 2013 3 DNBS.PD.CC.No.221/03.02.002/2010-11dated May 27, 2011 2026 All Months January February March April May June July August September October November December 2025 All Months January February March April May June July August September October November December 2024 All Months January February March April May June July August September October November December 2023 All Months January February March April May June July August September October November December 2022 All Months January February March April May June July August September October November December 2021 All Months January February March April May June July August September October November December 2020 All Months January February March April May June July August September October November December 2019 All Months January February March April May June July August September October November December 2018 All Months January February March April May June July August September October November December 2017 All Months January February March April May June July August September October November December Archives 2016 All Months January February March April May June July August September October November December 2015 All Months January February March April May June July August September October November December 2014 All Months January February March April May June July August September October November December 2013 All Months January February March April May June July August September October November December 2012 All Months January February March April May June July August September October November December 2011 All Months January February March April May June July August September October November December 2010 All Months January February March April May June July August September October November December 2009 All Months January February March April May June July August September October November December 2008 All Months January February March April May June July August September October November December 2007 All Months January February March April May June July August September October November December 2006 All Months January February March April May June July August September October November December 2005 All Months January February March April May June July August September October November December 2004 All Months January February March April May June July August September October November December 2003 All Months January February March April May June July August September October November December 2002 All Months January February March April May June July August September October November December 2001 All Months January February March April May June July August September October November December 2000 All Months January February March April May June July August September October November December 1999 All Months January February March April May June July August September October November December 1998 All Months January February March April May June July August September October November December 1997 All Months January February March April May June July August September October November December 1996 All Months January February March April May June July August September October November December 1995 All Months January February March April May June July August September October November December 1994 All Months January February March April May June July August September October November December 1993 All Months January February March April May June July August September October November December 1992 All Months January February March April May June July August September October November December 1991 All Months January February March April May June July August September October November December Top Back to previous page More Links : Bank Holidays Banking Glossary Citizen's Charter Complaints Contact Us COVID-19 Measures E-LMS Events FAQs Financial Education Forms IFSC/MICR Codes Important Websites Opportunities @ RBI RBI Clarifications RBI Kehta Hai RBI’s Vision and Values (1257 kb)--> Right to Information Act Tenders Follow RBI RSS Twitter YouTube Instagram Facebook LinkedIn © Reserve Bank of India. 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Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2013-14/43 · issued 01 Jul 2013. The plain-English explanation above is BankPulse’s own independent summary.

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