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15. What are deposits?
Deposits mean monies collected in any
manner, other than that
collected by way of share capital, contribution of capital by the partners of a
partnership firm, security deposit, earnest money deposit, advance
consideration for purchase of goods, services or construction, loans taken from
banks, financial institutions and money lenders and subscription to chit funds.
Monies collected in any manner other than these would be termed as deposits
16. Which entities can legally accept deposits
from public?
Banks, including co-operative banks, can accept
deposits. Non-bank finance companies, which have been issued Certificate of
Registration by RBI with a specific licence to accept deposits, are entitled to
accept public deposit. In other words, not all NBFCs registered with the
Reserve Bank are entitled to accept deposits but only those that hold a deposit
accepting Certificate of Registration can accept deposits. They can, however,
accept deposits, only to the extent permissible. Housing Finance Companies,
which are again specifically authorized to collect deposits and companies
authorized by Ministry of Corporate Affairs under the Companies Acceptance of
Deposits Rules framed by Central Government under the Companies Act can also
accept deposits also upto a certain limit. Cooperative Credit Societies can
accept deposits from their members but not from the general public. The Reserve
Bank regulates the deposit acceptance only of banks, cooperative banks and
NBFCs.
It is not legally permissible for other entities
to accept public deposits. Unincorporated bodies like individuals, partnership
firms, and other association of individuals are prohibited from carrying on the
business of acceptance of deposits as their principal business. Such
unincorporated bodies are prohibited from even accepting deposits if they are
carrying on financial business.
17. Can all NBFCs registered by RBI accept
deposits ? Does getting Certificate of Registration from RBI mean the company
can also raise deposits?
No. As stated above, registration with RBI does
not automatically allow an NBFC to accept deposits. The Reserve Bank
specifically authorizes an NBFC to accept deposits. This permission is given
after verifying a registered NBFC's performance for three years. That an NBFC
is permitted to raise deposits from public is specifically mentioned in its
certificate of registration. In fact as a matter of public policy, Reserve Bank
has decided that only banks should be allowed to accept public deposits and as
such has since 1997 not issued any Certificate of Registration (CoR) for new
NBFCs for acceptance of public deposits.,
18. Why is the RBI so restrictive in allowing
NBFCs to raise public deposits?
The Reserve Bank's overarching concern while
supervising any financial entity is protection of depositors' interest.
Depositors place deposit with any entity on trust unlike an investor who
invests in the shares of a company with the intention of sharing the risk as
well as return with the promoters. Protection of depositors' interest thus is
supreme in financial regulation. Banks are the most regulated financial
entities. The Deposit Insurance and Credit Guarantee Corporation pays insurance
on deposits up to Rs.one lakh in case a bank failed.
19. Which are the NBFCs specifically authorized
by RBI to accept deposits?
The Reserve Bank publishes the list of NBFCs
that hold a valid Certificate of Registration for accepting deposits on its
website :www.rbi.org.in → Sitemap →
NBFC List → List of NBFCs Permitted to Accept Deposits. At
times, some companies are temporarily prohibited from accepting public
deposits. The Reserve Bank publishes the list of NBFCs temporarily prohibited
also on its website. The Reserve Bank keeps both these lists updated. Members
of the public are advised to check both these lists before placing deposits
with NBFCs.
20. Can a Co-operative Credit Society accept
deposits from the public?
No. Co-operative Credit Societies cannot accept
deposits from general public. They can accept deposits only from their members
within the limit specified in their bye laws.
21. Can a Salary Earners’ Society accept
deposits from the public?
No. These societies are formed for salaried
employees and hence they can accept deposit only from their own members and not
from general public.
22. How does the Reserve Bank come to know about
unauthorized acceptance of deposits by companies not registered with it or of
NBFCs engaged in lending or investment activities without obtaining the
Certificate of Registration from it?
The Reserve Bank gets to know of NBFCs
unauthorizedly accepting deposits or engaged in lending and investment without
its authorization, mainly through complaints and grievances received from the
public, from industry sources and from Exception Reports received from
Statutory Auditors of these companies. The Reserve Bank also gets to know about
this through market intelligence gathered from newspapers or from information
gathered by its own Regional Offices or any other such sources.
Further, RBI has put in place an institutional
mechanism at all its Regional Offices to coordinate between the financial
sector regulators in the form of State Level Coordination Committee (SLCC). The
members of SLCC include, State Government officials from the Home and Law
Departments, Registrar of Companies, Regional Directorate of Ministry of
Corporate Affairs, National Housing Bank, SEBI, Registrar of Chits, and ICAI.
The SLCC meets every half year to exchange information on such unauthorized
activities of financial entities.
23. Can Proprietorship/Partnership Concerns
associated/not associated with registered NBFCs accept public deposits ?
No. Proprietorship and partnership concerns are
un-incorporated bodies. Hence they are prohibited under the RBI Act 1934 from
accepting public deposits.
24. There are many jewellery shops taking money
from the public in instalments. Is this amounting to acceptance of deposits?
It depends on whether the money is received as
advance for delivering jewellery at a future date or whether the money is
received with a promise to return the same with interest. The money accepted by
Jewellery shops in instalments for the purpose of delivering jewellery at the
end of the period of contract is not deposit. It will amount to acceptance of
deposits if in return for the money received, the jewellery shop promises to
return the principal amount along with interest.
25. What action can be taken if such unincorporated
entities accept public deposits? What if NBFCs which have not been authorized
to accept public deposits use proprietorship/partnership firms floated by their
promoters to collect deposits?
Such unincorporated entities, if found accepting
public deposits, are liable for criminal action. Further NBFCs are prohibited
by RBI from associating with any unincorporated bodies. If NBFCs associate
themselves with proprietorship/partnership firms accepting deposits in
contravention of RBI Act, they are also liable to be prosecuted under criminal
law or under the Protection of Interest of Depositors (in Financial
Establishments) Act, if passed by the State Governments.
26. What action is taken if financial companies
which are lending or making investments as their principal business do not
obtain a Certificate of Registration from the Reserve Bank ?
If companies that are required to be registered
with the Reserve Bank as NBFCs, are found to be conducting non-banking
financial activity, such as, lending, investment or deposit acceptance as their
principal business, without seeking registration, the Reserve Bank can impose
penalty or fine on them or can even prosecute them in a court of law. If
members of public come across any entity which does non-banking financial
activity but does not figure in the list of authorized NBFC on RBI website,
they should inform the nearest Regional Office of the Reserve Bank, for
appropriate action to be taken for contravention of the provisions of the RBI
Act, 1934.
27. NBFCs are charging high interest rates from
their borrowers. Is there any ceiling on interest rate charged by the NBFCs to
their borrowers?
Reserve Bank of India has deregulated interest
rates to be charged to borrowers by financial institutions (other than NBFC- Micro
Finance Institution). The rate of interest to be charged by the company is
governed by the terms and conditions of the loan agreement entered into between
the borrower and the NBFCs. However, the NBFCs have to be transparent and the
rate of interest and manner of arriving at the rate of interest to different
categories of borrowers should be disclosed to the borrower or customer in the
application form and communicated explicitly in the sanction letter etc.
28. What action can be taken against persons/financial
companies making false claim of being regulated by the Reserve Bank ?
It is illegal for any financial entity or
unincorporated body to make a false claim of being regulated by the Reserve
Bank to mislead the public to collect deposits and is liable for penal action
under the Indian Penal Code. Information in this regard may be forwarded to the
nearest office of the Reserve Bank and the Police.
29. What is the difference between acceptance of
money by Chit Funds and acceptance of deposits?
Deposits are defined under the RBI Act 1934 as
acceptance of money other than that raised by way of share capital, money
received from banks and other financial institutions, money received as
security deposit, earnest money and advance against goods or services and
subscriptions to chits. All other amounts, received as loan or in any form are
treated as deposits. Chit Funds activity involves contributions by members in
instalments by way of subscription to the Chit and by rotation each member of
the Chit receives the chit amount. The subscriptions are specifically excluded
from the definition of deposits and cannot be termed as deposits. While Chit
funds may collect subscriptions as above, they are prohibited by RBI from
accepting deposits with effect from August 2009.
H. Collective Investment Schemes (CIS) and Chit
Funds
40. There are some companies like Multi-Level Marketing companies,
Chit funds etc. Do they come under the purview of RBI?
No, Multi-Level Marketing companies, Direct Selling Companies,
Online Selling Companies don’t fall under the purview of RBI. Activities of
these companies fall under the regulatory/administrative domain of respective
state government. A list of such companies and their regulators are as follows:
Category of Companies
|
Regulator
|
Chit Funds
|
Respective State Governments
|
Insurance companies
|
IRDA
|
Housing Finance Companies
|
NHB
|
Venture Capital Fund /
|
SEBI
|
Merchant Banking companies
|
SEBI
|
Stock broking companies
|
SEBI
|
Nidhi Companies
|
Ministry of corporate affairs, Government of
India
|
41. Are Collective Investment Schemes (CIS)
regulated by the Reserve Bank of India?
No. CIS are schemes where money is exchanged for
units, be it time share in resorts, profit from sale of wood or profits from
the developed commercial plots and buildings and so on. Collective Investment
Schemes (CIS) do not fall under the regulatory purview of the Reserve Bank.
42. Which is the authority that regulates
Collective Investment Schemes (CIS)?
SEBI is the regulator of CIS. Information on
such schemes and grievances against the promoters may be immediately forwarded
to SEBI as well as to the EOW/Police Department of the State Government.
43. Is the conducting of Chit Fund business
permissible under law?
The chit funds are governed by Chit Funds Act,
1982 which is a Central Act administered by state governments. Those chit funds
which are registered under this Act can legally carry on chit fund business.
44. If Chit Fund companies are financial
entities, why are they not regulated by RBI?
Chit Fund companies are regulated under the Chit
Fund Act, 1982, which is a Central Act, and is implemented by the State
Governments. RBI has prohibited chit fund companies from accepting deposits
from the public in 2009. In case any Chit Fund is accepting public deposits,
RBI can prosecute such chit funds.
1. What is a Non-Banking Financial Company (NBFC)?
A Non-Banking Financial Company (NBFC) is a company registered
under the Companies Act, 1956 engaged in the business of loans and advances,
acquisition of shares/stocks/bonds/debentures/securities issued by Government
or local authority or other marketable securities of a like nature, leasing,
hire-purchase, insurance business, chit business but does not include any
institution whose principal business is that of agriculture activity,
industrial activity, purchase or sale of any goods (other than securities) or providing
any services and sale/purchase/construction of immovable property. A
non-banking institution which is a company and has principal business of
receiving deposits under any scheme or arrangement in one lump sum or in
installments by way of contributions or in any other manner, is also a
non-banking financial company (Residuary non-banking company).
2. NBFCs are doing functions similar to banks. What is difference
between banks & NBFCs ?
NBFCs lend and make investments and hence their activities are akin
to that of banks; however there are a few differences as given below:
i. NBFC cannot accept demand deposits;
ii. NBFCs do not form part of the payment and settlement system
and cannot issue cheques drawn on itself;
iii. deposit insurance facility of Deposit Insurance and Credit
Guarantee Corporation is not available to depositors of NBFCs, unlike in case
of banks.
3. Is it necessary that every NBFC should be registered with RBI?
In terms of Section 45-IA of the RBI Act, 1934, no Non-banking
Financial company can commence or carry on business of a non-banking financial
institution without a) obtaining a certificate of registration from the Bank
and without having a Net Owned Funds of Rs. 25 lakhs (Rs two crore since April
1999). However, in terms of the powers given to the Bank. to obviate dual
regulation, certain categories of NBFCs which are regulated by other regulators
are exempted from the requirement of registration with RBI viz. Venture Capital
Fund/Merchant Banking companies/Stock broking companies registered with SEBI,
Insurance Company holding a valid Certificate of Registration issued by IRDA,
Nidhi companies as notified under Section 620A of the Companies Act, 1956, Chit
companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982,Housing
Finance Companies regulated by National Housing Bank, Stock Exchange or a
Mutual Benefit company.
4. What are the different types/categories of NBFCs registered
with RBI?
NBFCs are categorized a) in terms of the type of liabilities into
Deposit and Non-Deposit accepting NBFCs, b) non deposit taking NBFCs by their
size into systemically important and other non-deposit holding companies
(NBFC-NDSI and NBFC-ND) and c) by the kind of activity they conduct. Within
this broad categorization the different types of NBFCs are as follows:
- Asset
Finance Company(AFC) : An AFC is a 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. Principal business for this purpose is defined as
aggregate of financing real/physical assets supporting economic activity
and income arising therefrom is not less than 60% of its total assets and
total income respectively.
- Investment
Company (IC) : IC means any company which is a financial
institution carrying on as its principal business the acquisition of
securities,
- Loan
Company (LC): LC 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.
- Infrastructure
Finance Company (IFC): IFC is a non-banking finance company a) which
deploys at least 75 per cent of its total assets in infrastructure loans,
b) has a minimum Net Owned Funds of Rs. 300 crore, c) has a minimum credit
rating of ‘A ‘or equivalent d) and a CRAR of 15%.
- Systemically
Important Core Investment Company (CIC-ND-SI): CIC-ND-SI
is an NBFC carrying on the business of acquisition of shares and
securities which satisfies the following conditions:-
(a) it holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies;
(b) its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its Total Assets;
(c) it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;
(d) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.
(e) Its asset size is Rs 100 crore or above and
(f) It accepts public funds
- Infrastructure
Debt Fund: Non- Banking Financial Company (IDF-NBFC) :
IDF-NBFC is a company registered as NBFC to facilitate the flow of long
term debt into infrastructure projects. IDF-NBFC raise resources through
issue of Rupee or Dollar denominated bonds of minimum 5 year maturity.
Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.
- Non-Banking
Financial Company - Micro Finance Institution (NBFC-MFI): NBFC-MFI
is a non-deposit taking NBFC having not less than 85%of its assets in the
nature of qualifying assets which satisfy the following criteria:
a. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs. 60,000 or urban and semi-urban household income not exceeding Rs. 1,20,000;
b. loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000 in subsequent cycles;
c. total indebtedness of the borrower does not exceed Rs. 50,000;
d. tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000 with prepayment without penalty;
e. loan to be extended without collateral;
f. aggregate amount of loans, given for income generation, is not less than 75 per cent of the total loans given by the MFIs;
g. loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower
Non-Banking Financial
Company – Factors (NBFC-Factors): NBFC-Factor is a
non-deposit taking NBFC engaged in the principal business of factoring. The
financial assets in the factoring business should constitute at least 75
percent of its total assets and its income derived from factoring business
should not be less than 75 percent of its gross income
Why G-secs?
Provident funds, by their very nature, need to invest in risk free
securities that also provide them a reasonable return. Government securities,
also called the gilt edged securities or G-secs, are not only free from default
risk but also provide reasonable returns and, therefore, offer the most
suitable investment opportunity to provident funds.
What are G-secs?
The Government securities comprise dated securities issued by the
Government of India and state governments as also, treasury bills issued by the
Government of India.Reserve Bank of India manages and services these securities
through its public debt offices located in various places as an agent of the
Government.
Treasury Bills
Types
Treasury bills (T-bills) offer short-term investment
opportunities, generally up to one year. They are thus useful in managing
short-term liquidity. At present, the Government of India issues three types of
treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are
no treasury bills issued by State Governments.
Gilt Funds
Gilt funds, as they are
conveniently called, are mutual fund schemes floated by asset management
companies with exclusive investments in government securities. The schemes are
also referred to as mutual funds dedicated exclusively to investments in
government securities. Government securities mean and include central
government dated securities, state government securities and treasury bills.
The gilt funds provide to the investors the safety of investments made in
government securities and better returns than direct investments in these
securities through investing in a variety of government securities yielding
varying rate of returns gilt funds, however, do run the risk.. The first gilt
fund in India was set up in December 1998.
1. What are QFIs and what
are the investments they can undertake?
Ans: QFIs mean a person who fulfils the following criteria:
(a) Resident in a country that is a member of Financial Action
task Force (FATF) or a member of a group which is a member of FATF; and
(b) Resident in a country that is a signatory to IOSCO’s MMoU
(Appendix A Signatories) or a signatory of a bilateral MoU with SEBI
PROVIDED that the person is not resident in a country listed in
the public statements issued by FATF from time to time on jurisdictions having
a strategic AML/CFT deficiencies to which counter measures apply or that have
not made sufficient progress in addressing the deficiencies or have not
committed to an action plan developed with the FATF to address the
deficiencies;
Further such person is not resident in India and is not registered
with SEBI as a Foreign Institutional Investor (FII) or Sub-Account of an FII or
Foreign Venture Capital Investor (FVCI).
Explanation:
“bilateral MoU with SEBI” shall mean a bilateral MoU between SEBI
and the overseas regulator that, inter alia, provides for information sharing
arrangements.
Member of FATF shall not mean an associate member of FATF.
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