Acceptance of Public deposits – One Person Company Registration

Introduction

Non-banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016 were issued by the Reserve Bank of India in the year 2016 with effect from 25th August, 2016 for the purpose of enabling it to regulate the credit system to the advantage of the country. These directions were issued in supersession of the earlier directions in Notification No. DFC. 118/DG dated January 31, 1998.

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Acceptance of deposits

No non-banking financial company having Net owned Fund (NOF) of twenty five lakh of rupees and above shall accept public deposits 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 Bank along with return on prudential norms. The directions also prescribe interest rate ceiling at 12.5% per annum on deposits. The directions inter alia exempt from the purview of public deposits, the deposits from directors and shareholders in case of private companies. The Directions also exempt from the purview of public deposits any amount raised by issuance of non-convertible debentures with a maturity more than one year and having the minimum subscription per investor at Rs.1 crore and above, provided that such debentures have been issued in accordance with the guidelines issued by the Reserve Bank as in force from time to time in respect of such non-convertible debentures. Exemption is also provided to any amount brought in by the promoters by way of unsecured loan in pursuance of stipulation of lending institutions subject to conditions. The directions also regulate renewal and repayment of public deposits and also provide for proper maintenance of register of deposits. The directions are not applicable to mutual benefit financial companies or mutual benefit companies. The directions also modified the definition of NOF to include paid up preference shares which are compulsorily convertible into equity. The directions also provide for special provisions such as information to be included in the Board’s report, safe custody of approved securities, employees’ security deposit, copies of balance sheet and accounts together with the Director’s report and notes on accounts to be furnished to the Reserve bank of India, non-applicability of the directions to certain types of NBFC and exemptions given to certain class of companies from all or any of the provisions of directions either generally or for any specified period subject to imposition of condition by the Reserve Bank of India.

Deposits of NRIs

No non-banking financial company can invite or accept or renew repatriable deposits from Non-Resident Indians under Non-resident (External) account scheme at a rate exceeding the rate specified by RBI for Non-Resident (External) account scheme for the deposits with scheduled commercial banks. The period of deposits should not less than 1 year and not more than 3 years.

Net owned fund

Paragraph 3 (xiii) of the directions gives the meaning of net owned fund (NOF) to be NOF as defined under section 45-1 A of the Reserve Bank of India Act 1934 including the paid up preference shares which are compulsorily convertible into equity. The meaning of NOF is very important especially with regard to the ceiling on quantum of deposits that can be accepted by an Asset Finance Company (AFC), Loan Company (LCs) or a factor under paragraph 12 of the directions.

Asset Finance Company (AFC)

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“Asset Finance Company” means any company which is a financial institution carrying on as its principal business of the financing of physical assets supporting productive or 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. The principal business for this purpose is defined as aggregate of financing real or physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively.

Ceiling on quantum of deposits

Paragraph 12 of the directions gives the ceiling on quantum of deposits that can be accepted or renewed by AFCS, LCs, ICs and Factor from the public. An asset finance company or a loan company or an investment company or a factor.

  • having minimum NOF as stipulated by the Bank, and
  • complying with all the prudential norms, shall accept or renew public deposit, together with the amounts remaining outstanding in the books of the company as on the date of acceptance or renewal of such deposit, not exceeding one and one-half times of its NOF.

Provided that an asset finance company holding public deposits in excess of the limit of one and one-half times of its NOF shall not renew or accept fresh deposits till such time it reaches the revised limit. Provided no matured public deposit shall be renewed without the express and voluntary consent of the depositor.

Downgrading of credit rating

In the event of downgrading of credit rating below the minimum specified investment grade as provided for in paragraph 9 of these Directions, a non-banking financial company, being an asset finance company or a loan company or an investment company or a factor, shall regularize the excess deposit as provided hereunder;

  • with immediate effect, stop accepting fresh public deposits and renewing existing deposits:
  • all existing deposits shall runoff to maturity; and
  • report the position within fifteen working days, to the concerned Regional Office of the Bank where the NBFC is registered.

Provided no matured public deposit shall be renewed without the express and voluntary consent of the depositor.

Ceiling on the rate of Interest

No NBFC should invite or accept or renew public deposit at a rate of interest exceeding 12 and a half % per annum. Interest may be paid or compounded at rests which should not be shorter than monthly rests.

Particulars to be specified in application forms soliciting public deposits

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No non-banking financial company shall accept or renew any public deposit except on a written application from the depositor in the form to be supplied by the company, which form shall contain all the particulars specified in the Non-Banking Financial Companies and Miscellaneous Non-Banking Companies (Advertisement) Rules, 1977, made under section 58A of the Companies Act, 1956 and also contain the specific category of the depositor, i.e., whether the depositor is a shareholder or a director or a promoter of the company or a member of public.

The application form shall also contain the following:-

  • the credit rating assigned for its fixed deposit and the name of the credit rating agency which rated the company.
  • clause to the effect that in case of non-repayment of the deposit or part thereof as per the terms and conditions of such deposit, the depositor may approach the Eastern/Western/ Northern/Southern (delete which are inapplicable) Bench of Company Law Board whose full address is given hereunder.
  • clause to the effect that in case of any deficiency of the company in servicing its deposit, the depositor may approach the National Consumers Disputes Redressed Forum, the State Level Consumers Disputes Redressed Forum or the District Level Consumers Disputes Redressal Forum for relief;
  •  a statement that the financial position of the company as disclosed and the representations made in the application form are true and correct and that the company and its Board of Directors are responsible for the correctness and veracity thereof:
  • a statement to the effect that the financial activities of the company are regulated by the Bank. It must, however, be distinctly understood that the Bank does not undertake any responsibility for the financial soundness of the company or for the correctness of any of the statements or the representations made or opinions expressed by the company; and for repayment of deposit/discharge of liabilities by the company;
  • at the end of application form but before the signature of the depositor, the following verification clause by the depositor shall be appended: “I have gone through the financials and other statements / particulars / representations furnished / made by the company and after careful consideration I am making the deposit with the company at my own risk and volition”;
  • the information relating to and the aggregate dues from the facilities, both fund and non-fund based, extended to, and the aggregate dues from companies in the same group or other entities or business ventures in which the directors and/or the non-banking financial company are holding substantial interest and the total amount of exposure to such entities.

Every non-banking financial company must obtain proper introduction of the new depositors before opening their accounts and accepting the deposits and keep on its record the evidence which it has relied upon for the purpose of such introduction [Paragraph 21].

Advertisement and statement in lieu of advertisement

Under paragraph 22 of these directions every non-banking financial company soliciting public deposits must comply with the provisions of the Non-Banking Financial Companies and Miscellaneous non-Banking Companies (Advertisement) Rules, 1977 and should specify in every  advertisement issued by it the following:

  • The actual rate of return by way of interest, premium, bonus other advantage to the depositor;
  • The mode of repayment of deposit;
  • Maturity period of deposit;
  •  The interest payable on deposit;
  • The rate of interest which will be payable to the depositor in case the depositor withdraws the deposit prematurely:
  • The terms and conditions subject to which a deposit will be renewed;
  • Any other special features relating to the terms and conditions subject to which
  • The information relating to the aggregate dues (including the non-fund based Facilities provided to) from companies in the same group or other entities or business ventures in which, the directors and/or the NBFC are holding substantial interest and the total amount of exposure to such entities.

A statement that the public deposits solicited by it are not insured. Where an NBFC displays any advertisement in electronic media such as TV, even without soliciting deposits, it should incorporate a caption/band in such advertisements indicating the following:-

  • As regards deposit taking activity of the company, the viewers may refer to the advertisement in the newspaper/information furnished in the application form for soliciting public deposits;
  • The company is having a valid Certificate of Registration dated… issued by the Reserve Bank of India under section 45-IA of the Reserve Bank of India Act 1934. However, the Reserve Bank of India does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company

Where a non-banking financial company intends to accept public deposit without inviting or allowing or causing any other person to invite such deposit, it shall, before accepting such deposit, deliver to the Bank for record, a statement in lieu of advertisement containing all the particulars required to be included in the advertisement pursuant to the Non-Banking Financial Companies and Miscellaneous Non-Banking Companies (Advertisement) Rules, 1977 as also the particulars stated in clause (1) hereinabove, duly signed in the manner provided in the aforesaid Rules.

A statement delivered as above shall be valid till the expiry of six months from the date of closure of the financial year in which it is so delivered or until the date on which the balance sheet is laid before the company in general meeting or where the annual general meeting for any year has not been held, the latest day on which that meeting should have been held in accordance with the provisions of the Companies Act, 1956, whichever is earlier, and a fresh statement shall be delivered after the expiry of the validity of the statement, in each succeeding financial year before accepting public deposit in that financial year.

Register of deposit

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Every non-banking financial company must keep one or more registers in respect of all deposits accepted or renewed in which the following particulars for each and every depositor should be entered under paragraph 29-

  • Name and address of the depositor;
  • Date and amount of each deposit,
  • Duration and the due date of each deposit,
  • Date and amount of accrued interest or premium on each deposit.
  • Date of claim made by the depositor,
  • Date and amount of each repayment, whether of principal, interest or premium,
  • The reasons for delay in repayment beyond five working days, and
  • Any other particulars relating to the deposit.

The aforesaid registers should be kept at each branch in respect of deposit accounts opened by that branch of the company and a consolidated register for all the branches taken together should be kept at the registered office of the company and preserved in good order for not less than eight calendar years following the financial year in which the latest entry is made of the repayment or renewal of any deposit of which particulars are contained in the registers. The said registers can be kept at any place other than the registered office of the company provided it delivers to the Reserve Bank of India a copy of the notice filed with the Registrar of Companies under the proviso to sub-section (1) of section 209 of the Companies Act, 1956 within seven days of such filing.

Restrictions upon opening or closure of branches and appointment of Agents to collect deposits Paragraph 30 imposes certain restrictions in opening of branches for collection of deposits and also for appointment of agents for collection of such deposits as embodied therein. NBFCS having the certificate of company registration issued under section 45-IA of the RBI Act and otherwise entitled to accept public deposits can open its branch or appoint agents. NBFCS having NOF up to Rs. 50 crores can open branches and appoint agents only within the State in which registered office is situated and NBFCS having NOF more than Rs. 50 crores and its credit rating is AA or above can open branches and appoint agents anywhere in India.

For the purpose of opening a branch, an NBFC shall notify to the Bank of its intention to open the proposed branch and on receipt of such advice, the Bank may, on being satisfied that in the public interest or in the interest of the concerned non-banking financial company or for any other relevant reasons to be recorded, reject the proposal and communicate the same to the non-banking financial company. If no advice of rejection of the proposal is communicated by the Bank within 30 days from the receipt of such advice, the NBFC may proceed with its proposal.

Closure of branches

As per paragraph 31 of these directions, no NBFC can close its branch/office without publishing such intention in any one national level newspaper and in one vernacular newspaper in circulation in the relevant place indicating therein the purpose and arrangements being made to service depositors etc. and without advising the Bank, before ninety days of the proposed closure. Intimation along with a copy of the notice in respect of above should be sent within 7 days of its publication in the newspapers to the Regional Office of the Bank under whose jurisdiction the registered office of the company is located.

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