The Reserve Bank of India (RBI) has introduced a new mandate for non-banking financial companies (NBFCs), requiring them to refund 100 percent of the deposit amount within the first three months of acceptance if a depositor seeks withdrawal due to an emergency. However, depositors will not receive any interest on premature withdrawals.
Implementation Date and Scope
The revised regulations, which apply to both NBFCs and housing finance companies (HFCs), were issued by the RBI on Monday. These new norms will come into effect on January 1, 2025.
Definition and Conditions for Critical Illness
The central bank clarified that the insurance regulator IRDAI’s definition of “critical illness” will guide whether a withdrawal request qualifies under this category. According to the RBI notification, in cases of critical illness, the principal sum of the deposit may be prematurely paid to the individual depositor upon request, without interest, before the expiry of three months from the date of acceptance of such deposits.
Conditions for Non-Emergency Withdrawals
For withdrawals not related to emergencies, if requested within three months, NBFCs can pay up to 50 percent of the deposit without any interest. However, the amount prematurely paid shall not exceed 50 percent of the principal deposit or ₹5 lakh, whichever is lower.
Audit and Regulatory Harmonization
The RBI has also instructed NBFCs to ensure that their audit committees conduct an information system audit. This move is part of the central bank’s review of regulations applicable to housing finance companies and NBFCs to harmonize the rules.
Changes in Liquid Assets and Credit Ratings
Changes have been announced regarding the minimum percentage of liquid assets, with all deposit-taking HFCs now required to maintain liquid assets to the extent of 15 percent of public deposits, up from the current 13 percent. HFCs must ensure full asset cover is available for public deposits accepted at all times and secure an investment-grade rating at least once a year.
Deposit Renewal and Branch Regulations
HFCs have been advised not to renew existing deposits or accept fresh deposits unless they obtain an investment-grade credit rating. Furthermore, public deposits accepted or renewed by HFCs should be repayable after a minimum of 12 months but not later than 60 months.
Additionally, the RBI has aligned rules on branches and the appointment of agents to collect deposits. HFCs with branches or agents outside their state of registration are prohibited from accepting fresh deposits or renewing existing deposits if they do not meet certain conditions.
