The Hindu Business Line : RBI issues note on NBFC net owned funds

Mumbai May 21 Non-banking finance companies (NBFCs) with less than Rs 2 crore in net owned funds by May 20, 2009 are to get three years thereafter to return any public deposits that they may have taken.

This follows a draft circular from the Reserve Bank of India that proposes to declare such NBFCs as "non-deposit taking entities."

The RBI reasons that NBFCs incorporated after April 1999 were in any case subjected to the stipulation that they needed to have minimum net owned funds of Rs 2 crore before becoming eligible for accepting deposits from the public.

In the event, the companies that were in existence before the new stipulations came into force in 1999 and had accepted deposits from the public would have had all these years to shore up the net owned funds to the stipulated minimum.

Since the RBI guidelines then also required these NBFCs to set aside a minimum of 20 per cent of their profits in a reserve fund, these entities had sufficient time to attain the minimum level of Rs 2 crore in net owned funds.

The latest draft circular issued by the RBI has given them two more years.

If they fail to do so, they will cease to have NBFC status and will consequently have to repay the deposits within three years thereafter.

"NBFCs and other stakeholders are asked to forward their comments and feedback on the proposed draft circular by June 7," the notification added.

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