In general, the interest rates are higher than those of banks. NBFCs have stricter procedures than accepting deposits …
In the light of some recent developments in Kerala, the Reserve Bank’s Thiruvananthapuram Supervision Division has issued two public notices in September warning the public.
Accordingly, only four non-banking financial institutions (NBFCs) in Kerala registered with the RBI, Thiruvananthapuram are allowed to accept ‘public deposit’ (investment from the public) subject to certain conditions. It said the remaining 140 companies were not allowed to accept public deposits.
The announcement seems to be in line with the RBI’s mention of the names of some prominent NBFCs on social media, which led to a campaign in which the RBI said it should not accept deposits from the public. It seems that such campaigns think that the word ‘investment’ simply means ‘public deposit’ or ‘deposit’. All the above 140 companies of the Reserve Bank are only barred from accepting public deposits. But they can also accept other types of permitted investments from the public.
NBFCs licensed (Certificate of Registration) by the Reserve Bank are required to operate under the Reserve Bank of India Act. Their control and supervision are vested in the Reserve Bank. The word ‘deposit’ is also interpreted in the above law. Accordingly, deposits from the public can be accepted only by NBFCs which have been specially sanctioned for the purpose, subject to the regulations and conditions of the Reserve Bank.
NCD Legal
Existing RBI NBFCs, both depositors and non-depositors, may accept certain types of investments from the public subject to instructions and restrictions. Here are some common things about them. However, investors need to study and evaluate each method separately to do so.
Non-convertible debentures (NCDs) are a major player in this category. These are non-convertible bonds. Such bonds are issued for a fixed period of time at a fixed rate of interest. They will be issued in the name of the investor. These are issued in two ways.
(i) Public Issue
Large NBFCs generally raise funds through such bonds. A public issue is a large number of non-banking companies that issue a wide range of bonds in accordance with the law, listing each series of bonds on the stock exchange for their investors in a highly acceptable manner. These ensure more transparency and security.
In general, the interest rates are higher than those of banks. NBFCs have to follow stricter procedures when issuing debentures than accepting deposits. Companies are required to maintain the required reserve fund and credit rating and to comply with the strict Securities and Exchange Board (SEBI) regulations. This type of bond issuance method is much stricter and more transparent than the deposit acceptance method. According to the current guidelines, asset backing of the company is mandatory before issuing such a bond.
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In addition, the company is required to share information about investors with the relevant authorities and to provide SEBI-related periodic reports. Investors can lodge complaints and objections regarding their investments with SEBI, Stock Exchange and RBI. Will also have the right to submit to the relevant authorities. In this sense, this type of bond issuance also excels in terms of security, transparency, access to information and law enforcement. They will also be profitable.
(ii) Private placement
The next is the bond issuance method known as private placement. It is called the Private Placement of NCD. എന്നു പറയുന്നു. All NBFCs can raise deposits by issuing such debentures subject to the time approved by the Board. Under the current Reserve Bank rules, the minimum face value of such a bond is Rs. 20,000. Their duration is more than one year.
Companies should only use the money raised through bonds for their own purposes. Companies should not lend on the security of their own bonds. All bond issuance and investment mobilization must be in accordance with the policies approved by the Company’s Board.
Other means
In addition to bonds, deposit mobilization in the form of Subordinated Debt and Perpetual Debt Instrument can also be done by NBFCs subject to the instructions and regulations of the Reserve Bank. In short, the deposit can only be accepted by NBFCs which are specially licensed for it. However, all NBFCs can in some way accept certain investments other than those.
Treasure companies
Recently, the presence of treasure companies in the investment market can be seen. Fund companies are not controlled by the Reserve Bank. On the contrary, they are regulated by the Companies Act. They can only accept investments from their members. It is also subject to certain restrictions.
Investors need to properly assess their safety. They operate by accepting deposits from members and lending to members. Their objectives are to cultivate saving habits among the members and to help the financially needy members.
Legal Warning: This article only generally mentions the investment opportunities that NBFCs can accept. Make the right decision only after each one has studied the investment in detail and fully understood its shortcomings.
