The Reserve Bank of India recently released a circular prescribing new guidelines for Non Banking Financial Institutions (NBFCs) and Housing Finance Companies (HFCs). The Apex Bank of the country has mandated that the NBFCs will have to pay back 100% of the deposit amount in case the depositor asks for it citing an emergency.

However, no interest will be payable on the deposit withdrawn as a premature withdrawal. Furthermore, the depositor can only withdraw the amount within the first three months from depositing.

RBI has further stated that whether or not a situation constitutes an emergency will be determined by referring to the definition of ‘critical illness’ set by Insurance Regulatory and Development Authority of India (IRDAI). These new norms will be applicable from January 1, 2025.

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“In cases of critical illness, 100 percent of the amount of the principal sum of deposit may be prematurely paid to individual depositor on request, before the expiry of three months from the date of acceptance of such deposits, without interest," the central bank said in a notification that has reviewed the regulatory framework for housing finance companies (HFCs) and harmonisation of regulations applicable to HFCs and NBFCs” said the Reserve Bank of India in the circular.

What If A Withdrawal Is To Be Made Without An Emergency?

RBI has clarified through the circular that if the money is not sought for an emergency and a premature withdrawal is sought within three months, NBFCs can pay up to 50 percent of the deposit without paying any interest.

However, not more than 50 percent of the amount of the principal deposit or Rs 5 lakh, whichever is lower is to be prematurely paid according to the Reserve Bank.

The apex banking institution, RBI, has also asked NBFCs to ensure that their audit committees conduct an information system audit.

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What Are RBI’s Guidelines For HFCs?

Through the circular, the RBI specified that HFCs shall maintain minimum liquid assets to the extent of 15 percent of the public deposits. Previously, the assets had to be maintained up to 13%.

HFCs shall ensure that full asset cover is available for public deposits accepted by them at all times, and ensure that they get the investment grade rating at least once a year.

Home lenders "shall not renew existing deposits or accept fresh deposits thereafter till they obtain an investment grade credit rating," the circular stated.

Public deposits accepted or renewed by HFCs shall be repayable after 12 months or more but not later than 60 months, it said. It has also reformed the rules on branches and appointment of agents to collect deposits, under which HFCs having branches or agents outside the state of its registration shall not accept fresh deposits or renew existing deposits in these branches if they do not meet certain conditions.

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Conclusion

The new guidelines by RBI will help those who need money in emergent situations as they will be able to receive the full deposit amount back. With the change in rules and regulations for HFCs, there is a major reform that is going to occur in the sector. You must stay up to date with all the information in the banking and finance sector.

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For more information, you can access the full circular here.