All Non-Banking Financial Companies (NBFCs)
Including Residuary Non- Banking Companies (RNBCs)
Distribution of Mutual Fund products by NBFCs
Please refer to paragraph No. 153 of the Mid-Term
Review of Annual Policy Statement for the year 2006-07 (copy enclosed) announced
by the Governor on October 31, 2006.
2. In order to strengthen the NBFC sector by allowing diversification
in their area of business, it has been decided to allow NBFCs, selectively,
to market and distribute mutual fund products as agents of mutual funds, with
prior approval of Reserve Bank, for an initial period of two years and a review
thereafter. NBFCs fulfilling the following minimum requirements are eligible
i) Minimum net owned fund of Rs.100 crore;
ii) The company should have made net profit as per last two
years audited balance sheet;
iii) The percentage of net NPAs to net advances of the NBFC
as per the last audited balance sheet should not be more than 3%;
iv) The non-deposit-taking NBFCs (NBFCs-ND) should have CRAR
of 10% and deposit-taking NBFCs (NBFCs-D) should have CRAR of 12% or 15%, as
applicable to the company.
3. In addition, the NBFCs would be required to adhere to the
i) Operational Aspects
a) The NBFC should comply with the SEBI guidelines/regulations,
including their code of conduct, for distribution of mutual fund products.
b) The company should not adopt any restrictive practice of
forcing its customers to go in for a particular mutual fund product sponsored
by it. The customers should be allowed to exercise their own choice.
c) The participation by a company’s customer in mutual fund
products is purely on a voluntary basis and this information should be stated
in all publicity material distributed by the company in a prominent way. There
should be no `linkage' either direct or indirect between the provisions of financial
services offered by the company to its customers and distribution of the mutual
d) The company should only act as an agent of the customers,
forwarding the investor's applications for purchase/sale of MF units together
with the payment instruments, to the Mutual Fund/the Registrars/the transfer
agents. The purchase of units should be at the customers' risk and without the
company guaranteeing any assured return.
e) The company should neither acquire units of mutual funds
from the secondary market for sale to customers, nor should it buy back units
of mutual funds from their customers.
f) In case the company is holding custody of MF units on behalf
of customers, it should ensure that its’ own investments and the investments
belonging to its’ customers are kept distinct from each other.
ii) Other Aspects
a) The risks, if any, involved in mutual fund agency business
should not get transferred to the business of the NBFC.
b) The NBFC should have put in place guidelines on fair practices
c) The company should be adhering to Know Your Customer Guidelines
and provisions of prevention of Money Laundering Act;
d) The company must be complying with Non-Banking Financial
Companies Acceptance of Public Deposits ( Reserve Bank) Directions, 1998 and/or
Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions,
1998 and any other instructions / provisions of RBI Act, 1934 to the extent
applicable to the NBFC concerned;
e) The NBFC should comply with other terms and conditions
as the Bank may specify in this behalf from time to time.
4. The permission is liable to be withdrawn with a notice period
of 3 months in the event of any undesirable / unhealthy operations coming to
the notice of the Bank.
5. Please acknowledge receipt to the Regional Office of the
Department of Non-Banking Supervision, Reserve Bank of India under whose jurisdiction
the Registered Office of your company is situated.
Chief General Manager-in-Charge
Encl: As above
Extract of paragraph No. 153 of the Mid-Term Review of Annual
Policy Statement for the year 2006-07
Non-banking financial companies (NBFCs) play a critical role
as an instrument of credit delivery, particularly in the small scale and retail
sectors. The Reserve Bank has been continuously emphasising on developing NBFCs
into financially strong entities with skill levels necessary to cater to the
needs of the common people. In order to strengthen the NBFC sector by diversifying
their area of business, it is proposed to allow NBFCs:
• to issue co-branded credit cards with banks without risk
• to market and distribute mutual fund products as agents of