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The Non-Banking Financial Companies are lending cash against gold deposits and collecting
interest against the loan amount. How much percentage of the cost of the gold deposited
can be given as loan and what shall be the interest to be collected against the
loan according to the Reserve Bank of India’s specifications.
In terms of extant instructions, Non-Banking Financial Companies (NBFCs) are required
to maintain a Loan-to-Value (LTV) ratio not exceeding 75 percent for loans granted
against the collateral of gold jewellery.
The interest rates charged by NBFCs are governed by the terms and conditions of
the loan agreement entered into by the borrower and the NBFC. The Reserve Bank has
not specified any interest rate that can be charged by any NBFC. However, in order
to ensure transparency in such matters, the NBFCs have been advised by the Reserve
Bank to adopt a Fair Practice Code with the approval of their Boards. They are also
advised to lay out appropriate internal principles and procedures in determining
interest rates and other charges. The latest circular issued to NBFCs on Fair Practices
Code is Master Circular DNBS (PD) CC No. 340/03.10.042/2013-14 dated July 1, 2013
which is available on our website www.rbi.org.in
> sitemap > Master Circulars – Fair Practice Code. http://rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx
April 10, 2014
RIA No4357/ 2013-14
- Kindly inform me about the maximum rate of interest that can be charged by a Non-Banking
Financial Company in regard to loans lent to loanees/borrowers against the security
of Gold Ornaments.
The Reserve Bank has not prescribed any ceiling on interest rate that can be charged
by an NBFC. The interest rate chargeable, on all loans including loans against Gold
Ornaments, is governed by the terms and conditions of the loan agreement entered
into between the borrower and the NBFC. However, in order to ensure transparency
in such matters, the NBFCs have been advised by the Reserve Bank to adopt a Fair
Practices Code (FPC) with the approval of their Boards.
The latest circular issued to NBFCs on FPC is Master Circular DNBS (PD) CC No. 340/03.10.042/2013-14
dated July 1, 2013 which is available on our website www.rbi.org.in > sitemap > Master Circulars – Fair Practice
Code Available at the link: http://rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx
February 25, 2014
- Kindly furnish me the prevailing rules, regulations, norms, notifications,
orders etc. pertaining to the charge of interest on loans lent by Non-Banking Financial
Instructions in regard to rate of interest chargeable on all types of loans including
loans against security of Gold Ornaments are consolidated in our Master Circular
on the Fair Practices Code referred to above.
- Kindly inform me as to the applicability of the AP Pawn Brokers Act, 2002
to the (Act No. 6 of 2002, passed by the Andhra Pradesh Legislature & came into
force with effect from 15.10.2003) in regard to the loans and advances lent by Non-Banking
Financial Companies to the public at large against the security of Gold/gold ornaments.
All loans, including loans against the security of Gold/gold ornaments, granted
by NBFCs, registered with the Reserve Bank of India under Section 45-IA of the RBI
Act, 1934, are governed by the provisions of the said Act and the guidelines issued
in this regard by the Reserve Bank.
- Kindly inform me the prevailing rules, regulations, norms, guidelines,
notifications etc. in regard to auctioning of securities by Non-Banking Financial
Companies in the event of failure of the loanees to repay the borrowed amount.
Our guidelines with regard to auction of jewellery, in the event of non-repayment
of loans, are available in Para C of our above referred circular, read with para
V of our circular DNBS.CC.PD.No.356 / 03.10.01/ 2013-14 September 16, 2013 on Lending
Against Security of Single Product – Gold Jewellery, which is available on our website
www.rbi.org.in > Sitemap > NBFC List > NBFC
Notifications. Available at the link:
- Kindly inform me the prevailing rules and regulations in regard to maximum
and minimum duration for which loans can be granted by Non-Banking Financial companies
against the security of Gold ornaments and the periodicity of compounding of interest.
The Reserve Bank has not prescribed maximum and minimum duration of loans and the
periodicity for compounding of interest on loans granted by NBFC against any kind
of security including Gold ornaments. The Non-banking Financial Companies have discretion
to determine the duration and the periodicity of compounding of interest on the
loans granted. However, the rate of interest disclosed should be annualised rate
so that the borrower is aware of the exact rate that would be charged to the account.
4080/ 13-14 DNBS
Which of the Foreign or Indian, Private banks, NBFC, Financial Institute and the
Banks/ NBFC and here quotd Bank or NBFC can charge compound interest (cumulative
interest)? If they can charge cumulative interest then RBI or which of it's Department
or Department of Non-Banking Supervision (DNBS) or which Authority has been permitted
to charge this? Particularily which Bank / NBFC can charge cumulative interest and
express in detail the permission given to them?
- Citi Financial Consumer Finance India Ltd. called as “Citi Financial”,
- HDFC Bank Ltd.,
- Kotak Mahindra Bank Ltd.,
- Kotak Mahindra Prime Ltd.,
- Reliance Capital Ltd.,
- Barclays Bank Ltd.,
- ICICI Bank Ltd.,
- India Bulls.
Non-Banking Financial Companies (NBFC) are registered with the Reserve Bank under
Section 45 IA of the RBI Act, 1934. The Reserve Bank has not prescribed any specific
interest rate that should be charged by NBFCs or “cumulative interest”. The interest
rates charged by NBFCs are governed by the terms and conditions of the loan agreement
entered into between the borrower and the NBFC. Further, our Master Circular on
this subject (Fair Practices Code) states that “The NBFCs should convey in writing
to the borrower in the vernacular language as understood by the borrower by means
of sanction letter or otherwise, amount of loan sanctioned along with the terms
and conditions including annualised rate of interest and method of application thereof
and keep the acceptance of these terms and conditions by the borrower on its record.”
In order to ensure transparency in such matters, NBFCs have been advised by the
Reserve Bank to adopt a Fair Practices Code with the approval of their Boards.
The latest circular issued to NBFCs on Fair Practices Code is Master Circular DNBS
(PD) CC No. 340/03.10.042/2013-14 dated July 1, 2013 which is available on our website
www.rbi.org.in > sitemap > Master
Circulars – Fair Practice Code at the link http://rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx?did=333
The Department of Non-Banking Supervision regulates and supervises the Non-Banking
Financial Companies and has issued the above guidelines to them.
February 24, 2014
RIA 433/05-06 DNBS
Is it permissible for a non-banking financial company (NBFC) to carry on business
without registering with the Reserve Bank of India? If not, and if a NBFC carries
on such business, what action would be taken against such a company?
As per Section 45 IA of the Reserve Bank of India Act, 1934, no NBFC shall commence
or carry on the business of non-banking financial institution (NBFI) without obtaining
certificate of registration (CoR) from the Reserve Bank of India. Business activities
to be carried on by such NBFCs are provided under Section 45 I(c) of the RBI Act,
1934. The Reserve Bank of India may take appropriate action against any person (NBFC)
contravening the provisions of RBI Act, 1934 and the Directions issued there under.
March 28, 2006
RIA 461/05-06 DNBS
What are the businesses that a company which is registered as a Residuary Non-Banking
Company (RNBC) with RBI can undertake?
A company registered as a RNBC is defined as a non-banking institution, in terms
of the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987. RNBCs are
companies which receive any deposit under any scheme or arrangement, by whatever
name called, in one lumpsum of in installment by way of contributions or subscriptions
or by sale of units or certificates or other instruments, or in any other manner
and which, according to the definitions contained in the Non-Banking Financial Companies
Acceptance of Public Deposits (Reserve Bank) Directions, 1998, or as the case may
be, the Miscellaneous Non-Banking Companies Acceptance of Public Deposits (Reserve
Bank) Directions, 1977, is not
- an equipment leasing company
- a hire purchase finance company
- a housing finance company
- an insurance company
- an investment company
- a loan company
- a mutual benefit company
- miscellaneous non-banking company, and
- a mutual benefit company.
April 25, 2006
RIA 472, 473/2005-06 DNBS
Does law permit a NBFC governed by RBI rules to disburse loan amt by cash/ through
The mode of disbursal of loan amounts by NBFCs is not governed by RBI regulations.
As regards the business practices of NBFCs, these are matters of contract between
the NBFC and the borrower and therefore the loan transaction between the borrower
and NBFC is regulated by the terms and conditions of the contract. Any grievances
in this regard can be raised before the appropriate courts (both civil and criminal)
including the local Consumer Forums, as you may deem fit. We may also add that no
guidelines have been issued by Reserve Bank relating to vehicle financing by NBFCs.
April 25, 2006
RIA 182, /2007-08 DNBS
Rules and Regulations to form a Banking and Non Banking Financial Organizations
As far as Non – Banking Financial companies (NBFC) are concerned, as per Section
45 – IA (1) of Reserve Bank of India Act, 1934, no NBFC shall commence or carry
on business of a non – banking financial institution without –
- Obtaining a certificate of registration; and
- Having the net owned fund (NOF) of rupees twenty - five lakh or such other amount,
not exceeding rupees two hundred lakh. Currently, an NBFC requires NOF of Rs 200
lakh to be eligible for registration as a non banking financial institution and
you may refer to RBI's website, www.rbi.org.in
( go to Sitemap>NBFC list>Forms/returns) for other details and specimen application
form for certificate of registration to commence / carry on the business of a non-
banking financial institution by a company and the requirements to be complied with
and documents to be submitted to RBI by NBFCs for obtaining Certificate of Registration
- As regards query about licensing of new bank, at present RBI is not considering
any request for opening of new banks in the private sector. As and when RBI considers
it necessary to invite applications for opening of new banks in the private sector,
a public announcement indicating the detailed norms for setting up a bank will be
made. The same will also be made available on the RBI website www.rbi.org.in
- Banks are regulated by Reserve Bank of India under provisions of the Banking Regulation
Act, 1949 and Reserve Bank of India act, 1934.
August 21, 2007.
RIA 1648, /2007-08 DNBS
"Does the money lending business under hire purchase require registration / permission
from RBI; if yes under what provision of law?"
Granting of License/ permission for money lending activity is under the jurisdiction
of concerned State Governments. In case any non-banking financial activity (e.g.
hire purchase and leasing) is to be undertaken, such activity cannot be commenced
or carried on without a Certificate of Registration from RBI as per Section 45 IA
of RBI Act, 1934.
April 9, 2008
Are Non-Banking Finance Companies (NBFC) in India allowed to give loans to NPA accounts
of nationalized and private banks?
NBFCs lend based on their own credit appraisal mechanism.
Dec 11, 2013
Whether they are regulated to a point of Rate of Interest charged by them? Or they
can charge whatsoever they would like to under the guidelines of honorable RBI?
Rate of Interest on loans is a contractual obligation between NBFC and borrower.
RBI has not issued any guidelines in this regard. However, the Board of each NBFC
has to adopt an interest rate model taking into account relevant factors such as
cost of funds, margin and risk premium, etc and determine the rate of interest to
be charged for loans and advances. NBFC cannot charge interest that are seen to
be excessive. The rate of interest should be annualized rates so that the borrower
is aware of the exact rates that would be charged to the account. Further, the rate
of interest and the approach for gradations of risk and rationale for charging different
rate of interest to different categories of borrowers has to be disclosed by the
NBFC to the borrower or customer in the application form and communicated explicitly
in the sanction letter.
In addition, the Board of the NBFC has to adopt Fair Practice Code issued by the
Bank vide Master Circular DNBS(PD) CC No. 340 / 03.10.042/ 2013-14 dated July 1,
2013 which deals, inter alia, with transparency in interest rates charged to the
If a NBFC is charging any amount of ROI to any client then can a complaint can be
made, if yes to whom?
Grievances can be addressed to the Grievances Redressal Officer of the company.
In case the NBFC does not respond, the matter can be taken up with the concerned
Regional Office of the Department in whose jurisdiction the company is registered.