RBI cuts NBFC deposit rate ceiling to 12.5%

Our Banking Bureau

Mumbai, Oct 31: The Reserve Bank of India (RBI) on Wednesday reduced the upper ceiling on deposit rates of non-banking finance companies (NBFCs) by 150 basis points (bps) to 12.5 per cent per annum from 14 per cent per annum. The new ceiling would be effective from November 1, 2001, and would only be applicable to fresh deposits and renewal of existing deposits on and from November 1.

This is the second time in the recent past that the RBI has lowered the interest rate on NBFCs’ deposits. Earlier, effective from April 1, 2001, the rates were reduced by 200 bps from 16 per cent per annum to 14 per cent per annum.

The current decision has been taken after taking into account the current market conditions and changes in other interest rates in the system, RBI said in a release.

However, the other stipulations regarding the interest rates would remain unchanged. An NBFC cannot accept deposits for less than 12 months or more than 60 months, as per the RBI guidelines.

The new ceiling of 12.5 per cent per annum on interest rates has also been extended to miscellaneous non-banking companies (NBC) (chit fund companies) and nidhi companies as applicable to the deposits accepted by them as per directions prescribed by the RBI, the apex bank said.

A company is treated as an NBFC if its financial assets are more than 50 per cent of total assets (netted off against intangible assets) and income from financial assets is more than 50 per cent of the gross income as evidenced from its last audited balance sheet. At present, there are around 700 NBFCs which are allowed to hold or accept public deposits under the certificate of registration under section 451A of the RBI Act 1934. The list also includes residuary NBCs (RNBCs).

Considerable consolidation activities have been taking place in this sector as NBFCs adjust to the tougher standards they are being required to meet. The financial viability of many NBFCs continues to be of concern to the government and the RBI. Some of the NBFCs were heavily into hire-purchase and leasing business, which got affected because of the economic slowdown over the last few years and also over the fact that quite a few banks now have NBFC-arms of their own. The balance-sheets also got affected on account of tougher provisioning and deposit raising norms.