Downgrading of credit rating: Prior to the recent amendment, a company whose credit rating had been downgraded, was required to reduce its public deposits to nil or at least upto to the limit represented by its new credit rating, within one year of such downgrading.

It is now provided that the company whose credit rating has been downgraded to below investment grade shall reduce its excess deposits within a period of three years. Such reduction may be by repayment of the deposits as and when they become due or "otherwise". In other words, if the excess deposits do not mature during this period, still, the company would still have to reduce them "otherwise".

Interestingly, however, the company, during this period of three years, cancontinue to renew deposits even in excess of the limits as per the fresh credit rating, provided that they ensure the reduction within three years andprovided that the renewal is made by the express and voluntary consent of the depositor.

Regularisation of excess deposits: Prior to this amendment, companies are required to reduce the deposits as on 1st January 1998, in excess of the then permissible limits, completely within three years, that is by 31st December 2000.

By this amendment, effectively, an extension of one year has been given to all companies for regularising their excess deposits. In fact, two concessions are given. Originally, the period for such regularisation was three years, that is by 31st December 2000. The company was also obliged to reduce one-third of the excess every year. The new requirement permits the reduction of the excess by 31st December 2001, an extension of one year has been granted generally.

Further, the requirement of yearly reduction of one-third of the excess has been removed. Hence, the company can continue to maintain the whole of the excess deposits during this period. In fact, as in case of downgrading, thecompany can even go on renewing deposits, though these may be in excess of the limits, provided that such renewals are made expressly and voluntarily by the depositor. Note also that the excess is determined with reference to the revised limits as notified in the amendment made on 18th December 1998.

A common complaint against NBFCs is that they divert funds belonging to the company to group concerns. It is now required that, in the application form itself, the NBFC shall disclose all dues from group companies and other entities or business ventures in which the directors and/or the NBFC itself is holding substantial interest. This disclosure shall also include non-fund exposures to such concerns.

It is now also required that a deposit register shall be maintained by each branch in respect of deposit accounts opened by that branch.

An NBFC is required to keep in safe custody the securities which it has invested to comply with the norms of liquidity. The NBFC can maintain such securities at designatedscheduled commercial banks. The NBFC has now an option, by virtue of an amendment, to keep such securities in safe custody with the Stock Holding Corporation of India Ltd. However, for this purpose, it shall have to take the prior approval of the concerned regional office of the Reserve Bank of India in writing.

An important notification has been made in the context of the RBI Act itself. Presently, Section 45I(bb) of the RBI Act defines deposits. This definition is very broad. However, some exceptions are provided and it is also provided that the RBI may notify any institution from which deposits accepted may be treated as excluded. The RBI has now notified the following institutions for this purpose;