What changed
RBI issued a master circular consolidating exemptions from Chapter III-B of the RBI Act, 1934, updated up to June 30, 2010. It consolidates previous notifications and clarifies conditions for housing finance institutions, merchant banking companies, micro finance companies, mutual benefit companies, government companies, and venture capital fund companies.
What it means for you
NBFCs in these categories can operate without certain RBI requirements like registration, liquid asset maintenance, and reserve fund creation, provided they meet specific conditions. This reduces regulatory burden for eligible entities but requires strict compliance with conditions to avoid penalties.
What you must do
- Verify your NBFC's classification (HFC, merchant banker, microfinance, or mutual benefit) to check eligibility for exemptions.
- Ensure merchant banking companies are registered with SEBI and comply with SEBI rules, and do not accept public deposits.
- Confirm microfinance companies are licensed under Section 25 of Companies Act, 1956, and provide credit within limits (Rs. 50,000 for business, Rs. 1,25,000 for dwelling).
- Review the master circular and its annex for full conditions and ensure no public deposits are accepted if claiming exemptions.
Who it affects
Housing finance institutions (NBFCs), Merchant banking companies, Micro finance companies (Section 25 companies), Mutual benefit companies, Government companies, Venture capital fund companies
What exemptions do merchant banking companies get under this circular?
Merchant banking companies are exempt from Sections 45-IA (registration and net owned fund), 45-IB (liquid assets), and 45-IC (reserve fund) of the RBI Act, provided they are SEBI-registered, acquire securities only as part of merchant banking, do no other financial activity, and do not accept public deposits.
What are the credit limits for microfinance companies to qualify for exemptions?
Microfinance companies must provide credit not exceeding Rs. 50,000 for a business enterprise and Rs. 1,25,000 for a dwelling unit to poor persons, and be licensed under Section 25 of the Companies Act, 1956, and not accept public deposits.