What changed
RBI issued a master circular updating exemptions from Chapter IIIB of the RBI Act, 1934, dated July 1, 2011, consolidating previous notifications up to June 30, 2011. It includes exemptions for housing finance institutions, merchant banking companies, micro finance companies (with specific credit limits), mutual benefit companies, government companies, and venture capital fund companies, with specific conditions.
What it means for you
Banks and lenders dealing with NBFCs must verify that counterparties claiming exemptions meet the specified conditions, such as registration with SEBI for merchant bankers or licensing under Section 25 of the Companies Act for micro finance companies. This circular simplifies compliance by providing a single reference point for exemptions, reducing the need to track multiple notifications.
What you must do
- Review the master circular to ensure your NBFC clients claiming exemptions meet all conditions, such as not accepting public deposits or adhering to sector-specific regulations.
- Update internal compliance checklists to reference this consolidated circular for exemption eligibility verification.
- Train staff handling NBFC accounts on the updated exemption categories and conditions to avoid regulatory breaches.
Who it affects
Non-Banking Financial Companies (NBFCs), Housing Finance Institutions, Merchant Banking Companies, Micro Finance Companies, Mutual Benefit Companies, Government Companies, Venture Capital Fund Companies, Banks and lenders dealing with NBFCs
What exemptions are available for merchant banking companies under this circular?
Merchant banking companies registered with SEBI and meeting conditions like not accepting public deposits are exempt from Sections 45-IA, 45-IB, and 45-IC of the RBI Act, 1934, as well as certain NBFC directions.
Are micro finance companies fully exempt from RBI Act provisions?
Micro finance companies licensed under Section 25 of the Companies Act, 1956, providing credit up to Rs. 50,000 for business or Rs. 1,25,000 for dwelling units, and not accepting public deposits, are exempt from Sections 45-IA, 45-IB, and 45-IC.
Does this circular change any existing exemption rules?
No, it consolidates existing instructions up to June 30, 2011, without introducing new rules. Users must still refer to original notifications for detailed compliance.