RBI to Allow Full NBFC Deposit Withdrawals in Emergencies by 2025

The Reserve Bank announced on Monday that non-banking financial companies (NBFCs) must return 100% of deposit amounts within three months if a depositor requests an emergency withdrawal. These changes will be effective from January 1, 2025. The central bank clarified that no interest will be paid for such premature withdrawals.

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The definition of critical illness, as set by the insurance regulator Irdai, will determine if a request qualifies under this category. The central bank stated, "In cases of critical illness, hundred per cent of the amount of the principal sum of deposit may be prematurely paid to individual depositors at the request of the depositors, before the expiry of three months from the date of acceptance of such deposits, without interest."

Emergency Expenses and Premature Withdrawals

Expenses considered emergent include medical emergencies or costs due to natural calamities or disasters as notified by the government. If the withdrawal is not for an emergency and is requested within three months, NBFCs can pay up to 50% of the deposit without any interest. However, this amount should not exceed 50% of the principal sum or Rs 5 lakh, whichever is lower.

The RBI has mandated that NBFCs notify depositors about maturity dates 14 days in advance, a change from the current requirement of two months. Additionally, NBFCs must ensure their audit committees conduct information system audits as per stipulations.

Harmonising Rules for Housing Finance Companies

The central bank reviewed regulations for housing finance companies (HFCs) and NBFCs to harmonise rules for both sectors. Consequently, it announced changes in the minimum percentage of liquid assets. All deposit-taking HFCs must maintain liquid assets equal to 15% of public deposits, up from the current 13%.

HFCs must ensure full asset cover for public deposits at all times and obtain an investment-grade rating from credit rating agencies at least once a year. The RBI specified that home lenders cannot renew existing deposits or accept new ones until they achieve this rating.

Public deposits accepted or renewed by HFCs must be repayable after a period of 12 months but not later than 60 months. The RBI also aligned rules on branches and agents collecting deposits. HFCs with branches or agents outside their registration state cannot accept fresh deposits or renew existing ones unless they meet specific conditions.

Investment Restrictions and Internal Limits

Restrictions on investments in unquoted shares applicable to NBFCs will now also apply to HFCs. Deposit-taking HFCs must set board-approved internal limits within the direct investment limit for investments in unquoted shares of another company that is not a subsidiary or part of the same group as the HFC.

The RBI's review aims to streamline regulations across financial entities while ensuring depositor protection and financial stability. These measures are part of ongoing efforts to enhance regulatory frameworks in India's financial sector.