RBI mandates full emergency refunds for NBFC deposits and updates housing finance rules

On Monday, the Reserve Bank of India (RBI) announced new regulations for non-banking financial companies (NBFCs) regarding deposit withdrawals. Starting January 1, 2025, NBFCs will be required to return the full deposit amount to depositors within the first three months if they request a withdrawal due to an emergency. However, such premature withdrawals will not accrue any interest.

The RBI’s guidelines will follow the definition of “critical illness” established by the Insurance Regulatory and Development Authority of India (IRDAI). Under these new rules, if a depositor faces a critical illness, they may withdraw 100 percent of their deposit without interest, provided the request is made within three months of the deposit’s acceptance. The central bank also clarified that emergencies include medical crises or expenses resulting from natural disasters or other calamities as declared by the government.

For non-emergency premature withdrawals within the three-month period, NBFCs are allowed to return up to 50 percent of the deposit amount, but not more than Rs 5 lakh, without paying interest, PTI reported.

Additionally, the RBI has mandated that NBFCs must notify depositors of their deposit’s maturity 14 days in advance, reducing the previous notice period from two months.

The central bank also directed NBFCs to ensure that their audit committees conduct information system audits in accordance with established regulations.

In a move to standardize regulations across the financial sector, the RBI has revised rules affecting both housing finance companies (HFCs) and NBFCs. The minimum liquid asset requirement for deposit-taking HFCs has been increased from 13 percent to 15 percent of public deposits. HFCs must also maintain full asset coverage for public deposits and secure an ‘investment grade’ rating from credit rating agencies at least annually.

HFCs are prohibited from renewing existing deposits or accepting new ones until they obtain an investment grade credit rating. Public deposits must have a maturity period of at least 12 months but no more than 60 months.

The new regulations also align the rules regarding branch operations and deposit collection agents. HFCs with branches or agents outside their state of registration are restricted from accepting or renewing deposits unless they meet specific conditions.

Furthermore, the RBI has extended investment restrictions on unquoted shares, previously applicable to NBFCs, to HFCs. Deposit-taking HFCs must establish board-approved internal limits for investments in unquoted shares of companies that are neither subsidiaries nor affiliated with the HFC.