RBI alert: What to check before making deposits with NBFCs

Moneycontrol Bureau

In the wake of Sarada chit fund scam in West Bengal, the Reserve Bank of India (RBI) on Friday alerted depositors of certain customary safeguards before parking their funds in any scheme run by non-banking finance companies (NBFCs). "The Reserve Bank has been, on several occasions in the past, through press releases and through its outreach and sensitisation programmes conducted by its regional offices, cautioning the general public not to fall prey to fictitious offers promising unsustainable returns by individuals, unincorporated bodies and companies," RBI said in a release issued on Friday. Also read: RBI to clarify new banking licence queries on June 3 The advisory is a part of the frequently asked questions (FAQs) issued by the central bank. The FAQs explain in detail various kinds of financial entities and the regulations governing them. One can go through those FAQs in its website. Before deciding on investment, RBI wants you to take note of the following alerts:

• The NBFC is registered with RBI and specifically authorised to accept public deposits. This can be checked from the list of deposit taking NBFCs published on the RBI website - www.rbi.org.in → Sitemap → NBFC List.
• NBFCs have to prominently display the Certificate of Registration (CoR) issued by the Reserve Bank on its site. If an NBFC is authorised to accept public deposit, the certificate reflects that.
• Currently, the maximum interest rate that an NBFC can pay to a depositor should not exceed 12.5%. RBI, however, keeps changing these interest rates depending on the macro-economic environment. The Reserve Bank publishes the change in the interest rates on www.rbi.org.in → Sitemap → NBFC List → FAQs.
• RBI does not guarantee the repayment of deposits accepted by NBFCs.
• The depositor must insist on a proper receipt for every amount of deposit placed with the company. The receipt should be duly signed by an officer authorised by the company and should state the date of the deposit, the name of the depositor, the amount in words and figures, rate of interest payable, maturity date and amount.
• NBFCs cannot use the name of the RBI in any manner while conducting their business.

Many poor people were duped by the Sarada Group, which swindled all depositor' money. Justice Shyamal Sen commission was set up to look into this matter. Media reports suggest, more than 3 lakh people so far have submitted applications to the commission retreive their money. On similar lines, many tiny non-banking finance companies are seen collecting deposits from people across the country. In India, wherein an estimated 70 crore people remain unbanked, these entities have expanded their presence by leaps and bounds. "Investors must generally be circumspect if the interest rates or rates of return on investments offered are higher than those offered by others in the market place. Unless the entity accepting funds is able to earn more than what it promises, the entity will not be able to repay the investor as promised," RBI said. Earning higher returns means that those small size companies will have to take higher risks on the investments it makes. This in turn, are suggestive of undertaking speculative activities. saikat.das@network18online.com