How to identify genuine NBFCs accepting deposits: A guide for investors

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To verify if an NBFC accepting deposits is genuine, ensure it is registered with the Reserve Bank of India (RBI) and has the appropriate licence to accept public deposits. Look for transparent documentation and be cautious of unusually high interest rates.

Depositors must be cautious, as unauthorized or fraudulent NBFCs may lead to financial losses. Here’s how to determine if an NBFC accepting deposits is genuine and safe.

1. Check registration with RBI

The first step to verify any NBFC is to confirm its registration with the Reserve Bank of India (RBI). As per RBI regulations, all NBFCs accepting deposits must be registered and granted a Certificate of Registration. To check whether an NBFC is registered, visit the RBI’s official website and browse through the list of registered NBFCs. Additionally, the RBI website also provides information about the type of NBFCs allowed to accept deposits, ensuring further clarity. Registered NBFCs are typically categorized as deposit-taking (NBFC-D) and non-deposit-taking NBFCs (NBFC-ND).

2. Review the NBFC’s classification

Not all NBFCs are authorized to accept public deposits. For instance, NBFCs classified under categories like NBFC-Factor or NBFC-Account Aggregator are not allowed to accept deposits. Only NBFCs classified as Investment and Credit Companies (NBFC-ICC), Mortgage Guarantee Companies, or Infrastructure Finance Companies can accept deposits, provided they meet certain RBI standards. Confirming this classification helps ensure that you are dealing with a deposit-taking NBFC that adheres to RBI guidelines.

3. Look for an RBI-approved public deposit licence

Even within registered NBFCs, not all are authorized to accept public deposits. Only NBFCs with an RBI-approved public deposit licence can accept deposits from the public. If an NBFC claims to accept deposits without this licence, it is likely fraudulent or unauthorized. This licence should be displayed on the NBFC’s premises or provided upon request for complete transparency. Additionally, the NBFC must adhere to the RBI’s interest rate limits, which further ensures that they operate within regulated parameters.

4. Verify deposit limits and interest rates

The RBI places strict caps on deposit limits and interest rates that NBFCs can offer. NBFCs cannot exceed a specific percentage of their Net Owned Funds (NOF) in terms of deposits, and the interest rates offered should be within the limit set by the RBI. If an NBFC promises unusually high interest rates that deviate from typical market trends, consider it a red flag. High returns may indicate fraudulent schemes that might risk your funds.

5. Ensure transparency in documentation

A genuine NBFC will provide clear documentation, including terms and conditions, deposit agreements, and interest rate details. It should also inform depositors about the withdrawal process and applicable penalties for premature withdrawal. Always review all documents carefully and avoid NBFCs that seem reluctant to provide comprehensive paperwork. Transparent documentation is a key indicator of legitimacy and professionalism.

6. Research the NBFC’s background and reputation

Look into the NBFC’s background, history, and reputation in the market. Reliable sources of information include customer reviews, financial news outlets, and testimonials from credible sources. You can also check the NBFC’s financial statements and annual reports, which may be available on their website or through the Ministry of Corporate Affairs (MCA). A well-established NBFC with a strong market reputation is generally a safer choice than newly formed or less-known entities.

7. Confirm the NBFC’s credit rating

Many rating agencies, like CRISIL, ICRA, and CARE Ratings, evaluate NBFCs based on their creditworthiness and financial stability. Credit ratings provide insights into the NBFC's financial health, indicating its ability to repay deposits reliably. A higher credit rating signifies better financial health, making the NBFC more trustworthy for depositors. Always check the latest rating, as it reflects the NBFC’s current financial position.

8. Avoid NBFCs with aggressive marketing tactics

Fraudulent NBFCs often use aggressive marketing tactics, such as promising sky-high returns, short maturity periods, or rewards for referrals. Genuine NBFCs maintain a professional approach and do not resort to unsolicited or high-pressure selling strategies. Be cautious of any NBFC that makes offers that seem too good to be true, as they often lead to financial scams.

9. Stay updated on RBI alerts and circulars

The RBI regularly issues alerts and circulars regarding unauthorized financial institutions and deposit-taking activities. Keep an eye on these updates, which are often published on the RBI’s official website. Depositors can check whether a specific NBFC has been flagged by the RBI, which is a clear indication of risk.

Investing in deposits with an NBFC can offer lucrative returns, but only if the NBFC is genuine and compliant with regulatory guidelines. By following these guidelines, you’ll be better equipped to distinguish between a legitimate NBFC and potential financial traps in India’s ever-growing financial landscape.