NBFC

Can anyone please tell me that is it Compulsory for a Company whose principal bussiness is dealing in Shares & securities to be a NBFC?

@ Anil Agarwala

Required to create 20% reserve as per RBI Act.

@ Kiran

Secured Debentures issued to party other than shareholders will amount to Public Deposits and RBI may approach your company and make u follow compliances of Deposit taking NBFCs.

Second Question - KYC requirements are compulsory as per PMLA .

Am sorry, Cannot give you checklist because of code of conduct.

@ Vivek (Article)

It is compulsory even if the principal business is of Investing and/or trading in shares and securities.

Agree with learned member CA Rajesh Pabari.
 

Section 45-IC of RBI act, 1934

Maintenance of Reserve fund.

(1) Every non-banking financial company shall create a reserve fund and transfer 

therein a sum not less than twenty per cent of its net profit every year as disclosed 

in the profit and loss account and before any dividend is declared.

(2) No appropriation of any sum from the reserve fund shall be made by the nonbanking financial company except for the purpose as may be specified by the Bank from time to time and every such  appropriation shall be reported to the 

Bank within twenty-one days from the date of such withdrawal: 

Provided that the Bank may, in any particular case and for sufficient cause being shown, extend the period of twenty-one days by such further period as it thinks fit or condone any delay in making such report.

(3) Notwithstanding anything contained in sub-section (1), the Central Government may, on the recommendation of the Bank and having regard to the adequacy of the paid-up capital and reserves of a non-banking financial company in relation to its deposit liabilities, declare by order in writing that the provisions of sub-section (1) shall not be applicable to the non-banking financial company for such period as may be specified in the order: 

Provided that no such order shall be made unless the amount in the reserve fund under sub-section (1) together with the amount in the share premium account is not less than the paid-up capital of the non-banking financial company.

Originally posted by : Anil Kumar Agarwala
	Will anyone enlighten me on whether an NBFC is required under any law to create/maintain a reserve out of its profits? The one I am concerned with is a loan company not accepting public deposits.

The provisions of para 2(1)(xii)(f) of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 allows issuance of secured debentures. Please read the relevant para carefully. 

"any amount raised by the issue of bonds or debentures secured by the mortgage of any immovable property of  the company; or by any other asset or  with an option to convert them into shares in the company provided that in the case of such bonds or debentures secured by the mortgage of any immovable property or secured by other assets, the amount of such bonds or debentures shall not exceed  the market value of such immovable property/other assets"

Refer DNBS.(PD).CC.No. 12 /02.01/99-2000 issued as on January 13, 2000 for the following interpretation. 

The above provisions have been interpreted by some of the NBFCs in different manner. It is

advised that  -

(a) the debentures which are partly secured,

(b) the debentures which are secured by assets of a third party,

(c) the debentures which have matured for redemption but have not been redeemed and are overdue, and

(d) the debentures against which a charge has not been created in favour of the independent Debenture Trustees (other than debenture holders) within the stipulated period of 90 days and extended period of further 90 days shall be treated as part of public deposits.

Originally posted by : Kiran
	are there any RBI regulations for issuance of secured debentures by NBFC's? Are there any KYC requirements to be adhered to while issuing such debentures?

If a NBFC is in default of non-compliance of RBI norms, not transferred the 20% of net profit to reserve fund, what will be the consequences and remedies are available to the NBFC...??