MUMBAI, May 9: The Reserve Bank of India has extended the deadline for non-banking financial companies (NBFCs) to attain the net-owned funds (NOF) level of Rs 25 lakh by three years. NBFCs will require to achieve this level by April 2000. RBI, may, `for sufficient reasons' extend this time limit by another three years, an RBI release said on Friday.

The central bank has also stipulated norms on the maintenance of liquid assets, the mandatory creation of a reserve fund with guidelines for appropriations to and from the same, prohibitory guidelines for deposits acceptance, and transfer of assets by and for NBFCs.

The central bank has armed itself with the power to impose penal interest for violation of the RBI Act. A fine up to Rs 5 lakh can be imposed for carrying on activities without certification and double that on contravention, where the amount is specific, but whichever is more.

Subsequent violation will mean penalty of up to Rs 25,000 per day after the first day of such a default while for any other contravention, a fine not more than Rs 5,000 will be imposed by the Reserve Bank.

Activities without registration can attract imprisonment of one to five years, and a fine of not less than Rs 1 lakh going up to Rs 5 lakh. Further, non compliance with the Company Law Board can warrant imprisonment up to five years and a fine of not less than Rs 50 per day. Auditors also can be fined up to Rs 5,000 for not adhering to Reserve Bank directions.

Effective 1 April 1997, unincorporated bodies are also prohibited from advertising in any form to solicit deposits. These new guidelines are part of the modified provisions to RBI Act of 1934. The amended act, RBI (Amendment) 1997, has made changes to chapters IIIB and V of the RBI Act, 1934 and is effective from 9 January, 1997. Further modifications took place in regard to provisions of chapter IIIC of RBI Act, 1934 with effect from April, 1997.

While extending the timeframe for NOF level attainment, the central bank has said that it may extend this time limit by another three years subject to the conditionality that such NBFCs intimate the central bank about the attainment of the required NOF within three months from the date of such attainment.

NBFCs will now have to maintain on a daily basis five per cent of their deposits outstanding at the end of the last working day of the second preceding quarter. While such investments will have to be in approved securities valued at current prices, the RBI can also a prescribe a higher percentage of such investments for different NBFCs.

Failure to maintain the stipulated investments can attract RBI penal action at 3 per cent per annum above the bank rate on shortfall. And on continued shortfall in subsequent quarters, at 5 per cent above the bank rate on the shortfall for the said quarters, said the Reserve Bank.

NBFCs will now have to create a reserve fund and transfer not less than 20 per cent of its net profit before dividend declaration. Under the newly introduced Section 45MC, the central bank can issue orders for closure of an NBFC, Besides, the RBI is also empowered to bar an NBFC from accepting deposits.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.