EXEMPTONS FROM PROVISIONS OF RESERVE BANK OF INDIA ACT, 1934

Exemption

Section 45NC of Reserve Bank of India Act, 1934 (‘Act’ for short) provides that the Reserve Bank of India (‘Bank’ for short), on being satisfied that it is necessary so to do, may declare by notification in the Official Gazette that any or all of the provisions of this Chapter shall not apply to a non-banking institution or a class of non-banking institutions or a non-banking financial company or to any class or non-banking financial companies either generally or for such period as may be specified, subject to such conditions, limitations or restrictions as it may think fit to impose.

The Bank vide their Master Direction issued under the Notification No. RBI/DoR/NBFC/2016-17/40, dated 25.08.2016 gave exemption to certain categories of non-banking financial companies as given below from certain provisions of the Act.  This exemption shall be limited and restricted to money received by such non-banking institution for issue of prepaid payment instruments.  The exemptions are given from the following sections of the Act-

• Section 45 – IA – Requirement of registration and net owned fund;
• Section 45 – IB – Maintenance of percentage of assets;
• Section 45 – IC – Reserve Fund;
• Section 45 – MB – Power of Bank to prohibit acceptance of deposit and alienation of assets;
• Section 45 – MC – Power of Bank to file winding up petition.

Exemption from sections 45-IA, 45-IB and 45-IC

The following types of companies are exempted from purview of section 45-IA, 45-IB and 45-IC of the Act-

1. Microfinance Companies-

• engaged in micro financing activities, providing credit not exceeding ₹ 50,000 for a business enterprise and ₹ 1,25,000 for meeting the cost of a dwelling unit to any poor person for enabling him to raise his level of income and standard of living;
• licensed under section 25 of the Companies Act, 1956; and
• not accepting public deposits as defined in sub-paragraph (xiii) of paragraph 3 of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016.

2. Securitization and Reconstruction Companies
3. Nidhi companies;
4. Mutual Benefit companies;
5. Chit companies;
6. Mortgage guarantee companies;
7. Merchant Banking companies subject to the compliances of the following conditions-

• It is registered with the Securities and Exchange Board of India as a Merchant Banker under section 12 of the Securities and Exchange Board of India Act, 1992 and is carrying on the business of merchant banker in accordance with the Securities and Exchange Board of India Merchant Banking (Rules) 1992 and Securities and Exchange Board of India Merchant Banking (Regulations) 1992;
• acquires securities only as a part of its merchant banking business;
• does not carry on any other financial activity of financial institutions referred to in section 45I(c) of the RBI Act, 1934; and
• does not accept or hold public deposits as defined in sub-paragraph (xiii) of paragraph 3 of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016

8. Housing Finance Institutions.

Further the micro finance companies, securitization and reconstruction companies and Nidhi companies are exempted from the following-

• Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016;
• Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016; and 
• Non-Banking Financial Company – Non- Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016.

Exemption to Government Companies

A non-banking financial company as defined in section 45-I(f) of the RBI Act being a Government company as defined in Clause (45) of Section 2 of Companies Act, 2013, is valid for the phased- in period as under-

• Section 45-IB - Maintenance of percentage of assets – 15% of the outstanding deposits-

• March 31, 2019 – 5% of outstanding deposits;
• March 31, 2020 – 10% of outstanding deposits;
• March 31, 2021 – 12% of outstanding deposits;
• March 31, 2022 – 15% of outstanding deposits.

• Section 45-IC – Reserve Fund – March 31, 2019.

Exemption to stock exchanges, insurance companies and stock brokers

Exemption is given to-

• Insurance companies, a non-banking financial company doing the business of insurance, holding a valid certificate of registration issued under section 3 of the Insurance Act, 1938; and not holding or accepting public deposit as defined in sub-paragraph (xiii) of paragraph 3 of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016.
• Stock exchanges, a non-banking financial company being a stock exchange, recognized under section 4 of the Securities Contracts (Regulation) Act, 1956 and not holding or accepting public deposit as defined in sub-paragraph (xiii) of paragraph 3 of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016.
• Stock brokers or sub brokers,  a non-banking financial company doing the business of a stock-broker or sub-broker holding a valid certificate of registration obtained under section 12 of the Securities and Exchange Board of India Act, 1992 and not holding or accepting public deposit as defined in sub-paragraph (xiii) of paragraph 3 of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016.

The above said companies shall be exempted from-

•  Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016,
•  Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016; and
•  Non-Banking Financial Company – Non- Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016.

Exemption to Alternative Investment Companies

Alternative Investment Fund (AIF) Companies i.e. a non-banking financial company, which is an Alternative Investment Fund holding a certificate of registration obtained under section 12 of the Securities and Exchange Board of India Act, 1992 and not holding or accepting public deposit as defined in sub-paragraph (xiii) of paragraph 3 of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016 are exempted from the provisions of sections 45-IA and 45-IC of the Act.  Further these companies are exempted from-

• Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016, 
• Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016; and
•  Non-Banking Financial Company – Non- Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016.

Exemption to unregistered core investment companies

Unregistered Core Investment Companies i.e. a non-banking financial company are given exemption from the provisions of Section 45-IA of the Act.

Exemption to Core Investment companies

Core Investment Companies i.e. a non-banking financial company being a Core Investment Company as defined in clause (viii) of sub-paragraph (1) of paragraph 3 of the Core Investment Companies (Reserve Bank) Directions, 2016, are exempted from section 45–IA (1)(b) of the Act subject to the condition that it meets with the capital requirements and leverage ratio as specified in the said directions.