Top NBFCs Seek RBI Nod to Raise Retail Deposits
MUMBAI: Major non-banking finance companies (NBFCs) have formally requested the Reserve Bank of India (RBI) to permit them to raise deposits from retail investors. This initiative, they argue, would create a more equitable landscape among finance companies and enhance the transmission of policy rates, according to sources familiar with the matter.
Background on the Request
– The appeal was made during a closed-door meeting with RBI Governor Sanjay Malhotra, held on Monday.
– Currently, only a select few NBFCs, such as Bajaj Finance, Shriram Finance, and Mahindra Finance, hold the legacy licenses allowing them to accept retail deposits. Most other NBFCs are restricted from doing so.
– The interaction involved CEOs from various sectors, including NBFCs, housing finance companies, and microfinance institutions, as well as industry representatives.
Regulatory Challenges
Despite the interest from well-rated NBFCs to attract retail deposits—an essential funding source for traditional banks—the RBI has consistently resisted such demands.
– An economist, who chose to remain unnamed, highlighted that one significant issue is that bank deposits (up to Rs 5 lakh) are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), unlike deposits in NBFCs. This concern has made the regulator hesitant to grant new deposit-taking licenses to finance companies.
– The economist commented, The regulator would always err on the side of caution.
Current Deposit Restrictions for NBFCs
For those NBFCs currently authorized to raise deposits, strict regulations are in place:
– Retail deposits cannot exceed 1.5 times their net owned funds.
– The tenure for term deposits ranges from 12 to 60 months.
– Interest rates are capped at 12.5% per annum.
As of March 2025, retail deposits constituted approximately 12.5% of the total deposits raised by NBFCs, according to the RBI’s annual Trend and Progress report. The report indicated that five major NBFC-Ds account for a staggering 96.9% of all aggregate deposits.
Perspectives from Industry Leaders
In a discussion with ET, Jairam Sridharan, Managing Director of Piramal Finance, expressed that while many NBFCs seek a stable liability structure, few aspire to obtain banking licenses that would facilitate retail deposit mobilization.
– He stated, Few NBFCs possess the expertise needed for effective deposit management. This task requires substantial trust and internal governance capabilities. Perhaps only 10 to 12 NBFCs are adequately equipped. The remaining 9,500 may not meet these necessary standards.
Conclusion
The push from leading NBFCs for RBI approval to raise retail deposits reflects a significant shift in the financial landscape. By allowing these companies to accept retail deposits, the RBI can foster a more inclusive environment that benefits both consumers and financial institutions. However, it’s crucial for the regulator to balance this development with the need for strong oversight and consumer protection. As the discussion continues, the outcome will undoubtedly shape the future of non-banking financial services in India.