NBFCs barred from accepting NRI deposits

In another step to stem dollar inflows into the country, the Reserve Bank of India (RBI) on April 24 barred non banking financial companies (NBFCs) from accepting expatriates' deposits made through fresh remittances from abroad.

An RBI statement said entities other than banks have been disallowed from accepting deposits made by expatriates from foreign currency and repatriable rupee accounts.

"They will, however, be permitted to continue to hold the existing deposits and also renew such deposits held in the name of the NRIs (non-resident Indians) on repatriation or non-repatriation basis," it added.

Prior to this directive, a company registered under the Companies Act, 1956, or a body corporate created under an Act of Parliament or State Legislature, and NBFCs were also permitted to collect deposits.

According to market players, the latest central bank move is yet another step aimed at discouraging dollar inflows and to cap the rapid appreciation in the rupee, which has gained by about 3.5 per cent against the dollar in 2004.

According to the latest weekly statistical supplement released by the RBI, the country's foreign exchange reserves in the week ended April 16 rose to $117.592 billion against $116.060 billion in the previous week.

The RBI also stated that NBFCs will not be permitted to accept deposits from NRIs by debit to their non-resident external (NRE) or foreign currency non-resident (bank) (FCNR-(B)) accounts.

However, it added that these entities can accept deposits from NRIs by debit to non-resident ordinary (NRO) accounts, provided that the amount deposited with such entities does not represent inward remittances or transfer from NRE/FCNR(B) accounts into this account.

On April 17, the RBI had extended a ceiling on the rate of interest offered by banks and NBFC's on non resident deposits.