Advertisement and Statement in lieu of Advertisement by the NBFC Soliciting Public Deposit

Swetha Dhinesh

07 Jun, 2023

The Reserve Bank of India regulates Non-Banking Financial Companies in India, and they are subject to specific regulations and guidelines regarding advertisement and disclosure. Advertisements and statements in lieu of advertisement by NBFC soliciting public deposits are given under the Master Direction – Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016. 

According to the RBI regulation, every NBFC soliciting public deposits shall comply with the guidelines of the Non-Banking Financial Companies and Miscellaneous Non-Banking Companies (Advertisement) Rules, 1977. Let us examine the advertisement and statement in lieu of the advertisement by NBFC in detail in this blog. 

Advertisement and Statement in Lieu of Advertisement

1. Each NBFC that solicits public deposits must abide by the NBFC and Miscellaneous Non-Banking Companies (advertisement) Rules of 1977 and include the following information in each advertisement that is produced in accordance with those rules: – 
2. The actual rate of return in terms of interest, premiums, bonuses, or other benefits to the depositor; 
3. The method of deposit repayment; 
4. The deposit’s maturity period; 
5. The interest payable on the deposit; and 
6. The rate of interest that will be due to the depositor in the event that the deposit is withdrawn early;
7. The terms and conditions under which a deposit will be renewed; 
8. Any additional special provisions pertaining to the terms and conditions under which the deposit is accepted/renewed; 
9. Information pertaining to the aggregate dues (including the non-fund-based facilities provided to) from companies in the same group or another entities or business ventures in which the directors and the NBFC are holding considerable interest and the total amount of expenditures to such entities; and
10. The deposits solicited by NBFCs are not insured.

• Even when an NBFC does not ask for deposits in any electronic media, such as TV, it must include a caption in such commercials stating the following:
• The viewers may refer to the newspaper advertisement or the information provided in the application form for soliciting public deposits for information regarding the company’s deposit-taking activities. 
• The company is in possession of a current Certificate of Registration, issued by the Bank pursuant to section 45-IA of the RBI Act¹ However, the RBI does not accept any liability or guarantee regarding the current situation regarding the financial stability of the company or for the accuracy of any statements, representations, or opinions made by the company, as well as for the repayment of deposits or discharge of liabilities by the company.

• A NBFC must deliver a statement in lieu of an advertisement to the Bank for the record before accepting a public deposit. If it does not intend to solicit the deposit itself, allow another person to do so. This is required by the Non-Banking Financial Companies and Miscellaneous Non-Banking Companies (Advertisement) Rules, 1977. Also, the particulars stated in the current direction should be signed in the manner provided in the rules.

• A statement delivered in accordance with the rules above is valid for six months after the financial year’s end in which it was made, until the date the balance sheet is presented to the company’s general meeting, or, in the event that the annual general meeting for a given year has not been held, until the latest day on which the meeting should have been held in accordance with the Companies Act, 1956 (Act 1 of 1956), whichever comes first. And the new statement shall be delivered on the expiry of the prior statement for every succeeding financial year before accepting the deposit from the public in that financial year.

Form and Particulars of Advertisement0073

The Non-Banking Financial Companies and Miscellaneous Non-Banking Companies (Advertisement) Rules, 1977, went into effect on July 1st, 1977. They set forth the format and content requirements for advertisements. It applies to all Non-Banking Financial Companies and various non-banking organisations. The forms and particulars of the advertisement are discussed below:

1. Every company intending to invite, permit, or cause any other person to invite, on its behalf, any deposits from the public other than from its directors, shareholders, or employees shall publish an advertisement for the purpose in a leading English newspaper and one vernacular newspaper circulating in the state where the company’s registered office is situated.
2. No such company shall issue, permit another person to issue, or cause to be issued on the company’s behalf any advertisement inviting deposits unless such advertisement is issued on the authority and in the name of the company’s Board of Directors and contains language referencing the terms under which the company shall accept deposits, the date on which the said Board of Directors approved the text of the advertisement, and the following information, namely: 

• The company name; 
• The firm’s incorporation date;
• Information about the operations of the company and its subsidiaries, including any branches or units that may exist;
• A brief description of the firm’s management; 
• The names, occupations and addresses of the directors;
• The profits of the company before and after making tax provisions for the three financial years that ended right before the date of the advertisement;
• A summary of the firm’s financial situation as shown in the two audited balance sheet accounts just before the advertisement’s date. 
• Dividends announced by the company with regard to the said years.
• The total amount that the company can raise through deposits in accordance with the directives and the total amount of deposits actually held on the final day of the preceding financial year immediately;
• A declaration that, as of the day of the advertisement, the company has no overdue deposits other than unclaimed deposits or, if applicable, a statement outlining the amount of any overdue deposits;
• A statement that the following are true:
  1. The company has followed and complied with the provisions of the directions that apply to it;
  2. The RBI does not guarantee the repayment of deposits as a result of compliance with the directions; and
  3. The deposits that is accepted by the company (other than secured deposits, if any, accepted under the provisions of the directions, the aggregate amount of which may be indicated) are secured and ranking pari passu with other unsecured liabilities.

Validity of Advertisement

Advertisements issued in accordance with the results are valid for six months following the end of the fiscal year in which they were issued or until the date on which the company’s balance sheets were presented to the general meeting or, if the annual general meeting for a given year has not yet taken place, until the latest day on which the meeting should have been held in accordance with the Companies Act, whichever is earlier as discussed above.

Copy of the Advertisement to be filed with the Reserve Bank

A copy of the advertisement must be delivered to the Department of Non-Banking Companies Regional Office of the Reserve Bank of India, under the jurisdiction the company’s registered office is located, on or before the date it is issued. This copy must be signed by the majority of the directors who are on the Board of Directors that approved the advertisement or by their agents with written permission.

Conclusion

NBFCs are required to maintain these advertising standards to maintain transparency, safeguard the interest of the consumers, and prevent penalties or regulatory action for non-compliance. NBFCS must make sure that these advertising principles are followed. Also, they need to be updated with the RBI guidelines addressing the requirements for disclosure and advertising.

Read our Article:Closure of branch by non-banking financial company (NBFC)

1. https://www.rbi.org.in/scripts/BS_NBFCNotificationView.aspx?Id=3099