NBFC

Branches & appointment of agents by NBFC to collect deposits

An organisation that offers financial services but does not hold a full banking licence is known as an NBFC (Non-Banking Financial Company). They provide same services as banks, but not limited to the banking services and includes loans, savings, and investments, and are governed by the Reserve Bank of India¹. They cannot, however, provide services like clearing checks or ATM facilities. let us discuss the branches and appointment of agents by NBFC to collect deposits.

NBFCs might specialise in particular fields like consumer loans, leasing, housing finance, or money market activities. They are often smaller than banks. They may be more appealing to clients who want to utilise their services as a result of their specialisation.

Non-Banking Financial Companies (NBFC) are allowed to accept deposits in India as long as they abide by the Reserve Bank of India’s (RBI) laws and regulations. The NBFC’s decision to open branches and appointment of agents to take deposits serves a variety of functions and offers numerous benefits. In this blog, appointment of agents by NBFC to collect deposits.

NBFC Fixed Deposits

You can invest a large sum of money in a fixed deposit (FD), which is a safe financial product. Banks and Non-Banking Financial Institutions (NBFIs) both offer this option for a fixed term. You receive returns on your deposit at a fixed interest rate during this time. Since it is effectively being issued by a business or corporate organisation, an NBFC fixed deposit is sometimes referred to as a corporate fixed deposit.  

Many individuals choose to invest in NBFC fixed deposits as their preferred method. If they are a risk-averse investor, they can invest in an FD plan offered by an NBFC to get assured returns on their money. 

On the other hand, NBFC FDs might still be advantageous if you have a high-risk tolerance because they increase the stability of your portfolio. In general, the interest rates on fixed-term deposits offered by NBFCs are higher than those on bank FDs. 

Opening Branches and Appointment of Agents

Non-Banking Financial Companies (NBFCs) use techniques like opening branches and appointing agents to grow their company operations and attract more clients. To offer financial services and engage in direct client contact, NBFCs can set up physical branches in various places. Typically, market potential, consumer demand, and long-term expansion plans are taken into account when deciding whether to create new branches.

NBFCs may also employ agents to serve as their representatives and go between parties to collect deposits or promote their financial goods and services. Agents work in different locations for the company. Without having to open physical branches everywhere, NBFCs can contact consumers in rural places, target particular market segments, and increase their customer outreach by appointing agents.

RBI guidelines on Branches and appointment of agents to collect deposits 

Except as provided in the direction, no non-banking financial company shall open a branch or appoint agents to collect deposits.

• If a non-banking financial company is eligible to receive public deposits under paragraph 12 of the Master Direction – Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank ) Directions, 2016, as updated from time to time and has a certificate of registration issued under section 45-IA of the RBI Act,² it must open a branch or appoint agents.

Net Owned Fund up to Rs. 50 crores	Within the particular state where the registered office is located.
Net Owned Fund is more than Rs.50 crore, and its credit rating is AA or above.	Anywhere in India.

Notifying a Bank to Opening Branch

• A non-banking financial company shall notify the Bank about its intention to open the proposed branch for the purpose of opening a branch; 
• Upon receiving such advice, the Bank may, upon being satisfied that in the public interest or in the interest of the concerned NBFC or for any other relevant reasons to be recorded, reject the proposal and should communicate the same to the non-banking financial company;
• If the Bank has received no advice of rejection of the proposal within 30 days from the receipt for the purpose of opening a branch, the NBFC may start proceeding with its proposal.

Reason for Branches and Appointment of Agents by NBFC 

Non-Banking Financial Companies open branches and appointment of agents to collect deposits for a variety of reasons and with a range of advantages. The following are some motives for NBFCs to carry out these activities:

Geographic Reach: NBFCs can broaden their reach by opening branches and hiring agents in various locations. Due to this, they may now access a larger customer base and obtain deposits from a greater number of potential depositors. Greater geographic coverage improves the usability and accessibility of the NBFC’s deposit collection services.

Customer Convenience: Convenient access points for customers to communicate with the NBFC and deposit their money are provided through branches and agents. NBFCs can provide face-to-face customer service, collect deposit applications, disseminate information, and directly respond to inquiries and complaints by creating a physical presence. The confidence and trust of depositors may increase as a result.

Market Penetration: Branches and agents assist NBFCs in efficiently penetrating particular markets and customer categories. In locations with a strong potential for deposit mobilisation, they can strategically place their branches, economic activity, or demographics. This enables NBFCs to meet various consumer groups’ unique requirements and preferences.

Market Expansion and Diversification: NBFCs can strategically increase their product offerings by opening branches and appointing agents. The advertising and distribution of various financial services and products provided by the NBFC, such as loans, insurance, investment products, etc., may be facilitated by branches and agents in addition to deposit collection.

Conclusion

Before building branches or employing agents to collect deposits, NBFCs must adhere to regulatory requirements and receive the relevant Reserve Bank of India (RBI) permits. In order to protect the depositor’s interest and to maintain the financial system’s integrity, these actions should be taken in conformity with the relevant laws and regulations.

Read our Article: NBFCs must have Zero Tolerance for Strongman Recovery Tactics

1. https://www.rbi.org.in/
2. https://en.wikipedia.org/wiki/Reserve_Bank_of_India_Act,_1934