Nomination rules under Section 45QB of the RBI Act

Swetha Dhinesh

03 Jun, 2023

Many investors use fixed deposits as their primary investment vehicle. Investors with a high-risk tolerance use fixed deposit plans to build a steady portfolio, while investors with low-risk profiles use them to obtain assured returns. In addition to providing guaranteed returns, fixed deposits enable investors to build up a healthy corpus over a variety of flexible terms, from seven days to ten years. Nomination rules related to NBFC deposits are explained under section 45QB of the Reserve Bank of India Act and mentioned in the Master Direction – Non-Banking Financial Companies of Public Deposits (Reserve Bank) Directions, 2016, as updated on May 2022. This blog discusses the Nomination rules under section 45QB of the RBI Act.

Nomination in Banking Terms

Nomination, as used in banking, refers to the requirement for the account holder to designate a beneficiary to receive the deposit or investment in the event of the account owner’s passing. So, for the asset or account in question, the candidate will be the person the account holder designates in the nomination area. In a financial system, such as a non-bank, bank, insurance policy, or piece of real estate, the nominee is the recipient or receiver of assets, funds, and investments.

Is a nomination facility offered to NBFC depositors?

Yes, NBFC depositors have access to a nomination facility. The Reserve Bank of India Act, 1934’s^[1] section 45QB outlines the rules for the nomination facility. The Banking Companies (Nomination) Rules, 1985—made according to Section 45ZA of the Banking Regulation Act, 1949—have been advised to be adopted by Non-Banking Financial Companies. As a result, NBFC depositors are allowed to choose a single person to whom the NBFC might restore the deposit in the event that the depositor or depositors pass away. 

It is advised that NBFCs accept nominations submitted by depositors in a format comparable to that which is prescribed by the aforementioned rules, namely Form DA1 for the purpose of nomination and Forms DA2 and DA3 for the cancellation and change of nominations, respectively. 

Fixed deposits from NBFCs

Financial institutions provide NBFC fixed deposits, commonly known as corporate FDs or company deposits. A corporate FD is a financial product offered by a business rather than a bank. 

Master Direction – Non-Banking Financial Companies Acceptance of Public

Deposits (Reserve Bank) Directions, 2016.

Section 45QB of the RBI Act’s nomination regulations

According to section 45QB of the RBI Act, depositors of non-banking financial companies may designate one person to whom the non-banking financial company shall return the amount of the deposit in the event of the depositor(s)’ passing in the manner specified by the rules made by the Central Government under section 45ZA of the Banking Regulation Act, 1949 (BRAct). The Banking Companies (Nomination) regulations, 1985 have been determined to be the pertinent regulations made under section 45ZA of the BR Act, 1949, after consultation with the Government of India. As a result, non-banking financial companies must accept depositor nominations in a format that is consistent with that outlined in the aforementioned rules.

The Reserve Bank of India (RBI) Act, 1934, Section 45QB 

Depositors’ nominations:

1. Where a non-banking financial institution holds a deposit to the credit of one or more persons, the depositor or, as the case may be, all the depositors together, may designate one person to whom, in the death of all the depositors or in the event of the death of the sole depositor, the amount of deposit may be returned by the NBFC in the manner prescribed by rules made by the Central Government under the Banking Regulation Act, 1949 of section 45ZA.
2. Where a nomination is made that purports to give someone the right to receive the amount of the deposit from the non-banking financial institution, regardless of what is stated in any other law currently in effect or in any disposition, whether testamentary or otherwise, with respect to such deposit, the nomi­nee shall, upon the death of the sole depositor or, as applicable, upon the death of all depositors, become eligible to all the rights of the sole depositor elected by them.
3. If the nominee selected is a minor, the depositor may designate any person to receive the deposit amount in the event of his death while the nominee elected is still a minor as per the rules issued by the Central Government pursuant to section 45ZA of the Banking Regulation (BR) Act of 1949 if the nominee is a minor.
4. A non-banking institution’s payment in accordance with this section’s requirements shall fully release the non-banking institution from its obligation with respect to the deposit. However, nothing in this subsection shall affect any claim or right that a person may have against the recipient of any payment made according to this section.
5. No notice regarding the claim of any person or individual other than the person or persons in whose name a non-banking institution holds a deposit shall be receivable by the non-banking institution, nor shall the non-banking institution be bound by any such notice, even if expressly given to it: Provided, however, that in the event that any decree order, certificate, or other authority relating to such deposit is pursued before a non-banking institution, the NBFC should take due note on such thing.

Things to consider when purchasing NBFC deposits

Here are some considerations to make when investing in a company deposit programme:

• Pick your repayment period carefully. Premature withdrawals are not advised because they will lower your interest income.
• Always select deposits that are rated by reputable credit bureaus and are supported by FAAA or MAAA ratings. When investing, select NBFCs with a solid track record and a significant market presence.
• For the best interest rates, try to choose the most extended possible deposit term.

 Benefits of a fixed deposit with an NBFC 

The advantages that NBFC deposit plans have for investors are numerous. These advantages of fixed deposits include the following:

• The favourable interest rates on fixed deposits in NBFCs are the main advantage. The finest returns on investments for you or the nominee in your absence are offered by interest rates on fixed deposits in NBFCs.
• NBFCs provide a variety of variable tenure alternatives. By investing in corporate FDs, you may thus plan for both your long-term and short-term financial needs.
• The deposit programme makes investing simple and easy. Online investing can be done quickly. Furthermore, opening a bank account requires a small number of documents due to the simple documentation procedure. The applicant should carefully review the application and select a nominee before making the online investment.
• Deposits with ratings of FAAA and MAAA also provide good returns while keeping your money safe.
• Senior citizens can benefit from higher interest rates on their investments, or, in their absence, the nominee can.

Conclusion

NBFCs’ fixed deposits might be a great addition to your financial portfolio. In accordance with RBI guidelines, you are free to choose a suitable individual as a nominee and take advantage of high-interest rates on your deposits. Determining what NBFC deposits are and how they operate will help you choose the appropriate strategy.

Read our Article: Credit Rating of Non-Banking Financial Company’s (NBFCs) in India