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Indian Economic Policy

Notes 5. Prudential norms are fixed for those NBFCs which are raising public deposits. For instance,
such NBFCs should maintain Capital to Risks Asset Ratio (CRAR) comprising TIER I and II
Capital :
12% for leasing, hire-purchase finance companies.
15% for loan and investment companies, and
12% for RNBCs.
Certain norms were prescribed for all NBFCs whether they hold or receive public deposits or
not.
6. Under RBI regulations, RNBCs are required to invest not less than 80 per cent of aggregate
liabilities with the depositors in Government securities, Government-guaranteed bonds,
debentures, etc. RBI has reviewed these regulations.
7. All registered NBFCs should submit half yearly returns to RBI at the end of March and September
every year. As non-submission of periodic returns to RBI was a common feature, RBI has now
decided to impose penalties besides cancellation of certificates of registration and permission
to receive deposits from the public.
The RBI is now entrusted with the following powers :
(a) specify from time to time a minimum percentage of investment for NBFCs in unencumbered
“approved” securities;
(b) determine their policies and give directions to any or all NBFCs on capital adequacy, provisioning
and other prudential norms, as also on the deployment of funds (similar to those applicable to
banks);
(c) direct them on balance sheet, profit and loss accounts and disclosure of liabilities,
(d) levy fines and penalty on a NBFC for contravention and default, as also cancel its registration,
(e) prohibit an NBFC from accepting deposits and alienate its assets; and
(f) file a winding up petition for continued violation of the provisions of the Act and / or failure to
comply with any direction or orders of the RBI.
Mutual Funds

In recent years, mutual funds are the most important among the newer capital market institutions.
Several public sector banks and financial institutions have set up mutual funds on a tax-exempt
basis, virtually on the same footing as Unit Trust of India (UTI). Their main function is to mobilise the
saving of the general public and invest them in stock market securities. Accordingly, they attracted
strong investor support and showed significant progress. There was even diversion of savings of the
middle classes from banks to mutual funds. The Government threw the field open to the private
sector and joint sector mutual funds.
Regulation of Mutual Funds by SEBI
SEBI has the authority to lay guidelines and supervise and regulate the working of mutual funds.
The guidelines, issued by SEBI relate to advertisements and disclosures and reporting requirements.
The investors have to be informed about the status of their investments in equity, debentures and
government securities. SEBI has introduced a uniform set of regulations governing the mutual funds
in the country, known as SEBI (Mutual Fund) Regulations, 1993, under which :
(a) mutual funds have to be formed as trusts and managed by a separate asset management company
(AMC) and supervised by a board of trustees;
(b) the AMC must have a minimum net worth of ` 6 crores, of which the sponsors must contribute
at least 40 per cent;
(c) SEBI should approve the offer documents of schemes of mutual funds;
(d) SEBI prescribes the minimum amounts to be raised by each scheme — a close-ended scheme
should raise a minimum of ` 20 crores and open-ended scheme should raise a minimum of ` 50

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