Section 45-IB RBI Act, 1934 - Maintenance of Percentage of Assets

Section 45-IB - Maintenance of percentage of assets

Sub-section (1): Investment in approved securities

Every non-banking financial company shall invest and continue to invest in India in unencumbered approved securities, valued at a price not exceeding the current market price of such securities, an amount which, at the close of business on any day, shall not be less than five per cent or such higher percentage not exceeding twenty-five per cent as the Bank may, from time to time and by notification in the Official Gazette, specify, of the deposits outstanding at the close of business on the last working day of the second preceding quarter:

Proviso: Provided that the Bank may specify different percentages of investment in respect of different classes of non-banking financial companies.

Sub-section (2): Returns

For the purpose of ensuring compliance with the provisions of this section, the Bank may require every non-banking financial company to furnish a return to it in such form, in such manner and for such period as may be specified by the Bank.

Sub-section (3): Penal interest for a shortfall

If the amount invested by a non-banking financial company at the close of business on any day falls below the rate specified under sub-section (1), such company shall be liable to pay to the Bank, in respect of such shortfall, a penal interest at a rate of three per cent per annum above the bank rate on such amount by which the amount actually invested falls short of the specified percentage, and where the shortfall continues in the subsequent quarters, the rate of penal interest shall be five per cent per annum above the bank rate on such shortfall for each subsequent quarter.

Sub-section (4): Payment and recovery

(a) The penal interest payable under sub-section (3) shall be payable within a period of fourteen days from the date on which a notice issued by the Bank demanding payment of the same is served on the non-banking financial company and, in the event of a failure of the non-banking financial company to pay the same within such period, penalty may be levied by a direction of the principal civil court having jurisdiction in the area where an office of the defaulting non-banking financial company is situated and such direction shall be made only upon an application made in this behalf to the court by the Bank; and

(b) When the court makes a direction under clause (a), it shall issue a certificate specifying the sum payable by the non-banking financial company and every such certificate shall be enforceable in the same manner as if it were a decree made by the court in a suit.

Sub-section (5): Sufficient cause

Notwithstanding anything contained in this section, if the Bank is satisfied that the defaulting non-banking financial company had sufficient cause for its failure to comply with the provisions of sub-section (1), it may not demand the payment of the penal interest.

Explanation: Defined terms

(i) Approved securities means securities of any State Government or of the Central Government and such bonds, both the principal whereof and the interest whereon shall have been fully and unconditionally guaranteed by any such Government.

(ii) Unencumbered approved securities includes the approved securities lodged by the non-banking financial company with another institution for an advance or any other arrangement to the extent to which such securities have not been drawn against or availed of or encumbered in any manner.

(iii) Quarter means the period of three months ending on the last day of March, June, September or December.

Meaning and application of Section 45-IB

The section is a statutory liquidity safeguard associated with deposits accepted by NBFCs. Its percentage is measured against outstanding deposits at the close of business on the last working day of the second preceding quarter, not against the company's total assets or its current-day deposits. The investment must remain in India in qualifying securities that are not encumbered.

The Act establishes a minimum of 5% and permits the RBI, through an Official Gazette notification, to prescribe a higher rate up to 25%, including different rates for different classes of NBFCs. The statutory range is not itself a statement that every NBFC currently has the same operative rate. RBI directions, notifications, registration categories and exemptions must be consulted to establish a particular company's current obligation.

Section 45-IB should also be read with Section 45-IA (registration and net owned fund), Section 45-IC (reserve fund), and the definitions in Section 45-I. A reserve fund under Section 45-IC is not the same as the investment in liquid approved securities under Section 45-IB.

Practical compliance points

• Determine applicability: Confirm whether the NBFC accepts public deposits, its regulatory classification and any applicable RBI exemptions or transitional provisions.
• Identify the prescribed percentage: Check the RBI notification and directions currently applicable to that class of NBFC.
• Calculate the base: Use the outstanding deposits on the prescribed reference date, namely the last working day of the second preceding quarter.
• Maintain eligible investments: Monitor daily investment values at no more than the prevailing market price, and ensure securities are unencumbered.
• File required returns: Follow the reporting form, manner and period prescribed by RBI.
• Address shortfalls: The Act provides for penal interest and a 14-day payment period after service of a demand notice, subject to the statutory sufficient-cause provision.

For illustration only, if the applicable notified rate were 15% and the relevant deposit base were Rs. 10 crore, the required qualifying investments would be Rs. 1.5 crore. This example does not establish the operative percentage for any particular NBFC.

Official legislation and RBI resources

• India Code - Reserve Bank of India Act, 1934 and amendments
• Reserve Bank of India - notifications, Master Directions and regulatory updates
• RBI notifications and circulars
• Department of Financial Services, Ministry of Finance

The text and explanation should be read with amendments, notifications and RBI directions applicable on the relevant date. Where an operational direction differs by NBFC category, the category-specific requirement must be checked separately.