RBI new FD rules for NBFCs: Key changes effective January 2025

As of January 2025, several modifications will be made by the Reserve Bank of India (RBI) concerning Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs). Such revisions would enable the depositors to have more options and security without putting the stability of the sector at risk. The following is a summary of the important developments with regards to the existing and potential depositors of the banks in order to understand the future structure of India’s financial system.

1.Premature Withdrawal: Increase in Flexibility for Small Depositors

One of the most impressive withdrawals, in terms of Notice of Work to Recover Fixed Deposit Account, is the modification of the rules regarding the idea of early withdrawal of Fixed Deposits. A recent amendment of the Act allows depositors to withdraw their fixed deposits below ₹10,000 for a period of three months without earning any interest. This will enhance the liquidity position of small depositors in times of need.

In case of deposits of more than ₹10,000, a partial premature withdrawal will be permitted though the deposit for a period of at-least ten months has to be maintained by the depositors. In the first three months, depositors may withdraw up to fifty percent of the principal amount or INR five lakhs, whichever is lesser. In this category of smaller amounts of deposit, no interest will be repaid if the amount is withdrawn before the maturity period. But after the three month period the I terest on the balance after the three month has elapsed will again be calculated as per the contract. This would ensure that the depositors do not lose all their returns and always have some access to some portion of their funds.

2. Premature Withdrawal in Cases of Critical Illness

To assist depositors who may sustain unforeseen medical costs, the RBI has made it possible to withdraw the fixed deposit amount entirely before the end of its tenure if the deceased is suffering from critical illness. It is worth mentioning that this case is true regardless of the maturity period of the FD. However, the other limb of the rule that is the other side of the coin is that, no interest would be paid on the amount withdrawn. This alteration may prove helpful to those who wish to withdraw their salary to cater their immediate expenses for treatment since in situations of capital shortage it may well have been a matter of life and death.

3. Nomination Process: Ease of Access and Transparency

The new guidelines also highlight a strengthening of the NBFCs internal control procedures regarding the nomination process. NBFCs are required to issue an acknowledgement to all depositors who submit a nomination form as well as to those who note any changes or cancellation of nomination. This practice protects the intentions and requirements of the depositor in the event of his death.

In addition, at the request of the customer, NBFCs may also place the words "Nomination Registered" on the passbook or receipt together with the nominee's name. This practice improves understanding of the process and enables nominees, who have to seek for the funds after the death of the depositor, to get it easier.

4. Withdrawal in Case of Emergency for Natural Disasters

The RBI has also expanded the admissible reasons for withdrawal from savings accounts. Besides providing for withdrawal of funds on account of medical emergencies, it is envisaged that in the cases of natural calamities or disasters, which have been notified by the government, the depositors will also be able to withdraw their savings. This ensures that a depositor who is in unusual situations will be able to use the money at the most critical moment.

5. Amends notification period relating to maturity of securities

As per the existing requirements for depositors with NBFCs with FDs, the notice to be issued on maturity of FDs has to be at least two months in advance. These requirements have substantially been modified, as the notice period has been reduced to two weeks. This might look like a small detail, but it provides for faster communications with depositors, making it easier for the entire institution to devise effective strategies around the times their deposits come due.

6. Enhanced Stability in Liquidation of Funds

The new rules also seek to strengthen the security of the public’s deposits. NBFCs are also said to be required to hold a greater percentage of liquid assets on maintenance so that they are easily positioned to satisfy the withdrawal requests of depositors. Moreover, they also have to cover the entire deposit liability to the public which enhances the protection afforded to investors.

7. Effect on Other Fixed Deposit Accounts

The new regulations are expected to affect not only the new FDs, but also the existing ones that are contracted after the new rules come into force. This implies that those depositors who already have some fixed deposits will be governed by the new rules as with regard to discontinuance of those deposits that have a fixed tenure. For those who now are under such restrictions, the new dispensation gives more relaxation in terms of timing of the withdrawal, especially on account of emergencies.

Conclusion: The Bottom Line

The most expected changes in the RBI regulation pertaining to deposits made with FDs of the NBFCs are anticipated for the benefit of the depositors. The depositors’ ability to gain access to their funds due to the newly altered rules about the early withdrawal of funds, particularly when there is a medical or severe natural disaster, makes it so seasonally appropriate. The streamlined focus on the nominee appointing process and proper announcement of the FD maturity date are some of the additional steps that can go a long way in making the FD experience straightforward and less complicated.

These measures are implemented in such a way as to ensure that NBFCs have a satisfactory level of financial stability that will allow them to discharge their obligations to their depositors, fundamental to the wider economy. These changes, for those who want to reply in FDs, ought to provide more assurance than before in the safety of their funds as they understand that they have more options and cover than before.

As always, we finally converge into the effective date on 1 January 2025 and it is imperative that depositors pay attention and understanding of these changes to ensure they maximise the new exposures without risking their resources.