Section 45-IB of RBI Act : Section 45-Ib: Maintenance Of Percentage Of Assets

Explanation using Example

Imagine a non-banking financial company (NBFC) named "QuickLoans Pvt. Ltd." that specializes in providing personal loans to consumers. As per Section 45-IB of the Reserve Bank of India Act, 1934, QuickLoans is required to maintain a certain percentage of its deposits in unencumbered approved securities.

At the close of business on June 30th, QuickLoans reviews its financials and finds that its deposits outstanding are INR 100 million. According to the RBI Act, it must therefore invest at least 5% of this amount, which is INR 5 million, in approved securities. However, QuickLoans only has INR 3 million invested in such securities, falling short by INR 2 million.

Under Section 45-IB, QuickLoans is now liable to pay penal interest to the RBI on the shortfall amount. The interest would be calculated at a rate of 3% per annum above the bank rate for the shortfall, and if the shortfall continues into the next quarter, the penal interest would increase to 5% per annum above the bank rate.

If QuickLoans does not rectify the shortfall and fails to pay the penal interest within 14 days of receiving a notice from the RBI, the RBI can approach the principal civil court to levy a penalty on QuickLoans, which would be enforceable as if it were a court decree.

However, if QuickLoans can prove to the RBI that there was a sufficient cause for the shortfall, such as an unforeseen market disruption, the RBI has the discretion to not demand payment of the penal interest.