Section 45-IC of RBI Act : Section 45-Ic: Reserve Fund

Explanation using Example

Imagine a non-banking financial company (NBFC) named "QuickFin Services" that provides loans and financial services. At the end of the financial year, QuickFin Services calculates its net profit and discovers it has made a profit of 10 million rupees after tax.

According to Section 45-IC of the Reserve Bank of India Act, 1934, QuickFin Services is required to transfer at least 20% of this net profit, which amounts to 2 million rupees, into a reserve fund before they can declare any dividends to their shareholders.

Later in the year, QuickFin Services faces an unexpected financial crisis and decides it needs to appropriate some funds from the reserve fund. However, they can only do so for purposes specified by the Reserve Bank of India (RBI), and they must report this withdrawal to the RBI within 21 days.

If QuickFin Services fails to report within the stipulated time, they can request an extension or condonation for the delay, provided they have a sufficient cause and the RBI agrees to it.

Furthermore, if QuickFin Services has ample paid-up capital and reserves in comparison to its deposit liabilities, the Central Government, upon the RBI's recommendation, could exempt QuickFin Services from the mandatory reserve fund contribution for a specified period. But this exemption would only be granted if the reserve fund and share premium account together equal at least the paid-up capital of QuickFin Services.