NBFC Premature Deposit Withdrawal: New RBI Rules That Benefit Depositors

The Reserve Bank of India has made changes with respect to the rules for the premature withdrawal of deposits with non-banking finance companies, or NBFCs. This will ensure that the depositor has access to the funds in several circumstances and will ease the issue of liquidity in times of need.

It is necessary to take a closer look at the details that have been prescribed to get a better idea of how this will work out. Here are some main points to consider. 

There are several points that are crucial when it comes to the applicability of the new rules. One is that they will be applicable from Jan. 1, 2025. This is still a few months away, so the depositor has to be alert about the usage of these new terms and conditions, as they will not be able to make use of them till the applicable date arrives. The rules will be applicable for new deposits that are made after January 2025, but the most important point is that this will also be applicable to existing deposits, even though they might not have a clause for premature withdrawals. The other significant point is that the premature withdrawal has to be before the completion of three months of making the deposit.

There are two conditions where the deposit holder will be allowed to take the full amount of the deposit back if this is done within three months of the deposit being made.

The first condition is with respect to tiny deposits. Tiny deposits are those where the value of the deposit is Rs 10,000 or less, and for these small deposits, they can take back the full value of the deposit without any problem.

For other deposits, there is a specific condition that needs to be fulfilled to get the full amount back. This means that there has to be a critical illness as the reason for the premature withdrawal before the completion of three months of the deposit. The critical illness that will be considered would be as per the definition of it as provided by the Insurance Regulatory Development Authority of India. This will ensure that there is clarity on which diseases would be considered critical illnesses and will lead to lesser amounts of disputes with the NBFC. If these conditions are fulfilled, then the deposit holder can take back the full 100% of the amount that they have kept as a deposit, but the important thing is that they will get the amount back without interest.

There can be other situations too, where the deposit holder might want to take their money back. It is not necessary that every individual who requires money has a medical emergency and hence in such cases, too, there is a provision made for the withdrawal to be possible.

If such a request is made within a period of three months of the deposit and the reason is something other than a critical illness then the deposit holder will get only Rs 5 lakh or 50% of the deposit amount whichever is less. This puts a restriction at half of the amount deposited and invested or if the amount is large then the cap goes to Rs 5 lakh. However, this covers all other reasons for the withdrawal and hence this is beneficial for the deposit holder as they can at least get some of the amounts back. The key point here is that the amount of the principal is being returned so the interest along with the remaining principal that is not allowed as withdrawal would continue as per the initial terms of the deposit. This is a distinction that needs attention because it will determine how much amount can be taken out. 

Arnav Pandya is founder of Moneyeduschool