NBFCs told to trade G-secs only in demat

The RBI has barred non banking finance companies from trading in government securities in physical form through a broker. The RBI announced norms on NBFCs'' investment in G-secs on Tuesday.
All NBFCs with public deposits of Rs 50 crore and above as on March 31, ''02 have been directed to submit a quarterly return on their capital market exposure. The first such return should be submitted for the quarter ending December 31.
The measures are seen in response to the gilts scam earlier this year, in which many broking outfits were seen taking proprietary positions in G-secs by using NBFCs floated by them as fronts.
The direction to provide information to the central bank on capital market exposure is seen as a monitoring exercise to prevent these entities from exceeding the lending limits to equities, and thereby becoming vulnerable to a scam.
The RBI has asked NBFCs to hold investment in government securities only in demat form either in a constituent subsidiary general ledger account with a bank or with a depository. In this regard, NBFCs have been given till October 31 to dematerialise their securities.
"The NBFCs would not require prior permission of the RBI for opening their demat account with a depository approved by Sebi or its participants," said an RBI release. However, they should inform RBI within a week of doing opening a demat account.
NBFCs have further been directed to include in their advertisements the fact that deposits solicited by them are not insured, to avoid any possible misunderstanding with the prospective depositors.
RBI has also directed all NBFCs not holding public deposits to inform within 30 days, of any change in the registered office of the company or in the names of directors, officers or auditors.