.
.
.
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 of India, the main operations of NBFC include loans and advances, acquisition of shares, stock, bonds, hire-purchase insurance or chit-fund, but they do not inclu
NBFCs or Non-Banking Financial Institutions are companies registered under the Companies Act, 2013 engaged in the business of providing financial services. They are financial intermediaries registered as companies, indulged in various financial services that range from providing loans and advances, accepting deposits, delivering credit, acquisition of shares, stocks, debenture, bonds, securities, hire-purchase insurance. and play an pivotal role in financial development of our economy. While the Indian financial system is dominated by banks, NBFC’s increase the financial inclusion of the corporate sector, facilitate credit to the unorganized sector & small and local borrowers by supplementing and posing competition to the banking sector in India.
The definition of NBFC doesn’t include any company engaged in the principal business of industrial activity, agricultural activity, purchase or sale of immovable properties or any other goods other than securities can not be an NBFC.
1. Investment & Credit Company (NBFC - ICC): (New Category)
In order to provide operational flexibility per the principle of activity-based classification, the RBI has, in a recent update, consolidated or harmonized 3 categories of NBFC’s Namely Loan Companies (LC), Asset Finance Companies (AFC) and Investment Companies, into a single Category named Investment and Credit Company (NBFC-ICC).
➲. Loan Company (LC)
Loan Company means a financial institution that is carrying out Loan disbursal to earn Interest income as its principal business, but it does not include an Asset Finance Company, an equipment leasing company, or a hire-purchase Company. A loan company can undertake the activities performed by a hire-purchase or leasing company. The nature of the business of a loan company, a hire-purchase company, a leasing company is similar, but the funding requirements for these companies are pretty different from each other.
➲. Investment Company (IC)
Investment Companies are those which carry out trading of securities on listed exchanges as a primary business and are also involved in NBFC operations.
➲. Asset Finance Company (AFC)
An Asset Finance Company (AFC) is a non-deposit taking NBFC which is involved in the primary business of financing of physical assets supporting productive/economic, like automobiles, tractors, lathe machines, cranes, generator sets, earthmoving and material handling equipment, moving on own power and general-purpose industrial machines as its principal business. The principal business is defined as aggregate of financing real/physical assets supporting economic activity and income arising from there is more or equal than 60% of its total assets and total income respectively.
2. Infrastructure Finance Company (IFC)
Infrastructure finance companies carry out financing of a minimum of three-fourths of their total assets in infrastructure loans. The Net Owned Funds (NOF) are more than 3 billion and a minimum crediting rating of 'A' with Capital to Risk-Weighted Assets Ratio is 15%.
3. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)
IDF-NBFC are companies registered as NBFC to facilitate the flow of long-term debt into infrastructure projects. IDF-NBFC raises resources through Multiple-Currency bonds of minimum 5-year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.
4. NBFC-Factors
NBFC Factors has the principal business of factoring. Factoring is a financial transaction and a type of debtor finance to provide the financial assistance now to cover the invoice amount to be collected at a later date.
5. Gold Loan NBFCs in India
Gold Loan NBFC carry out financing by keeping Gold as security from the customers. In recent years, gold loan NBFCs witnessed an upsurge in the Indian financial market, owing mainly to the appreciation in the gold price and consequent increase in the demand for the gold loan by all sections of society, especially the poor and middle-class society. Growth of gold loan NBFCs is seen both in terms of the size of their balance sheet and their physical presence which in turn compelled to increase their dependence on public funds including bank finance and non-convertible debentures. Aggressive structuring of gold loans resulting from the uncomplicated, undemanding, and fast process of documentation along with the higher Loan to Value (LTV) ratio includes some of the major factors that caused the growth of Gold loan NBFCs.
6. Micro-FInance NBFC (MFI)
Micro Finance Institution (MFI) is a kind of NBFC which offers financial services to the low-income segment of the population. MFIs give loans and offer insurance, deposit, and other services to its members. These companies, MFI also offer credits and other financial services to the representatives of the poor population except for extremely poor which are Below the Poverty Line (BPL).
7. Non-Operative Financial Holding Company (NOFHC)
It is a financial institution through which promoter/promoter groups will be permitted to set up a new bank. It’s a wholly-owned Non-Operative Financial Holding Company (NOFHC) which will hold the bank as well as all other financial services companies regulated by RBI or other financial sector regulators, to the extent permissible under the applicable regulatory prescriptions.
Non-Operative Financial Holding Company (NOFHC) means a non-deposit taking NBFC as referred to in the 'Guidelines for the Licensing of New Banks in the Private Sector'1 issued by Reserve Bank, which holds the shares of a banking company and the shares of all other financial services companies in its group, whether regulated by Reserve Bank or any other financial regulator, to the extent permissible.
8. Mortgage Guarantee Companies (MGC)
MGC is a financial institution for which at least 90 percent of the business turnover is a mortgage guarantee business or at least 90 percent of the gross revenue is from a mortgage guarantee business and a net owned fund of about 100 crores.
9. Systemically Important Core Investment Company (CIC-ND-SI)
CIC-ND-SI is an NBFC undertaking the acquisition of shares and securities which fulfills the following conditions:-
(A) Holds not less than 90 percent of its Total Assets in the form of equity investments, preferential shares, debts or loans in group companies;
(B) Its equity investments (including instruments that are compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitute not less than 60% of its total assets;
(C) Except through block sales for dilution or disinvestment purposes, it does not trade in its investments in shares, debts or loans in group companies;
|
Investment activities |
Lending or related activities |
Other activities |
|
➲ Investment Company ➲ Core Investment Company ➲ Non-Operative Financial Holding Company
|
➲ Loan Company ➲ Asset Finance Company ➲ Micro Finance Institution ➲ Infrastructure Finance Company ➲ Infrastructure Debt Fund ➲ NBFC - Factor |
➲ Mortgage Guarantee Company ➲ Peer-to-Peer Lending Company ➲ Account Aggregator
|
➲ Applicant should be registered company as per the Rules, Regulations and Provisions of the Companies act, 2013 or the earlier Companies Act 1956.
➲ If a company engaged in the business of any of the above-mentioned fields, produces finance flow from that particular business, which is more than 50% of the total capital asset of the company for any year, the NBFC certificate is mandatory.
➲ The applicant company should have a minimum Net Owned Fund of INR- 2 Crores.
➲ The credit profile of the COmpany, its promoters and directors should not be in a default state.
➲ At least one of the members of the board is expected to have considerable prior experience in Banking or Credit operations.
Note: The Net Owned Fund mentioned above shall be available in Company’s bank account in the form of Fixed Deposit at the time of filing of Application for registration of NBFC.
➲ Self-attested documents of Directors, & Shareholders:
➲ If the Company is already incorporated then we would need:
➲ Net owned funds of INR 2-3 Crores (Fixed Deposit)(minimum being INR 2 Crores)
➲ Bankers report in a sealed envelope which shall be undisclosed.
➲ Business plan for 3 to 5 years
➲ Auditors report about the receipt of a minimum net owned fund.
➲ A certificate of Chartered Accountant regarding details of group/ associate/ subsidiary/ holding companies along with details of investments in other NBFCs as shown in the Proforma Balance Sheet
➲ Business/ Career profiles of all the directors
➲ Self-declaration by the directors for not being charged with any penal action
➲ An online application is to be made in the prescribed format with information regarding the demanded documents and enclosures, which generates a Company Application Reference Number.
➲ A hard copy of the above-mentioned application along with demanded documents and enclosures to the concerned Regional Office of the RBI.
➲ After the verification and approval of the submitted application and documents, the regional office sends the application to the Central office of RBI, which goes through crucial examination in order to grant the Certificate.
➲ If the terms and conditions under section 45-I A of the RBI Act, 1934 are fully satisfied the Certificate will be granted.
Net Owned Funds (NOF) Net owned Fund consists of paid-up equity capital, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of assets but excludes reserves created by revaluation of assets. From the aggregate of items, accumulated loss balance and the book value of intangible assets should be deducted, if any, to arrive at owned funds. Investments in shares of other NBFCs and in shares, debentures of subsidiaries and group companies in excess of ten percent of the owned fund mentioned above will be deducted to arrive at the Net Owned Fund. The NOF should be computed on the basis of last audited Balance Sheet and any capital raised after the Balance Sheet date should not be accounted for while computing NOF
Usually NBFC operations are similar to that of a Bank with following differences between a Bank and a NBFC, however there are some differences between them:
➲ NBFC may provide Banking services to People without holding a Bank license,
➲ NBFC cannot accept Demand Deposits.
➲ NBFC is not a part of payment and settlement system.
➲ NBFC cannot issue cheques drawn on itself.
➲ NBFC cannot provide with Deposit Insurance and Credit Guarantee to the depositor while Banks provide these facilities as per regulation.
➲ An NBFC is not required to maintain Reserve Ratios (CRR, SLR etc.)
➲ An NBFC cannot indulge Primarily in Agricultural, Industrial Activity, Sale-Purchase, Construction of Immovable Property
➲ Foreign Investment allowed up to 100 %
➲ An NBFC companies working in Financial Body and Money handling
|
Type of Company |
Limit of public Deposits |
|
NBFC with NOF less than |
No access to public deposits |
|
Equipment Leasing/Hire |
1.5 times NOF or Rs.10 crore |
|
EL/HP company with |
4 times NOF |
|
Loan/Investment companies |
1.5 times NOF (higher CRAR of 15%) |
➲ NBFCs recently gained a lot of popularity in between institutional investors, because NBFCs provides semi-rural and rural India with the access to credit, as the traditional banks have been traditionally poor in reaching them. Some advantages are as follows:
➲ Provides loans and credit facilities- Growing number of businesses and startups are willing to take a business loan from NBFCs other than Banks due to quicker processing, competitive interest rates, and availability of loans for those with poor credit history.
➲ A hard copy of the above-mentioned application along with demanded documents and enclosures to the concerned Regional Office of the RBI.
➲ Supporting investments in property- Investing in property with NBFCs is advantageous due to flexible rates, easy repayment, acceptable property collaterals with quick and easy processing
➲ Trading money market instruments- Interest rates on money market instruments such as commercial paper id soft with NBFCs, though the base rate of banks stayed unchanged.
➲ Funding private education- Flexible rates and easy return make it convenient.
➲ Facilitates retirement planning
➲ Advise companies in merger and acquisition
➲ Wealth management such as managing portfolios of stocks and shares
➲ Prepare feasibility, market or industry studies for companies
Q. Requirement for registration as NBFC?
A. For geting registered as NBFC the organisation must:
i. Be incorporated as company form which is registere under company act 2013
ii. have a minimum net owned fund of INR 200 lakh
Q. Different categories of NBFC registered with RBI?
A. There are two Types of NBFC get regustered under RBI:
i. Deposit Taking
ii. Non deposit Taking
1. Investment & Credit Company (NBFC - ICC): (New Category)
In order to provide operational flexibility per the principle of activity-based classification, the RBI has, in a recent update, consolidated or harmonized 3 categories of NBFC’s Namely Loan Companies (LC), Asset Finance Companies (AFC) and Investment Companies, into a single Category named Investment and Credit Company (NBFC-ICC).
➲. Loan Company (LC)
Loan Company means a financial institution that is carrying out Loan disbursal to earn Interest income as its principal business, but it does not include an Asset Finance Company, an equipment leasing company, or a hire-purchase Company. A loan company can undertake the activities performed by a hire-purchase or leasing company. The nature of the business of a loan company, a hire-purchase company, a leasing company is similar, but the funding requirements for these companies are pretty different from each other.
➲. Investment Company (IC)
Investment Companies are those which carry out trading of securities on listed exchanges as a primary business and are also involved in NBFC operations.
➲. Asset Finance Company (AFC)
An Asset Finance Company (AFC) is a non-deposit taking NBFC which is involved in the primary business of financing of physical assets supporting productive/economic, like automobiles, tractors, lathe machines, cranes, generator sets, earthmoving and material handling equipment, moving on own power and general-purpose industrial machines as its principal business. The principal business is defined as aggregate of financing real/physical assets supporting economic activity and income arising from there is more or equal than 60% of its total assets and total income respectively.
2. Infrastructure Finance Company (IFC)
Infrastructure finance companies carry out financing of a minimum of three-fourths of their total assets in infrastructure loans. The Net Owned Funds (NOF) are more than 3 billion and a minimum crediting rating of 'A' with Capital to Risk-Weighted Assets Ratio is 15%.
3. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)
IDF-NBFC are companies registered as NBFC to facilitate the flow of long-term debt into infrastructure projects. IDF-NBFC raises resources through Multiple-Currency bonds of minimum 5-year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.
4. NBFC-Factors
NBFC Factors has the principal business of factoring. Factoring is a financial transaction and a type of debtor finance to provide the financial assistance now to cover the invoice amount to be collected at a later date.
5. Gold Loan NBFCs in India
Gold Loan NBFC carry out financing by keeping Gold as security from the customers. In recent years, gold loan NBFCs witnessed an upsurge in the Indian financial market, owing mainly to the appreciation in the gold price and consequent increase in the demand for the gold loan by all sections of society, especially the poor and middle-class society. Growth of gold loan NBFCs is seen both in terms of the size of their balance sheet and their physical presence which in turn compelled to increase their dependence on public funds including bank finance and non-convertible debentures. Aggressive structuring of gold loans resulting from the uncomplicated, undemanding, and fast process of documentation along with the higher Loan to Value (LTV) ratio includes some of the major factors that caused the growth of Gold loan NBFCs.
6. Micro-Finance NBFC (MFI)
Micro Finance Institution (MFI) is a kind of NBFC which offers financial services to the low-income segment of the population. MFIs give loans and offer insurance, deposit, and other services to its members. These companies, MFI also offer credits and other financial services to the representatives of the poor population except for extremely poor which are Below the Poverty Line (BPL).
7. Non-Operative Financial Holding Company (NOFHC)
It is a financial institution through which promoter/promoter groups will be permitted to set up a new bank. It’s a wholly-owned Non-Operative Financial Holding Company (NOFHC) which will hold the bank as well as all other financial services companies regulated by RBI or other financial sector regulators, to the extent permissible under the applicable regulatory prescriptions.
Non-Operative Financial Holding Company (NOFHC) means a non-deposit taking NBFC as referred to in the 'Guidelines for the Licensing of New Banks in the Private Sector'1 issued by Reserve Bank, which holds the shares of a banking company and the shares of all other financial services companies in its group, whether regulated by Reserve Bank or any other financial regulator, to the extent permissible.
8. Mortgage Guarantee Companies (MGC)
MGC is a financial institution for which at least 90 percent of the business turnover is a mortgage guarantee business or at least 90 percent of the gross revenue is from a mortgage guarantee business and a net owned fund of about 100 crores.
9. Systemically Important Core Investment Company (CIC-ND-SI)
CIC-ND-SI is an NBFC undertaking the acquisition of shares and securities which fulfills the following conditions:-
(A) Holds not less than 90 percent of its Total Assets in the form of equity investments, preferential shares, debts or loans in group companies;
(B) Its equity investments (including instruments that are compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitute not less than 60% of its total assets;
(C) Except through block sales for dilution or disinvestment purposes, it does not trade in its investments in shares, debts or loans in group companies;
Q. What are the various prudential regulations applicable to NBFCs?
A. i. Company’s act 2013
ii. Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007
iii. Non-Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015
iv. Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015
Q. what is owned or net owned funds?
A. Owned Fund 'means the sum of the paid-up equity capital, the preferred shares that are compulsorily convertible into equity, the free reserves, the balance in the share premium account and the capital reserves reflecting the surplus arising from the selling of asset proceeds, excluding the reserves produced by the revaluation of the asset after deduction from the accumulated balance of losses, the deferred revenue expenditure and other expenditure. The 'Net Owned Fund' is the sum as mentioned above, minus the sum of the company's investments in the stock of its subsidiaries, companies in the same group and all other NBFCs and the book value of debentures, bonds, outstanding loans and advances, including lease and lease financing and deposits made with subsidiaries and companies in the same group, to the extent that it exceeds 10%
Q. Non-Deposit taking NBFCs Compliances or returns?
A. NBS-7 A Quarterly statement for NBFC-ND-SI on capital funds, risk weighted assets, risk asset ratio, etc.
Monthly return on NBFCs-ND-SI Essential Financial Parameters.
Returns from ALM:
(I) Declaration of Dynamic Short Term Liquidity in ALM Format [NBS-ALM1] -Monthly,
(ii) Systemic Liquidity Statement in ALM Format [NBS-ALM2] Half yearly,
(iii) Sensitivity Interest Rate Comment in ALM format -[NBS-ALM3], Half Annual
The Payment Card Industry Data Security Standard (PCI DSS) is a set of security standards designed to ensure that all businesses accepting, processing, storing or transmitting credit card information maintain a safe environment.
Read MoreA company which has the object of cultivating the habit of thrift & savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Govt.
Read MoreRegistration of NBFC's may be cancelled by the RBI for not conducting business in the manner specified in the respective statutes or due to any non-compliance. However, in certain circumstances, it is possible to apply for the revival of the NBFC whose li
Read MoreA Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 of India, the main operations of NBFC include loans and advances, acquisition of shares, stock, bonds, hire-purchase insurance or chit-fund, but they do not inclu
Read MoreAn authorized company that is authorized to purchased foreign exchange from non-residents visiting India & residents & to sell foreign exchange for private & business travel purposes only is Known as Full fledged money changer (FFMC).
Read MorePayment services operated under financial regulation and performed from or via mobile is known as Mobile payment wallet. Mobile payment wallet also referred to as mobile money, mobile money transfer and mobile wallet.
Read MoreAn asset Reconstruction Company is a Company engaged in the business of buying bad loan from bank. These are specialized financial institutions that buys the bad loan, Non Performing Assets (NPAs) from banks & financial institution so that to clean up the
Read MoreThe firms incorporated under the Companies Act 2013 as the public or private limited company having objective of financial activity are known as NBFC or Non-Banking Financial Companies.
Read MoreAn autonomous group of people belonging to the same class willingly comes together to strive to be common economic, social and cultural objectives and criteria through a business that is jointly owned and democratically controlled by such citizens.
Read MoreAn Altenative Investment Fund is a privately pooled investment vehicle that collects funds from investors and invest these funds in accordance with a defined investment policy for the benefits of its investors is known as Alternative Investment funds.
Read MoreA Collective Investment Scheme (CIS), is an investment scheme in which several individuals come together to pool their money to invest in a particular asset(s) with the motive to share the returns derived from the said investment in accordance with the ag
Read MoreAn establishment in form of trust or institutions that records and maintains a complete record of transactions of investors for the benefit or convenience of mutual funds houses or listed entities are called as share transfer agents.
Read MoreMerchant banker is a company and is combination of consultancy and banking services. Activities of merchant banker in India are regulated by SEBI (merchant banker) rule 1992.
Read MoreService providers through which e-commerce merchants can process their payment transactions are known as a payment aggregator, they are also known as merchant aggregator.
Read MoreA service providing entities which plays role of intermediate between banks and websites facilitating the communication of transaction information are known as payment gateway.
Read MoreOrganization which is registered under companies act 2013 or 1956 and which facilitate financing activity such as loan, savings, and insurance to the needy people or to those who are incapable of getting loan from banks and other financial institutions d
Read MoreBespoke advisory focused on mission critical legal, financial and business aspects.
Uniquely repurpose strategic core competencies with progressive content. Assertively transition ethical imperatives and collaborative manufactured products.
Write About UsProfessional and trusted service, my company needed certification from the state excise in the State of Telangana and CORPZo were so professional in their approach, be it filing of part 3 and 4 of MSME or application process with the state exice that it made my life easy.
“
Will always look to a team which is knowledgeable particularly when it comes to the field of alternative medicine. I had spoken to many including the government offices but was confused how to proceed with setting up of my pharma unit, CORPZo had the right professional guidance available.
“
They believe in transparency in business and give high regard to Customer Satisfaction. Love to work with them and Highly Recommended
“
I needed to apply for business related registration and receive some certificates. Their service is very professional. I researched in the market and found that they are very cost effective, so initially I was a bit doubtful, but, for my surprise, they are better than some of the big house.
“
Awesome and excellent services provided to me. Great and polite gestures with full professional behavior . Have got my company incorporated by corpzo. It was done within a week and have been using their accounting services ever since. They have been a real boost to my business.
“
