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Non-Banking Financial Company (NBFC)

A Non-Banking Financial Company (NBFC) may possibly be a corporation registered below the businesses Act, 1956 engaged among the business of loans and advances, acquisition of shares/ stocks/ bonds/ debentures/ securities issued by Government or federal agency or alternative marketable securities of a like nature, leasing, installment plan, insurance business, invoice business however doesn’t embody any establishment whose principal business is that of agriculture activity, industrial activity, purchase or sale of any product (other than securities) or providing any services and sale/purchase/construction of immobile property. A non-banking establishment that could be a company and has principal business of receiving deposits below any theme or arrangement in one payment or in installments by the method of contributions or in the other manner, is additionally a non-banking monetary company (Residuary non-banking company).

Difference between NBFCs and banks

NBFCs lend and build investments and therefore their activities square measure corresponding to that of banks, but there square measure a number of variations as given below:

  • NBFC cannot settle for demand deposits;
  • NBFCs don’t kind a part of the payment and settlement system and can’t issue cheques drawn on itself;
  • The deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation isn’t offered to depositors of NBFCs, in contrast to just in case of banks.

Different types/categories of NBFCs registered with RBI

NBFCs are classified

  • in terms of the sort of liabilities into Deposit and Non-Deposit acceptive NBFCs,
  • non-deposit taking NBFCs by their size into systemically necessary and alternative non-deposit holding corporations (NBFC-NDSI and NBFC-ND) and
  • by the type of activity, they conduct.

Within this broad categorization the different types of NBFCs are as follows:

  1. Asset Finance Company (AFC) : An AFC may be a company that may be a financial organization carrying on as its principal business the funding of physical assets supporting productive/economic activity, like vehicles, tractors, shaper machines, generator sets, earthmoving and material handling equipment, moving on own power and general-purpose industrial machines. Principal business for this purpose is outlined as a mixture of funding real/physical assets supporting economic activity and financial gain arising therefrom isn’t but an hour of its total assets and total financial gain severally.
  2. Investment Company (IC): IC suggests that any company that may be a financial organization carrying on as its principal business the acquisition of securities.
  3. Loan Company (LC): LC suggests that associate degree company that may be an institution carrying on as its principal business the providing of finance whether or not by creating loans or advances or otherwise for any activity apart from its own however doesn’t embrace a quality nondepository financial institution.
  4. Infrastructure Finance Company (IFC): IFC may be a non-banking nondepository financial institution a) that deploys a minimum of seventy-five percent of its total assets in infrastructure loans, b) encompasses a minimum web in hand Funds of Rs three hundred large integers, c) encompasses a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15 August 1945.
  5. Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI is an associate degree NBFC carrying on the business of acquisition of shares and securities.
  6. Infrastructure Debt Fund: Non- Banking money Company (IDF-NBFC): IDF-NBFC may be a company registered as NBFC to facilitate the flow of future debt into infrastructure comes. IDF-NBFC raise resources through issue of Rupee or greenback-denominated bonds of minimum five-year maturity. solely Infrastructure Finance firms (IFC) will sponsor IDF-NBFCs.
  7. Non-Banking Financial Company – Micro Finance establishment (NBFC-MFI): NBFC-MFI may be a non-deposit taking NBFC having not but eighty-fifth of its assets within the nature of qualifying assets.

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