An NBFC, also known as Non-Banking Finance Company is a private or public limited company registered under Companies Act, 2013 and also has obtained COR (Certificate from Registration) from the Reserve Bank of India(RBI). The NBFC is primarily engaged in the business of providing loans and advances, acquisition of shares and stocks and other investible securities. RBI grants license to the NBFCs to carry out the business of providing various kinds of loans such as Personal Loans, Asset Financing, SME Lending, Gold Loans, Loan against Property, Loan against Shares, Short term Personal Loans, etc.
A non-banking institution that is a company and has principal business of receiving deposits under any scheme or arrangement by any mode is also a non-banking financial company (Residuary non-banking company).
Exclusions from the definition: The NBFC business does not include business whose principal business is the following:
Meaning of Principal Business: The Reserve Bank of India has defined financial activity as principal business to bring clarity to the entities that will be monitored and regulated as NBFC under the RBI Act. The criteria s is called the 50-50 test and its as follows:
Company should already be registered under Company Act 2013 or Company Act 1956, as private or public limited company
Company should have a business financial planning for at least 5 years
Good CIBIL score or credit rating
Minimum net owned funds shall be Rs. 2 crore or above
Minimum assets should be worth Rs. 200 crore or above
Must comply with the capital compliance and FEMA
One third of directors should have financial experience
The NBFCs can be categorised under two broad heads:
The different types of Non-Banking Financial Corporations/Company or NBFCs are as follows:
On the basis of deposits:
NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:
The benefits of NBFC registration are of diverse nature, which are as follows:
Yes, RBI registration is mandatory for setting up NBFC in India under section 45-IA of the RBI Act, 1934.
On the basis of their nature of activity, different types of NBFCs are regulated by different type of financial bodies such as RBI, SEBI, IRDA, and MCA.
Non-Banking Financial Companies play a crucial role in the financial ecosystem of India by providing various financial services and products. Their regulatory framework ensures stability and protection for investors and depositors.