Learn about Non-Banking Finance Companies (NBFCs): their registration with RBI, restrictions, and various types including Asset Finance Company, Investment Company, Loan Company, and more.
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act,
Engaged in –
- Business of loans and advances
- Acquisition of shares/stocks/bonds/debentures/securities issued by the government or local authority or other marketable securities of a like nature
- Leasing
- Hire-purchase
- Insurance business
- Chit business
But does not include any institution whose principal business of –
- Agriculture activity
- Industrial activity
- Purchase or sale of any goods (other than securities)
- Providing any services and sale/purchase/construction of an immovable property
Registration with RBI –
A company incorporated under the Companies Act and desirous of commencing the business of a non-banking financial institution as defined under Section 45 I (a) of the RBI Act, 1934 should comply with the following:
1. it should be a company registered under the Companies Act.
2. It should have a minimum net owned of Rs. 200 lakhs.
Restrictions on NBFC –
- NBFC cannot accept demand deposits.
- NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn in its name.
- Unlike in the case of Banks, the deposit insurance facility of deposit insurance and Credit Guarantee Corporations is not available to depositors of NBFCs.
VARIOUS TYPES –
ASSET FINANCE COMPANY
A financial institution carries on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipment, moving on own power, and general purpose industrial machines.
As an aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively.
INVESTMENT COMPANY:
Any company which is a financial institution carrying on as its principal business the acquisition of securities.
LOAN COMPANY
Any company carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company.
INFRASTRUCTURE FINANCE COMPANY
It is a non-banking finance company
- which deploys at least 75 percent of its total assets in infrastructure loans,
- has a minimum net owned funds of `300 crore,
- has a minimum credit rating of ‘A‘or equivalent,
- a CRAR of 15%
SYSTEMICALLY IMPORTANT CORE INVESTMENT COMPANY (CIC-ND-SI)
Any NBFC carrying on the business of acquisition of shares and securities satisfies the following conditions:-
- it holds not less than 90% of its Total Assets in the form of investments in equity shares, preference shares, debt, or loans in group companies;
- its investments in the equity shares (including instruments 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;
- it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;
- it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies;
- Its asset size is `100 crore or above,
- It accepts public funds.
INFRASTRUCTURE DEBT FUND (IDF-NBFC)
A company registered as NBFC to facilitate the flow of long-term debt into infrastructure projects. IDF-NBFC raises resources through the issue of Rupee or Dollar denominated bonds of minimum 5-year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.
NBFC-FACTOR
A Non-deposit-taking NBFC engaged in the principal business of factoring. The financial assets in the factoring business should constitute at least 50 percent of its total assets and its income derived from the factoring business should not be less than 50 percent of its gross income.
MORTGAGE GUARANTEE COMPANY (MGCs)
Any financial institution for which at least 90% of the business turnover is mortgage guarantee business or at least 90% of the gross income is from mortgage guarantee business and the net owned fund is Rs. 100 crores.
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