Definition: A Non Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 earlier(Companies Act, 1956) of India, engaged in the business of loans and advances, acquisition of shares, stock, bonds, hire-purchase insurance business or chit-fund business but does not include any institution whose principal business includes agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.

REGULATION & REGISTRATION: NBFCs functions are regulated and supervised by RBI according to the provisions mentioned in Chapter III B of the RBI Act 1934. NBFC registration must be done according to rules & regulations given in Section 45-IA of the RBI Act 1934.

IT MUST BE DULY REGISTERED AS PER COMPANIES ACT 2013. Company should have Minimum Net Owned Fund of INR 2 crore. The applicant company is required to apply online (cosmos.rbi) and submit a physical copy of the application along with the necessary documents to the Regional Office of the Reserve Bank of India. Necessary documents to be submitted to RBI by company.

  • Certificate of Incorporation (Certified Copy Issued by ROC)
  • MoA and the AoA of the applicant company or firm
  • Board of Resolution in favour of NBFC registration
  • Audited Balance Sheet & Profit & Loss account along with directors details and auditor’s report (for last 3 consecutive years)
  • Details of deposits & loans balances as on date of application & conduct of account (Bankers report)
  • And, other documents, if required.

The license will be granted only after vigilant inspection of the application and documents attached with it.

DIFFERENCE BETWEEN BANKS & NBFCS:

i. NBFC cannot accept demand deposits.

ii. NBFCs cannot issue cheques drawn on itself;

iii. While banks are incorporated under banking companies act, NBFC is incorporated under company act of 1956.

iv. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

NBFCS EXEMPTED FROM THE REQUIREMENT OF REGISTRATION UNDER SECTION 45-IA OF THE RBI ACT, 1934:

Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies . They are regulated by other regulators are given specific exemption by the RBI from its regulatory requirements for avoiding duality of regulation.

It is illegal for any financial entity or unincorporated body to make a false claim of being regulated by the Reserve Bank to mislead the public to collect deposits and is liable for penal action under the Indian Penal Code.

BROAD CATEGORIZATION OF NBFCS:

  • Asset Finance Company(AFC)
  • Investment Company (IC)
  • Loan Companies (LC)
  • Infrastructure Finance Company (IFC)
  • Systemically Important Core Investment Company (CIC-ND-SI)
  • Infrastructure Debt Fund Non- Banking Financial Company (IDF-NBFC)
  • Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI)
  • Non-Banking Financial Company – Factors (NBFC-Factors)
  • Mortgage Guarantee Companies (MGC)

The list of registered NBFCs is available on the web site of Reserve Bank of India and can be viewed at www.rbi.org.in

Author Bio

Qualification: CS
Company: instant professionals private limited
Location: Punjab, IN
Member Since: 08 Jul 2019 | Total Posts: 2
Vrinda Aggarwal is a Company Secretary by profession and partner at INSTANT PROFESSIONALS PRIVATE LIMITED, offering its expertise for all Corporate compliance requirements to the clients Proficient delivering services related INCOME TAX, GST ,Companies Act, FEMA and focusing on Start up Business, In View Full Profile

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