What are different categories of NBFC Registration in India?

The NBFC sector is recognized as a methodically important component of the financial system. The growth of NBFC is entirely constant year-on-year. NBFCs are regulated by the RBI. Reserve Bank of India has the power to keep a check on different categories of NBFCs registered in India.

In this topic, we will discuss the necessary requisites for NBFC registration and types of NBFC Registration in India based on deposits and their business activity.

1. How can you define an NBFC?

Under Section 45-1 (c) of the Reserve Bank of India Act, 1934, any non-banking company providing any financial services are considered as NBFC. NBFC registration is a company that is registered under The Companies Act,2013. NBFC is ruled by the Ministry of Corporate Affairs as well as the RBI.

NBFC can give and invest money, just like any traditional bank. The actions of banks and NBFCs are furthermore similar. The financial mediators are regulated by the Companies Act, 2013, and the Banking Regulation Act, 1949. The control of both the monetary intermediaries is under the Reserve Bank of India. The difference is as follows:

• NBFC cannot accept demand deposits like banks;
• NBFC cannot issue cheques on themself and does not form part of the settlement and payment scheme;
• If the facility of deposit insurance provided by Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available to the depositors of NBFC.

2. What are the requirements for NBFC Registration in India?

An applicant company is obligatory to follow the below-given criteria-

• A company shall be incorporated as per the Companies Act 2013, or the Companies Act 1956.
• The net owned fund of the NBFC shall be a minimum of Rs 2 crore.
• The financial activity shall be defined under section 45I(a) of the RBI Act,1934.

3. What is the classification of NBFC Registration in India?

The growth and development of the NBFC have lead to the classification of NBFCs, determined to focus on precise sectors or classes.

The classification is based on the following-

Based on liabilities

• (NBFC-D)-Deposit-taking Non-Banking Financial Company.
• (NBFC-ND)-Non-Deposit taking Non-Banking Financial Company

Additional, NBFC Non-Deposit is sub-categorized into two parts-

• Systematically Important NBFC-ND
• Others NBFC-ND

Based on business activity

1. Investment and Credit Company-ICC
2. NBFC-Infrastructure Finance Company
3. Mortgage Guarantee Companies
4. NBFC- Non-Operative Financial Holding Company
5. Micro Finance Company
6. NBFC Factor
7. Systemically Important Core Investment Company (CIC-ND-SI)
8. Infrastructure Debt Fund-NBFC
9. NBFC Account Aggregator
10. NBFC -Peer to Peer lending Platforms
11. Housing Finance Companies

1. Investment and Credit Company

On 22nd February 2019, RBI has released a notification on “Harmonization of the Non-Banking Financial Companies (NBFCs) Categories.” In the Notice, RBI decided to merge the 3 NBFCs (Asset Company, Investment Company, and Loan Company) into one named as NBFC-Investment and Credit Company.

Investment and Credit Company is a company that is doing its principal business-asset finance by providing finance, whether by creating loans or advances or otherwise for any activity other than its own and the acquisition of securities.

The objective of the notification is to ease the operational Flexibility of the NBFC sector. The focus was to consider the opinion of Activity Based Regulation.

2. Infrastructure Finance Company

Infrastructure Finance Company is a company which uses at least 75 % of its total assets in the infrastructure loans. An Infrastructure Finance Company has a minimum net owned fund of Rs 300 crores and a CRAR of 15%. It is a kind of NBFC which requires the best credit rating from all the credit rating agencies.

3. Mortgage Guarantee Company

Mortgage guarantee company includes-

• At least 90% of the turnover of the Micro Finance Company is mortgage guarantee business or
• At least 90% of the taxable income of the Micro Finance Company is from mortgage guarantee business and,
• Net owned deposit of the Micro Finance Company should be ₹ 100 crore.

4. NBFC-Non-Operative Financial Holding Company

Through Non-Operative Financial Holding Corporation, any promoter or group of sponsors will be authorized to set up a new bank. It is a kind of NBFC Registration which will hold the bank as well as all other financial companies controlled by RBI or other financial sector regulators, to the extent allowed under the applicable regulatory prescriptions.

5. Micro Finance Company

Micro Finance Businesses in NBFC Registration, are the corporations that perform the functions as similar to that of Banks. Loans are obtainable by the Micro Finance companies to various small businesses that do not have access to the official banking channels and are not qualified for availing loans. MFI should qualify the following criteria –

1. 85% of qualifying possessions are to be maintained all the time

2. The investment paid by the Micro Finance Company to a borrower having annual income–

• In the rural area not exceeding INR 1,25,000 or
• Urban and semi-urban areas not exceeding INR 2,00,000.
• The amount of loan shall not be more than INR 75,000 in the first cycle and INR 1,25,000 in subsequent periods. However, the tenure of the loan should not be less than 24 months
• The total obligation of the borrower does not exceed INR 1,25,000.
• Credit to be provided without collateral.
• The repayment of the loan should be at the discretion of the borrower.

6. NBFC Factors

NBFC-Factor is a different category of NBFC Registration that is engaged in the principal business of factoring. The financial assets in the NBFC Factor should be aggregate at least 50 % of its total assets. Also, income acquires from the factoring business should at least 50 % of the gross income.

7. Systematically Important Core Investment Company

Consistently Important Core Investment Company is a type of NBFC Registration which carry on the business of share (Equity and Preference) and securities takeover but subject to a condition that –

• Assets should be over 100 crores and above;
• It should hold at least 90% of its assets in investments in shares and securities such as Bonds, debenture or debts. With any additional condition that, out of 90%, at least 60% of its net assets shall be invested in equity shares which includes instruments compulsorily converted in equity shares.

However, it should be noted that Systematically Important Core Investment Companies accepts funds from the public.

8. Infrastructure Debt Fund NBFC

Infrastructure Debt Fund NBFC is a non-deposit NBFC Registration which deals in the simplification of long-term debt into an infrastructure sector. Infrastructure Debt Fund NBFC advances the resources through an issue of the rupee or dollar-denominated bonds of 5 years. Infrastructure Debt Fund NBFC can only be funded by the Infrastructure Finance Company. The maturity period is for 5 years.

9. NBFC Account Aggregator

NBFC Account Aggregator is a new notion in the NBFC Registration. NBFC-Account Aggregator provides data of numerous users and modifies their financial needs to various commercial organizations. The activities of an Account Aggregator involves providing the customers financial information in a combined and retrievable manner to the customer. NBFC Account Aggregator offers reliable information.

10. NBFC Peer to Peer Lending Platforms

NBFC Pear to Peer lending platforms delivers a platform to bring lenders and borrowers together by using a digital platform. It offers an opportunity for investors to diversify their portfolio. NBFC P2P has removed the clumsy process of loan and has provided the ease of processing the loans. NBFC P2P Platform is a significant player in the small business sector.

11. Housing Finance Company

Housing Finance Company is a kind of NBFC Registration with the principal business of financing of acquisition or construction of houses. House Finance Company are controlled by the Reserve Bank of India. A Housing Finance company cannot commence the activity without obtaining a COR from the Reserve Bank of India.

Conclusion

In India, one can simply find out the list of registered NBFCs which are available on the website of Reserve Bank of India. Also, the directions related to different types of NBFC Registration are hosted at www.rbi.org.in. NBFC registration is unlawful for any company to mislead the public by making a false impression of being regulated by the RBI.

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