NBFC (Non-Banking Financial company) – Registration & Classification

♦ Definition of NBFC

As per RBI (10 January 2017), 

• Is a company registered under companies act 1956 or 2013
• Engaged in business loans and advances , acquisition of shares/debenture /bonds issued by government or local authority 
• But does not include any business principal is that in agricultural activity or industrial activity or purchase of goods (other than securities )

Now what principal business means ? 

Principal business means when a company’s financial assets constitute more than 50% of total assets and income from that assets constitute more than 50% of gross income . 

The RBI has defined it so as to ensure predominantly engaged in the financial activity so to regulate and supervised by it  

REGISTRATION  

As Per sec 45 IA of RBI act 1934 , no NBFC can commence or carry business without : 

1. Obtaining  a certificate of registration from RBI

2. Having net owned fund ( NOF ) of 200 lakh

Therefore NBFC has to adjust from these two principals then only an NBFC can be registered  

Classification of NBFC  

As per sec 45IA of RBI act 1934 NBFC can be classified on following categories:  

a) Housing finance institution .

b) Merchant banking company ( Reg by SEBI)

c) Stock exchange (Reg by SEBI)

d) Stock broker/ sub broker ( Reg by SEBI)

e) Nidhi company( Reg by MCA) 

f) Insurance company 

g) Chit fund ( Reg by chit fund act 1982)

h) Mutual benefit company 

i) Alternative investment fund ( AIF) CO

MINIMUM NET OWNED FUND  

Net owned fund for new company applying for grant of COR to commence business is stipulated 2 crore  

So, there two funds i.e., 

(A) Owned fund : means aggregate of paid up share capital and preference share capital which also includes free reserve , balance of share premium 

(B) Net owned fund : owned fund – investment in subsidiary in same group / other NBFC – book value of debenture , bonds or outstanding loans and advances including hire purchase ( maximum to extent of 10% of owned fund)