Overview and regulatory aspects of Non-Banking Financial Companies (NBFC)

NBFC- Meaning & definition: Financial sector in addition to banking system is huge sector. Like all over the word, NBFC plays significantly important role to complement the banking system in India.

Non-banking financial company (NBFC) means a company registered under the Companies Act 2013 or under earlier one other than banking companies,  engaged in the business of conducting financial activities as a principally business activities.

Emphasis to be given on the word “Company”, meaning hereby that LLP, foreign body corporate, other form of entities are not eligible to be registered as NBFC. The definition of financial activities may be taken from section 45 I (c) of the RBI Act, 1934. Accordingly, all such entities (other than banking) that offer financial services may be called as non-banking financial institutions.

 As per Section 45 I (f) of the RBI Act 1934, non-banking financial company (NBFC) means-

Section 45 I (f) of the RBI Act 1934
Non-Banking Financial Company means- → a financial institution which is a company;
→ a non- banking financial institution (NBI) which is a company and which has as its principal business the receiving of deposits;
→ such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the CG as specified.

Registration of NBFC- License: Non-Banking Financial Companies (NBFCs) are regulated and governed by Reserve bank of India (RBI). As per section 45-IA of the Reserve Bank of India Act, 1934, an NBFC cannot carry on non-banking financial activities unless it has certificate of registration and net owned fund of 2 crore.

Registration of NBFC- LicenseOther financial companies are not regulated by RBI such as Housing Finance Companies are regulated by National Housing Bank, Nidhi companies are regulated by Ministry of Corporate Affairs, Insurance companies are regulated by IRDA and Stock exchanges, Brokers / sub-brokers, Mutual funds, Merchant Bankers, AIFs are regulated by SEBI.

Types of Non-Banking Financial Company (NBFC) in India: NBFCs can be categorized (a) Based on the ability to accept deposits as Deposit taking NBFCs and Non-deposit taking NBFC and (b) Based on the kind of activity they conduct. Non-deposit taking NBFC can be systemically important NBFC (those with asset size of Rs. 500 crores or above) and non-systemically important NBFC (those with asset size of less than Rs. 500 crores). It is to be noted that while determining these limits total assets of all NBFCs in a group must be aggregated. Now, we are going to discuss within this broad categorization different types of NBFCs as follows:

> Investment Companies: A Company having its principal business activities as making investments in securities of other companies. Here, at least 50% of the total assets should be investments in shares/ securities of other companies; and at least 50% of the gross income should come from such investments.

> Systemically Important Core Investment Company (CIC-ND-SI):

  • Not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies.
  • Its investment in equity or equity like instruments of group companies must not exceed 60% of the total assets.
  • It does not trade in investments, except through block sale for the purpose of dilution.
  • It does not carry on any financial activity other than the above. The remaining 10% can be used for self-use assets.
  • Its asset size is Rs. 100 crores or above.
  • It accepts public funds.

> NBFC- Non-Operative Financial Holding Company (NOFHC): financial institution through which promoter / promoter groups will be permitted to set up a new bank. It’s a wholly-owned
Non-Operative Financial Holding Company (NOFHC) which will hold the bank as well as all other financial services companies regulated by RBI or other financial sector regulators, to the extent permissible under the applicable regulatory prescriptions.

> Loan Company (LC): A company other than asset finance company whose principal business activity is providing of finance whether by making loans or advances or otherwise for any activity other than its own. It means at least 50% of its total assets must be loan assets; and at least 50% of the gross income should come from such loan assets.

> Asset Finance Company (AFC): Company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity. Principal business for this purpose is defined as 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.

> Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI): NBFC-MFI is a non-deposit taking NBFC having not less than 85% of its assets in the nature of qualifying assets which satisfy the following criteria:

  • Borrower’s profile: rural household annual income not exceeding Rs 1,00,000 or urban and semi-urban household income not exceeding Rs 1,60,000;
  • Ticket size of loan not more than Rs 50,000 in the first cycle and Rs 1,00,000 in subsequent cycles;
  • Total indebtedness of the borrower does not exceed Rs 1,00,000;
  • Tenure of the loan not to be less than 24 months for loan amount in excess of Rs 15,000 with prepayment without penalty;
  • Loans extended must be without collateral;
  • Aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the MFIs;
  • Loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower;
  • Infrastructure Finance Company (IFC): IFC is a non-banking finance company which-
  • deploys at least 75% of its total assets in infrastructure loans;
  • has a minimum Net Owned Funds of Rs 300 crore;
  • has a minimum credit rating of ‘A ‘or equivalent;
  • a CRAR of 15%.

> Infrastructure Debt Fund- Non- Banking Financial Company (IDF-NBFC): IDF-NBFC is a company which-

  • registered as NBFC to facilitate the flow of long term debt into infrastructure projects;
  • raise resources through issue of Rupee or Dollar denominated bonds of minimum 5 year maturity;
  • Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs;
  • The intention of this type of NBFC is to raised funds from domestic/ offshore institutional investors and refinance existing debt of infrastructure companies, thereby creating fresh headroom for banks to lend to fresh infrastructure projects.

> Non-Banking Financial Company – Factors (NBFC-Factors): NBFC-Factor is 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 factoring business should not be less than 50 percent of its gross income.

> Mortgage Guarantee Companies (MGC): MGC are financial institutions 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 net owned fund is Rs 100 crore.

List of various Master Directions applicable on NBFCs:

Master Direction – Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016
Master Direction – Non-Banking Financial Company – Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016
Master Direction – Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016
Master Direction- Non-Banking Financial Company – Account Aggregator (Reserve Bank) Directions, 2016
Master Direction – Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016
Master Direction – Non-Banking Financial Companies Auditor’s Report (Reserve Bank) Directions, 2016
Master Direction- Non-Banking Financial Company Returns (Reserve Bank) Directions, 2016
Master Direction- Non-Banking Financial Company Returns (Reserve Bank) Directions, 2016
Master Directions – Mortgage Guarantee Companies (Reserve Bank) Directions, 2016
Master Direction – Core Investment Companies (Reserve Bank) Directions, 2016
Master Direction – Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 2016
Master Direction – Residuary Non-Banking Companies (Reserve Bank) Directions, 2016
Master Directions – Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017
Master Direction – Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021

Returns to be submitted by NBFCs:

The details of returns and their periodicity across distinct categories of NBFCs are consolidated in the following table:

A. Details of returns to be submitted by NBFCs-D (Deposit taking Non-Banking Financial Companies):-

Sr. Name of the Return Periodi-city Reference Date Reporting Time Due on Remarks
1 NBS1 Quarterly 31st March/
30th June/
30th Sept./
31st Dec.
15 days 15th April/
15th July/
15th Oct./
15th Jan.
2 NBS2 Quarterly 31st March/
30th June/
30th Sept./
31st Dec.
15 days 15th April/
15th July/
15th Oct./
15th Jan.
3 NBS3 Quarterly 31st March/
30th June/
30th Sept./
31st Dec.
15 days 15th April/
15th July/
15th Oct./
15th Jan.
4 ALM (NBFC-D) Half yearly 31st March/
30th Sept.
30 days 30th April/
30th Oct.
NBFCs-D having public deposit of > ₹ 20 crore Or asset size of> ₹ 100 crore
5 Branch Information return Quarterly 31st March/
30th June/
30th Sept./
31st Dec.
15 days 15th April/
15th July/
15th Oct./
15th Jan.
6 Statutory Auditor Certificate Annual 31st March One month from the date of finalisation of Balance Sheet Not later than 31st December
7 Reporting to Central Repository of Information on Large Credits (CRILC) Quarterly 31st March/
30th June/
30th Sept./
31st Dec.
21 days 21st April/
21st July/
21st Oct/
21st Jan
8 Reporting of Special Mention Account status (SMA-2 return) Weekly On Every Friday
9 Statutory Auditor Certificate Annual 31st March One month from the date of finalisation of Balance Sheet. Not later than 31st December.

B. Details of returns to be submitted by NBFC-ND-SI:-

Sr. No Name of the Return Periodicity Reference Date Reporting Time Due on
1 NBS7 Quarterly 31st March/
30th June/
30th Sept/
31st Dec.
15 days 15th April/
15th July/
15th Oct./
15th Jan.
2 NBFCs-ND-SI 500cr Quarterly 31st March/
30th June/
30th Sept./
31st Dec.
15 days 15th April/
15th July/
15th Oct./
15th Jan.
3 ALM-1 Quarterly 31st March/
30th June/
30th Sept./
31st Dec.
15 days 15th April/
15th July/
15th Oct./
15th Jan.
4 ALM-2 & 3 Half yearly 31st March/
30th Sept.
30 days 30th April/
30th Oct.
5 ALM-(NBFC-ND-SI) Annual 31st March 15 days 15th April
6 Branch Info return Quarterly 31st March/
30th June/
30th Sept./
31st Dec.
15 days 15th April/
15th July/
15th Oct./
15th Jan.
7 Reporting to Central Repository of Information on Large Credits (CRILC) Quarterly 31st March/
30th June/
30th Sept./
31st Dec.
21 days 21st April/
21st July/
21st Oct/
21st Jan
8 Reporting of Special Mention Account status (SMA-2 return) Weekly On Every Friday
9 Statutory Auditor Certificate Annual 31st March One month from the date of finalisation of Balance Sheet. Not later than 31st December.

C. Details of returns to be submitted by NBFC-ARC:-

Sr. No Name of the Return Periodicity Reference Date Reporting Time Due on
1 ARC Quarterly 31st March/
30th June/
30th Sept./
31st Dec.
15 days 15th April/
15th July/
15th Oct./
15th Jan.
2 Statutory Auditor Certificate Annual 31st March One month from the date of finalisation of Balance Sheet. Not later than 31st December.

D. Details of returns to be submitted by NBFC-ND-having asset size of Rs 100 crore – Rs 500 crore

Sr No Name of the Return Periodicity Reference Date Reporting Time Due on
1 NBS-9 Annual 31st March 60 days 30th May
2 Statutory Auditor Certificate Annual 31st March One month from the date of finalisation of Balance Sheet. Not later than 31st December.

E. Details of returns to be submitted by NBFC-ND-having asset size below Rs 100 crore

Sr No Name of the Return Periodicity Reference Date Reporting Time Due on
1 NBS-8 Annual 31st March 60 days 30th May
2 Statutory Auditor Certificate Annual 31st March One month from the date of finalisation of Balance Sheet. Not later than 31st December.

F. Details of returns to be submitted by RNBCs

Sr No Name of the Return Periodicity Reference Date Reporting Time Due on
1 NBS1A Annual 31st March 6 months 30th Sept
2 NBS3A Quarterly 31st March/
30th June/
30th Sept./
31st Dec.
15 days 15th April/
15th July/
15th Oct./
15th Jan.
3 Statutory Auditor Certificate Annual 31st March One month from the date of finalisation of Balance Sheet. Not later than 31st December.

G. Other Returns by concerned NBFCs

Sr No Name of the Return Periodicity Reference Date Reporting Time Due on
1 Return on FDI Half yearly 31st March/
30th Sept.
30 days 30th April/
30th Oct.
2 Overseas Investments Quarterly 31st March/
30th June/
30th Sept./
31st Dec.
Within 15 days 15th April/
15th July/
15th Oct./
15th Jan.

(Any query and suggestion kindly contact the author at: [email protected])

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information.

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