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Detail about Non-Banking Financial Institutions (NBFCs)(aavana.in)

    Non-Banking Financial Institutions is a company that is incorporated under the Companies Act 2013. The function of NBFCs is almost like bank I,e providing loans and rendering other services but NBFCs do not accept any deposits from clients to open SB/CA with them. However, NBFCs receive deposits under any scheme or in-way contributions. But NBFCs cannot issue cheques and drafts.

What sets NBFCs apart from banks?

    The most important difference between banks and NFBCs is, banks provide many loans to their customers. But NBFCs provide credit and loans to small, medium-scale enterprises so that their customers can run their business with no cash deficiency.

Further, NBFCs must be engaged in the business of Loans and advances, purchase of stocks, equities issued by the government, or marketable securities.

 Different types of NBFCs:

  1. Asset Finance Company
  2. Investment Company
  3. Loan Company
  4. Infrastructure Finance Company
  5. Core Investment Company
  6. Micro Finance Company
  7. Housing Finance Company
  8. Mortgage Guarantee Company 

Requirements for NBFCs registration;

  1. The company should be registered under the companies act 2013
  2. The flow of financial business increase by more than 50% of the total capital asset
  3. The minimum capital requirement is Rs 2 crore for the northeastern region and Rs 5 crore for the rest regions in India.
  4. The company should have one director from the same field or a senior banker as a director
  5. CIBIL reports should be clean
  6. The must-have business plan for 5 years
  7. The company must comply with the requirements of FEMA
  8. Once all the above conditions are fulfilled, the online application available on the RBI website should be filled and all the required documents should be submitted.
  9. CARN number will be generated
  10. A hard copy should be sent to the regional branch of the reserve bank of India.
  11. The license will be given to the company when the application is properly scrutinized.

Guidelines to follow:

  1. They are not supposed to receive any deposits which are payable on demand
  2. The company should not charge the interest rate more than the ceiling prescribed by the Reserve Bank of India.
  3. Deposit should be a minimum period of 12 months and a maximum period of 60 months
  4. All the information about the company should be furnished to the reserve bank of India
  5. The deposits taken by the public are treated as unsecured
  6. Every year the company has to submit its audited balance sheet
  7. The statutory returns on the deposits have to be furnished in the NBS form
  8. Quarterly returns have to be furnished
  9. Half-yearly asset-liability management returns have to be given by the company.
  10. Every six months credit rating has to be submitted to RBI
  11. 15% of the minimum level of the public deposit has to be maintained.

The following businesses are excluded from NBFCs

  1. Agriculture activities
  2. Industrial activities
  3. Purchase/sales of any goods (excluding securities)
  4. Purchase/sales of any immovable property

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