What Are Nbfcs? The Reserve Bank of India defines a Non-Banking Financial Company (NBFC) as: A...
NBFC or Non-Banking Financial Company is a company that is registered under the Companies Act, 2013 or the Companies Act, 1956, as defined by the Government of India. NBFCs are exclusively involved in the insurance business, lending business, leasing, hire-purchase, receiving deposits in certain cases, stocks and shares acquisitions, and chit funds. Reserve Bank of India and the Ministry of Corporate Affairs are responsible for managing the functions of all different types of NBFC.
The NBFC categorization is done under two boards, that are defined on:
In obedience to the above-mentioned categorization, NBFC companies are categorized as below:
Unlike Banks, different types of NBFC are responsible for only lending money or making investments. Other significant differences include:
Below we are giving the overview of the different types of NBFC:
The NBFC-ICC comprises three three types of NBFC i.e. Asset Finance, Loan and Investment Company.
IFC provided companies are those who has net owned funds of at least 300 crores and has deployed at least 75% in total assets in infrastructure loans. An IFC company has CRAR of 15% and a credit rating of A and above.
A CIC-ND-SI is a company that has assets of over 100 crores and above and has deployed at least 90% of its assets in a manner of investments like loans in group companies, and shares. There is a regulation with this division as well, i.e. out of 90% at least 60% should be invested in equity shares or instruments that are converted in equity shares. However, it should be noted that SICIC companies do accept public funds.
Infrastructure Debt Fund of IDF-NBFC is an investment pool in which the main standing is the fixed income investment. Moreover, the IDF-NBFC is meant to divert funds towards the infrastructure sector. Because of the huge investment requirements and a long gestation period, in the infrastructure industry, IDF-NBF companies are required. It should be noted that in India, IDF companies can be set up as a trust. Such funds are known as IDF-MF regulated by the SEBI.
The microfinance institution registered as NBFC is a non-deposit by nature and has at least 85% of its assets in the form of microfinance. Such kinds of micro-finance are given in the form of loans to people who have an annual income of 60,000 INR in a rural area or 120,000 in the urban area. The loans cannot exceed more than 50,000 INR and its tenure is not less than 24 months. Repayments of loans are done weekly (fortnight or monthly according to the choice of the borrower) and are given without collateral.
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.
MGC are financial institutions for which at least 90% of the business turnover must be from mortgage guarantee business and the net owned fund is Rs. 100 crore.
In case you are interested in incorporating an NBFC, then the following mentioned documents are to be submitted, however, the documents may be different in case of different types of NBFC:
The principal business of any NBFC category is uniquely described by the RBI which gives clear instruction on its formation. In case you are willing to register your company as NBFC, then it is advised to check rules and regulations from the RBI website.
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Read our article:Prerequisites of NBFC Registration