Fintech NBFC

What are the different types of NBFC and how they differ from each other?

NBFC or Non-Banking Financial Company is a company that is registered under the Companies Act, 2013 or the Companies Act, 1956^[1], 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.

What are the Different Types of NBFC?

The NBFC categorization is done under two boards, that are defined on:

1. The basis of deposits
2. The basis of their activity

In obedience to the above-mentioned categorization, NBFC companies are categorized as below:

Deposits Basis:

1. Non-Banking Financial Corporations that accept deposits
2. Non-Banking Financial Corporations that do not accept deposits

Activity Basis:

Difference between NBFCs and Banks:

Unlike Banks, different types of NBFC are responsible for only lending money or making investments. Other significant differences include:

1. NBFC registered companies cannot accept deposits in any case.
2. Furthermore, NBFC registered companies cannot form a settlement and payments system and also cannot issues drawn on itself.
3. Credit Gurantee Corporation and deposit insurance is not available for NBFC depositors.

Detailed Overview of the Different types of NBFC

Below we are giving the overview of the different types of NBFC:

NBFC Investment & Credit Company

The NBFC-ICC comprises three three types of NBFC i.e. Asset Finance, Loan and Investment Company.

Infrastructure Finance 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.

Systemically Important Core Investment Company

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

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.

Micro Finance Institution-NBFC

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.

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 must be from mortgage guarantee business and the net owned fund is Rs. 100 crore.

Documents Required for Different Types of NBFC

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:

1. Company’s management details.
2. Certificate of Incorporation copy.
3. Certificate of Commencement of Business certificate copy.
4. Memorandum of Association (MoA) certificate copy of the organization.
5. Updated Articles of Association (AoA) certificate copy.
6. Copy of the CIN or PAN issued to the company.
7. Directors’ profile (duly filled and signed by respective directors)
8. Experience certificate of each director in the non-banking financial companies domain.
9. CIBIL score of every Director in the company.
10. Financial statement for the last two years.
11. Board resolution that will be responsible to announce:
    • No public deposits have been accepted by the company previously (or within the time period mentioned)
    • No public deposits are held by the company so far without any prior permission from the Reserve Bank of India. Please note that this has to be shown in writing if there has been a deposit accepted previously.    
12.   Statutory auditors certificate that specifies that the company was previously not involved in any NBFC operation before.
13. Authorized shares capital detail.
14. Fixed Deposit Receipt  
15. Net owned funds documents. Please note that you are required to submit a bankers certificate that specifies that there is no history of loans/debts.
16. An audited full balance sheet that signifies profit and loss clearly. Along with this, you are required to submit auditors and directors’ reports as well.
17. Documentary evidence of the initial Startup capital source.
18. Bank statements and IT returns are to be submitted post-attestation.

To Sum UP

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.

Read our article:Prerequisites of NBFC Registration