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A Non-Banking Finance Company is a company who serves as a support to the Indian economy by lending to borrowers. These companies are important in developing countries like ours where majority of our population is from rural backgrounds. We are going to learn about the advantages of NBFC in detail in this blog.
Table of Contents
NBFC stands for Non Banking Finance Company which is an institution involved in providing financial services. Their activities include loans and advances, acquisition of stocks, equities, debt etc., chit funds, and leasing. Examples of these firms include chit funds, pawn shops, cashier’s cheque issuers, cheque crashing locations, payday lending, currency exchanges, and microloan providing firms. NBFCs are registered according to the Companies Act 2013[1].
NBFCs are important especially in a developing country like India where most of its population is from rural areas. In these areas usually commercial banks are not available remotely. This is where NBFCs come into action. They provide financial services to people residing in these locations.
A few NBFC advantages include:
Although NBFCs function mostly/almost like commercial banks, they have some limitations issued by RBI. These limitations include;
Based on the type of work they do, NBFCs according to RBI is divided into two categories namely:
Note: Above mentioned three categories have been merged by the government and now it is known as NBFC ICC (Investment and credit Company).
The Reserve Bank of India regulates the functioning of Non Banking Finance Company under the framework of Reserve Bank of India Act, Chapter III B and its directions.
As stated under the Section 45 I of the RBI Act 1934 a company which is already incorporated and has a minimum owned fund of Rs. 2 crore only can register itself as an NBFC. NBFC Registration steps are the following;
Incorporation of the company: A company must already be incorporated under the Companies Act 1956 or the Companies Act 2013. The company must be registered as a Private or Public Limited Company
Apply on COSMOS for online registering: The company needs to apply for the online registration process and also submit the physical copy of the application with documents to the regional office of the Reserve Bank of India. This needs to be done on the official RBI website
Then click on the ‘Click’ option on the COSMOS login page
Downloading the Excel form: Afterward, in the next step the applicant need to download the Excel form given on the screen and re-upload it after filling the same
After filling all the required information the applicant company will get a Company Application Reference Number as a Certificate of Reorganization {CoR}
The next step include submitting of the application along with required documents to the regional office
The last step is the issuance of NBFC License: When the RBI Head office checks everything and finds everything correct then it issues the NBFC License. The applicant can check the status of their license by using the acknowledgement number.
There are many NBFCs in India. Here is the list of top 10 non banking companies namely;
The NBFC is a type of company which usually functions like a commercial bank except it has some limitations prescribed under RBI Act 1934[2]. Also, these companies do not have banking license. The major advantages of these companies are that they serve as an option for borrowing money where commercial banks are not available. Other advantages are for instance, they Funds private education, Invests in money market instruments, Provides loans and credit facilities etc.
Read our article:RBI Merges Three Categories of NBFCs Into NBFC – Investment and Credit Company (NBFC-ICC) to Ease Operational Flexibility
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