There have been occasions when people who are new to Indian Financial Market wonder what is the...
Section 406 of the Companies Act 2013 governs Nidhi Companies & RBI Act govern NBFC. In this article, we will compare Nidhi Company vs NBFC.
They belong to the non-banking Indian finance sector. Their main business is to borrow money or lend money to its members.
Nidhi Companies are regulated by the Ministry of Corporate Affairs and Reserve Bank of India is empowered to give directions regarding the matters related to acceptance of deposits.
Following are the objectives of Nidhi Company Registration:
Its source of fund is a contribution from its members but in comparison to the banking sector, deposits raised by Nidhi companies are not as much as of the banking sector. Under this loans are given at reasonable rates. These types of loans are generally secured loans.
For incorporation of Nidhi Company-
It may be noted that Nidhi Vs NBFC can be compared for a better understanding of their benefits. However, certain restrictions have been imposed on Nidhi Company.
Nidhi Company has the following restrictions:
The Non-Banking Financial Companies (NBFCs) are a financial institution that is engaged in providing banking services. A non-banking institution whose principal business is to receive deposits under any scheme is also a non-banking financial company. They provide banking services but do not have a banking license.
NBFCs are those type of financial institutions which are engaged in the business of loans & advances, and acquisition of shares/ stocks or other securities issued by government or local authority, leasing, hire-purchase, insurance business, but do not include those financial institution whose principal business is related to agricultural activity, industrial activity, sale or purchase of any goods or services other than securities and sale/purchase/construction of immovable property.
Under the Indian Financial System, NBFCs have become an important segment.
They raise funds from the public and then lend them to ultimate spenders. They are also engaged in advancing loans to wholesale traders & retail traders, small-scale industries and to self-employed persons. They are considered as complementary to the banking sector as they are engaged in providing customer-oriented services, an attractive rate of return on deposits and provide flexibility in meeting the credit needs.
NBFCs are regulated by Reserve Bank of India and issue directions under the framework of Reserve Bank of India Act, 1934.
NBFCs need to comply with the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998. Here are some of the important regulations are:
Based on business activity, NBFCs are divided into the following types:
NBFCs and Nidhi Company differ on the following aspects:
NBFC is a type of financial institution which engages in the business of loans/ advances and acquisition of shares/stocks or other securities issued by Government or local authority, leasing, hire-purchase, insurance business, chit business whereas Nidhi Company cannot carry the business related to chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate.
It may be noted that an NBFC requires prior approval from RBI before commencing any business whereas Nidhi Company doesn’t require RBI approval. NBFCs may issue preference share capital or debenture but a Nidhi Company shall not issue preference capital for raising funds.
Nidhi Company is not permitted by the government to open current account but NBFCs must open a current account. A Nidhi company can’t enter into a partnership for lending or borrowing purpose however no such restriction exist in NBFCs.
NBFCs as well as Nidhi Company both are rising in the country. There are certain advantages as well as limitations in both cases. If you wish to know more on Nidhi Company vs NBFC, then you are advised to go through our blogs.
Read our article: Prior Approval for NBFC’s Merger/Amalgamation from RBI