NBFC or Non-Banking Financial Company is kind of financial institution who does not hold any Banking license issued by RBI but carry many banking activity. Banking activity carried on by NBFC are financial and non-financial services. These financial and non financial solutions are provided by NBFC to all types of organization such as individuals, business enterprises, entrepreneurs, etc. However NBFC is different from the Cooperative Bank and Commercial Banks, They do not need to follow all the rules and regulation applicable to Bank but part of that is followed by NBFC Company strictly issued by Reserve Bank of India (RBI) from time to time.
NBFC or Non-Banking Financial Company registered under companies act and, most frequently work in the field of loans for business enterprise and Individual and deposits, advances, leasing, hire-purchasing, investment funds, chit fund business, insurance business, instruments of the capital & money markets such as stocks, debentures, bonds, and many other similar activities.
India’s financial sector has shown rapid growth for the last two decades. The NBFC is important part of this sector has reshaped rapidly over the past few years. And NBFCs have been at the front line in bringing new loan disbursals to each type of business enterprise and MSME’s.
To carry on operation of Non-Banking Financial Company (NBFC) License must be taken from Reserve Bank of India. The financial institution willing to carry on business of NBFC must, first, need to register a company. Reserve Bank of India strictly control and ensures that the NBFCs are following the rules and regulations issued by RBI.
The main business object of NBFCs is to raise capital from the individual public depositors & investors and lend it to the borrowers. NBFCs work as intermediaries between depositors and borrowers.
A Non-Banking Financial Company (NBFC) is a registered company incorporated under the Companies with main object of to carry on business of providing loans and advances, sale purchase of securities such securities whether issued by Government of India or local authority does not cover any institution whose main business object is that of agriculture activity, industrial activity, purchase or sale of any goods or services and sale/purchase/construction of immovable property. A non-banking institution (NBFC) which is a registered company and has main business object is receiving deposits under any scheme of arrangement in one lump sum or in installments by way of subscription or in any other manner, is also a non-banking financial company (Residuary non-banking company).
Non-Banking Financial Company (NBFC)’s are mainly divided into two parts one is deposit-taking NBFC’s and other is non-deposit taking NBFC’s. Whereas Deposit-taking NBFC’s and non-deposit taking NBFC’s are again classified basis on their size. Within this large distribution, there are anew types of NBFC’s like Investment Company (IC) Asset Finance Company (AFC), Loan Company (LC) , Infrastructure Finance Company (IFC), Infrastructure Debt Fund (IDF), Micro Finance Institution (MFI ) and Factors .
Non-Banking Financial Companies – Factors (NBFC-Factors): This kind of NBFC’s main business activity is factoring. Factoring refer as financial transaction. Further in factoring an organization sell its invoice or bills receivables to a third party at a discount and the party buy it called Factor. It is also called as bill discounting or invoice financing.
Non-Banking Financial Companies – Mortgage Guarantee Companies (NBFC-MGC): NBFC-MGC should be registered with Reserve Bank of India as a Mortgage Guarantee Company. Its main business is to providing granting a mortgage guarantee. That guarantee is given for paying back an pending housing loan and interest related on it.
Non-Banking Financial Companies – Investment Credit Companies (NBFC-ICC): Any financial intuition do its main business as asset finance, the money is given as loans/advances or otherwise, for any pursuit except to buy its own or others securities. And its purpose should not fall under some other category of NBFC defined by Reserve Bank of India.
Non-Banking Financial Companies – Infrastructure Finance Companies (NBFC-IFC): These sorts of NBFC’s invest in the debt securities of infrastructure companies or public-private partnership projects, having minimum NOF of Rs. 300 crore. The principal business and rating requirements are also different for such NBFCs.
Step 1: Registered company under the Companies Act as Private Limited Company or Public Limited Company
Step 2: The company registered must have net owned fund of Rupees 2 Crore or more.
Step 3: Directors of company must have financial sound and should be form same background There must be 2 Directors in company
Step 4: Director must have good CIBIL score to registered NBFC
Step 5: Next is arranging all documents as per requirement of Reserve Bank of India.
Step 6: To visit the Web-Portal of Reserve Bank of India and fill online e-Form.
Step 7: On successfully submission of online e-Form an application number called CARN will generated.
Step 8: Send all self-attested document with CARN receipt to Reserve Bank of India’s regional Branch
Step 9: On receipt of application form Reserve Bank of India will check and verify and license will be issued by RBI if all details in order
Reserve Bank of India (RBI) regulates NBFC’s registered in India. As per RBI rules, an NBFC cannot do activity related to non-banking financial if,
A. NBFC have not a certificate to operate as NBFC from Bank (except for the NBFC’s who are not control and regulated by the RBI), and
B. NBFC must have Net Owned Funds of Rupees 2 crore or more.
An NBFC registered under the Companies Act and wish to commence a business of non-banking finance company should comply guidelines issued by RBI and those guidelines are as follow:
• It must be incorporated as per provision of Section 3 of the Companies Act, 2013.
• It should meet the minimum requirement net owned fund and that is rupees 2 crore (except for NBFC-MFIs, NBFC-Factors and CIC)
For existing company Net Owned Funds can be calculated from the last audited balance sheet of the company. Adding of Paid-up Equity Capital, Free Reserves, Share Premium Account Balance, and Capital Reserve will added up to Net owned fund
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NBFCs functions similar to banks. What is difference between banks & NBFCs? NBFCs lend money and make investments and hence their business activity is similar to banks; however there are a few point of differences as given below: