NBFC's

1. By -Pawan Singh Raikhola
12/3/20181
Non-Banking Financial
Company
(N.B.F.C.)

2. What is NBFC?
12/3/20182
 A Non-Banking Financial Company is a company
registered under the Companies Act, 1956.
 It is engaged in the business of Loans, Advances,
Acquisitions of share/ stock/ debenture/ securities
issued by government or local authority.
 Any company which has its own principles
business of receiving deposits under any scheme
mention under Companies Act, 1956 is also a
N.B.F.C. (Residuary Non-banking Company).

3. Historical Background
12/3/20183
 The Reserve Bank of India Act, 1934 was
amended on 1 December, 1964 by the Reserve
Bank Amendment Act, 1963 focuses to include
provisions relating to non banking institutions
receiving deposits and financial institutions.
 With a view to review the existing framework and
address these shortcomings various committees
were formed and reports were submitted by them.

4. The Committees
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 James Raj Committee (1974)
 Formed by RBI on 1974.
 Suggested for ban on Prize Chit and Other
Schemes.
 Dr. A.C. Committee (1992)
 Agenda for reforms in the NBFC sector.
 Vasudev Committee (1998)
 It focuses on flow of credits from bank to NBFCs
 Consider a suitable ratio as between secured and
unsecured deposits for NBFCs.

5. Registration of NBFCs
12/3/20185
 In terms of Section 45-IA of the RBI Act, 1934, it
is mandatory that every NBFC should be
registered with RBI to commence or carry on any
business of non-banking financial institution as
defined in clause (a) of Section 45 I of the RBI
Act, 1934.

6. Role of NBFCs
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 Development of sectors like Transport &
Infrastructure.
 Substantial employment generation.
 Help and increase wealth creation.
 Broad base economic development.
 Major thrust on semi-urban, rural areas & first
time buyers/ user.
 To finance economically weaker sections.

7. Importance of NBFCs
12/3/20187
 It is impossible for bank to cater need of society
alone so NBFC and Micro Finance Companies
become indispensable.
 NBFCs in India have become prominent in wide
range of activities.
 To help in developing the large number of
industries as well as entrepreneur in different
sectors of different areas.
 To cover all the areas which are untouched by
RBI or other FCIs.

8. Types Of NBFCs
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All NBFCs are either deposit taking or Non-deposit
taking. If they are non-deposit taking, ND is suffixed to
their name (NBFC-ND). The NBFCs which have asset
size of Rs.100 Crore or more are known as
Systematically Important NBFC. The Non-deposit
taking NBFCs are denoted as NBFC-NDSI. Under
these two broad categories, the different NBFCs are
as follows:-
1. Asset Finance Company
2. Investment Company
3. Loan Companies
4. Infrastructure Finance Companies
5. Mutual Benefit Financing Companies
6. Equipment Leasing Company
7. Hire Purchase Company

9. 12/3/20189
 Asset Finance Company: The main business of
these companies to finance the assets.
 Investment Company: The main business of
these companies is to deal in securities.
 Loan Company: The main business of such
companies is to make loans and advances
 Infrastructure Finance Company: A company
which has net owned funds of at least RS. 300
crore and has deployed 75% of its total assets in
Infrastructure loans is called IFC provided it has
credit rating of A or above and has a CRAR of
15%.

10. 12/3/201810
 Mutual Benefit Finance Company: These are
one of the oldest forms of NBFCs. It is a company
structure in which the company’s owners are also
its clients.
 Equipment Leasing Company: It is any financial
institution whose principal is business is that of
leasing equipments or financing of such an activity.
 Hire-Purchase Company: Means any company
which is a financial institution carrying on as its
principal business hiring purchase transaction or
financing of such transaction.

11. Difference between NBFC and Banks
12/3/201811
 NBFC cant accept demand deposits whereas banks do;
 NBFCs do not form part of the payment and settlement
system and can’t issue cheques drawn on itself but banks
can do it.
 While banks are incorporated under banking companies
act, NBFC is incorporated under company Act, 1956.
 The repayment of deposits by NBFCs is not guaranteed
by RBI.
 An NBFC can’t indulge Primarily in Agricultural, Industrial
Activity, Sale Purchase, Construction of Immovable
Property.
 Foreign Investment allowed up to 100% and in banks it is
allowed 74% .

12. Major NBFCs in India
12/3/201812
 Birla Global Finance
 Cholamandalam Investment & Finance Co. Ltd
 First Leasing Company of India
 LIC Housing Finance
 Sundaram Finance
 CanFin Homes
 Countrywide Finance
 Housing Development Finance Comapny Sakura
Capital India Ltd

13. Regulations
12/3/201813
 In India, The Reserve Bank of India regulates the
registration of NBFC.
 NBFCs do not hold banking license but they have
to follow the rules and regulations laid down by
RBI.
 The company must be registered as a public
limited company or private limited company.
 The company must have a minimum net owned
fund of Rs.2 Crore.
 NBFCs can offer interest rates not higher than the
ceiling rate prescribed by RBI from time to time.
 Repayment of deposits by NBFCs is not
guaranteed by RBI.

14. 12/3/201814
 All NBFCs are not entitled to accept public
deposits. Only those NBFCs holding a valid
Certificate of Registration with authorization to
accept Public Deposits can accept /hold public
deposits.
 These Company are allowed to accept/renew
public deposits for a minimum period of 12
months and maximum period of 60 months.
 NBFCs cannot offer gifts/incentives or any other
additional benefit to the depositors.

15. 12/3/201815