NBFC is the abbreviation for Non-Banking Financial Company that administers numerous financial and non-financial services to individuals, business enterprises, entrepreneurs, and others. NBFC is not the same as commercial banks and cooperative banks. It is required to follow the laws and commands implemented by RBI but does not need to secure a banking license. NBFCs function in the realm of industrial and commercial advances, insurance business, implements of the capital and money markets, investment funds, and further related ventures.
India's monetary division has recorded steady growth for the past two decades. And, it is a must to mention that the NBFC segment of this division has transfigured remarkably over the past few years. Moreover, in driving new credit disbursals for the country's underserved retail and MSME market, the NBFCs have played a crucial role in it.
The RBI u/s 45-IA of the RBI Act of 1934 grants the NBFC License. The financial organization must register itself either as per the Companies Act of 2013, or earlier Act of 1956 before applying for NBFC registration online with the affordable NBFC registration fees. RBI strictly monitors and guarantees that the NBFCs are complying with the stipulations and commands administered in Chapter III B of the RBI Act.
The fundamental business venture of NBFCs includes raising capital from the public depositors & investors and lending these further to the borrowers. NBFCs act as bridges to link the investors or depositors with the borrowers. They are considered a better option for the banking and business sector by contributing financial solutions to the unbanked and unorganized sections of the community.
It is to mark that the mentioned below activities are not reflected as financial in nature:
- Agricultural activity,
- Industrial activity,
- Purchase/sale of any goods and services (excluding securities), and
- Sale/purchase/construction of immovable property.
Here's How It Works
- Non-Banking Financial Companies - Factors (NBFC-Factors)
- Non-Banking Financial Companies - Mortgage Guarantee Companies (NBFC-MGC)
- Non-Banking Financial Companies - Investment Credit Companies (NBFC-ICC)
- Non-Banking Financial Companies - Infrastructure Finance Companies (NBFC-IFC)
- Non-Banking Financial Companies - Microfinance Institution (NBFC-MFI)
- Non-Banking Financial Companies - Non-Operative Financial Holding Company (NBFC-NOFHC)
- Non-Banking Financial Companies - Systemically Important Core Investment Company (NBFC-SI-CIC)
- Certified Copy of Certificate of Incorporation(CoI) of the Company is required.
- B Certified Copy of MOA (Memorandum of Association) and AOA (Article of Association) of the Company is needed.
- Updated KYC details of Directors and Shareholders should be there.
- Networth Certificates of Company, Shareholders, and Directors are needed.
- Bank Report of Non-Lien of Fixed Deposit must be obtained.
- Education and Qualification Proof of Directors and Shareholders must be there.
- Credit Reports of Directors and Shareholders are required.
- Financial Services Industry Experience Certificate
- The underwriting model and organizational structure must be there.
- The board’s resolution is needed, approving the formation of NBFC.
After having NBFC registration done, the companies can allow and make investments hence, their ventures are alike to that of banks; nevertheless, there are some differences as mentioned:
- NBFC does not accept demand deposits
- NBFCs don't form some portion of the payment and settlement framework and can't give checks drawn on itself;
- The deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation isn't accessible to contributors of NBFCs, dissimilar to if there should arise an occurrence of banks.
Liabilities
- The deposit accepting NBFCs and
- Non-Deposit accepting NBFCs, (Non-deposit taking NBFCs are classified further as per their size)
- systemically important (NBFC-NDSI) and
- others
Activities
- Factors
- Mortgage Guarantee Companies
- Investment Credit Company
- Infrastructure Debt Fund
- Micro Finance Institution
- Non-Operative Financial Holding Company
- Systemically Important Core Investment Company