A Non-Banking Financial Companies (NBFCs) are financial institutions meant for ensuring services that range from loans to advances, acquisition of shares/stocks/bonds/debentures/securities, that are issued by Government or local authority or other marketable securities of similar nature involved in leasing, hire-purchase and insurance business. These institutions are registered under the Companies Act, 1956.
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However, it does not include any institution that is primarily involved in agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or any services and sale/purchase/construction of immovable property.
An NBFCs principal business is accepting deposits for scheme or arrangement either in instalments or in one lump sum, is also a Non-Banking Financial Companies.
NBFCs — The Emerging Leaders of Indian BFSI Industry
The Banking, Financial Services and Insurance (BFSI) sector in India is undergoing a massive transformation due to technology. A large portion of this paradigm shift in terms of adaptation of technology is happening due to rising Non-Performing Assets (NPAs).
Emerging as a leader in the BFSI sector, the Non-Banking Financial Companies (NBFCs) have emerged as a big relief and they are offering a great help in meeting the lending demands of consumers.
How NBFCs differ from banks?
- NBFCs are primarily responsible for making investments and hence their role in this regard is quite similar to that of banks, however, some traits differentiate both the entities:
- NBFCs do not have the authority to accept deposits
- NBFCs cannot form part of the payment and settlement system
- NBFCs cannot issue cheques drawn on itself; deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
Types of NBFCs (Registered under RBI )
- Asset Finance Company (AFC): Principal business of AFC companies is offering finance of physical assets in support of productive/economic activity namely automobiles, tractors etc.
- Investment Company (IC): IC means is a financial institution with a principal business the acquisition of securities.
- Loan Company (LC): LC means financial institution whose principal business is providing.
- Infrastructure Finance Company (IFC): IFC deploys at least 75 per cent of its total assets in infrastructure loans, has a minimum Net Owned Funds of Rs 300 crore. It should hold a minimum credit rating of ‘A ‘or equivalent and a CRAR of 15 per cent.
- Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI carries business of acquisition of shares and securities.