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Guide To NBFCs In India & Types

The banking industry is responsible for a sizable number of financial transactions, including loans, deposits, and other types of borrowing. The majority of countries have one central bank that controls all of their banks. Financial institutions come in many different forms and conduct financial business. Among these are NBFC In India, often known as non-banking financial companies, which are distinct from banks.

Definition Of NBFC In India

An NBFC in India operates very similarly to a bank. It is paid in whole or in agreed-upon installments and manages its finances by offering mortgages, economic leasing, or hire buy. However, it is unable to receive public deposits by enabling users to create current or savings accounts with it. 

However, NBFCs may receive deposits under any agreement or plan in a single lump sum, regularly, or by some comparable means. Additionally, an NBFC is not allowed to write checks or drafts to itself. NBFCs offer small-scale loans and credit. This is primarily to assist small and medium-sized businesses in overcoming their lack of cash flow.

An individual encounters several NBFCs in daily life that engage in a variety of financial operations. But first, let’s look at the requirements established by the RBI for businesses to become an NBFC.

NBFCs are businesses that engage in the following activities: Lending and advances, chit funds, leasing, transactions in bonds, shares, stocks, and other securities, and insurance companies.

But businesses involved in the following ventures cannot become NBFC in India: Agriculture, industry, the purchase or sale of any products or services (apart from securities), and the sale, buying, or building of real estate are all examples of these activities.

Requirements For NBFC Registration

The company must fulfill a few prerequisites before submitting an NBFC License application to the RBI.

  • The required minimum capital (Net Owned Fund) is two crores of rupees. 
  • Under the Companies Act of 1956 or 2013, the company should be incorporated.
  • A senior banker or at least 1 director from the financial sector should be on the board.
  • Financial operations should be the applicant’s primary line of business. A corporation can become an NBFC if its financial flow represents more than 50% of its total capital assets.
  • It is recommended that the CIBIL (Credit Information Bureau Limited) records be clear.

Classifications Of NBFC 

NBFC in India may be roughly categorized into these two groups:

  1. I) Based on their liabilities:
  • Deposit Accepting NBFCs: NBFCs may accept or renew public deposits for a minimum of 12 months and a maximum of 60 months.
  • Non-Deposit Accepting NBFC: NBFCs that do not take public deposits are known as non-deposit accepting NBFCs.

By their size, non-deposit-taking NBFCs may be further divided into

  • Systemically Significant (NBFC-NDSI) – NBFCs that have assets worth at least Rs. 500 crore are considered systemically important.
  • Non-Deposit holding companies and (NBFC-ND) – Demand deposits cannot be accepted by non-deposit holding firms and NBFCs.
  1. II) Based on the type of activities they engage in:

The many NBFC kinds under this broad classification are as follows:

  • AFC or Asset Finance Company
  • IC or Investment Company 
  • LC or Loan Company 
  • IFC or Infrastructure Finance Company 
  • CIC-ND-SI or Systemically Important Core Investment Company 
  • IDF or Infrastructure Debt Fund 
  • NBFC-MFI or Micro Finance Institution Factors
  • MGC or Mortgage Guarantee Companies
  • NBFC-NOFHC or Non-Operative Financial Holding Company

NBFCs That Should Not Register With The RBI

The following NBFCs are exempt from registering with the RBI:

  • Chit Fund Companies that have been authorized under the Chit Fund Act of 1982,
  • CIC- (valuables are less than Rs. 100 crore or no public funds have been used),
  • Nidhi Businesses,
  • Firms that provide merchant banking,
  • Companies that operate in the stockbroking industry,
  • Insurance firms that are IRDA-registered,
  • Housing finance firms,
  • Businesses whose primary activity is venture capital.

Final Words 

You may easily locate a list of licensed NBFCs in India. It is accessible on the Reserve Bank of India’s website. There you may get instructions for various NBFC types. We hope that this post helps you in your venture!