The non-banking financial company is a company which is involved in the principal business of lending, investment in shares, stocks, bonds, and debentures, leasing, hire purchase, insurance business, hit business or involved in receiving of deposits under any scheme or arrangement. NBFC carry on its operations under the guidelines of the RBI which governs its operations
As per Companies Act 1956, an NBFC is a company which carries on the activities similar to that of a bank except for the following differences:
NBFC’s cannot accept demand deposits NBFC’s cannot issue cheque drawn by Bank deposits are insured by Deposit Insurance and Credit Guarantee Corporation. However, deposits in NBFC are not insured.
Categories of NBFC
NBFC’s are mainly categorized into deposit and non-deposit taking NBFC. Deposit-taking and non- deposit taking NBFC are further classified based on their size as such there are many types of NBFC like Asset Finance Company, Investment Company, Loan Company, Infrastructure Finance Company, Infrastructure Debt Fund, and Micro Finance Institution. NBFC Registration
As per section 45IA of the RBI Act,1934 no company shall commence or carry on the business of a non-banking financial institution without obtaining a certificate of registration and without having a Net Owned Funds of Rs. 200 lakhs. The basic requirement for registration as an NBFC is the minimum net owned funds of Rs. 200 Lakhs. Net Owned Funds means the balance of owned funds minus the amount of investment in shares of subsidiaries, companies in the same group and all other NBFC’s, outstanding loans and advances, deposits with subsidiaries and companies in the same group. Owned funds is the aggregate of paid-up equity capital, preference shares which are compulsorily convertible into equity, free reserves
and balance in share premium account, and capital reserves representing surplus arising out of sale proceeds of the asset. Financial Companies not regulated by RBI
The Reserve Bank of India regulates and supervises the operations carried on by the NBFC’s and their principal businesses However, there are financial businesses having specific regulators are given exemption from RBI from its regulatory requirement. For example Insurance Regulatory and Development Authority regulates the Insurance companies, Securities Exchange Board of India regulates Merchant banking companies, Venture capital companies, Stock Broking Companies etc