All about NBFCs

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.

List of popular NBFCs

Difference between NBFC and PSBs:

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:

Provides Banking services to People without holding a Bank license,

An NBFC cannot accept Demand Deposits (demand deposits are funds deposited at a depository institution that are payable on demand-immediately or within a very short period-like your current or savings accounts.),

An NBFC is not a part of the payment and settlement system and as such,

An NBFC cannot issue Cheques drawn on itself, and

Deposit insurance facility of the Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors, unlike banks,

An NBFC is not required to maintain Reserve Ratios (CRR, SLR etc.)

An NBFC cannot indulge Primarily in Agricultural, Industrial Activity, Sale-Purchase, Construction of Immovable Property

Foreign Investment allowed up to 100%.

What are the requirements for registration with RBI?

A company incorporated under the Companies Act, 2013 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should comply with the following:

it should be a company registered under the companies Act, 2013

it should have a minimum net owned fund of ₹200 lakh. (The minimum net owned fund (NOF))

You should have minimum one director from NBFC background or senior Bankers as full-time director in the company

Clean CBIL records

Understanding of NBFC / Finance business

Industry Stucture

Can all NBFCs accept deposits and what are the requirements for accepting public deposits?

All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid certificate of registration with authorisation to accept public deposits can accept/hold public deposits. The NBFCs accepting public deposits should have minimum stipulated net owned fund and comply with the directions issued by the bank.

NBFCs cannot receive deposits repayable on demand;

Public deposits for a minimum period of 12 months and a maximum period of 60 months can be received/renewed;

The interest rates on deposits cannot be higher than the ceiling rate as prescribed by RBI;

The deposits are not insured and their repayment is not guaranteed by RBI.

Source: Wiki, RBI, Economic Times. Investopedia. Compliled and presented by:  Preetham Shetty & Co. Chartered Accountants