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Non banking financial companies

Non banking financial companies 

While discussing about banks and other financial institutions we used to hear about Non banking financial institutions. Here I’m going to discuss a few lines about NBFC s.

NBFC – Meaning :

NBFC was defined in some what negative manner as A non banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 involved in the business of granting loans and advances, buying and selling of shares or stocks/bonds or debentures or securities or two or more of them.
An NBFC does not include any institution whose principal business activities or rendering any services and sale or purchase/construction of immovable property.

Principal business activity should be :

Main business of NBFC should be receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner.

Different types of NBFC s:

1.Investment Company :

It’s an NBFC whose main activity is making investment through acquisition of shares and stocks.

2.Infrastructure Finance Company :

An NBFC whose major function is financing housing loans and other infrastructure related assistance.And it should allocate at least 75 percentage of it’s net assets for infrastructure financing.

3.Loan Company :

It’s main business activity is to sanction loans and advances. It’s completely different from asset financing company.

4.Asset Finance Company :

It’s main business activity is financing of physical assets supporting production, economic activity, such as automobiles, tractors, generator sets, earth moving and material handling equipments.

5.Systemically Important Core Investment :

It’s may business activity is making investment in the form of acquisition of stake in many companies. It should satisfy following conditions :

1.It holds greater than or equals to 90% of its total assets in the form of investment in equity shares, preference shares, debt or loans in group companies.

2. Except to make disinvestment It should not trade its investments in shares, debt or loans in group companies.

3.Minimum 60% of its total assets should be in the form of equity shares (including dilutive equity shares)

4.Its total assets should be more than or equals to 100 crores.

5.It should not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, subject to the exceptions stated therein.

There are some more types of NBFC s in India which I will discuss in my subsequent posts.

Regulated by :

By virtue of powers vested in Chapter III B of the Reserve Bank of India Act, 1934 ,The Reserve Bank of India is entrusted with the responsibility of regulating and supervising the non banking Financial Companies.

Main difference between Banks and NBFC s:

1.NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.

2.NBFC cannot accept demand deposits

3.Facilities like deposit insurance and credit guarantee services are not available to those who deposit in NBFC s.

Non banking financial companies 


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