Banking Awareness Question Day 21

Non-Banking Financial Company (NBFC)

Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 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 the immovable property.

Banking Awareness Question for all Exam >> CLICK HERE

A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or installments by way of contributions or in any other manner is also a non-banking financial company (Residuary non-banking company).

NBFCs are doing functions similar to banks. What is the difference between banks & NBFCs?

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

  • NBFC cannot accept demand deposits;
  • NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
  • The deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in the case of banks.

Is it necessary that every NBFC should be registered with RBI?

In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can commence or carry on the business of a non-banking financial institution without

a) obtaining a certificate of registration from the Bank and without having a Net Owned Funds of ₹ 25 lakhs (₹ Two crores since April 1999). However, in terms of the powers given to the Bank, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking companies/Stockbroking companies registered with SEBI, Insurance Company holding a valid Certificate of Registration issued by IRDA, Nidhi companies as notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause

b) of Section 2 of the Chit Funds Act, 1982, Housing Finance Companies regulated by National Housing Bank, Stock Exchange, or a Mutual Benefit company.

Download Free Banking Handbook

What are the requirements for registration with RBI?

A company incorporated under the Companies Act, 1956 and desirous of commencing the 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 Section 3 of the companies Act, 1956

It should have a minimum net owned fund of ₹ 200 lakh. (The minimum net owned
fund (NOF) required for specialized NBFCs like NBFC-MFIs, NBFC-Factors, CICs is
indicated separately in the FAQs on specialized NBFCs)

What are systemically important NBFCs?

NBFCs whose asset size is of ₹ 500 cr or more as per the last audited balance sheet are considered as systemically important NBFCs. The rationale for such classification is that the activities of such NBFCs will have a bearing on the financial stability of the overall economy.