Banking Awareness 2017 – All About NBFCs – Types of NBFCs | Guidelines | Features



Hello and welcome to exampundit. So, as we continue to give you everything on Banking Awareness, today we are giving you All About NBFCs. All types of NBFCs, Guidelines and Features of the NBFCs.

Non-Banking Financial Corporation

A Non Banking Financial Company
(NBFC) is a company registered under the Companies Act, 2013 of India, engaged
in the business of loans and advances, acquisition of shares, stock, bonds
hire-purchase, insurance business or chit business but does not include any
institution whose principal business includes agriculture, industrial activity
or the sale, purchase or construction of immovable property.
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;
  • NBFCs cannot
    issue cheques drawn on itself;
  • Deposit
    insurance facility of Deposit Insurance and Credit Guarantee Corporation is not
    available to depositors of NBFCs, unlike in case of banks.

New Guidelines
Groups in the private sector that
are ‘owned and controlled by residents’ and have a successful track record for
at least 10 years, provided that if such a group has total assets of Rs.5,000
crore or more, the non-financial business of the group does not account for 40
per cent or more in terms of total assets in terms of gross income.
A company incorporated under the Companies Act, 1956 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:
i. it should be a company
registered under Section 3 of the companies Act, 1956
ii. It should have a minimum net
owned fund of ₹ 200 lakh.
NBFCs whose asset size is of ₹ 500 cr or more as per 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.
Housing Finance Companies are regulated by National Housing Bank,
Merchant Banker/Venture Capital Fund Company/stock-exchanges/stock
brokers/sub-brokers are regulated by Securities and Exchange Board of India,
and Insurance companies are regulated by Insurance Regulatory and Development
Authority. Similarly, Chit Fund Companies are regulated by the respective State
Governments and Nidhi Companies are regulated by Ministry of Corporate Affairs,
Government of India.
I. Asset Finance Company (AFC) : An AFC is a company which
is a financial institution carrying on as its principal business the financing
of physical assets supporting productive/economic activity, such as
automobiles, tractors, lathe machines, generator sets, earth moving and
material handling equipments, moving on own power and general purpose
industrial machines. Principal business for this purpose is defined as
aggregate of financing real/physical assets supporting economic activity and
income arising therefrom is not less than 60% of its total assets and total
income respectively.
II. Investment Company (IC) :
IC means any company which is a financial institution carrying on as its
principal business the acquisition of securities,
III. Loan Company (LC): LC
means any company which is a financial institution carrying on as its principal
business the providing of finance whether by making loans or advances or
otherwise for any activity other than its own but does not include an Asset
Finance Company.
IV. Infrastructure Finance
Company (IFC
): IFC is a non-banking finance company a) which
deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of
300 crore
, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.
V. Systemically Important Core
Investment Company (CIC-ND-SI):
CIC-ND-SI is an NBFC
carrying on the business of acquisition of shares and securities which
satisfies the following conditions:-
  1. it holds not less than 90% of its Total
    Assets in the form of investment in equity shares
    , preference shares, debt
    or loans in group companies;
  2. its
    investments in the equity shares (including instruments compulsorily
    convertible into equity shares within a period not exceeding 10 years from the
    date of issue) in group companies constitutes not less than 60% of its Total Assets;
  3. it does not
    trade in its investments in shares, debt or loans in group companies except
    through block sale for the purpose of dilution or disinvestment;
  4. it does not
    carry on any other financial activity referred to in Section 45I(c) and 45I(f)
    of the RBI act, 1934 except investment in bank deposits, money market
    instruments, government securities, loans to and investments in debt issuances
    of group companies or guarantees issued on behalf of group companies.
  5. Its asset size is ₹ 100 crore or
    above and
  6. It accepts
    public funds

VI. Infrastructure Debt Fund:
Non- Banking Financial Company (IDF-NBFC)
: IDF-NBFC is a
company registered as NBFC to facilitate the flow of long term debt into
infrastructure projects. IDF-NBFC raise resources through issue of Rupee or
Dollar denominated bonds of minimum 5 year maturity. Only Infrastructure
Finance Companies (IFC) can sponsor IDF-NBFCs.
VII. Non-Banking Financial
Company – Micro Finance Institution (NBFC-MFI):
NBFC-MFI
is a non-deposit taking NBFC having not less than 85% of its assets in the
nature of qualifying assets which satisfy the following criteria:
  • loan disbursed
    by an NBFC-MFI to a borrower with a rural household annual income not exceeding ₹ 1,00,000 or urban and
    semi-urban household income not exceeding
    ₹ 1,60,000;
  • loan amount does not exceed ₹ 50,000 in the first cycle and

    1,00,000 in subsequent cycles
    ;
  • total
    indebtedness of the borrower does not exceed ₹
    1,00,000;
  • tenure of the
    loan not to be less than 24 months for loan amount in excess of ₹ 15,000 with prepayment
    without penalty;
  • loan to be
    extended without collateral;
  • aggregate
    amount of loans, given for income generation, is not less than 50 per cent of
    the total loans given by the MFIs;
  • loan is
    repayable on weekly, fortnightly or monthly instalments at the choice of the
    borrower

VIII. Non-Banking Financial Company – Factors (NBFC-Factors):
NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of
factoring. The financial assets in the factoring business should constitute at
least 50 percent of its total assets and its income derived from factoring
business should not be less than 50 percent of its gross income.
IX. Mortgage Guarantee Companies (MGC) – MGC are financial
institutions for which at least 90% of the business turnover is mortgage
guarantee business or at least 90% of the gross income is from mortgage
guarantee business and net owned fund is ₹
100 crore.
X. NBFC- Non-Operative Financial Holding Company (NOFHC) is
financial institution through which promoter / promoter groups will be
permitted to set up a new bank .It’s a wholly-owned Non-Operative Financial
Holding Company (NOFHC) which will hold the bank as well as all other financial
services companies regulated by RBI or other financial sector regulators, to
the extent permissible under the applicable regulatory prescriptions.
XI. Gold Loan NBFCs in India: Over the years, gold loan NBFCs
witnessed an upsurge in Indian financial market, owing mainly to the recent
period of appreciation in gold price and consequent increase in the demand for
gold loan by all sections of society, especially the poor and middle class to
make the both ends meet. Though there are many NBFCs offering gold loans in
India, about 95 per cent of the gold loan business is handled by three Kerala
based companies
, viz., Muthoot Finance, Manapuram Finance and Muthoot Fincorp.
Some of the important regulations relating to acceptance of deposits by
NBFCs are as under:
  • The NBFCs are allowed to
    accept/renew public deposits for a minimum period of 12 months and maximum
    period of 60 months. They cannot accept deposits repayable on demand.
  • NBFCs cannot offer interest rates
    higher than the ceiling rate prescribed by RBI from time to time. The present
    ceiling is 12.5 per cent per annum. The interest may be paid or compounded at
    rests not shorter than monthly rests.
  • NBFCs cannot offer
    gifts/incentives or any other additional benefit to the depositors.
  • NBFCs should have minimum
    investment grade credit rating.
  • The deposits with NBFCs are not
    insured.
  • The repayment of deposits by
    NBFCs is not guaranteed by RBI.
  • Certain mandatory disclosures are
    to be made about the company in the Application Form issued by the company
    soliciting deposits.

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