Non-Banking financial companies (NBFCs)

A Non – Banking Financial Corporation is a company incorporated under the Companies Act 2013 or 1956 which is engaged in the business of Loans and Advances, Acquisition of stocks, equities, debt etc issued by the government or any local authority. The main objective of this type of a company is to accept deposits under any scheme or manner.

According to section 451(c) of the RBI Act, a Non – Banking Company carrying on the business of a financial institution will be an NBFC. It is governed by the Ministry of Corporate Affairs as well as the Reserve Bank of India.

The following NBFC’s are not required to obtain any registration with the Reserve Bank of India:

Core Investment Companies – (assets are less than 100 crore or public funds not taken)
Merchant Banking Companies
Companies which are engaged in the business of stock-broking
Housing Finance Companies
Companies engaged in the business of Venture Capital.
Insurance companies holding a certificate of registration issued by IRDA.
Chit Fund Companies as defined in the Sec 2 clause (b) of the Chit Fund Act, 1982
Nidhi Companies

Incorporate an NBFC

A company should first be registered under the Companies Act 2013 or under Companies Act 1956.
The minimum net owned funds of the Company should be Rs. 2 Crore.
There should be a minimum of 1 Director from the same background or a Senior Banker as a full-time director in the Company.
The CIBIL records of the Company should be clean
After all of the above conditions have been satisfied the online application on the website of RBI should be filled and submitted along with the requisite documents.
A CARN Number will be generated.
A Hard copy of the application also has to be sent to the regional branch of the Reserve Bank of India.
After the application is properly scrutinized, the License will be given to the Company.

NBFC Guidelines

The Company once it gets it license has to adhere to the following guidelines:

They cannot receive deposits which are payable on demand.
The public Deposits which the company can take should be for a minimum time period of 12 months and a maximum time period of 60 months.
The interest charged by the Company cannot be more than the ceiling prescribed by the Reserve Bank of India.
The repayment of any amount so taken by the Company will not be guaranteed by the Reserve Bank of India.
All the information about the company as well as any change in the composition of the Company has to be furnished to the Reserve Bank of India.
The deposits taken by the Public will be unsecured.
The Company has to submit its audited balance sheet every year.
A statutory return on the deposits taken by the company has to be furnished in the form NBS – 1 every year.
A Quarterly Return on the liquid assets of the company has to be furnished.

A certificate from the auditors had to be taken stating that the company is in a position to pay back all the deposits or money taken from the Public.
A half-yearly ALM return has to be given by the company which has a Public Deposit of Rs. 20 Crore and above or has assets worth Rs. 100 Crore and above.
The credit rating has to be taken every 6 months and submitted to the RBI.
A minimum level of 15% of the Public Deposits has to be maintained by the Company in Liquid Assets.

If the NBFC defaults in the payment of any amount taken, the consumer can go to the National Company Law Tribunal or the Consumer Forum to file a suit against the Company.

Following are the types of NBFC’s:

On the basis of the nature of Activity