Different Types Of NBFC in India

RBI has differentiated NBFCs based on different activities which they perform and whether they accept deposit or not. RBI licenses all Different types of Non-Banking Financial Companies. Various types of NBFC are Asset Finance Company, Investment company, Investment Company, Infrastructure Finance Company, Housing Finance Company, Micro Finance Company etc.

Non-banking financial company (NBFC) is a company which is registered under the companies act, 2013 and they also have to attain the license from RBI as explained in section 45-I of Reserve Bank of India Act, 1934. For a layperson, NBFC is financial companies that provide a different kind of banking services, but they do not have a Banking License. Role of NBFC in recent times has become important according to its size in the Indian economy.

Types of NBFC Based on Their Activity:

     1. Asset Finance Company

According to RBI, any non-banking company can act as an asset finance company, on condition; that the income arising from the aggregate physical assets supporting the economic activity should not be less than 60% of its total assets and total income. Asset finance company can either be deposit-taking or non-deposit taking. All deposit-taking NBFC’s have to register themselves with RBI as per given RBI regulation.

  2. Investment Company

In layman term, Investment Company is a company whose main business is managing and holding securities for investment. These companies invest funds on behalf of their clients who, in return are expected to share the profits and losses. These companies exist only to invest.

  3. Loan Company

Loan companies under NBFC provide loans and advances for working capital finance. A financial company would only be considered Loan Company if their 50%of total assets are in lending and 50%of total income arises from the assets which are lent. The known loan company registered as NBFC is LIC Finance Limited.

      4. Infrastructure Finance Company

Infrastructure finance companies provide infrastructure loans for the development of transport, water &sanitation, energy, communication, social and commercial infrastructure. The companies need to follow the following stipulations to be considered as infrastructure finance company they need to deploy at least minimum of 75% of total assets in infrastructure loans, and the net worth of the company must be Rs. 300 crore. The minimum credit rating of the company should be at 'A' or equivalent of CRISIL, FITCH, ICRA, CARE, or an equivalent rating by any other crediting rating agencies. A certificate must support the request for registering a (non-banking companies) NBFC's as infrastructure finance company from their auditors confirming the asset pattern of the company of the latest financial year. The famous infrastructure finance company is IndiaBulls Housing Finance.

       5. Core Investment Company

Core investment companies are the non-banking financial company doing the business of acquisition of securities and shares, and they hold 90% of its asset in the form of bonds, equity shares, preference shares. These companies need to invest not less than 60 per cent in the equity shares of group companies.

     6. Micro Finance Company

There are many microfinance companies in India, which play some crucial role in the development of India. Microfinance companies are those financial institutions that offer small-scale financial services in the form of credit and savings, to the poor in rural, semi-urban areas. Micro financial services are meant to help them in economic activities, increasing savings and supporting self-empowerment. Microfinance company is a non-deposit taking firm regulated by reserve bank of India act, 1934. These companies are entitled to provide loans up to Rs.50, 000 to individual coming under low-income group living in rural or semi-urban areas. A company to be registered NBFC’s-MFC, they should have minimum net capital of Rs.5 crore after incorporation as a private limited company having equity share capital.

7. Housing Finance Company

Housing finance companies have mention housing finance as the main clause in its main memorandum of association.NBFC’s have complemented commercials bank in providing mid-term capital loans to individual or firms; their flexibility and less stringent regulation provide them competing for an edge over commercial banks.

 

More on: Future of NBFC in India

Types of NBFC Company on the Basis of Deposits They Hold

 1. The Deposit Accepting NBFC’s

Deposit accepting firm is required to register themselves with RBI as per the regulations laid down in the RBI act, 1934. NBFC’s before incorporation need to register themselves under companies act, 2013 and also attain a certificate of registration from RBI and if the company accepts deposit from the public, they need to follow particular additional regulation prescribed by RBI. A certain type of deposit accepting NBFC’s are

  • (a) Loan Companies.
  • (b) Investment Companies
  • (c) Asset Finance Companies

      2. Non-Deposit Accepting NBFC’s

Non-deposit accepting NBFC does also need to register themselves. It is a misconception that NBFC’s not accepting public deposit need not register themselves, RBI will any NBFC operating without registration as per there recent guidelines. The only difference between NBFC’s accepting deposit and NBFC’s not accepting deposit is that the prior has to follow certain extra guideline after registering themselves.

Governance Over NBFCs:

 

The Managing structure for NBFCs is based on the following three characteristics:

  • (a) The size of NBFC
  • (b) Type of activity
  • (c) The acceptance of public deposits.

Governance over NBFC’s is done through on-site inspection based on Capital, Assets, Management, Earnings, Liquidity, Systems and Procedures method. Off-site observation is done through periodic control returns.

To review this regulatory framework and supervision of NBFCs, the Government of India appointed a committee which has submitted its report in October 1998. The recommendations made by the committee covering different aspects like the upper limit on public deposits, investments in real estate and shares, registration, and inspection of disclosures. 

 

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