Non-Banking Finance Company is a fast emerging financial system in India. Its a type of financial institutions (other than commercial and co-operative banks) doing the work of financial intermediation in number of ways like accepting deposits, making loans and advances, leasing and hire purchase etc.
The NBFCs raise funds from public in different ways like deposits and shares capital and lend that money to the ultimate spenders. They provide small loans to the retailers, businessmen and individuals. The NBFC offers a wide range of simplified services provided by the financial sector. The NBFCs are called complementary to the banking sector as they provide wide range of customer oriented services and also attractive rates of interest and less time comsuming and simple process.
The operations of an NBFC are governed by the Reserve Bank of India.
How to register an NBFC
An NBFC is mandatorily required to get it registered with RBI, only after it is registered with RBI a company can start the business as an NBFC.
For the purpose of registration with RBI a company under the Companies Act, 2013 must be registered with a minimum net owned funds of Rs. 2 crore.
The registration process of an NBFC involves submission of of application by the applicant company in the manner prescribed along withe necessary documents for the consideration of the RBI. If the RBI is satisfied that the company has satisfied all the conditions of registration under RBI Act, 1934, it will issue a certificate of registration to the company.
Only a company holding valid certificate of NBFC from RBI can run a NBFC in India.
The NBFC after getting the certificate from RBI can carry the business of NBFC according to the Non-Banking Financial Companies Acceptance of Public Deposits ( Reserve Bank) Directions, 1998 as issued by the Reserve Bank which contains following important provisions;
1. An NBFC can accept deposit for a minimum period of 12 months and a maximum period of 60 months.
2. Deposits repayble on demand can not be accepted by an NBFC.
3. An NBFC can not offer an interest rate higher than the ceiling limit prescribed by the RBI from time to time.
4. NBFC can not issue gifts or incentives to the depositors.
5. NBFC should have minimum investment grade credit rating.
6. Deposits made by NBFCs are not insured.
7. RBI does not guarantee the repayment of deposits by NBFC.
Types of Non Banking Finance Companies in India;
1. Equipment Leasing Company
NBFC dealing in leasing of equipment of financing such equipment is called Equipment Leasing Company.
2. Hire-Purchase Company
NBFc dealing in the hire purchase business or financing such activity is called a Hire-Purchase Company
3. Loan company
Any NBFC whosw principal business is providing loans and advances or other wise financing any other activity except hire purchase and lease is called Loan Company.
4. Investment Company
Any NBFC whose principal business is that of buying and selling of securities is called Investment Company.
NBFCs are playing a vital role in the Growth of the Indian Economy.