This NBFC’s business is to make loans and to deal with the acquisition of market instruments such as stocks, bonds, and securities, as well as other securities of a similar sort. These market instruments are issued by governments, municipal governments, or competent corporate houses. However, it cannot include any organization whose primary business is agricultural, industrial activity, the acquisition or sale of any goods (other than securities), the provision of any services, or the sale/buy/construction of an immovable property, according to RBI regulation. Additionally, any non-banking institution that is registered as a company and has a major business of receiving deposits under schemes it floats or has arrangements in one lump sum or installments by way of contributions is designated as a Non-Banking Financial Company, according to RBI guidelines. As a result, an NBFC is a corporation whose primary business is financial activity.
Now, who regulates NBFC?
The RBI regulates and supervises NBFCs following the provisions of Chapter III B of the RBI Act 1934. The requirements and regulations outlined in Section 45-IA of the RBI Act 1934 must be followed for registering an NBFC. According to the Companies Act of 2013, it must be properly registered.
What are the fundamental requirements to be registered as NBFC?
For the company to be registered as NBFC, the fundamental requirements are as follows:
- The company must be registered under the Companies Act, 1956.
- The company should either be a Limited Company (Ltd) or a Private Limited Company.
- The minimum net owned fund (NOF) of the company must be Rs. 2 crores.
As on the most recent audited balance sheet, systemically important NBFCs have assets of $500 million or more. The logic behind this classification is that the NBFCs’ activities will have an impact on the economy’s overall financial stability.
There are many NBFC operating out of India. Major NBFC operating in India include Power Finance Corporation Limited, Shriram Transport Finance Company Limited, Bajaj Finance Limited, Mahindra & Mahindra Financial Services Limited, Muthoot Finance Ltd, HDB Finance Services, Cholamandalam Finance, Tata Capital Financial Services Ltd.
What are the major categories of NBFC?
NBFC can be categorised into two streams.
- Based on nature of the financial activity it can be categorized as NBFC – Investment and Credit Company – (NBFC-ICC), Equipment Leasing Company, Hire Purchase Finance Company, Infrastructure Finance Company (IFC), Systemically Important Core Investment Company (CIC-ND-SI), Infrastructure Debt Fund (IDF-NBFC), Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI), Non-Banking Financial Company – Factors (NBFC-Factors), Housing Finance Company, Chit Fund Company, Mutual Benefit Finance Company, Residuary Non-Banking Company
- Based on the nature of deposits – It includes deposit accepting NBFC and Non-Deposit Accepting NBFC.
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