NON BANKING

FINANCIAL
COMPANY
(NBFC)
AGENDA
• What is NBFC
• Difference between NBFC and banks
• Salient features of NBFC
• NBFC and Public deposit
• Types of NBFC
• Nominations
• Rating of NBFC
• Role of company law board
• NBFC exempted from registration
• RBFC
 NON BANKING FINANCIAL COMPANY
• NBFC is a company registered under the companies act , 1956 and is
engaged in the business of:
- loans and advances
- leasing
- insurance business etc.
• It does not include financial institutions whose principle business is that
of agricultural activity, industrial activity etc.
• Financial institutions that provide banking services.
Difference between banks & NBFC
• Banks are incorporated under banking companies act but while
as NBFC are incorporated under company act.
• Banks can issue cheques and NBFC cannot.
• Banks can accept deposit and NBFC cannot.
 SALIENT FEATURES
• Deposits
• Minimum- 12 months
• Maximum- 60 months
• Demand deposit not acceptable
• Interest rates cannot be higher than ceiling rates prescribed by
RBI(11%)
• No gifts/incentives to customers
• Minimum investment grade credit rating
• Deposits not insured
• Repayment of deposits not guaranteed by RBI
REGISTRATION WITH RBI
• NBFC should be registered with RBI to commence or carry on
any business.
• To obviate dual regulation.
Different types of NBFC’s registered with RBI
The NBFCs that are registered with RBI are:
(i) equipment leasing company;
(ii) hire-purchase company;
(iii) loan company;
(iv) investment company.
With effect from December 6, 2006 the above NBFCs registered
with RBI have been reclassified as
(i) Asset Finance Company (AFC)
(ii) Investment Company (IC)
(iii) Loan Company (LC)
Requirements for registration with RBI
• Should have a minimum net owned fund of Rs 25 lakh (raised to
Rs 2 crore from April 21, 1999).
• The company is required to submit its application for
registration in the prescribed format.
• The bank issues certificate of registration after satisfying itself
that the conditions as enumerated in Section 45-IA of the RBI
Act, 1934 are satisfied
NBFCs and Public deposits
• All NBFCs are not entitled to accept public deposit.
• Only those NBFCs holding a valid certificate of registration with
authorization to accept public deposits can accept/hold public
deposit.
• The NBFCs accepting public deposits should have minimum
stipulated net owned fund.

• Overdue matured deposits

• Pre payment
Ceiling of acceptance of public deposits
An NBFC maintaining required NOF/CRAR and complying with the
prudential norms can accept public deposits as follows:
• Category of NBFC
• Ceiling on public deposits
• AFCs maintaining CRAR of 15% without credit rating
• AFCs with CRAR of 12% and having minimum investment grade credit
rating 1.5 times of NOF or Rs 10 crore whichever is less
• 4 times of NOF
• LC/IC with CRAR of 15% and having minimum investment grade credit
rating 1.5 times of NOF
 DEPOSITS FROM NRI’s
• Generally NBFCs cannot accept deposits from NRI

• Exception:- deposits by debit to NRO account of NRI provided

such amount do not represent inward remittance or transfer
from NRE/FCNR account.
TYPES OF NBFC’S
LEASING

•  Formality of a lease
•  Term of a lease
•  Rent
•  Leasing of real property
• Leasing of tangible personal property
• Leasing Internationally
EX: BAJAJ CAPITAL LIMITED
• An NBFC engaged in Leasing shall meet the
following conditions:

Assets invested > 70% of total assets

Investment in Shares < 50% equity of NBFC

Investment in shares
Of one company < 10% equity of NBFC/Co

Lease period > 3 years

• May not engage in land / residential building leases

Investment finance
•  Investment related to business of a firm - business
management
•  In finance
•  Real estate as the instrument of investment
•  Residential real estate
•  Commercial real estate
• Ex: Motilal Oswal securities limited in Mumbai
HOUSING FINANCE

• Removing legal, financial and administrative barriers for

facilitating access to
loans, finance and technology
• Ensuring that housing, along with supporting services, was
treated as a priority
and at par with the infrastructure sector
• The creation of surpluses in housing stock and
• Providing quality and cost-effective shelters especially to the
vulnerable groups and the poor.
EX: HDFC
• Additional functions w.r.t property:
• Mortgage finance to
purchase/construct/alter property
• Surveys and valuation
• Arrange insurance
• Manage mortgage investments
ASSET MANAGEMENT
• Asset Management (AM) eliminates the need for point solutions
that offer a limited, "flat" view of an asset by expanding the
visibility and ownership of an asset throughout an entire
organization.
Entities may describe an asset in several ways:
• fixed asset to an accounting department
• leased asset to facilities management
• piece of production equipment to operations
• inventory item to materials management
• maintainable asset to mechanical engineers
EX: JP MORGAN
 Asset Management services- Structure

trustee
trustee trustee Sharia

If Islam
INVESTMENT ADVISORY SERVICES
• A business that specializes in providing investment advice for a
fee.
• All advisers of an advisory service must be registered with
the Securities and Exchange Commission

EX:Aaditya International
VENTURE CAPITAL INVESTMENT

• Venture capital firms and funds

•  Structure of Venture Capital Firms
•  Types of Venture Capital Firms
•  Roles within Venture Capital Firms
•  Structure of the funds
•  Compensation
• Venture capital funding
EX: RELIANCE TECHNOLOGY VENTURES
 NOMINATION FACILITY
• Available to the depositors of NBFCs

• Adopt the Banking Companies (Nomination) Rules, 1985 of the

Banking Regulation Act, 1949

• Applicable for nomination, cancellation of nomination and

variation of nomination
 RATING OF NBFC’s
• An unrated NBFC, except certain Asset Finance companies
(AFC), cannot accept public deposits

• Exception:- AFC companies with CRAR of 15% which can accept

public deposit up to 1.5 times of the NOF or Rs 10 crore
whichever is lower without having a credit rating
 RATING
AGENCIES

DCR
INDIA

CRISIL ICRA

FITCH CARE
Role of Company Law Board

Where a non-banking financial company fails to

repay any deposit or part thereof in accordance
with the terms and conditions of such deposit, the
Company Law Board (CLB) either on its own motion
or on an application from the depositor directs, by
order, the non-banking financial company to make
repayment of such deposit or part thereof
forthwith or within such time and subject to such
conditions as may be specified in the order.
NBFC exempted from registration
Housing Finance Companies National housing bank

Insurance companies Insurance regulatory and

development authority

Chit Fund Companies State government

Nidhi Companies Ministry of Company Affairs, GOI

 SEBI

Stock
Exchanges

Companies engaged Venture

in the business of
stock-broking/sub- Capital Fund
broking Companies

Merchant
Banking
Companies

These are exempted from the requirement of registration under

Section 45-IA of the RBI Act, 1934 subject to certain conditions .
Residual non banking companies
• its principal business is the receiving of deposits, under any
scheme and not investment, asset financing &loan
• These companies are required to maintain investments as per
directions of RBI, in addition to liquid assets.
• The functioning of these companies is different from those of
NBFCs in terms of method of mobilisation of deposits and
requirement of deployment of depositors' funds.
• Prudential Norms Directions are applicable to these companies
also.