Project topic: What is a bon-banking financial company??

Submited by Anoop.

What is a bon-banking financial company??

NON-BANKING FINANCIAL COMPANY

Mahindra & Mahindra Financial Services Limited is one of India’s leading Non
Banking Financial Company (NBFC) focused on the rural and semi-urban
sectors providing finance for UVs (Used Vehicles), tractors and cars. NBFC
means (i) a financial institution that is a company, (ii) a non-banking institution
that is a company whose principal business is the receiving of deposits under
any scheme/arrangement/in any other manner or lending in any manner and (iii)
such other non-banking institutions/class of institutions as the RBI may specify,
with the prior approval of the government and by notification in the official
gazette.

Registration and Net Owned Funds

With effect from January 1997,in order to commence(new company)/carry on

(existing company) the business of a Non-banking financial institution (NBFI),
an NBFC must obtain a certificate of registration from the RBI. Moreover, its
minimum net owned funds (NOFs) must be Rs 25 lakh or such other amount not
exceeding Rs 200 lakh, as specified by the RBI.NOFs mean (a) paid-up capital
and free reserves, as per the latest balancesheet, minus the accumulated losses,
if any deferred revenue expenditure and other intangible assets and (b) (i) less
investment in shares of subsidiaries/ companies in the same group/ all other
NBFCs and (ii) the book value of debentures/bonds/outstanding loans and
advances-including hire purchase and lease finance made to, and deposit with,
subsidiaries/companies in the same group- in excess of 10 per cent of (a) above.

While considering an application for registration, the RBI would consider the
NBFC fulfils the following conditions:

 The NBFC is/would be in a position to pay its present/future depositors in

full, as and when their claims accrue.
 Its affairs are not being/likely to be conducted in a manner detrimental to
the interests of its present/future depositors.
 The general character of the management/proposed management would
not be prejudicial to the public interest/interest of the depositors.
 It has adequate capital structure and earning prospects.
 Public interest would be served by the grant of the certificate to
commence/carry on business in India.
  The grant of the certificate would not be prejudicial to the
operation/consolidation of the financial sector, consistent with the
monetary stability and economic growth considering such other relevant
factors specified by the RBI.
 Any other condition, the fulfillment of which, in the opinion of RBI,
would be necessary to ensure that the commencement/carrying on
business in India would not be prejudicial to the public interest or the
interest of the depositors.
 The RBI may impose conditions while granting registration. It may
cancel a certificate of registration if the NBFC:
(i) Ceases to carry on the business in India;

(ii) Has failed to comply with any condition subject to which the
certificate was issued;

(iii) At any time fails to fulfil any of the above conditions, which
the RBI considered while granting registration;

(iv) Fails to (a) comply with any directions issued by the RBI
under the provisions relating to registration, (b) maintains accounts
in accordance with the requirements of any law/direction/order
issued by the RBI under these provisions and (c) submit/offer for
inspection its books of accounts/other relevant documents, when so
demanded by an inspecting authority of the RBI and
(v) Has been prohibited from accepting deposits by an order of the
RBI, under the provisions that have been in force for a period of at
least three months.

On January 2, 1998 the RBI issued detailed guidelines regarding norms of

deposit acceptance, prudential norms, etc. for various categories of
NBFCs.These were later reconsidered and revised guidelines were issued on
January 31, 1998; deposit entitlement limits were raised in certain cases to
minimize hardship without endangering the interest of depositors. According to
these guidelines an NBFC will have to obtain a minimum prescribed investment
rating before accepting public deposits.