NON-BANKING

FINANCIAL
CORPORATIONS
Md Hamza Khan 20BC048
Deepika Bartwal 20BC004
 01 Introduction

History of NBFCs
02
Table of contents
03 Types of NBFCs

04 Bank vs NBFCS
 05 Functions & importance

regulations
06
Table of contents
07 Challenges

08 Conclusion
Introduction
According to RBI,
‘’ A Non-Banking Financial Company (NBFC) is a
company registered under the Companies Act,
1956 engaged in the business of loans and
advances, acquisition of shares /stocks/ bonds/
debentures/ securities issued by Government or
local authority or other marketable securities of a
like nature, leasing, hire-purchase, insurance
business, chit business but does not include any
institution whose principal business is that of
agriculture activity, industrial activity’’
 History of NBFCs In India

❏ They’re simple NBFCs started in the country in 1966 acting in a limited scale acting as an
intermediary between investors and industrialists
❏ Earlier, it was guided by Companies Act but later on RBI took control with its Chapter III B, RBI
ACT 1932.
❏ In 1975 RBI accepted recommendations of James S. Raj Study Group
which included
A) Acceptance of Deposits by Hire and leasing Companies and
B) maintenance of Liquid Assets
❏ Between 1980-1990, NBFCs gained huge investors, total NBFCs increased from 7000 in 1981 to
around 30000 in 1992
❏ After amendments in Act in 1997, NBFCs scope of operation increased and so their growth
❏ In the last 20 years, the NBFCs have gained prominence and added depth to the financial sector.
❏ In August 2016, the union cabinet gave the go-ahead for foreign direct investment (FDI) under the
automatic route in regulated NBFCs
 Types Of NBFCs

NBFCs can be classified in two categories,

deposit taking and non deposit taking.
NBFCs with assets more than 100 crores are
known as Systemically Important NBFCs
because of the impact that they can have on the
financial system
Different NBFCs under these categorize are -
1) Asset Finance Company 1) 2) Investment Company

❏ Primary Business is financing physical

❏ It is a financial institution carrying on as
assets supporting economic activities
❏ Primary business for this purpose is - 60% its principal business of acquisition of
of the aggregate assets are used in shares
financing physical assets

3) Loan Company 4) InFRASTRUCTURE Company

❏ A NBFC whose primary operation is
providing loans to firm is known as Loan ❏ It is a NBFC which deploy 75% of its
Company assets in infrastructure loans
❏ Minimum net funds of 300 crore rupees
 5) SI Core Investment
Company
❏ Primary investments (>90%) in equity,
debenture pref shares, loans and advances
of companies
❏ >60% of total assets are invested in equity
shares of companies
❏ Does not trade in these shares except for
block sales, disinvestments
❏ Asset size >100 crore rupees
7) Infra debt fund
❏ An Infra-NBFC which raises money by
issue of bonds with maturity over 5 years
and uses this money to advance loans
1) 6) Micro Finance NBFCs
❏ Its primary business is lending loans of
principal less than 1,00,000 to rural
households and 1,60,000 in semi-urban
households
❏ Collateral free loans with maturity over 24
months
8) Factors NBFC
❏ A NBFC whose primary business in
factoring in such a way that it is more than
50% of its assets and comprises 50% of its
gross income
9) Mortgage Guarantee
Company
❏ A business whose primary
operation (>90%) is
mortgaging i.e. 90% or more of
gross income comes from
mortgaging guarantee business.
❏ The Net owned fund should
also be 100 Crore or more
1) 10) NOFHC NBFCs
❏ NBFC- Non-Operative Financial
Holding Company (NOFHC) is
financial institution through which
promoter / promoter groups will be
permitted to set up a new bank .It’s a
wholly-owned Non-Operative Financial
Holding Company (NOFHC) which
will hold the bank as well as all other
financial services companies regulated
by RBI or other financial sector
regulators, to the extent permissible
under the applicable regulatory
prescriptions.
NBFC vs BAnk
Basis for Comparison NBFCs Banks

Meaning An NBFC is a company that Bank is a government authorized

provides banking services to financial intermediary that aims at
people without holding a bank providing banking services to the
license. general public

Foreign Investment Allowed up to 100% Upto 74%- Private, 20%- Public

Transaction Services Not provided by NBFC Provided by banks

Credit creation NBFC do not create credit. Banks create credit

Maintenance of Reserve Ratios Not required Compulsory

Incorporated under Companies Act 2013 Banking Regulation Act, 1949

Payment and Settlement system Not a part of the system An Integral part of the system
FUnctions of nbfc
IMPORTANCE of NBFCs
 Enhancing the Financial Market
NBFCs bring diversity to the market by
diversifying the risks, increasing
liquidity, thereby bringing efficiency and
promoting financial stability
NBFC
Sectoral Growth
The NBFC has competed well with the banking
sector in contributing to the economy. Despite
slowdown experienced in the economy, NBFCs
have enhanced operations and is still growing at a
fair rate
Promoting Inclusive Growth
All the top NBFC in India cater to a wide
variety of customers, SSIs, MSMEs, despite
providing small-ticket loans for affordable
housing projects
Infrastructure lending
NBFCs have lent to infrastructure projects,
thereby contributing to the Indian economy.
Since its inception, NBFCs have left behind
other institutions in infrastructure lending.

Financing for long term
NBFCs provide finances to firms with
equity participation. Long term
finance ensures growth with stable
and soft interest rates
NBFC
Upliftment in the Employment Sector
With the growth in operations of the small industries
and businesses, the policies of NBFCs are uplifting
the job situation. More opportunities for
employment are arising
Innovative products
NBFCs, by being flexible in terms of
lending and investment opportunities than
banks, are more proactive in innovating
financial products.
Mobilization of Assets
Turning the savings into investments, these
companies contribute to economic
development as compared to traditional
bank practices.
Regulations

RBI regulates the working and operations of NBFCs A Non-Banking Financial

Company (NBFC) is a company registered under the Companies Act, 1956 involved
in the business of loans and advances, acquirement of shares/
stocks/bonds/debentures issued by Government or local authority or other
marketable securities of a like nature, leasing, hire-purchase, insurance business,
chit business.

It does not include any institution whose principal business is agriculture activity,
industrial activity, purchase or sale of any goods (other than securities) or providing
any services and sale/ purchase/ construction of immovable property. A non-banking
institution which is a company and has principal business of accepting deposits is
also NBFC.
 NBfc not regulated by rbi

There are few NBFCs which are offering specialised financial services are not regulated by
RBI as they are regulated by other regulator. Housing Finance Companies are regulated by
National Housing Bank, Merchant Banker/Venture Capital Fund
Company/stock-exchanges/stock brokers/ sub-brokers are regulated by SEBI, and insurance
companies are regulated by Insurance Regulatory and Development Authority (IRDA)
Similarly, Chit Fund Companies are regulated by the respective State Governments and Nidhi
Companies are regulated by Ministry of Corporate Affairs, Government of India. Companies
that do financial business but are regulated by other regulators are given specific exemption
by the RBI from its regulatory requirements for avoiding duality of regulation.
Challenges Faced By NBFCs
conclusion
The challenges faced by NBFCs are enormous, but
it is not unconquerable. The Reserve Bank of India
has given serious thought to the challenges and is
expected to take steps towards easing the way out
for NBFCs. NBFCs are an essential pillar in the
financial sector in India; therefore, it is vital that
the NBFCs have smooth functioning.
Thankyou