Non-banking Financial

Institutions

Dr. Pratima Narayan

Faculty of Law
Power Generation, Home loans, gold loans, Gold loan, Money transfers,
transmission and individual Loans, business wealth management
distribution projects and entrepreneur loans services, travel and tourism
services. Gold coins

Financing Trucks, Passenger

Loans for trade, industry, agriculture,
Vehicles, Construction Vehicles
Commercial/Individual Vehicle loans
Farm Equipments.
Corporate and rural loans
What is NBFC? (Section 45I (c ) of RBI Act, 1934)

Company registered under the Companies Act, 2013

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
institution whose principal business is that of agriculture activity, industrial activity, purchase or
sale of any goods (other than securities) or providing any services and
sale/purchase/construction of immovable property.
Factors to determine ‘Principal Business’ of
NBFC
• The company will be treated as a non-banking financial company
(NBFC) if its financial assets are more than 50 per cent of its total
assets
• Income from financial assets is more than 50 per cent of the gross
income.
 NBFC v.
BANK
NBFC BANK
• Company that provides banking • Government authorised financial
services to people without holding a institution that aims to provide
bank license banking services
• Incorporated under Companies Act, • Licensed under Banking
2013
Regulations Act, 1949
• To obtain certificate of registration
from RBI • Must maintain reserve ratio
• Need not maintain reserve ratio • FDI upto 74% for private banks
• FDI upto 100%
Requirements
• Chapter III - Section 45I of RBI Act, 1934
• To be registered with the RBI
• TO own net fund of two hundred lakh rupees and more or, as the Bank
may, by notification in the Official Gazette
•  TO create a reserve fund and transfer therein a sum not less than
twenty per cent of its net profit every year as disclosed in the profit
and loss account and before any dividend is declared.
Kinds of NBFCs
• Asset Finance Company (AFC)
• Investment Company (IC)
• Loan Company (LC)
• Infrastructure Finance Company (IFC)
• Infrastructure Debt Fund
NBFCs exempt from RBI Regulations
• Housing Finance Institutions
• merchant banking company 
• Micro Finance Companies and Mutual Benefit Companies – Nidhi
companies
• Venture Capital Fund Companies 
• Insurance/Stock Exchange/Stock Broker/Sub-Broker
Salient features of NBFC regulations 
• NBFCs are allowed to accept/renew public deposits for a minimum period of 12
months and maximum period of 60 months.
• Cannot accept deposits repayable on demand.
• Cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to
time – present rate 12.5% pa
• Cannot offer gifts/incentives or any other additional benefit to the depositors
• Should have minimum investment grade credit rating
• The deposits with NBFCs are not insured.
• Repayment of deposits by NBFCs is not guaranteed by RBI.
Precautions for Depositors
• NBFC is registered with RBI and specifically authorized by the RBI to accept deposits.
• NBFCs have to prominently display the Certificate of Registration (CoR) issued by the Reserve
Bank
• Maximum interest rate that an NBFC can pay to a depositor should not exceed 12.5%
• Depositor must insist on a proper receipt for every amount of deposit placed with the company
• In the case of brokers/agents etc collecting public deposits on behalf of NBFCs, such
brokers/agents are duly authorized by the NBFC.
• public deposits are unsecured and Deposit Insurance facility is not available to depositors of
NBFCs.
• Reserve Bank of India does not accept any responsibility or guarantee about the present
position as to the financial soundness of the company
• Course of action – NCLT, Consumer forums
Regulations
• Prize Chits and Money Circulation Schemes (Banning) Act, 1978
• Non-Banking Financial Companies Acceptance of Public Deposits (Reserve
Bank) Directions,1998
• Foreign Exchange Management (Deposit) Regulations, 2000 [FEMA-5]
• Foreign Exchange Management (Transfer or issue of Security by a Person
Resident outside India) Regulations, 2000]
• 'Know Your Customer' (KYC) Guidelines – Anti Money
LaunderingStandards –[ all NBFC, MNBC, RNBC ]-February 21, 2005
• Guidelines on Fair Practices Code- [DNBS (PD) CC No. 80 / 03.10.042 /
2005-06 datedSeptember 28, 2006
FAQs on NBFC
https://www.rbi.org.in/Scripts/FAQView.aspx?Id=92#:~:text=A%20Non
%2DBanking%20Financial%20Company%20(NBFC)%20is%20a
%20company,leasing%2C%20hire%2Dpurchase%2C%20insurance