NBFC Project - 298647323 PDF

NON- BANKING FINANCIAL COMPANIES
INTRODUCTION
We studied about banks, apart from banks the Indian Financial System has a large number of
privately owned, decentralized and small sized financial institutions known as Non-banking financial
companies. In recent times, the non-financial companies (NBFCs) have contributed to the Indian
economic growth by providing deposit facilities and specialized credit to certain segments of the
society such as unorganized sector and small borrowers. In the Indian Financial System, the NBFCs
play a very important role in converting services and provide credit to the unorganized sector and
small borrowers.
NBFCs provide financial services like hire-purchase, leasing, loans, investments, chit-fund
companies etc. NBFCs can be classified into deposit accepting companies and non-deposit accepting
companies. NBFCs are small in size and are owned privately. The NBFCs have grown rapidly since
1990. They offer attractive rate of return. They are fund based as well as service oriented companies.
Their main companies are banks and financial institutions. According to RBI Act 1934, it is
compulsory to register the NBFCs with the Reserve Bank of India.
The NBFCs in advanced countries have grown significantly and are now coming up in a very
large way in developing countries like Brazil, India, and Malaysia etc. The non-banking companies
when compared with commercial and co-operative banks are a heterogeneous (varied) group of
finance companies. NBFCs are heterogeneous group of finance companies means all NBFCs provide
different types of financial services.
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MEANING
A Non-Banking Financial Company (NBFC) is a company registered under the Companies

Act, 1956 and is engaged in the business of loans and advances, acquisition of
shares/stock/bonds/debentures/securities issued by government or local authority or other securities of
like marketable nature, leasing, hire-purchase, insurance business, chit business, but does not include
any institution whose principal business is that of agriculture activity, industrial activity,
sale/purchase/construction of immovable property.
A non-banking institution which is a company and which has its principal business of receiving
deposits under any scheme or arrangement or any other manner, or lending in any manner is also a
non-banking financial company (residuary non-banking company).
DEFINITION
According to Section 45-1 (f) of Reserve Bank of India Act, 1934
Non-Banking Financial Company means-
a financial institution which is a company;
a non-banking institution which is a company and which has as its principal business the
receiving of deposits, under any scheme or arrangement or in any other manner, or
leading in any manner;
such other non-banking institution or class of such institutions, as the Bank may, with the
previous approval of the Central Government and by notification in the Official Gazette,
specify.
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REGULATORY NORMS OF NBFC
I. Basic Stipulations:
(i) The draft bill has been named as Financial Companies Regulations Bill,2000. All the NBFCs
will be known as Financial Companies instead of NBFCs.
(ii) (ii) The term 'public deposit' has been defined in the Bill for the first time and the definition
would mean the same as at present in the NBFC Directions.
(iii) There would be a nine member Advisory Council for Financial Companies under the
Chairmanship of Depute Companies and other experts in related areas to advise the Reserve
Bank.
(iv) NBFCs holding /accepting public deposits would be prohibited from carrying on any non-
financial business without the prior approval of the Reserve Bank and the non-financial
business presently carried on by them would have to be wound up or transferred to a subsidiary
within three years. Any other business or fee-based activity like insurance agency business,
portfolio management, etc., would require prior approval of the Reserve Bank
II .Entry Point Norms:
(i) The requirement of obtaining the COR from the Reserve Bank would be compulsory for all
financial Companies, irrespective of whether the companies accept public deposits or not.
However, the nonpublic Deposit taking financial companies would require minimum owned
fund of Rs.25Lakh, whereas the public deposit taking financial companies would require
minimum net owned fund (NOF) of Rs.2 Crores and a specific authorization from the Reserve
Bank to accept public deposits.
(ii) There would be powers with the Reserve Bank to:
a. Prescribe different capital for different classes of financial companies,
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b. Raise the requirement of minimum owned fund (entry norm) from Rs.25Lakh to of Rs.25
Lakh to Rs.2 crores for the existing financial companies accepting public deposits. However,
sufficient time would be allowed to such financial companies to attain the enhanced capital
requirement.
(iii) The requirement of creation of reserve fund would be applicable only to the financial
companies accepting public deposits, as against the earlier requirement applicable to all
NBFCs. Unsecured depositors would have first charge on liquid assets and assets created out
of the deployment of the part of the reserve fund.
(iv) The financial companies would require prior approval of the Reserve Bank for any change in
the name, change in the management or change in the location of the registered office.
III Regulatory and Supervisory Issues:
(i) The Reserve Bank would be empowered to appoint Special Officer(s) on a delinquent financial
company and a duty has been cast on such company to cooperate with such Special Officer(s).
(ii) The Company Law Board (CLB) would continue to be authority to

adjudicate the claims of depositors against the delinquent companies with powers to order
initial payment of a part of deposit, attach assets of the fraudulent financial company and
appoint Recovery Officer(s) for management of such asset. Financial company would have no
recourse to the CLB to seek deferment of the depositors' dues.
(iii) The prohibitory provisions for unincorporated bodies would continue in the Financial
Companies Regulations Bill, but the role of exercising the powers for enforcement of these
provisions have been exclusively entrusted to State Governments, in addition to the powers
under the respective State Laws for protecting the interests of investors in financial
establishments.
(iv) There would be powers vested in the District Magistrates to call for information and to proceed
against delinquent unincorporated bodies.
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(v) There would be a ban on the issue of advertisement for soliciting deposits by all
unincorporated bodies, irrespective of whether they are conducting financial business or not.
(vi) Unauthorized deposit-taking by companies
(a) whose applications for Certificate of Registration have been rejected,
(b) whose registration has been cancelled,
(c) who have been prohibited from accepting public deposits would be a cognizable offence.
The same would be the case for unregistered financial companies as well as unincorporated
bodies.
(vii) Powers would be vested with a police officer of the rank not below that of the Superintendent
of Police Of any State to order investigations into the alleged violations of requirement of
registration by financial companies and prohibition from acceptance of deposits by
unincorporated bodies.
(viii) Penalties have been rationalized in accordance with the severity of defaults, with the objective
that the penalty should serve as a deterrent to others. The Bill has been introduced in the
Parliament in 2000 and has since been referred to the Standing Committee on finance. The
Government of India framed the Financial Companies Regulation Bill, 2000, to consolidate the
law relating to NBFCs and unincorporated bodies with a view to ensure depositor protection.
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RBI GUIDELINES TO NBFC
The role of Non-Banking Financial Companies (NBFCs) has gained focused attention in
recent years following the Report of the Khan Working Group, the release of the RBI Discussion
Paper on Harmonization of the Role and Operations of DFIs and Banks, and the Report of the
Working Group on Money Supply (Chairman: Dr.Y.V.Reddy). The growing concerns about financial
stability point to the need for evolving safe and sound functioning of the NBFCs which, in the Indian
context, are varied as they perform a wide range of tasks The growth of NBFCs has been rapid,
especially in the 1990s owing to the high degree of their orientation towards customers and
simplification of sanction requirements. NBFCs have created a large clientele base by offering
relatively attractive rates of return although in the process, some of them became unsustainable.
NBFCs have also displayed flexibility in meeting the credit needs of specific sectors like
equipment leasing, hire purchase, housing finance and consumer finance, where gaps between the
demand and supply of funds have been high and where established financial entities are not easily
accessible to borrowers. As a result, the distinction between banks and NBFCs is narrowing, both
offering almost the same spectrum of services; the only difference being the exclusive privilege that
commercial banks wield in issuance of cheques. To protect the interests of the depositors, deposit
taking NBFCs (NBFC-D) were subject to prudential regulation on various aspects of their
functioning. However, non-deposit taking NBFCs (NBFCs-ND) were subject to minimal regulation.
In the light of the evolution and integration of the financial sector, it was felt that all
systemically relevant entities offering financial services ought to be brought under a suitable
regulatory framework to contain systemic risk.
Therefore, as a first step, it was advised vide DNBS.PD/ CC. No. 86/ 03.02.089 /2006-07 dated
December 12, 2006 that all NBFCs ND with an asset size of Rs. 100 crore and more as per the last
audited balance sheet would be considered as systemically important NBFC ND (NBFC-ND-SI) and
specific regulatory framework involving prescription of capital adequacy and exposure norms was put
in place from April 01, 2007 for such NBFCs-ND-SI.
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(i) Capital adequacy:- NBFCs ND SI were advised to maintain a minimum Capital to

Risk- Assets Ratio (CRAR) of 10% with effect from April 01, 2007. However, in view of
recent international developments, the risks associated with highly leveraged borrowings and
reliance on short term funds by some NBFCs to fund long gestation assets, concerns have
arisen regarding the enhanced systemic risk associated with the activities of these entities.
Keeping in view the importance of providing adequate capital charge for the same in order to
enhance the cushion for any shocks, it has been decided to increase the minimum capital to risk
assets ratio (CRAR) for NBFCs-ND-SI from the present prescription of 10%. They are
advised to achieve 12% CRAR by March 31, 2009 and further 15% CRAR by March 31, 2010.
(ii) Disclosure in the Balance Sheet:- In the light of the concerns as expressed above, the
disclosure norms in respect of NBFCs-ND-SI have been reviewed and it has been decided that
such Systemically Important NBFCs-ND shall make additional disclosures in their Balance
Sheet from the year ending March 31, 2009 relating to:
a. Capital to Risk Assets Ratio (CRAR)
b. Exposure to real estate sector, both direct and indirect; and
c. Maturity pattern of assets and liabilities
(iii) Asset Liability Management (ALM):- To address concerns regarding Asset Liability
mismatches and interest rate risk exposures, an ALM System was introduced for the Non-
Banking Financial Companies (NBFCs) as part of their overall system for effective risk
management in their various portfolios vide Company Circular dated June 27, 2001. While it
was stated therein that the guidelines would be applicable to all NBFCs irrespective of
whether they are accepting / holding public deposits or not, to begin with, NBFCs meeting the
criteria of asset base of Rs.100crore (whether accepting / holding public deposits or not) or
holding public deposits of Rs.20crore or more (irrespective of their asset size) as per their
audited balance sheet as of March 31, 2001 were required to put in place the ALM System. The
companies were advised that the guidelines should be fully operationalized by the year ending
March 31, 2002. A system of half yearly reporting was also put in place for NBFCs holding
public deposits.
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(iv) In view of the possibilities of leveraged investments, and asset liability mismatches resulting
from use of short term sources to fund NBFC activities, it has now been decided to introduce a
system of reporting for NBFCs-ND-SI in the format as prescribed in the Annex.
(v) To enable the above class of NBFCs to fine tune their existing MIS to meet the requirement of
the reporting dispensation, such compilation would commence with effect from the period
ending September 30, 2008. The periodicity of the Statement of short term dynamic liquidity
[NBS-ALM1] shall be monthly and that of Statement of structural liquidity [NBS-ALM2] half-
yearly. It shall be submitted within 10 days of the close of the month to which it relates and
half yearly statement within 20 days of the close of the half year to which it relates to the
Regional Office of the Department in whose jurisdiction the NBFC is registered. However, to
enable the NBFCs to fine tune the system, the first return for the period ended September
2008 would be submitted by the 1st week of January 2009. The compilation frequency of
Statement of Interest Rate Sensitivity [NBS-ALM3] would be half yearly. As a first step, the
same shall be put up to the Board of Directors of the NBFC at half yearly intervals. The
statement shall be filed with the Bank later from the date to be announced.
Non-bank financial companies are financial institutions that provide banking services
without meeting the legal definition of a bank. The company will be treated as a non-
banking financial company if its financial assets are more than 50 per cent of its total
assets and income from financial assets is more than 50 per cent of the gross income.
Both these tests are required to be satisfied as the determinant factor for principal
business of a company.
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NBFC NOT REGISTERED WITH RBI
Not Registered
With RBI
Miscellaneous Non-Banking
Mutual Benefit Companies
Mutual Benefit Companies
Mutual Benefit financial companies are NBFCs notified under Section 620A of the Companies
Act, 1956 and primarily regulated by Department of Company Affairs (DCA) under the directions /
guidelines issued by them under Section 637 A of the Companies Act, 1956. These companies are
exempt from the core provisions of the RBI Act viz., requirement of compulsory registration,
maintenance of liquid assets and transfer of profits to Reserve Fund.
These companies are also exempted from the core provisions of NBFC directions relating to
acceptance of public deposits. Directions relating to ceiling on interest rate, maintenance of register of
deposits, furnishing receipt to depositors and submission of returns to Reserve Bank are however
applicable to these companies.
The Government of India constituted an Expert Committee in March 2000 (Chairman: Shri
P.Sabanayagam) to examine various aspects of the functioning of the Nidhi companies and suggest an
appropriate policy framework for overall improvement of these companies. This was done with a view
to facilitate their healthy functioning and restore the confidence of the investing public.
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Miscellaneous Non-Banking Companies (MNBCs)
MNBCs are mainly engaged in the Chit Fund business. The term 'deposit' as defined under
Section 45 I(bb) of the Reserve Bank of India Act, 1934 does not include subscription to Chit Funds.
The Chit Fund companies have been exempted from all the core provisions of Chapter IIIB of
the RBI Act including registration. In terms of Miscellaneous Non-Banking Companies (RB)
Directions, the companies can accept deposits upto 25 per cent and 15 per cent of the NOF from public
and shareholders, respectively, for a period of 6 months to 36 months, but cannot accept deposits
repayable on demand/notice.
The Reserve Bank only regulates the deposits accepted by these companies, but it does not
regulate their Chit Fund business, which is administered by the respective State Governments through
the offices of Registrars of Chits. The Chit Funds Act, 1982 was enacted as a Central Act for ensuring
uniformity in the provisions applicable to Chit Fund institutions throughout the country, and all State
Governments are required to frame rules for extending the provisions of this Act to their respective
jurisdictions. At present, 16 States and 6 Union Territories have adopted the Central Act and the
Reserve Bank is pursuing with the State Governments of Andhra Pradesh, Arunachal Pradesh, Gujarat,
Haryana, Kerala, Maharashtra, Mizoram and Nagaland for early formulation of rules under the Central
Act.
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ROLE OF NON- BANKING FINANCIAL COMPANIES
Utilize
Savings
Economic Provide
Growth Credit
Accept Super-
Deposit ROLE -market
OF
NBFC
Standard Productive
Of Purpose
Living
Investment Housing
Advice Finance
(i) Promoters Utilization of Savings- Non- Banking Financial Companies play an

important role in promoting the utilization of savings among public. NBFCs are able to
reach certain deposit segments such as unorganized sector and small borrowers were
commercial bank cannot reach. These companies encourage savings and promote
careful spending of money without much wastage. They offer attractive schemes to suit
needs of various sections of the society. They also attract idle money by offering
attractive rates of interest. Idle money means the money which public keep aside, but
which is not used. It is surplus money.
(ii) Provides easy, timely and unusual credit- NBFCs provide easy and timely credit
to those who need it. The formalities and procedures in case of NBFCs are also very
less. NBFCs also provides unusual credit means the credit which is not usually
provided by banks such as credit for marriage expenses, religious functions, etc. The
NBFCs are open to all. Every one whether rich or poor can use them according to their
needs.
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(iii) Financial Supermarket- NBFCs play an important role of a financial supermarket.

NBFCs create a financial supermarket for customers by offering a variety of services.
Now, NBFCs are providing a variety of services such as mutual funds, counseling,
merchant banking, etc. apart from their traditional services. Most of the NBFCs reduce
their risks by expanding their range of products and activities.
(iv) Investing funds in productive purposes- NBFCs invest the small savings in
productive purposes. Productive purposes mean they invest the savings of people in
businesses which have the ability to earn good amount of returns. For example-
In case of leasing companies lease equipment to industrialists, the industrialists can
carry on their production with less capital and the leasing company can also earn good
amount of profit.
(v) Provide Housing Finance- NBFCs, mainly the Housing Finance companies
provide housing finance on easy term and conditions. They play an important role in
fulfilling the basic human need of housing finance. Housing Finance is generally
needed by middle class and lower middle class people. Hence, NBFCs are blessing for
them.
(vi) Provide Investment Advice- NBFCs, mainly investment companies provide advice
relating to wise investment of funds as well as how to spread the risk by investing in
different securities. They protect the small investors by investing their funds in different
securities. They provide valuable services to investors by choosing the right kind of
securities which will help them in gaining maximum rate of returns. Hence, NBFCs
plays an important role by providing sound and wise investment advice.
(vii) Increase the Standard of living- NBFCs play an important role in increasing the
standard of living in India. People with lesser means are not able to take the benefit of
various goods which were once considered as luxury but now necessity, such as
consumer durables like Television, Refrigerators, Air Conditioners, Kitchen
equipments, etc. NBFCs increase the Standard of living by providing consumer goods
on easy installment basis. NBFCs also facilitate the improvement in transport facilities
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(viii) through hire- purchase finance, etc. Improved and increased transport facilities help in
movement of goods from one place to another and availability of goods increase the
standard of living of the society.
(ix) Accept Deposits in Various Forms- NBFCs accept deposits forms convenient to
public. Generally, they receive deposits from public by way of depositor a loaner in any
form. In turn the NBFCs issue debentures, units certificates, savings certificates, units,
etc. to the public.
(x) Promote Economic Growth- NBFCs play a very important role in the economic
growth of the country. They increase the rate of growth of the financial market and
provide a wide variety of investors. They work on the principle of providing a good rate
of return on saving, while reducing the risk to the maximum possible extent. Hence,
they help in the survival of business in the economy by keeping the capital market
active and busy. They also encourage the growth of well- organized business
enterprises by investing their funds in efficient and financially sound business
enterprises only. One major benefit of NBFCs speculative business means investing in
risky activities. The investing companies are interested in price stability and
hence NBFCs, have a good influence on the stock- market. NBFCs play a very
positive and active role in the development of our country.
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REQUIREMENTS FOR REGISTRATION
In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be
registered with RBI to commence or carry on any business of non-banking financial institution as
defined in clause (a) of Section 45 I of the RBI Act, 1934.
However, to obviate dual regulation, certain category of NBFCs which are regulated by other
regulators are exempted from the requirement of registration with RBI viz. venture capital
fund/merchant banking companies/stock broking companies registered with Sebi, insurance company
holding a valid certificate of registration issued by IRDA, Nidhi companies as notified under Section
620A of the Companies Act, 1956, chit companies as defined in clause (b) of Section 2 of the Chit
Funds Act, 1982 or housing finance companies regulated by National Housing Bank.
A company incorporated under the Companies Act, 1956 and desirous of commencing
business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934
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
along with necessary documents for bank's consideration. 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.
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REQUIREMENTS FOR ACCEPTING DEPOSITS
A company incorporated under the Companies Act, 1956 and desirous of commencing
business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act,
1934 should have a minimum net owned fund of Rs 2 crores.
The company is required to submit its application for registration in the prescribed format
along with necessary documents for bank's consideration. 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.
All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid
certificate of registration with authorization to accept public deposits can accept/hold public deposits.
The NBFCs accepting public deposits should have minimum stipulated net owned fund and comply
with the directions issued by the bank.
An NBFC maintaining required Net Owned Fund (NOF) /CRAR and complying with the
prudential norms can accept public deposits as follows:
(i) Category of NBFC
(ii) Ceiling on public deposits
(iii) AFCs maintaining CRAR of 15% without credit rating
(iv) AFCs with CRAR of 12% and having minimum investment grade credit rating 1.5
(v) times of NOF or Rs 10 crore whichever is less
(vi) 4 times of NOF
(vii) LC/IC with CRAR of 15% and having minimum investment grade credit rating 1.5
(viii) times of NOF
(ix) Presently, the maximum rate of interest a NBFC can offer is 11%. The interest may be paid
or compounded at rests not shorter than monthly rests.
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(x) The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months
and maximum period of 60 months. They cannot accept deposits repayable on demand.
(xi) Some of the important regulations relating to acceptance of deposits by NBFCs are as under:
a. The NBFCs are allowed to accept/renew public deposits for a minimum period of
12months and maximum period of 60 months. They cannot accept deposits repayable
on demand.
b. NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from
time to time. The present ceiling is 11 per cent per annum. The interest may be paid or
compounded at rests not shorter than monthly rests.
c. NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.
d. NBFCs (except certain AFCs) should have minimum investment grade credit rating.
e. The repayment of deposits by NBFCs is not guaranteed by RBI.
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COMPLIANCE TO BE SUBMITTED WITH RBI
(i) The NBFCs having assets size of Rs 100 crore and above but not accepting public deposits are
required to submit a Monthly Return on important financial parameters of the company.
(ii) All companies not accepting public deposits have to pass a board resolution to the effect that
they have neither accepted public deposit nor would accept any public deposit during the year.
(iii) However, all the NBFCs (other than those exempted) are required to be registered with RBI
and also make sure that they continue to be eligible to remain Registered.
(iv) Further, all NBFCs (including non-deposit taking) should submit a certificate from their
Statutory Auditors every year to the effect that they continue to undertake the business of
NBFC requiring holding of CoR under Section 45-IA of the RBI Act, 1934.
(v) RBI has powers to cause Inspection of the books of any company and call for any other
information about its business activities.
(vi) For this purpose, the NBFC is required to furnish the information in respect of any change in
the composition of its board of directors, address of the company and its directors and the
name/s and official designations of its principal officers and the name and office address of its
auditors.
(vii) With effect from April 1, 2007 non-deposit taking NBFCs with assets size of Rs
100 crore and above have been advised to maintain minimum CRAR of 10% and shall also be
subject to single/group exposure norms.
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SUBMISSIONS OF RETURNS AND OTHER DOCUMENTS WITH RBI
The NBFCs accepting public deposits should furnish to RBI:
(i) Audited balance sheet of each financial year and an audited profit and loss account
in respect of that year as passed in the general meeting together with a copy of the
report of the Board of Directors and a copy of the report and the notes on accounts
furnished by its Auditors;
(ii) Statutory Annual Return on deposits - NBS 1;
(iii) Certificate from the Auditors that the company is in a position to repay the deposits as and
when the claims arise;
(iv) Quarterly Return on liquid assets;
(v) Half-yearly Return on prudential norms;
(vi) Half-yearly ALM Returns by companies having public deposits of Rs 20 crore

and above or with assets of Rs 100 crore and above irrespective of the size of deposits;
(vii) Monthly return on exposure to capital market by companies having public deposits of Rs 50
crore and above; and
(viii) A copy of the Credit Rating obtained once a year along with one of the Half-yearly
(ix) Returns on prudential norms as at (v) above.
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FUNCTIONS OF NBFC
FUNCTIONS
Receiving Lending
Benefits Money
Hire Other Investment

Purchase Leasing Housing Types Of
Surplus
(i) Receiving benefits:
The primary function of NBFCs is receiving deposits from the public in various ways such as
issue of debentures, savings certificates, subscription, unit certification, etc. Thus, the deposits
of NBFCs are made up of money received from public by way of deposit or loan or
investment or any other form.
(ii) Lending money:
Another important function of NBFCs is lending money to public. Non- banking financial
companies provide financial assistance through.
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a. Hire purchase finance: Hire purchase finance is given by NBFCs to help small
important operators, professionals, and middle income group people to buy the
equipment on the basis on Hire purchase. After the last installment of Hire purchase
paid by the buyer, the ownership of the equipment passes to the buyer.
b. Leasing Finance: In leasing finance, the borrower of the capital equipment is allowed
to use it, as a hire, against the payment of a monthly rent. The borrower need
not purchase the capital equipment but he buys the right to use it.
c. Housing Finance: NBFCs provide housing finance to the public, they finance for
construction of houses, development of plots, land, etc.
d. Other types of finance provided by NBFCs include: Consumption finance,

finance for religious ceremonies, marriages, social activities, paying off old debts, etc.
NBFCs provide easy and timely finance and generally those customers which are not
able to get finance by banks approach these companies.
e. Investment of surplus money: NBFCs invest their surplus money in various

profitable areas.
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SERVICES OFFERED BY NBFC
NBFCs offer all sorts of banking services, such as loans and credit facilities, private education
funding, retirement planning, trading in money markets, underwriting stocks and shares, TFCs and
other obligations. These institutions also provide wealth management such as managing portfolios of
stocks and shares, discounting services e.g. discounting of instruments and advice on merger and
acquisition activities. The number of non-banking financial companies has expanded greatly in the last
several years as venture capital companies, retail and industrial companies have entered the lending
business. Non-bank institutions also frequently support investments in property and prepare feasibility,
market or industry studies for companies.
However they are typically not allowed to take deposits from the general public and have to
find other means of funding their operations such as issuing debt instruments.
List of Services Provided by NBFC
NBFC refers to non banking finance companies; these institutions provide multiple financial
services unlike banks which provide limited financial services. Given below is the list of services
provided by the NBFC
(i) Underwriting- Underwriting is an agreement, entered into by a company with a financial

agency, in order to ensure that the public will subscribe for the entire issue of shares or
debentures made by the company. The financial agency is known as the underwriter and it
agrees to buy that part of the company issues which are not subscribed to by the public in
consideration of a specified underwriting commission.
(ii) Stock Broking-
a) PERSON- An agent that charges a fee or commission for executing buy and sell
orders submitted by an investor.
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b) FIRM- The firm that acts as an agent for a customer, charging the customer a
commission for its services.
It used to be that only the wealthy could afford a broker and have access to the stock market.
With the internet came the explosion of discount brokers that let you trade at a smaller fee, but
don't provide personalized advice. Because of discount brokers, nearly anybody can afford to
invest in the market now.
(iii) Asset Management- Asset management is often used as the synonym of investment
management or fund management. Asset manager is a person that usually specializes in
discretionary or advisory management and works with private investors.
So, asset management is a very wide definition. Many investors call it private banking or
wealth management. Asset management includes many different aspects and relative fields
among them are asset and stock selection, monitoring of investments etc. Asset management is
a great industry today that has a global meaning. In other words it is taking care of huge sums
of money in different currents all over the world. Today there are many private asset
management firms that provide different asset management services. Any asset management
company tries to offer some interesting ideas, concepts and techniques of funds management
to its clients.
(iv) Merchant Banking- A merchant bank is a financial institution primarily engaged in offering
financial services and advice to corporations and to wealthy individuals. The term can also be
used to describe the private equity activities of banking. The chief distinction between an
investment bank and a merchant bank is that a merchant bank invests its own capital in a client
company whereas an investment bank purely distributes (and trades) the securities of that
company in its capital raising role. Both merchant banks and investment banks provide fee
based corporate advisory services including in relation to mergers and acquisitions.
(v) Portfolio Management Service- Portfolio Management Services (PMS) is an investment

portfolio in stocks, fixed income, debt, cash, structured products and other individual
securities, managed by a professional money manager, that can potentially be tailored to meet
specific investment objectives.
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(vi) When you invest in PMS, you own individual securities unlike a mutual fund investor, who
owns units of the entire fund. You have the freedom and flexibility to tailor your portfolio to
address personal preferences and financial goals. Although portfolio managers may oversee
hundreds of portfolios, your account may be unique.
(vii) Venture Capital Financing- Venture capitalists comprise of professionals of various fields.
They provide funds (known as Venture Capital Fund) to the firms after carefully scrutinizing
the projects. Their main aim is to earn huge returns on their investments, but their concepts are
totally different from the traditional moneylenders. They know very well that if they may
suffer losses in some project, the others will compensate the same due to high returns. They
take active participation in the management of the company as well as provide the expertise
and qualities of a good banker, technologist, planner and managers. Thus, the venture capitalist
and the entrepreneur literally act as partners.
(viii) Foreign exchange related business- These includes services related to Foreign Exchange.
(ix) Factoring and leasing related business-
a) Factoring- Factoring is a way of receiving money quickly based on the invoices that
you raise. It is usually only available on business to business sales. When you send
an invoice out to your client you instruct the client to pay the factoring company
direct. At the same time you send a copy of the invoice to the factoring company
which will immediately pay you up to 90% of the value of the invoice. When your
client pays the invoice, the factor will deduct its charges and send the balance to you.
Factoring companies manage the full invoice collection process.
b) Leasing- Leasing involves getting another company to buy equipment for you and
then you paying the leasing company a regular charge to use that equipment. Leased
items could be anything from a computer to office furniture, car leasing or even
aeroplane leases. Leasing can be an efficient method of asset finance. Some lease
finance specialists will also buy your existing equipment and lease it back to you.
Depending on the equipment seller you could find yourself having to arrange your
own leasing deals or the seller may offer tied lease deals.
(x) Credit Cards services- It is similar to the services provided by the bank.
Page | 23
(xi) Giving Credit Rating to other companies- An assessment of the credit worthiness of
individuals and corporations. It is based upon the history of borrowing and repayment, as well
as the availability of assets and extent of liabilities.
Apart from above services NBFC provides variety of services depending upon the regulations
of the government of the country regarding such institutions because some countries have strict
policies regarding NBFC, as well as need of the company which is going to NBFC.
DIFFERENCE BETWEEN NBFC AND BANK
While commercial banks and non-banking financial companies are both financial
intermediaries (middleman) receiving deposits from public and lending them. Commercial bank is called
as Big brother while the NBFC is called as the Small brother. But there are some important
differences between both of them, they are as follows:
NBFC BANK
1. Acceptance of demand deposit:

An NBFC cannot accept demand Accepting demand and time deposit
deposit. is the primary function of Banks.
2. Issue of cheques:
It is not a part of the payment and Banks provide with cheque book to
settlement system which includes their customers.
issue of cheque books.
3. Rate of interest:
Page | 24
Commercial bank offer lesser rate of NBFCs offer higher rate of interest on
interest on deposits and charge less rate of deposits and charge higher rate of interest
interest on loans on loans as compared to Commercial
As compared to NBFCs. banks.
4. Types of assets:
Commercial banks hold a variety NBFCs specialize in one types of asset.
of assets in the form of loans, cash credit, For e.g.: Hire purchase companies
bill of exchange, overdraft etc. specialize in consumer loans.
5. Laws which govern them:

Commercial banks are regulated by NBFCs are regulated by different
Banking Regulation Act 1949 and RBI. regulation such as SEBI, Companies Act,
National Housing Bank,
Unit Fund Act and RBI.
6. Facilities provided:
Deposit insurance facility is not Deposit insurance facility of Deposit
provided to NBFC depositors. Insurance and Credit Guarantee
Corporation (DICGC) is provided to
Bank depositors.
(Note on DICGC: It stands for Deposit Insurance and Credit Guarantee Corporation which is a wholly
owned subsidiary of the Reserve Bank of India. This organization insures the deposit kept by a
depositor in the bank. The DICGC insures all deposits such as savings, fixed, current, recurring, etc.
The interest is paid by the bank and is not entitled to the depositor of the deposit.)
Page | 25
TYPES OF NBFC
The NBFCs that were registered with RBI are as follows:
Equipment leasing company;

Hire-purchase company;
Loan company;
Investment Company.
With effect from December 6, 2006 the above NBFCs registered with RBI have been reclassified as
Asset Finance Company (AFC)

Investment Company (IC)
Loan Company (LC)
Asset
Finance
Investment Loan
Page | 26
Investment Companies (IC)
1) Investment Company means any company which is carrying on the main business of securities.
2) Investment companies in India can be broadly classified into two types:
(i) Holding Companies:
a. In case of large industrial groups, there are holding companies which buy
shares mainly for the purpose of taking control over another institution.
b. They normally purchase the shares of the institution with the aim
of controlling it rather than purchasing shares of different companies.
c. Such companies are set up as private limited companies.
(ii) Other Investment Companies:
a. Investment companies are also known as Investment trusts.
b. Investment companies collect the deposits from the public and invest them in
securities.
c. The main aim of investment companies is to protect small investors by

collecting their small savings and investing than in different securities so that
the risk can be spread.
d. An individual investor cannot do all this on his own, due to lack of expertise
in investing. Hence, investing companies are formed for collective investing.
Companies are formed for collective investments of money, mainly of small
investors.
e. Another benefit of an investment company is that it offers trained,

experienced and specialized management of funds.
f. It helps the investors to select a financially sound and liquid security. Liquid
security means a security which can be easily converted into cash.
Page | 27
g. In India investment trusts are very popular. They help in putting the savings of
people into productive investments.
h. Some of the investment trusts also do underwriting, promoting and holding

company business besides financing.
i. These investments trusts help in the survival of business in the economy by

keeping the capital market alive, active and busy.
Loan Companies (LC)
(i) A loan company means any company whose main business is to provide finance through loans
and advances.
(ii) It does not include a hire purchase finance company or an equipment leasing company or a
housing finance company.
(iii) Loan Company is also known as a Finance Company".
(iv) Loan companies have very little capital, so they depend upon public deposits as their main
source of funds. Hence, they attract deposits by offering high rates of interest.
(v) Normally, the loan companies provide loans to wholesalers, retailers, small-scale industries,
self-employed people, etc.
(vi) Most of their loans are given without any security. Hence, they are risky.
(vii) Due to this reason, the loan company charges high rate of interest on its loans. Loans are
generally given for short period of time but they can be renewed.
These companies can further be classified as:
NBFC accepting deposits
NBFC not accepting deposits
Page | 28
NBFC ACCEPTING DEPOSIT
All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid
certificate of registration with authorization to accept public deposits can accept/hold public deposits.
The NBFCs accepting public deposits should have minimum stipulated net owned fund and comply
with the directions issued by the bank.
The registration process involves submission of an application by the company in the

prescribed format along with the necessary documents for RBI's consideration. If the bank is satisfied
that the conditions enumerated in the RBI Act, 1934 are fulfilled, it issues a 'Certificate of
Registration' to the company. Only those NBFCs holding a valid Certificate of Registration can
accept/hold public deposits. The NBFCs accepting public deposits should comply with the Non-
Banking Financial Companies Acceptance of Public Deposits ( Reserve Bank) Directions, 1998, as
issued by the bank. Some of the important regulations relating to acceptance of deposits by the
NBFCs are:-
(i) The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months
(ii) NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to
time. The present ceiling is 11 per cent per annum. The interest may be paid or compounded at
rests not shorter than monthly rests.
(iii) NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.
(iv) NBFCs (except certain AFCs) should have minimum investment grade credit rating.
(v) The deposits with NBFCs are not insured.
(vi) The repayment of deposits by NBFCs is not guaranteed by RBI.
(vii) There are certain mandatory disclosures about the company in the Application Form issued by
the company soliciting deposits.
Page | 29
Presently, the maximum rate of interest a NBFC can offer is 11%. The interest may be paid or
compounded at rests not shorter than monthly rests.
The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months
NBFC accepting public deposits in Mumbai are:
Bajaj Finance Ltd.
Mahindra and Mahindra Financial.
Page | 30
CASE STUDIES
Bajaj Auto Finance Ltd
Bajaj Auto Finance Ltd is one of the leading Non Banking Financial Corporation in India.
The company is a leading financier of two wheelers, consumer durables, personal computers and
personal loans. The Reserve Bank of India classified the company as an Asset Finance Company. The
chairman of the company is Mr. Rahul Bajaj.
BAFL offers consumer durable loans, personal loans, loan against property, small business
loans, construction equipment loans, loan against securities and insurance services under the name of
Bajaj Finserv Lending. As of March 31, 2012, the Company is present in 435 dealerships, and accesses
over 1045 sub-dealers across India.
Page | 31
Mahindra and Mahindra Financial Services Limited
Mahindra and Mahindra Financial Services Limited is one of Indias leading non-banking
finance companies. Through a vast network of branches, we provide personalised finance for the
widest range of utility vehicles, tractors and cars, focusing on the rural and semi-urban sector.
Strengths
As one of Indias leading non-banking finance companies Mahindra Finance enjoys certain exclusive
strengths:
(i) Fast loan processing: One of the most important assets of Mahindra Finance is our fast loan
disbursement process. With minimal documentation and utmost flexibility, our loans are
usually disbursed within a period of 2 days.
(ii) Wide network: Our extensive network of over 550+ branches spanning the country makes
sure that you can always find a Mahindra Finance branch near you.
(iii) Customised repayment schedules: Keeping in mind the needs of our customers, our
convenient, customised repayment schedules are designed to guarantee maximum flexibility
when it comes to the repayment of our loans.
(iv) In-depth knowledge: Over the years, we have gathered an in-depth knowledge of rural and
semi-urban markets, which enables us to devise products according to their specific needs.
With this asset, were able to provide our loans to many deserving customers based on future
repayment capabilities rather than their current status.
(v) Relationship with Mahindra & Mahindra: The parentage of the awe-inspiring Mahindra
& Mahindra Group and the close association with dealers through out the country gives us an
additional, exclusive advantage.
(vi) Socially inclusive business model: It is our constant endeavour is to develop skill sets at
grass-root levels. In keeping with that spirit, we provide employment to more than 6,200
Page | 32
people from the bottom of the income or social pyramids and help them grow. This ensures
that our employees are more empathetic towards the customers we cater to.
(vii) Large base of customers: And lastly, our greatest strength lies in our large and ever
growing base of over 10,00,000 satisfied customers.
Vision
To be a leading financial services provider in semi-urban and rural India
Page | 33
IMPORTANT ASPECTS OF NBFC ACCEPTING DEPOSITS
Can NBFC Accepts deposits from NRI:
Effective from April 24, 2004, NBFCs cannot accept deposits from NRI except deposits by debit to
NRO account of NRI provided such amount do not represent inward remittance or transfer from
NRE/FCNR (B) account.
However, the existing NRI deposits can be renewed.
Is Rating necessary before Accepting deposits:
An unrated NBFC, except certain Asset Finance companies (AFC), cannot accept public deposits. An
exception is made in case of unrated 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. A
NBFC may get itself rated by any of the four rating agencies namely, CRISIL, CARE, ICRA and
FITCH Ratings India Pvt. Ltd.
Incase of default in repayment of deposits what action can be taken:
If a NBFC defaults in repayment of deposit, the depositor can approach Company Law Board or
Consumer Forum or file a civil suit to recover the deposits.
Role of Company Law Board in protecting the interest of investors:
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.
Page | 34
NBFC NOT ACCEPTING DEPOSITS
The NBFCs having assets size of Rs 100 crore and above but not accepting public deposits are
required to submit a Monthly Return on important financial parameters of the company. All companies
not accepting public deposits have to pass a board resolution to the effect that they have neither
accepted public deposit nor would accept any public deposit during the year.
However, all the NBFCs (other than those exempted) are required to be registered with RBI
and also make sure that they continue to be eligible to remain Registered. Further, all NBFCs
(including non-deposit taking) should submit a certificate from their Statutory Auditors every year to
the effect that they continue to undertake the business of NBFI requiring holding of CoR under
Section 45-IA of the RBI Act, 1934.
RBI has powers to cause Inspection of the books of any company and call for any other
information about its business activities.
For this purpose, the NBFC is required to furnish the information in respect of any change in
the composition of its board of directors, address of the company and its directors and the name/s and
official designations of its principal officers and the name and office address of its auditors. With
effect from April 1, 2007 non-deposit taking NBFCs with assets size of Rs 100 crore and above have
been advised to maintain minimum CRAR of 10% and shall also be subject to single/group exposure
norms.
NBFC Not Accepting Deposits in Mumbai are as follows:
AIG Capital India Pvt. Ltd.

IDBI Gilts Ltd.
J P Morgan Securities India Pvt. Ltd.
L & T Capital Holdings Ltd. ( L&T: Larsen & Toubro )
Page | 35
AIG Capital India Private Limited
AIG Capital India Private Limited operates as a non bank finance company (NBFC) which
offers consumer finance and asset management services. The company is based in Mumbai,
India. AIG Capital India Private Limited operates as a subsidiary of AIG Capital Corporation.
Page | 36
Residuary Non-banking Companies
Another important type of NBFC is the Residuary Non-Banking Company. It has the following
featured:
i. The term "residue" means a small part of something that remains. As the meaning of
the term shows, a residuary company is one which does not fall in any of the above
categories.
ii. It generally accepts deposits by operating different schemes similar to recurring deposit
schemes of banks.
iii. Deposits are collected from a large number of people by promising them that their
money would be invested in banks and government securities
iv. The collection of deposits is done at the doorsteps of depositors through bank staff, who
is paid commission.
v. These companies get the funds at low cost for longer terms, at they invest them in
investments which generates good amount of return.
vi. Many of these companies operate with very small amount of capital.
vii. They have some adverse (bad) features, such as:
a. Some do not submit periodic returns to the regulatory authority.
b. Some of them do not appoint banks, etc.
Page | 37
An example of Residuary Non-banking Company is provided below:
EXAMPLE OF NBFC REGISTERED ON STOCK EXCHANGE
Reliance Capital Limited (BSE: 500111, NSE: RELCAPITAL) is a Non-Banking Financial

Company (NBFC) registered with the Reserve Bank of India under section 45-IA of the Reserve Bank
of India Act, 1934 as a public limited company in 1986 and is now listed on the Bombay Stock
Exchange and the National Stock Exchange (India).
RCL has a net worth of over Rs. 3,300 crore and over 165,000 shareholders. On conversion of
outstanding equity instruments, the net worth of the company will increase to about Rs. 4,100 crore.
It is headed by Anil Ambani and is a part of the Reliance ADA Group.
Reliance Capital ranks among the top 3 private sector financial services and banking
companies, in terms of net worth.
Reliance Capital has interests in:
Asset management.
Mutual funds.
Life and general insurance.
Private equity and proprietary investments.
Stock broking.
Reliance PMS.
Depository services and financial products.
Consumer finance and other activities in financial services.
Page | 38
PROBLEMS FACED BY NBFC
There are, of course, some persistent problems for NBFCs, apart from deposit-taking.
These relate to flexible handling of their capital issues. Both SEBI and the RBI need to revisit
their case for relaxations with sympathy, especially since they are rated and supervised.
These specific relaxations are more a matter of confidence-building. The requests made
by NBFCs deserve sympathetic treatment by both the securities market regulator and the
central bank.
In short, NBFCs are vitally needed to give the Indian economy a much-needed boost by
enabling easier access to credit. As it is, public and private sector banks are finding it difficult
to extend their reach for various reasons.
It behooves the RBI and the Government to look at the problems faced by NBFCs with
sympathy rather than with a recollection of the past follies of a few institutions.
Page | 39
PRIORITY SECTOR LENDING
Broadly, the priority sector comprises the following:
(i) Agriculture
(ii) Small scale industries (including setting up of industrial estates)
(iii) Small road and water transport operators (owning upto 10 vehicles).
(iv) Small business (Original cost of equipment used for business not to exceed Rs.20lakhs)
(v) Retail trade (advances to private retailers upto Rs.10lakhs)
(vi) Professional and self-employed persons (borrowing limit not exceeding Rs.10lakhs of which
not more than Rs.2lakhs for working capital; in the case of qualified medical practitioners
setting up practice in rural areas, the limits are Rs.15lakhs and Rs.3lakhs respectively and
purchase of one motor vehicle within these limits can be included under priority sector)
(vii) State sponsored organizations for Scheduled Castes/Scheduled Tribes
(viii) Education (educational loans granted to individuals by banks)
(ix) Housing [both direct and indirect loans upto Rs.5lakhs (direct loans upto Rs.10lakhs in
urban/ metropolitan areas), Loans upto Rs.1lakh and Rs.2lakhs for repairing of houses in rural/
semi-urban and urban areas respectively].
(x) Consumption loans (under the consumption credit scheme for weaker sections)
(xi) Micro-credit provided by banks either directly or through any intermediary
(xii) Loans to Self Help Groups (SHGs) or Non Governmental Organizations (NGOs)
lending loans to SHGs
(xiii) Loans to the software industry (having credit limit not exceeding Rs.1crore from the banking
system)
(xiv) Loans to specified industries in the food and agro-processing sector having investment in plant
and machinery up to Rs.5crore.
(xv) Investment by banks in venture capital (venture capital funds/ companies registered with SEBI)
Page | 40
PROTECTING THE INTEREST OF INVESTORS
(i) Default in repayment:
If a NBFC defaults in repayment of deposit, the depositor can approach Company Law Board
or Consumer Forum or file a civil suit to recover the deposits.
(ii) 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.
As explained above the depositor can approach CLB by mailing an application in prescribed
form to the appropriate bench of the Company Law Board according to its territorial
jurisdiction with the prescribed fee.
(iii) Role of Official Liquidator:
Official Liquidator is appointed by the court after giving the company reasonable opportunity
of being heard in a winding up petition. The liquidator performs duties of winding up and such
duties in reference thereto as the court may impose.
Where the court has appointed an official liquidator or provisional liquidator, he becomes
custodian of the property of the company and runs the day-to-day affairs of the company.
He has to draw up a statement of affairs of the company in prescribed form containing

particulars of assets of the company, its debts and liabilities, names/residences/occupations of
its creditors, the debts due to the company and such other information as may be prescribed.
The scheme is drawn up by the liquidator and same is put up to the court for approval.
Page | 41
The liquidator realizes the assets of the company and arranges to repay the creditors according
to the scheme approved by the court. The liquidator generally inserts advertisement in the
newspaper inviting claims from depositors/investors in compliance with court orders.
Therefore, the investors/depositors should file the claims within due time as per such notices of
the liquidator.
The Reserve Bank also provides assistance to the depositors in furnishing addresses of the
official liquidator.
An individual can approach consumer forum and civil court to solve their problem.
Page | 42
PAYMENT PROVISION
Late Payment:
As per Reserve Bank's directions, overdue interest is payable to the depositors in case the
company has delayed the repayment of matured deposits, and such interest is payable from the date of
receipt of such claim by the company or the date of maturity of the deposit whichever is later, till the
date of actual payment. If the depositor has lodged his claim after the date of maturity, the company
would be liable to pay interest for the period from the date of claim till the date of repayment. For the
period between the date of maturity and the date of claim it is the discretion of the company to pay
interest.
Pre-Payment of Public Deposit:
A NBFC accepts deposits under a mutual contract with its depositors.
In case a depositor requests for pre-mature payment, Reserve Bank of India has prescribed
Regulations for such an eventuality in the Non-Banking Financial Companies Acceptance of Public
Deposits (Reserve Bank) Directions, 1998 wherein it is specified that NBFCs cannot grant any loan
against a public deposit or make premature repayment of a public deposit within a period of three
months (lock-in period) from the date of its acceptance, however in the event of death of a depositor,
the company may, even within the lock - in period, repay the deposit at the request of the joint holders
with survivor clause / nominee / legal heir only against submission of relevant proof, to the satisfaction
of the company.
An NBFC subject to above provisions, if it is not a problem company, may permit after the
lock-in period premature repayment of a public deposit at its sole discretion, at the rate of interest
prescribed by the Bank.
A problem NBFC is prohibited from making premature repayment of any deposits or granting
any loan against public deposits/deposits, as the case may be. The prohibition shall not, however,
apply in the case of death of depositor or repayment of tiny deposits i.e. up to Rs. 10,000 subject to
lock-in period of 3 months in the latter case.
Page | 43
CONCLUSION
NBFCs are gaining momentum in last few decades with wide variety of product sand services.
NBFCs collect public funds and provide loan able funds. There has been significant increase in such
companies since 1990s. They are playing a vital role in the development financial system of our
country. The banking sector is financing only 40 per cent to the trading sector and rest is coming from
the NBFC and private money lenders.
At the same line 50 per cent of the credit requirement of the manufacturing is provided by
NBFCs. 65 per cent of the private construction activities was also financed by NBFCs. Now they are
also financing second hand vehicles. NBFCs can play a significant role in channelizing the remittance
from abroad to states such as Gujarat and Kerala.
NBFCs in India have become prominent in a wide range of activities like hire purchase
finance, equipment lease finance, loans, investments, and so on. NBFCs have greater reach and
flexibility in tapping resources. In desperate times, NBFCs could survive owing to their aggressive
character and customized services. NBFCs are doing more fee-based business than fund based. They
are focusing now on retailing sector-housing finance, personal loans, and marketing of insurance.
Many of the NBFCs have ventured into the domain of mutual funds and insurance. NBFCs
undertake both life and general insurance business as joint venture participants in insurance
companies. The strong NBFCs have successfully emerged as Financial Institutions in short span of
time and are in the process of converting themselves into Financial Super Market. The NBFCs are
taking initiatives to establish a self-regulatory organization (SRO).
At present, NBFCs are represented by the Association of Leasing and Financial Services
(ALFS), Federation of India Hire Purchase Association (FIHPA) and Equipment Leasing Association
of India (ELA). The Reserve Bank wants these three industry bodies to come together under one roof.
The Reserve Bank has emphasis on formation of SRO Particularly for the benefit of smaller NBFCs.
Page | 44
BIBLIOGRAPHY
www.investopedia.com
www.rbi.org
www.wikipedia.org
www.economictimes.com
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NON- BANKING FINANCIAL COMPANIES

A Non-Banking Financial Company (NBFC) is a company registered under the Companies

According to Section 45-1 (f) of Reserve Bank of India Act, 1934

Non-Banking Financial Company means-

a financial institution which is a company;

REGULATORY NORMS OF NBFC

II .Entry Point Norms:

(ii) There would be powers with the Reserve Bank to:

a. Prescribe different capital for different classes of financial companies,

III Regulatory and Supervisory Issues:

(ii) The Company Law Board (CLB) would continue to be authority to

(vi) Unauthorized deposit-taking by companies

(a) whose applications for Certificate of Registration have been rejected,

(b) whose registration has been cancelled,

RBI GUIDELINES TO NBFC

(i) Capital adequacy:- NBFCs ND SI were advised to maintain a minimum Capital to

a. Capital to Risk Assets Ratio (CRAR)

b. Exposure to real estate sector, both direct and indirect; and

c. Maturity pattern of assets and liabilities

NBFC NOT REGISTERED WITH RBI

Mutual Benefit Companies

Miscellaneous Non-Banking Companies (MNBCs)

ROLE OF NON- BANKING FINANCIAL COMPANIES

(i) Promoters Utilization of Savings- Non- Banking Financial Companies play an

(iii) Financial Supermarket- NBFCs play an important role of a financial supermarket.

REQUIREMENTS FOR REGISTRATION

REQUIREMENTS FOR ACCEPTING DEPOSITS

(i) Category of NBFC

(ii) Ceiling on public deposits

(iii) AFCs maintaining CRAR of 15% without credit rating

(v) times of NOF or Rs 10 crore whichever is less

(vi) 4 times of NOF

(viii) times of NOF

e. The repayment of deposits by NBFCs is not guaranteed by RBI.

COMPLIANCE TO BE SUBMITTED WITH RBI

SUBMISSIONS OF RETURNS AND OTHER DOCUMENTS WITH RBI

The NBFCs accepting public deposits should furnish to RBI:

(ii) Statutory Annual Return on deposits - NBS 1;

(iv) Quarterly Return on liquid assets;

(v) Half-yearly Return on prudential norms;

(vi) Half-yearly ALM Returns by companies having public deposits of Rs 20 crore

(ix) Returns on prudential norms as at (v) above.

Hire Other Investment

(i) Receiving benefits:

(ii) Lending money:

d. Other types of finance provided by NBFCs include: Consumption finance,

e. Investment of surplus money: NBFCs invest their surplus money in various

SERVICES OFFERED BY NBFC

List of Services Provided by NBFC

(i) Underwriting- Underwriting is an agreement, entered into by a company with a financial

(ii) Stock Broking-

(v) Portfolio Management Service- Portfolio Management Services (PMS) is an investment

(ix) Factoring and leasing related business-

DIFFERENCE BETWEEN NBFC AND BANK

1. Acceptance of demand deposit:

5. Laws which govern them:

The NBFCs that were registered with RBI are as follows:

Equipment leasing company;

Asset Finance Company (AFC)

Investment Companies (IC)

2) Investment companies in India can be broadly classified into two types:

(i) Holding Companies:

c. Such companies are set up as private limited companies.