NBFC stands for Non-Banking Financial Company. It is a company that is registered under the Companies Act, 1956 of India. The moderation and working of NBFCs are regulated by the central bank itself. The operations are based on the framework issued by the Reserve Bank of India, 1934 in Chapter III – B and directions issued by it.
A NBFC can engage itself in the following businesses:
- The business of loans and advances
- Acquisition of shares and stocks
- Hire-purchase of bonds
- Insurance business
- Chit business that does not include any institution whose principal business includes agriculture, industrial activity or the sale and purchase of immovable property.
Types of NBFC
- Loan Company
Loan Company or LC is a non-banking financial company carrying on as its main business the providing of finance whether by granting loans or advances.
- Infrastructure Finance Company
Infrastructure Finance Company or IFC is a non-banking finance company which:
- Invests at least 75 percent of its total assets in infrastructure loans
- Has a minimum credit rating of A or something equivalent to it
- Has a minimum CRAR of 15 percent
- Has a minimum net owned funds of R
- s. 300 crores.
- Investment Company
Investment Company or IC is a non-banking financial company which carries on as its main business – the acquisition of securities.
- Asset Finance Company
Asset Finance Company or AFC is a financial company which carries on its main business as the financing of physical assets be it productive or economic such as automobiles, tractors, generator sets etc.
- Infrastructure Debt Fund: Non-Banking Financial Company (IDF – NBFC)
IDF – NBFC is a non-banking financial company which has root business to facilitate the flow of long-term debts into infrastructure projects.
- NBFC – Factors
NBFC Factors has a base and principal business of factoring that is a kind of financial transaction and a type of debtor finance. In this, the business sells its accounts receivable or the invoices to a third party which is also called a factor at a negotiable discount.
- Gold Loan NBFCs in India
The Gold Loan is the non-banking financial companies that provide a proportionate amount of loan as money on the deposition of gold. The money they vent out as the loan is directly proportional to the gold. Right now, there are 3 basic Gold Loan NBFCs in India that are Manappuram Finance, Muthoot Finance, and Muthoot Fincorp.
- Residuary Non-Banking Companies
Residuary Non-Banking Companies are the financial companies that have the primary business of receiving the deposits in form of under any scheme or arrangement or in any other manner and not being Asset Financing, Loan Company, and most importantly Investment.
RBI and norms of NBFCs
NBFCs are registered with the central bank, the Reserve of India and this implies that the RBI may take part in the insurance agency business on a fee basis and without risk participation or the need and to seek the bank’s approval. In a circular issued recently by the RBI, it said that such NBFCs should also obtain permission from the Insurance Regulatory.