Non-Banking Financial Companies (NBFCs)

Definition: The Non-Banking Financial Companies (NBFCs) are the financial institutions that offer the banking services, but does not comply with the legal definition of a bank, i.e. it does not hold a bank license.

The non-banking financial companies are registered under the Companies Act, 1956 and deals in the business of loans and advances, investments in bonds/shares/debentures/stock and other marketable securities Viz. Lease, hire-purchase, insurance business, but do not include any institution which is principally engaged in the business of agricultural activity, purchase of any goods and services (other than securities), industrial activity and sale/purchase/construction of immovable property.

Types of non-banking financial companies

1. Mutual Benefit Finance Company
2. Investment Company
3. Equipment Leasing Company
4. Hire-Purchase Company
5. Loan Company
6. Asset Finance Company (AFC)
7. Infrastructure Finance Company (IFC)
8. Infrastructure Debt Fund: Non-Banking Finance Company (IDF-NBFC)
9. Non-banking Financial Company: Micro Finance Institution (NBFC-MFI)
10. Systematically Important Core Investment Company (CIC-ND-SI)
11. Non-Banking Financial Company-Factors
12. Housing Finance Company
13. Chit Fund Company
14. Residuary Non-Banking Company

The non-banking companies, registered with the Reserve Bank of India can accept the public deposits and must comply with the following regulations as stated under the Non-Banking Financial Companies Acceptance of Public Deposits Directions, issued by RBI. These are:

• The NBFCs are allowed to take the public deposits for a minimum period of 12 months and the maximum period of 60 months.
• These companies are not allowed to accept deposits, which are repayable on demand.
• The NBFCs cannot offer the interest rate higher than the ceiling rate as prescribed by RBI from time to time.
• The companies cannot offer any gifts, incentives, or any other benefit to the depositors.
• The deposits are not insured.
• The NBFCs must have minimum investment grade credit rating.
• The RBI gives no guarantee of the repayment of deposits by the NBFCs.

Note: Although, the non-banking financial companies do not hold the bank license and are restricted to take any public deposits their operations are covered under the banking regulations and are regulated by the Reserve Bank of India.