Non Banking Financial Companies NBFCs – Types and Functions

An NBFC (Non-Banking Financial Company) is a company registered under Company Act 1956/ 2013. Its principal business is receiving deposits and providing loans under any scheme. NBFCs perform the basic business of the bank without the license. NBFCs are regulated by RBI. The minimum asset value needed for starting the functioning of an NBFC is  200 lakhs (2 crores).

Functions of NBFC

• Leasing
• Hire purchase
• Insurance
• Investment in stocks, bond and debentures
• Sales/Purchase

     All Bank exams @Rs 999/-. Banking 2.0

Difference between a Bank and an NBFC

•  Maximum term for deposit – 60 months
•  Maximum Interest Rate Offered- 12.5%

Types of NBFCs

There are 10 different types of NBFCs

1. Asset Finance Company

An AFC is a financial institution whose primary business is financing physical assets supporting production or economic activity.

2. Investment Company

IC is an NBFC carrying out the business of acquisition of securities including bonds, securities and debentures.

3. Systematically Important Core Investment Company

CIC-ND-SI is an NBFC carrying acquisition of shares and securities under certain conditions

(a) minimum of 90% of its total assets must be invested in equity shares.

(b) minimum of 60% of its share of total assets must be invested in equity shares

(c) must have an asset of minimum 100 crores

(d) Should accept public funds.

4. Loan Company

NBFC with a primary business of providing finance either by making loans or advance or otherwise for any activity other than its own but does not include an Asset Finance Company.

5. Infrastructure Finance Company (IFC)

An NBFC which invest a minimum of 75% or above of its asset in infrastructure development projects. It should have a minimum capital of 300 crores. It should also possess a credit rating of ‘A’ or equivalent and CRAR (Capital to Risk Asset Ratio ) of 15 %.

6. NBFC- Micro Finance Institution

MFI is a non- deposit taking NBFC having not less than 85%of its assets in the nature of qualifying assets which satisfy the following conditions

(a)  loan disbursed to a borrower with a rural household annual income not exceeding Rs. 1,00,000/- or urban and semiurban household not exceeding Rs. 1,60,000/-.

(b) Loan amount should not exceed Rs. 50,000/- in the first cycle and R. 1,00,00/- in the second cycle.

(c) The total indebtedness of the borrower does not exceed Rs.1,00,000/-

(d) The tenure of the loan is not less than 24 months for loan amount in excess of Rs.15,000/- with prepayment without penalty.

(e) loan to be extended without collateral

(f) Aggregate amount of loans, given for income generation is not less than 50% of the total loans given by the MFIs.

(g) The loan is repayable on weekly, fortnightly or monthly installments.

7. NBFC- Factors

NBFC- Factor is a non- deposit taking NBFC engaged in the principal business of factoring. The financial assets in the factoring business should constitute at least 50%  of the total assets and its income derived from factoring business should not be less than 50% of its total income.

8. Mortgage Guarantee Company (MFC)

MGC is a financial institution for which at least 90% of the business turnover is mortgage guarantee business or at least 90% of the gross income is from mortgage guarantee business and the net owned fund is 100 crores.

9. NBFC- Non-Operative Financial Holding Company

NOFHC is a 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 applicable regulatory prescriptions.

10. Infrastructure Debt Fund: Non-Banking Finance Company

1DF- NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resource through the issue of Rupee or Dollar denominated bonds of minimum 5 years maturity. Only Infrastructure Finance Companies can sponsor IDF-NBFC.