A Non-Banking Financial Company (NBFC) refer to those companies which does not hold a bank license but are engaged in financial related activities. Non Banking Financial Companies are registered under the companies act, 1956. Principle business of these companies is loans and advances, acquisition of share/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 any 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.
Different Types /Categories of Non Banking Finance Companies (NBFCs)
- Asset Finance Comapany (AFC)
- Investment Company (IC)
- Loan Company (LC)
- Infrastructure Finance Company (IFC)
- Systematically Important Core Investment Company (CIC-ND-SI)
- Infrastucture Debt Fund (IDF-NBFC)
- Micro Finance Institution (MFI-NBFC)
- Non Banking Finance Company – Factors (NBFC-Factors)
- Mortgage Guarantee Companies (MGC)
- NBFC- Non Operative Financial Holding Company (NOFHC)
Asset Finance Company (AFC)
An Asset Finance Company (AFC) refer to a financial institution which is enagaged in principle business of financing of physical assets supporting productive/economic activity such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose indsutrial machines.
Principle business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60 percent of its total assets and total income respectively.
Investment Company (IC)
An Investment Company is a financial institution which is enagaged in principle business of buying and selling of securities. These comapanies pools the money from investors to invest in securities.
Loan Company (LC)
Loan Company is also a type of NBFC, carrying on as its principle business the providing of finance by making loan or advance for supporing the activities other than its own but does not include asset finance company.
Infrastructure Finance Company (IFC)
IFS is a non banking finance company which has a minimum net owned funds of ₹300 crore and deploy at least 75 percent of its total assets in infrastructure finance. It has a minimum credit rating of ‘A’ or equivalent and a CRAR of 15 percent.
Systematically Important Core Investment Company (CIC-ND-SI)
A NBFC which has delpoyed at least 90 percent of its assets in form of investment in equity shares, preference shares , debt or loan in group companies is known as CIC-ND-SI. Its investment in the equity shares in group companies constitutes not less than 60 percent of its total assets. Such companies also accept public deposit and their asset size is ₹100 crore or above.
Infrastucture Debt Fund (IDF-NBFC)
IDF-NBFC is a company registered as NBFC which facilititate the flow of long term debt into infrastructure projects. It raises the funds by issuing rupee or dollar denominated bonds of minimum 5 year maturity. Only infrastructure finance companies can sponsor IDF-NBFCs.
Micro Finance Institution (MFI-NBFC)
MFI is a non deposit taking NBFC having not less than 85% of its assets in the form of microfinance. Such microfinance should satisfy the following criteria – (i) loan disbursed to those having annual income not exceeding ₹ 1,00,000 in rural areas and ₹1,60,000 in urban and semi urban areas (ii) loan amount does not exceed ₹50,000 in first cycle and ₹1,00,000 in subsequenty cycles (iii) tenure of the loan not to be less than 24 months and to given without collateral (iv) loan repayment on weekly, fortnightly or monthly basis as per choice of the borrower.
Non Banking Finance Company – Factors (NBFC-Factors)
NBFC-Factor is a NBFC engaged in principal business of factoring. Financial Assets in the facotring business should constitute at least 50 percent of its total assets and its income derived from factoring business should not be less than 50 percent of its gross income.
Mortgage Guarantee Companies (MGC)
MGC are financial institutions 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 net owned fund is ₹ 100 crore.
NBFC- Non-Operative Financial Holding Company (NOFHC)
NOFHC is 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 the applicable regulatory prescriptions.
Reserve Bank has been given the powers under the RBI Act 1934 to register, lay down policy, issue directions, inspect, regulate, supervise and exercise surveillance over NBFCs that meet the 50-50 criteria of principal business. The Reserve Bank can penalize NBFCs for violating the provisions of the RBI Act or the directions or orders issued by RBI under RBI Act. The penal action can also result in RBI cancelling the Certificate of Registration issued to the NBFC, or prohibiting them from accepting deposits and alienating their assets or filing a winding up petition.