Non-Banking Financial Company (NBFC)

• Non-Banking Financial Company (NBFC) is a

company registered under the Companies Act,
1956. It is engaged in the business of loans,
securities, insurance, chit funds etc. They also
provide products/services that includes margin
funding, leasing and hire purchase, corporate loans,
investment in nonconvertible debentures, IPO
funding, small ticket loans, venture capital etc.
NBFC’s
• Some of the prominent NBFCs in India
are:
• Infrastructure Development Finance
Corporation (IDFC)
• Rural Electric Corporation ( REC)
• Industrial Finance corporation of India (IFCI )
• GE Capital
• Till March 2009 there were 12,739 NBFCs
out of which 336 NBFCs were permitted to
accept public deposits.
 NBFCs are different from Banks
• NBFCs cannot accept demand deposits
(Demand deposits are funds deposited in an
institution, that are payable immediately on
demand e.g.: Savings account, Current
account etc)
• A NBFC cannot issue cheques, to their
customers and is not a part of the payment
and settlement system
• Deposit insurance facility of Deposit Insurance
Credit Guarantee Corporation (DICGC) is not
available for NBFC depositors
• They are allowed to accept/renew public
deposits for a minimum period of 12 months
and maximum period of 60 months.
CONT.
• They cannot offer interest rates higher than the
ceiling rate prescribed by RBI from time to time.
(Currently the ceiling rate is 12.5%)
• They cannot offer gifts/incentives or any other
additional benefit to the depositors.
• They should have minimum investment grade credit
rating, from the credit rating agencies.
Regulations on NBFCs taking Deposits

• 1. 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.
• 2. New NBFCs are not allowed to raise
public deposits for period of two years from
the date of registration. After completion of
two years, detailed review is taken of the
company by the regulator.
• 3. 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.
• 4. NBFCs cannot offer interest rates higher than
the ceiling rate prescribed by RBI from time to
time. The present ceiling is 12.5 per cent per
annum. The interest may be paid or
compounded at rests not shorter than monthly
rests.
• 5. NBFCs cannot accept deposits from NRI
except deposits by debit to NRO account of NRI
provided such amount do not represent nward
remittance or transfer from NRE/FCNR account.
Cont.
• 6. NBFCs withnet owned fund (NOF) of
less than Rs. 25 lakhs (with or without
credit rating) are not entitled to accept
public deposits.
• 7. Evaluation of the quality of
management in respect of the
promoters/directors is taken into
consideration while giving allowance for
taking public deposits.
Eligibility Criteria for Starting NBFC
• Initial Procedure
• The Start up NBFC should be incorporated under the
Companies Act, 1956.
• It should be registered with RBI, under Section 45-I of the
RBI Act, 1934
• The company is required to submit the application for
registration in the prescribed format along with necessary
documents for RBI's consideration. RBI then issues
certificate of registration after satisfying itself that the
conditions as enumerated in Section 45-IA of the RBI Act,
1934 are satisfied
• For registration with RBI, the company is required to fill the
application, which can be downloaded from
www.rbi.org.in/scripts/BS/viewforms.aspx.
Cont.
• After downloading the EXCEL based
application form, data should be keyed in, it
can be uploaded in the RBI's Secure website
https://secweb.rbi.org.in. Once uploaded, the
company will get a CoR (Company Application
Reference Number). Subsequently, the
company should take the hard copy of the
same with the supported documents and
submit it to the concerned regional office.
Cont.
• Certain category of NBFCs like Venture Capital
Fund/Merchant Banking Companies/Stock Broking
Companies etc need not be registered with RBI they
are governed by SEBI.
• Insurance companies holding a valid certificate of
registration are regulated by IRDA.
• Housing finance companies regulated by National
Housing Bank.
 UNORGANISED SECTOR OF THE MONEY
MARKET

 Indigenous Bankers
 Money Lenders
 Chit Funds
 Nidhis
 Loan Companies
 Finance Brokers
Nationalization And Social Responsibilities
of Banking
• Achievements:
• Increase in banks and number of branches.
• Increase in bank deposits.
• Increase in bank credit
• Priority sector lending.
• Reduction in regional imbalances in banking facilities.
• Increase in rural and semi urban branches
• Class banking to mass banking
• Social banking
• Development banking