Types of NBFCs

NBFCs are classified into two types:

On the basis of liabilities

All NBFCs – ND whose asset size is Rs. 500 Crore and more as per the last audited balance sheet is considered as Systemically Important NBFC (NBFC-ND-SI).

Asset size of the group companies to be clubbed

NBFC-ND-SI has to follow the policies prescribed by RBI mandatorily and exempt from Credit Concentration Norms.

NBFC-ND-Non SI is exempt from observing Prudential Norms, 2015 (except Annual Certificate)

On the basis of Activities

NBFC-Investment and Credit Company (NBFC-ICC)

It is a kind of NBFC which deals with the lending and investment activities. Previously there were three categories which were later merged into one to provide greater operational flexibility.

[Asset Finance Company + Loan Company + Investment Company = Investment and Credit Company]

NBFC-Infrastructure Finance Company (NBFC-IFC)

This type of financial institutions is primarily engaged in providing infrastructure loans.

NBFC-Systemically Important Core Investment Company (CIC-ND-SI)

Its activities are mainly involved in investment in equity shares, preference shares, debt or loans of group companies.

Infrastructure Debt Fund-NBFC (IDF-NBFC)

Activities of NBFC-IDF are mainly concerned with facilitation of flow of long-term debt into infrastructure projects.

NBFC-Micro Finance Institution (NBFC-MFI)

NBFC-MFI is mainly formed to provide credit to economically disadvantaged groups.

NBFC-Factor

Their main activity is concerned with acquisition of receivables of an assignor or extending loans against the security interest of the receivables at a discount.

NBFC-Non-Operative Financial Holding Company (NOFHC)

Facilitation of promoters/ promoter groups in setting up new banks

Mortgage Guarantee Company (MGC)

Undertaking of mortgage guarantee business

NBFC-Account Aggregator (NBFC-AA)

Collecting and providing information about a customer’s financial assets in a consolidated, organized and retrievable manner to the customer or others as specified by the customer.

NBFC–Peer to Peer Lending Platform (NBFC-P2P)

It provides an online platform to bring lenders and borrowers together to help mobilize funds

How NBFCs are different from Banks?

We can differentiate NBFCs from banks on the basis of following points:

Meaning

NBFCs provide banking services to people without holding Bank license.

Bank is a government authorized financial intermediary which aims at providing banking services to the public.

Regulated Authority

In case of NBFCs - Companies Act 2013 & RBI Act, 1934

In case of Banks - Banking Regulation Act 1949

Demand Deposit

NBFCs cannot accept demand deposits.

Banks can accept demand deposits.

Foreign Investment

In case of NBFCs, foreign investment is 100% allowed.

Foreign investment is allowed up to 74% for private sector banks.

Payment and Settlement System

NBFCs – not a part of system

Banks – Integral part of the system

Maintenance of Reserve Ratios

Not required in case of NBFCs.

Banks have to maintain reserve ratios.

Deposit insurance facility

NBFCs – Not available

Banks – Available

Credit creation

NBFCs do not create credit.

Banks create credit.

Transaction Services

NBFCs cannot provide transactions services.

Banks provide transaction services.

Importance & Functions of NBFCs in India

NBFC registration is very important for a person who wants to carry finance business in India. NBFCs cater wide range of customers and provide loans to the deprived sections of the society including both urban & rural areas in this way they contribute towards the growth of the country. Moreover, the interest rate at which a NBFC advances loan can be decided by itself keeping RBI guidelines in mind.

Functions of NBFC are as follows:

Providing customized loan solutions

Digital platform to provide loans using advanced technology

Faster processing of loan

Employment generation

Wealth creation

Infrastructure development

Financial assistance to financially weaker section of the society thus economic development

Advantages of NBFC registration