Non Banking Financial Companies

DEFINITION:

Non banking Financial Companies (NBFC) is a company registered under the companies Act ,1956 engaged in a business of loans and advances , acquisition of shares/bonds/debentures/securities issued by government or local authority or other marketable securities of like nature ,leasing,hire purchase,insurance business ,chit business but doesn’t include any institution whose principle business is that of agriculture activity,industrial activity,sales/purchase /construction of immovable property.

From RBI (Amendment) Act ,1997 ,Investment and Loan companies came under NBFCs.

Distinguishable feature of NBFC from banks:

1.NBFC can’t accept the demand deposit.

2.they don’t form part of the payment and settlement system and cant issue the cheques drawn on itself.

3.Deposit insurance fecility of Deposit Insurance and Credit Guarantee Corporation is not available to depositor of NBFCs.

Certification of NBFCs:

A company incorporated under the company act 1956, and desirous of commencing business of non bankinf financial institution as defined under section 45 Ia of RBI act 1934 should comply with the following :

It should be company registered under  section 3 the company Act 1954 and it should have a minimum net owned fund of 2 crore.

Certain categories of NBFCs which are regulated by other regulator are exempted from certification from RBI in order to avoid dual regulation.example Venture Capital Funds /Stock broking companies/Merchant Banking companies registered with SEBI ,Insurance companies registered and regulated by IRDA,Housing Finance Company,Stock exchanges ,mutual benefit company,Chit companies,Nidhi Companies.

Categories of NBFCs:

1.Equipment leasing Company

2.Hire-Puchase Finance Company

3.Housing Finance Company

4.Loan Company

5.Investment Company

6.Mutual Benefit Financial Company:company which are notified by Central Govt under section 620 A of companies Act ,1956.

7. Residuary Non-banking Companies:  means a company which receives any deposit under any scheme or arrangement in one lump sum or in installments by the way of contribution or subscription or by the sale of certificate or instruments or in any manner which according to the definition contained in NBFC direction ,1977.

IMPORTANCE of NBFCs

They have been helping to bridge the credit gap in several sectors which traditional institution are unable to fill. they have been playing a positive role in accessing certain depositor segment and catering to specialized credit requirement of certain class of borrowers.They have served the household,farm,and enterprise sector on sustained basis.

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