NBFC in India and Types of NBFC

by Enterslice ITES Pvt. Ltd. Start and Manage Business

Over the years, Non-Banking Financial Companies has gained a significant role in providing affordable financial services and constitute an integral part of the financial system in India. Despite sluggish economic growth NBFCs have been gaining market share.

With the growing demand of NBFCs, it has a separate Department of Non-Banking Supervision which is entrusted with the responsibility of regulation and supervision of NBFC.

According to RBI, an NBFC is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares, stocks, bonds, debentures or securities issued by Government or local authority or other marketable securities. The operations of NBFC are regulated by RBI within the framework of the Reserve Bank of India Act, 1934 (Chapter III B).

NBFC are involved in raising funds from the public whether directly or indirectly and lending to ultimate spenders. They provide loans to the various wholesale and retail traders, small-scale industries and self-employed persons. Gradually, they are being recognized as complementary to the banking sector in reaching out credit to the unorganized sector especially MSME due to the following benefits:

strong risk management capabilities to check and control bad debts;
customer-oriented services;
simplified procedures;
attractive rates of return on deposits;
timeliness in meeting the credit needs of different sectors and many others

Types of NBFC

1. Liabilities based NBFC

NBFC having Public deposits (NBFC-D)
NBFC not having public deposits (NBFC-ND)

2. Asset-based Classification

Asset finance Company: The main business is to finance the assets such as machines, equipment,
Investment Company: A Company whose principal business is the acquisition of securities
Loan Company: A Company whose principal business is to make loans and advances (not for assets but for other purposes such as working capital finance etc.)
Infrastructure Finance Company(IFC): A Company having a min net owned fund of 300 crores which deploys at least 75% of its total assets in infrastructure loans
NBFC factor: An NBFC-Factoring company having a minimum Net Owned Fund (NOF) of Rs. 5 Crore and its financial assets in the factoring business should constitute at least 75 percent of its total assets and its income should not be less than 75 percent of its gross income
Micro Finance institution (NBFC-MFI): NBFC accepting non-deposit which has at least 85% of its assets in the form of microfinance which provides a loan to those whose annual income in rural areas doesn’t exceed 60,000 and 1,20,000 in urban areas
Infrastructure Debt Fund(NBFC-IDF): NBFC accepting non-deposit having min net owned fund of 300 crores and invests only in Public-Private Partnerships (PPP) and post-commencement operations date (COD) infrastructure projects which have completed at least one year of satisfactory commercial operation and becomes a party to a Tripartite Agreement.

3. Size based Classification:

Core Investment Company: A NBFC with asset size of 100 crores and above and carrying on a business of acquisition of shares and securities satisfying the condition that it deploys 90% of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies out of which 60% should be invested in equity shares including instruments compulsorily converted into equity shares .