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Introduction
• Definition
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/ 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. A non- banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).
• Types of Non Banking Financial Institutions
NBFCs are categorized
a) in terms of the type of liabilities into Deposit and Non- Deposit accepting NBFCs,
b) non deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC- NDSI and NBFC-ND)
c) by the kind of activity they conduct. Within this broad categorization the different types of NBFCs are as follows:
I. Asset Finance Company (AFC) : An AFC is a company which is a financial institution carrying on as its principal
business the 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 industrial machines. Principal 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% of its total assets and total income respectively.
II. Investment Company (IC) : IC means any company which is a financial institution carrying on as its principal business the acquisition of securities,
III. Loan Company (LC): LC means any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company.
IV. Infrastructure Finance Company (IFC): IFC is a non- banking finance company a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of 2 0B 9300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%. V. Systemically Important Core Investment Company (CIC- ND-SI): CIC-ND-SI is an NBFC carrying on the business of acquisition of shares and securities which satisfies the following conditions:-
NBFC having not less than 85% of its assets in the nature of qualifying assets which satisfy the following criteria: a. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding 2 0B 91,00,000 or urban and semi-urban household income not exceeding 2 0B 91,60,000; b. loan amount does not exceed 2 0B 950,000 in the first cycle and 2 0B 91,00,000 in subsequent cycles; c. total indebtedness of the borrower does not exceed^ 2 0B 9 1,00,000; d. tenure of the loan not to be less than 24 months for loan amount in excess of 2 0B 915,000 with prepayment without penalty; e. loan to be extended without collateral; f. aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the MFIs; g. loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower
VIII. Non-Banking Financial Company – Factors (NBFC- Factors): NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The financial assets in the factoring 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.
IX. 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 2 0B 9100 crore.
X. NBFC- Non-Operative Financial Holding Company (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.
“high-risk institutions’’ means that these companies bear the risk of being used for money-laundering purposes. In fact, it’s being suggested that some of these companies are shell companies. What is strange is that the Ministry would have had this data for years, but it chose to keep it under the wraps and release it during this turbulent phase in the banking sector. Moreover, a CRISIL report released that NBFCs are going to take a bigger bite in the credit pie at the cost of the non- performing assets raddled banking sector. The share of NBFCs in total credit is going to rise to 19% by 2020 from 12% in
- This projection takes into account improvement in public banks due to the government’s bank recapitalisation programme and a decent improvement in private banks.
- **Impact on NBFCs:**
This news could deeply impact the reputation of these NBFCs. These companies borrow from bigger NBFCs, banks and organisations like SIDBI (Small Industries Development Bank of India) and NABARD (National Bank for Agricultural and Rural Development). Their mention in the list could reduce their likeliness to obtain financing. It will also require them to provide more information and verification due to greater government vigilance.
