Non-Banking Financial Companies (NBFCs)

INTRODUCTION:

NBFC is a Company registered under the Companies Act and engaged in the business of loan and advances, acquisition of shares/stocks/bonds/debentures/ securities, leasing, hire purchase, insurance business and chit fund business but does not include whose principal business is an agriculture activities, industrial Activities, purchase or sale of any goods (other than securities) and sale/purchase/construction of immovable properties. Thus, Indian financial institutions which are not banks but which accept deposits and give loans like banks are called Non-Banking Financial Companies (NBFCs) in India.

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TYPES OF NBFCs:

NBFCs can be either deposit accepting (NBFC-D) or Non-Deposit accepting (NBFC-ND), further Non-Deposit accepting NBFCs are categorized by their size into systemically important (NBFCs-ND-SI) and non systemically important (NBFCs-ND-NSI)

Note: Non-Deposit taking NBFC with assets size of Rs. 500 Crore or more as per the latest audited balance sheet are defined as Non-Deposit Systemically Important NBFCs (NBFCs-ND-SI)
Procedure for registration of Non-Banking financial company with reserve bank of India

• Raise and maintain the minimum requirement of Net Own Fund of INR 2 Crores, after the company has been incorporated under the Company Act.
• Fill an online application with the Reserve Bank of India.
• The Company will be allotted a Company Application Reference Number to inquire about the current status of the application.
• Thereafter the applicant company has to apply in hard copy along with the duplicate copy of the online application form to the jurisdictional office of Reserve Bank of India With the given allotment reference number and prescribed documents.
• On receipt of the application, the Regional Office examines and verifies all the details and documents and after being satisfied, sends it to the Central Office of the Reserve Bank of India.
• The Central Office then grant the Non-Banking Financial Company Registration certificate only when all the conditions and requirements under section 45-IA of Reserve Bank of India Act, 1934 are met and fulfilled by the applicant company.

DEPOSIT ACCEPTING AND NON ACCEPTING NBFCs, THEY MAY BE FURTHER DIVIDED INTO BELOW CATEGORIES:

• Assets finance Company (AFC)
• Investment Company (IC)
• Loan Company (LC)
• Infrastructure Finance Company (IFC)
• Infrastructure Debt Fund (IDF) –NBFC
• Core Investment Company (CIC)
• NBFC-Micro Finance Institution (NBFC-MFI)
• NBFC-Factors
• Mortgage Guarantee Companies
• NBFC- Non-Operative Financial Holding Company

THERE ARE SOME NBFCs EXEMPTED FROM REGISTRATION WITH RBI

• Insurance Companies – being regulated by IRDA
• Housing Finance Companies –being regulated by National Housing Bank (NHB)
• Stock Broking Companies – being regulated by SEBI
• Merchant banking companies -being regulated by SEBI
• Mutual fund – being regulated by SEBI
• Venture Capital Companies – being regulated by SEBI
• Companies running collective investment scheme – being regulated by SEBI
• Chit Fund Companies –these are regulated under Chit Fund Act and by respective State Government
• Nidhi companies –being regulated by the Ministry of Corporate Affairs (MCA)

THER ARE HUGE NUMBER OF NBFCs OPERATING IN COUNTRY LIKE:

• Power Finance Corporation Limited
• Shriram Transport Finance Company Limited
• Bajaj Finance Limited
• Mahindra & Mahindra Financial Services Limited
• Muthoot Finance Limited
• HDB Finance Services
• Cholamandalam Investment and Finance Company Limited (Chola)
• Tata Capital Financial Services Limited
• L & T Finance Limited
• Aditya Birla Finance Limited

NBFCs ARE NOT A BANK

NBFCs lend and make investments and hence their activities are akin to that bank, however, there are few differences given below:

• NBFCs cannot accept demand deposit
• NBFCs do not form part of the payment and settlement system and cannot issue.

Compliances Aspects

All NBFCs have to fulfil the statutory requirements under Companies Act 2013 as well RBI Act, rules, regulations, directions, notification issues from time to time

Some of the key compliances under the RBI as described below:

• Fair practice code
• Corporate Governance
• Know Your Customer (KYC) Guidelines
• Prevention of Money Laundering Activities (PMLA)
• Registration under 4 Credit Bureaus like TransUnion CIBIL, Equifax, Experian and CRIF Highmark.
• C-KYC Registration
• CERSAI Registration
• FIU –Ind Registration
• XBRL Base Filling
• Submission of Statutory Auditor Certificate (SAC) within one months from the finalisation of balance sheet but not letter then 31 December
• Submission of audited balance sheet within 15 days from Annual General Meeting
• Submission of Board Resolution regarding non-acceptance of public deposit

XBRL Return by the NBFCs

A new return reporting platform XBRL system has been introduced in October 2019 which means e-Xtensible Business Reporting Language. The RBI mandated all NBFCs to file NBFC return in XBRL mode beginning from FY 2019-20

CONCLUSION
In India, NBFCs are corporations that are not banks, and yet carry out lending activities similar to those of Banks. They can also accept deposits from the public; however, these deposits are fixed deposits and not demand deposits. An analysis of the past financial performance of NBFCs reveals that they are emerging as an important source of credit for micro and small enterprises and infrastructure. NBFCs have acquired a new meaning and have shown strong growth in recent years.

Author: Ajay Kacher – a Legal Associate at IP & Legal Filings, in case of any queries please contact/write back to us at support@ipandlegalfilings.com.