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Meaning of Non-Banking Financial Company

The document discusses the meaning and definition of non-banking financial companies (NBFCs) in India. Some key points: - NBFCs must be financial institutions registered under the Companies Act 2013 and engaged primarily in financial activities like loans. - The main differences between banks and NBFCs are that banks can accept demand deposits while NBFCs cannot, and banks are part of the payment and settlement system while NBFCs are not. - NBFCs must register with the Reserve Bank of India under certain conditions like maintaining a minimum level of net owned funds. However, some types of financial companies like housing finance and merchant banking companies do not require registration.

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51 views7 pages

Meaning of Non-Banking Financial Company

The document discusses the meaning and definition of non-banking financial companies (NBFCs) in India. Some key points: - NBFCs must be financial institutions registered under the Companies Act 2013 and engaged primarily in financial activities like loans. - The main differences between banks and NBFCs are that banks can accept demand deposits while NBFCs cannot, and banks are part of the payment and settlement system while NBFCs are not. - NBFCs must register with the Reserve Bank of India under certain conditions like maintaining a minimum level of net owned funds. However, some types of financial companies like housing finance and merchant banking companies do not require registration.

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...ADITYA… JAIN
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MEANING OF NON-BANKING FINANCIAL

COMPANY

Non-Banking Financial Company


Must be a financial institution, Has to be a company registered under
Must not be a banking company
therefore, must be in the business Companies Act, 2013 or any other
of conducting financial activities erstwhile laws

A foreign body corporate in not a


The definition of financial company
activities may be taken from the
section 45I(c) of the RBI Act,
An LLP is not a company
1934

Financial activities must be Question of considering unincorporated


conducted as principal business entities does not arise
activities of the company
DIFFERENCE BETWEEN BANKS AN D NBFCS (1/2)
Particulars Banks NBFCs

Definition Banking is acceptance of deposits NBFCs are companies carrying financial


withdrawable by cheque or demand; business.
NBFCs cannot accept demand deposits

Licensing requirements Licensing requirements are quite stringent. It is quite easy to form an NBFC. Acquisition
Transfer of shareholding also controlled of NBFCs is procedurally regulated and
by RBI. are subject to approval.
DIFFERENCE BETWEEN BANKS AND NBFCS (2/2)
Particulars Banks NBFCs
Part of payment and settlement Banks are a part of the payment and NBFCs are not a part of the payment
system settlement system. and settlement system.

Deposits Can accept both demand deposits as Only some NBFCs are allowed to
well as term deposits accept term deposits

Foreign investment Upto 74% allowed to private sector Upto 100% allowed
banks.

Regulations BR Act and RBI Act lay down stringent Controls over NBFCs are relatively
controls over banks. lesser stringent.
STATISTICS
Over 93% of the registered NBFCs are either
Investment Companies or Loan Companies
NUMBER OF NBFCS IN INDIA
12400
12225
12200
12029
12000
11842
11800
11682

11600 11522
11402
11400

11200

11000

10800 AFC CIC-SI IDF IFC Factor ARC MFI LC + IC


FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Q1 FY 2018

Data source: RBI


REGISTRATION
REQUIREMENTS
REGISTRATION OF NBFCS
A company must register itself with the Reserve Bank of India under section 45-IA
of the Reserve Bank of India Act, 1934

Conditions as per section 45-IA

Owned funds – exposure in group companies, to the extent the


exceed 10% of owned funds
Meaning of net owned funds Aggregate of paid up equity capital and free reserves as reduced
by accumulated balance of losses, deferred revenue expenditure
and other intangible assets

If any person carries on the business of NBFC without obtaining registration, the
same will attract penal provisions of section 58B of the RBI Act
Housing Finance Companies,

Merchant Banking Companies,

Stock Exchanges,

Companies engaged in the business of stock-broking/sub-broking,

N B F C S W H I C H A R E N OT Venture Capital Fund Companies,


R E Q U I R E D TO O B TA I N
R E G I S T R AT I O N W I T H
THE RBI Nidhi Companies,

Insurance companies,

Chit Fund Companies

Core Investment Companies having asset size of less than Rs. 100
crores or not holding public funds

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