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Priyanka Bajpayee
| Updated: 08 Apr, 2020 | Category: NBFC

Types of NBFCs in India – An Overview

Types of NBFCs in India

In India, the NBFC sector is recognized as a systematically important component of the financial system. The growth of NBFC is quite consistent year-on-year. NBFCs are regulated by the RBI. Reserve Bank of India has been given the power to keep a check on different types of NBFCs registered in India.

In this topic, we will discuss the basic requisites for NBFC registration and types of NBFCs in India based on deposits and their business activity.

What is NBFC?

NBFC is a company incorporated as per the Companies Act,2013[1], or any other previous act. NBFC is governed by both the Ministry of Corporate Affairs and the RBI. Though NBFC provides financial services, it is different from Banks in many ways.i.e. it cannot accept savings, issue a cheque, and various other activities that a bank performs.

Through its Personalized Customer Services, Implementation of Advance technology, and Customized Loan Product, NBFC helps in providing finance to the economically weaker section of the society.

Basic Requisites for NBFCs Registration

In India, any company incorporated under the Companies Act 2013 or Companies Act 1956 willing to commence a financial business shall comply with the RBI Guidelines. Every NBFC after incorporation needs to obtain a Certification of Registration from the Reserve Bank of India to carry out any financial activity.

For NBFC registration, an applicant company is required to follow the below-mentioned requisites. The Basic requisites are-

  1. A company shall be incorporated as per the Companies Act 2013, or the Companies Act 1956.
  2. The net owned fund of the NBFC shall be a minimum of Rs 2 crore.
  3. The financial activity shall be defined under section 45I(a) of the RBI Act,1934.
Exception – There are some exceptions to it where the companies do not require prior permission of RBI to carry out a financial activity. These entities are governed by other financial regulatory.

What are the Types of NBFCs in India?

The expansion and growth of the NBFC have resulted in the categorization of NBFCs, predetermined to focus on specific sectors/classes. The classification of NBFC is based on deposits, and the kind of business activity is performed.

Based on deposits, NBFC is broadly classified as-

  1. (NBFC-D)-Deposit-taking Non-Banking Financial Company.
  2. (NBFC-ND)-Non-Deposit taking Non-Banking Financial Company

Further, NBFC-ND Non-Deposit taking Non-Banking Financial Company is sub-categorized into 2 parts-

  • Systematically Important NBFC-ND
  • Others NBFC-ND

Read our article:Documents Required for NBFC Registration

Based on business activity, there are different types of NBFCs

  • Investment and Credit Company-ICC
  • NBFC-Infrastructure Finance Company
  • Mortgage Guarantee Companies
  • NBFC- Non-Operative Financial Holding Company
  • Micro Finance Company
  • NBFC Factor
  • Systemically Important Core Investment Company (CIC-ND-SI)
  • Infrastructure Debt Fund-NBFC
  • NBFC Account Aggregator
  • NBFC -Peer to Peer lending Platforms
  • Housing Finance Companies
  • Investment and Credit Company-On 22nd February 2019, RBI has released a notification on “Harmonization of the Non-Banking Financial Companies (NBFCs) Categories.” In the Notification, RBI has decided to merge the 3 NBFCs (Asset Company, Investment Company, and Loan Company) into 1 named NBFC-Investment and Credit Company(NBFC-ICC).
Investment and Credit Company is a company carrying on its principal business-asset finance the providing finance whether by making loans or advances or otherwise for any activity other than its own and the acquisition of securities.

The objective of passing this notification is to ease the operational Flexibility of the NBFC sector. The focus was to consider the principle of Activity Based Regulation.

Infrastructure Finance Company –

Infrastructure Finance Company is a company that utilizes at least 75 % of its total assets in the infrastructure loans. An IFC company has a minimum net owned fund of Rs 300 crores and a CRAR of 15%. It is a type of NBFC which requires the best credit rating from the credit rating agencies.

Mortgage Guarantee Company –

Mortgage Finance Company is the Non-Banking Financial Company whose-

  1. At least 90% of the business turnover of the Micro Finance Company is mortgage guarantee business or
  2. At least 90% of the gross income of the Micro Finance Company is from mortgage guarantee business and,
  3. Net owned fund of the Micro Finance Company is ₹ 100 crore.

NBFC-Non-Operative Financial Holding Company –

Through Non-Operative Financial Holding Company, a promoter/promoter groups will be authorized to set up a new bank. It is a type of NBFC which will hold the bank as well as all other financial companies regulated by RBI or other financial sector regulators, to the extent allowed under the applicable regulatory prescriptions.

Micro Finance Company –

Micro Finance Companies in NBFC, are the companies that perform the functions as similar to Banks. Loans are offered by the Micro Finance companies to various small businesses that do not have access to the formal banking channels and are not eligible for availing loans. MFI shall qualify the following criteria –

  • 85% of qualifying assets is to be maintained all the time
  • The loan disbursed by the Micro Finance Company to a borrower having annual income–
  1. In the rural sector not exceeding ₹1,25,000 or
  2. Urban and semi-urban not exceeding ₹ 2,00,000.
  • The amount of loan shall not exceed ₹ 75,000 in the first cycle and ₹ 1,25,000 in subsequent cycles. However, the tenure of the loan is not less than 24 months
  • The total indebtedness of the borrower does not exceed ₹ 1,25,000.
  • Loan to be provided without collateral.
  • The repayment of the loan is at the choice of the borrower (The loan can be repayable on a weekly, fortnightly or monthly basis)

NBFC Factors –

NBFC-Factor is a different type of NBFC (Non-deposit taking) engaged in the principal business of factoring. The financial assets in the NBFC Factor (Factoring business) should aggregate at least 50 % of its total assets, and also income acquires from factoring business should at least 50 % of the gross income.

Systematically Important Core Investment Company –

Systematically Important Core Investment Company is a type of NBFC which carry on the business of share (Equity and Preference) and securities acquisition but subject to a condition that –

  • Assets of the CIC-ND-SI shall be over 100 crores and above and
  • It shall hold at least 90% of its assets in investments in shares and securities(Bonds, debenture and debts)With a further condition that, out of 90% at least 60% of its net assets shall be invested in equity shares (which includes instruments compulsorily converted in equity shares).
However, it should be noted systematically. Important Core Investment Companies do accept public funds.

Infrastructure Debt Fund NBFC –

Infrastructure Debt Fund NBFC is a non-deposit taking NBFC that deals in the facilitation of long-term debt into an infrastructure sector. Infrastructure Debt Fund NBFC raises the resources either through an issue of the rupee or dollar-denominated bonds of 5 years. IDF NBFCs can only be sponsored by Infrastructure Finance Company.

Note – The maturity period is of 5 years.

NBFC Account Aggregator –

NBFC Account Aggregator is a new concept in the NBFC. NBFC Account Aggregator provides data of several users and shifts their financial needs to various financial organizations. The activities of an Account Aggregator involve providing customers financial information in a consolidated and retrievable manner to the customer. NBFC Account Aggregator provides reliable information.

NBFC Peer to Peer Lending Platforms –

NBFC Pear to Peer lending platforms provides a platform to bring lenders and borrowers together by using a digital platform. It provides an opportunity for investors to diversify their portfolio. NBFC P2P has removed the cumbersome process of loan and has provided the ease of processing the loans. NBFC P2P Platform is the key player in the small business sector.

Housing Finance Company –

Housing Finance Company is a form of NBFC with the principal business of financing of acquisition or construction of houses. HFCs are regulated by the Reserve Bank of India. A Housing Finance company cannot commence the business without obtaining a COR from the Reserve Bank of India.

Takeaway

In India, one can easily find out the list of registered NBFCs which are available on the website of Reserve Bank of India. Also, the instructions related to different types of NBFCs are hosted at www.rbi.org.in. It is illegal for any company to mislead the public by making a false impression of being regulated by the RBI.

For more details on any other related types of NBFCs, Contact Corpbiz. We have a dedicated team of NBFC providing all the advisory services related to NBFC.

Read our article:NBFC Registration: Step by Step Procedure

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Priyanka Bajpayee

Priyanka Bajpayee has done Masters in International Business Law and well versed in content writing covering the area of legal and finance. Also, she has practical experience of almost 1.5 years in Legal compliance and secretarial work.

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