Non- Banking Financial Companies (NBFCs)

Non Banking Financial Companies (NBFCs) are institutions or entities that do not possess a banking license but still offer banking services. A Non Banking Financial company is registered under the Companies Act 1956. It is involved in the business of advances and loans, acquisition of shares/bonds. Debentures/stocks/securities issued by a government or local authority. It might also include other marketable securities of a like nature, hire-purchase, insurance or leasing business. It does not include any entity or institute that is involved in the business related to agricultural activity, purchase/sale of goods or services, purchase/sale of immovable property or industrial activity. 

Salient features of NBFCs:

  • The deposits with NBFCs are not insured
  • NBFCs are allowed to renew or accept public deposits for a maximum period of 60 months and minimum period of 12 months
  • The rate of interest offered by NBFCs cannot be higher than the ceiling rate prescribed by RBI from time to time. At present, this ceiling is 12.5% per annum. The interest may be compounded or paid at rests which should not be shorter than monthly rests.
  • Except some AFCs, NBFCs are not liable to have minimum investment grade credit rating.
  • NBFCs are not allowed to offer incentives or gifts to any other additional benefit to the depositors.
  • The RBI does not guarantee the repayment of deposits by NBFCs.
  • In the application form issued by the company that is soliciting deposit, there are certain mandatory disclosures about the company.

The common types of NBFCs in India are Loan Company (LC), Asset Finance Company (AFC), Mutual Benefit Finance Company, Infrastructure Finance Company, Investment Company, Chit Fund Company, Hire-purchase Company, Residuary Non-banking company, Housing Finance Company, Equipment Lease Company (EL), Infrastructure Debt Fund: Non Banking Finance Company (IDF-NBFC), Non-banking Financial Company: Micro Finance Institution (NBFC-MFI), Non-Banking Financial Company- Factors, and Systematically Important Core Investment Company (CIC-ND-SI).

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