What is a NBFC?

NBFC or Non Banking Financial Companies is a company in India, which is registered under the Companies Act, 1956, and which provides banking services without meeting the legal definition of a bank.

The NBFCs do the business of loans and advances, acquisition of shares, stock, bonds, debentures, securities issued by Government. They also deal in other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business. They are no in agriculture activity, industrial activity, sale/purchase/construction of immovable property.

Unlike the Banks, they cannot accept demand deposits, they are not part of the payment and settlement system and they cannot issue cheques drawn on them. The facility of deposit insurance by Deposit insurance and Credit Guarantee Corporation is not available for NBFC’s.

There are 3 types of NBFC’s classified by reserve bank of India:
(i) Asset Finance Company (AFC)
(ii) Investment Company (IC)
(iii) Loan Company (LC)

A NBFC is incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should have a minimum net owned fund of Rs. 2 Crores.

All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid Certificate of Registration with authorization to accept Public Deposits can accept/hold public deposits. NBFCs authorized to accept/hold public deposits besides having minimum stipulated Net Owned Fund (NOF) should also comply with the Directions such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by the Bank. RBI has a well documented FAQ page dedicated to NBFC. You may Click Here to Read in detail .

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