What’s a non-banking finance firm
Non-Banking Financial Companies (NBFCs) means only non-Banking Institutions registered under the Companies Act 2013 and operating in the Business Loans and Advances segment, the acquisition of shares/bonds/debts/safety/stock issued by a government or non-government authorities. This is of a marketable sort, leasing, hiring-purchase, insurance, chit-business type but does not apply to entities engaged in the business of agriculture, manufacturing, or sale/purchase/construction of the real property. The purpose of this article is to classify NBFCs in India.
The main business of a non-banking financial company (NBFC) is to receive, in any scheme or arrangement or in any other way, or to borrow in any way. Pursuant to Section 45-1A, it has been written that, without obtaining a certificate of registration issued in accordance with Chapter III B and without having a Net Owned Fund of two hundred lakhs (200.000.000), NBFC is not entitled to commence or carry on business as a non-banking financial institution.
Types of non-banking financial companies
Non-banking financial institutions (NBFCs) are primarily classified under the following categories:
LOAN Firm: involves a corporation that is not an asset financing firm but a financial entity primarily engaged in the business of lending funds (other than its own) by loans or advances, or otherwise for any purpose.
INVESTMENT COMPANY: consists of certain firms or institutions whose main function is to buy and manage securities for investment purposes.
ASSET FINANCE COMPANY: Asset finance company is a financial entity engaged primarily in the financing of physical assets relating, for example, to production / economic activity-cars, lathes, tractors, generator systems, earthmoving and material handling machinery running on power and general-purpose industrial machines.
INFRASTRUCTURE FINANCE COMPANY: This is a form of the financial company primarily engaged in providing infrastructure loans.
MUTUAL BENEFITS FOR FINANCIAL COMPANY: Mutual benefit financial company refers to the financial entity notified by the central government under the Companies Act 2013, the primary objective of which is to allow its members to pool their money with pre-calculated investment objectives. The foundation of the fund is to share capital, the investments of its shareholders, and the general public.
The classification of NBFCs is a specific term which needs to be examined as follows:
Classification of the NBFC
When it comes to the question of whether or not a company is a financial entity, the RBI (Reserve Bank of India) shall decide on these issues in consultation with the Central Government, and its decision shall be final and binding on all parties concerned.
When it comes to whether a specific financial firm is a lending firm or an asset financing company, the Reserve Bank of India ( RBI) shall make such a declaration on the basis of the principal business of a particular company and other related factors as well. The decision of RBI shall be final and binding on all the parties concerned. The classification of NBFCs is further subclassified by RBI as follows.
Sub-Classification of NBFCs
- Deposit-take Non-Banking Financial Company [NBFC-D]
- Non-Deposit Taken Non-Banking Financial Company[NBFC ND]
- Systematically relevant Non-Banking Financial Company should have assets in the range of Rs. 100 Crores or more [NBFC-ND-S1]
These are Core Investment Non-Deposit and systematically important companies that have already redistributed 90 percent of their assets as an investment in shares or debt instruments or a loan in group companies, and out of 90 percent, 60 percent should be invested in equity shares or instruments that can be converted into equity shares. It also accepts public funds [CIC-ND-SI]
Registration of non-banking financial companies:
No NBFC is entitled to carry on its business until it satisfies the various conditions laid down in Chapter 45-1A of the RBI Act, 1934.
The following steps need to be followed:
- FORMATION OF A COMPANY: the first and foremost step is to register a new company name under the Companies Act 2013, reflecting the characters of the NBFC, which should include words such as Investment, Finance, etc. as part of the name.
- Total NET OWNED FUND: the total paid-up capital of the shares should be 2 crores.
- OPENING OF THE BANK ACCOUNT: while considering the application for a Certificate of Registration, the RBI verifies that the company must have its own separate account free of all links. Money is usually held in the Fixed Deposit Account.