Types of Non-Banking Financial Companies in India

What are the types of NFBCs?

Non-Banking Financial Companies (“NBFC”) have come into prominence post the pandemic and the start-up boom in the country. The reason being NBFCs provide seamless and prompt lending services. Different types of NBFCs are registered with the Reserve Bank of India (“RBI”) under specific categories. It is essential for businesses to identify whether their operations fall under the ambit of NBFCs. They must also be in compliance with existing and upcoming RBI guidelines and regulations. In the event of non-compliance, your company will be subjected to heavy penalty. It can also hamper your regular operations and flow of revenue. This article elaborates on these categories of NBFCs.

NBFCs are categorized into the following categories on the basis of their:

1. Liability

On the basis of liability, NBFCs are categorized into – Deposit accepting NBFC and non-deposit accepting NBFCs.

2. Asset size

The above-mentioned non-deposit accepting NBFCs, on the basis of size of their assets, are further categorized into the following:

2.1 Systematically Important NBFC with asset size more than Rs. 500 crores; and

2.2 Non-Systematically Important NBFC asset size less than 500 crore.

3. Nature of activity

On the basis of the activities carried out by a NBFC, there are various types of NBFCs functioning in the country. A list of the same is provided below:

SR. TypeFunctions
3.1Asset Finance Company (“AFC”)These NBFCs facilitate financing of physical assets such as automobiles, tractors, and generators for operational purposes.
3.2Loan CompanyThey provide finance by extending loans or otherwise for any activity other than its own. It does not include an AFC.
3.2Investment CompanyA company engaged in business of investing pooled capital of investors in acquiring securities for the purposes of selling.
3.4 Infrastructure Finance Company (“NBFCIFC”)They primarily provide infrastructure financing or infrastructure-based loans to borrowers. 75% of its loans are directed towards infrastructure loans.
3.5Systemically Important Core Investment Company (“CIC-ND-SI”)They are engaged in the business of acquisition of shares and securities. They have an asset size of Rs. 100 crore and above. Not less than 90% of their net assets are invested in equity shares, bonds, etc.
3.6Infrastructure Debt Fund (“NBFC-IDF”)They act as vehicles for refinancing existing debts of infrastructure companies, thereby creating fresh headroom for banks to lend to fresh infrastructure projects.
3.7Micro Finance Institution (“NBFC-MFI”)A type of company extending credit to economically disadvantaged groups as well as support Micro, Small and Medium Enterprises (“MSMEs”).
3.8Factor (“NBFC-Factor”)A company fulfilling the principal business criteria i.e., whose financial assets in the factoring business constitute at least 75 percent of its total assets and income derived from factoring business is not less than 75 percent of its gross income. Factoring is a transaction in which an entity can sell its receivables (due from customers) to another entity, which is known as factor. These factors can be NBFCs. They will fulfil immediate working capital or cash flow requirement. 
3.9NBFC- Non-Operative Financial Holding Company (“NOFHC”)Not less than 51% of their paid-up equity share capital of a NOFHC shall be owned by their promoter/ promoter group.
3.10Account Aggregator (“NBFC-AA”)They are engaged in collecting and providing the information of customers’ financial assets in a consolidated, organized, and retrievable manner to the customer or others as specified by the customer. These aggregators have received approval to access and share data by the RBI.
3.11Mortgage Guarantee Company (“MGC”)They engage and facilitate borrowers undertake  mortgage activities.
3.12Non-Banking Financial Company – Peer to Peer Lending Platform (“NBFC-P2P”)They specialize in providing an online platform to bring lenders and borrowers together to help mobilize unsecured finance.
© Chambers of Adv. Vishakha Phatnani Joshi

Conclusion:

These numerous institutions are aiding the process of advancing loans to individuals and companies. This in turn provides borrowers with the capacity to expand their business and operations, thereby promoting overall development. Since NBFCs are very flexible with their lending models and the sector is majorly contributing to easy access of funds.

Disclaimer:

The content of this article is intended to provide general guidance on the subject matter. Specialist advice should be sought about your specific circumstances.

Key words: NBFCs, Types, RBI, Liability, assets size, borrowing, lending, categories. 

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