1. What is an NBFC?
An NBFC (Non-Banking Financial Company) is a company registered under the Companies Act, 2013 that holds a Certificate of Registration (CoR) from the RBI under Section 45-IA of the RBI Act, 1934. NBFCs provide financial services such as lending, asset finance, investment, and more.
2. Why does an NBFC need to register with the RBI?
Registration ensures regulatory oversight tailored to the NBFC’s activities and risk profile. It helps protect depositors and investors, ensures financial stability, and supports consumer protection.
3. What are the two main classifications of NBFCs by liability?
- NBFC-D (Deposit Accepting): Can accept public deposits and must comply with stricter norms due to handling of public funds.
- NBFC-ND (Non-Deposit Accepting): Cannot accept public deposits; funds activities through equity, debt, and institutional financing.
4. What is the purpose of NBFC-D registration?
To allow the company to mobilise funds directly from the public for lending or financing activities, while subjecting it to stricter prudential norms like capital adequacy and credit ratings due to deposit-taking risk.
5. What is the purpose of NBFC-ND registration?
To allow NBFCs to operate in credit, financing and investment activities without accepting public deposits, reducing systemic risk. Large NBFC-NDs (NBFC-ND-SI) face stricter governance norms due to their systemic impact.
6. Can NBFCs be categorised beyond deposit classification?
Yes. NBFCs are also categorised based on the nature of their principal business or activity, such as investment, lending, microfinance, factoring, and more (though the original article focuses mainly on the deposit vs. non-deposit distinction).
7. How does classification help the financial system?
This nuanced categorisation ensures appropriate regulation based on risk, protects depositors, enables specialised credit services to underserved sectors, and supports overall economic growth.
8. Is registration enough for NBFCs to operate?
After obtaining RBI registration, NBFCs must ensure additional regulatory approvals and ongoing compliance with RBI norms to operate legally.
