NBFCs or Non-Banking Financial Companies are a major contributor to the 12.5% GDP rise in India. In addition to this, NBFCs have a projected growth of a staggering 19-21% in the financial year 2018-19. So it’s pretty clear that NBFCs are a major part of India’s economy. So what are NBFCs? How do you form an NBFC? What are the compliances of NBFCs? In this piece, we are going to look at some FAQs on NBFC.

What is NBFC?

NBFC stands for Non-Banking Financial company. NBFCs come under regulations set by the Reserve Bank of India(RBI). As the name suggests, NBFCs are companies providing financial services and they do so being a separate legal entity from banks.

What are the services provided by NBFCs?

NBFCs provide a wide range of financial services to the general population.

  1. Loan and Advances
  2. Credit Facilities
  3. Saving and Investment Plans
  4. Acquisition of Stocks, Shares, Bond hire purchases
  5. Money transfer service
  6. Insurance Business or Chit fund Business

What is the difference between a Bank and NBFC?

Banks are government enabled financial intermediaries registered under the Banking Regulation Act,1949 NBFCs are Financial Companies Registered under the Companies Act, 2013
Banks are authorized to accept demand deposits NBFCs cannot accept demand deposits
Banks have restrictions on Foreign Direct Investments. No restriction on Foreign Investments
Payment and settlement make up for the core activities of a bank. NBFCs activities do not include payment
Banks are authorized to draw demand drafts on themselves NBFCs cannot draw demand drafts on itself
Banks  can draw and issue cheques on themselves NBFCs cannot issue cheques drawn on themselves
Banks can create credit by multiplier financial services NBFCs cannot create credit
Interests rates are generally moderate Interest rates are most of the times little higher than banks

Can NBFCs accept deposits?

Not all NBFCs are authorized to accept public deposits. To accept public Deposits, NBFCs have to acquire a certificate of registration authorizing them to accept public deposits.

What are the different types of NBFCs in India?

Broadly NBFCs are deposit-taking (NBFC-D) or no deposit NBFCs(NBFC-ND). NBFCs whose asset size exceeds Rs. 100 crore is called Systematically Important ( NBFC-SI).

Whether they are deposit-taking or not, NBFCs are classified on the basis of the services they are providing.

Given below is a list of types of NBFCs.

  • Asset Finance Company
  • Investment Company
  • Loan Companies
  • Infrastructure Finance Company
  • Systematically Important Core Investment Company
  • Infrastructure Debt Fund
  • NBFC- Microfinance
  • NBFC-Factors

Which companies can do NBFC activities by getting NBFC license?

Given below is a list of organizations/companies who cannot register as an NBFC

  • Any institution whose principal business is of agriculture.
  •  Businesses engaged in industrial activity.
  •  Institutions dealing with purchase or sale of any goods (other than securities) and services.
  • Engaged in sale/purchase/construction of immovable property.
  • Companies whose principal business is receiving deposits under any scheme or arrangement in one lump-sum or in installments by way of contributions or in any other manner.

How to register an NBFC in India?

NBFC registration procedure is India is very straightforward. To register and acquire NBFC license a company –

  • Should be registered as a Private Limited Company or a Limited Company.

Following are the steps to incorporate a private limited company in India.

  1. Acquire DSC(Digital Signature Certificate)
  2. File for name approval
  3. File SPICe e-form (INC-32) along with e-MoA(INC-33) and e-AoA(INC-34)

Whole procedure might take about 4-5 days.

What are the annual Compliances of NBFCs?

Given below is a list of Annual Compliances of NBFCs

Serial Number Particulars Time Limit
1 Unaudited March Monthly Return/NBS7 On or before 30th June
2 Audited March Monthly Return Upon Completion
3 Statutory Auditors Certificate on Income and Assets On or before 30th June
4 Information about Cos having FDI/Foreign Funds On or before 30th June
5 Resolution of Non-acceptance of Public Deposit Before the commencement of the new Financial year
6 File Audited Annual Balance Sheet and P&L Account One month from the date of signoff
7 Declaration of Auditors to Act as Auditors of the Company Annual basis

What is an NBFC takeover?

An NBFC takeover is when one NBFC acquires another NBFC. Similar to any other companies takeover, these are of two types: friendly takeover and hostile takeover.