Non-Banking Financial Company – NBFC | JAIIB 2023
In this article, we will provide you with the short notes from the JAIIB Syllabus on principles & practices of banking paper for JAIIB 2023 Exams. Candidates will be able to get an overview of NBFCs for their Principles & Practices of Banking Syllabus coverage.
Let us first know the exam date of PPB paper of JAIIB Course:
The PPB paper is scheduled for May 2023 attempt. The registration portal will open nearly around the first week of February. So, you must keep up with the notifications and updates.
Now, let us begin with our topic:
Non-Banking Financial Company – NBFC
NBFCs are financial institutions that provide almost similar banking services (like providing loans and credits) but doesn’t possess banking license. So, there are some limitation / restriction in its services.
NBFCs are registered under the Companies Act, 2013, whereas banks are regulated under Banking Regulation Act, 1949.
They mainly deal in the business of giving loans, accepting advances, acquiring shares, stocks, bonds, debentures, or securities issued by a government or local authorities, leasing, hire-purchase, insurance, and chits. However, these do not include any institution engaged in agriculture, industry, purchasing or selling goods (other than securities) or providing any services. They do not also include businesses engaged in the construction of real estate.
Note: Non-banking financial organizations which receive their deposits through any scheme, arrangement, or other method is also referred to as residuary non-banking companies (Residuary non-banking company).
Differences between a Bank and an NBFC:
- It cannot accept Demand Deposits from public. If someone want to invest in an NBFC, it could have some maturity (like happens in time deposits). Though some special permission is given to LIC and GIC by RBI. These two NBFC can take demand deposits.
- It is not a part of the Payments and Settlement System of India.
- It cannot issue cheques drawn on itself.
- Deposits are not insured or covered under Deposit Insurance and Credit Guarantee Corporation (DICGC), which generally covers the bank accounts.
Different types or categories of NBFCs registered with RBI
NBFCs can be categorized into:
a) in terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs,
b) non-deposit taking NBFCs into systemically important & other non-deposit holding companies (by their size) (NBFC-NDSI & NBFC-ND) and
c) by the kind of activities they conduct.
Within this broad categorization the different types of NBFCs are as follows:
- Asset Finance Company i.e. AFC: AFCs are financial institutions that primarily finance physical assets that support productive or economic activity, such as cars, tractors, lathes, generators, earth moving equipment, material handling equipment, and general purpose industrial machines.
- Investment Company i.e. IC: IC means a company engaged in acquiring securities as a primary business,
- Loan Company i.e. LC: LC means any organization that provides finance as its principal business, whether through loans, advances or otherwise for activities other than its own, but does not include an asset finance company.
- Infrastructure Finance Company i.e. IFC: IFC is a non-banking finance company which:
- which deploys at least 75% of its total assets – infrastructure loans,
- has a minimum Net Owned Funds = ₹ 300 crores,
- has a minimum credit rating of ‘A ‘or equivalent
- CRAR = 15%.
- Infrastructure Debt Fund: Non Banking Financial Company (IDF-NBFC): It is a company registered as a non-banking financial corporation (NBFC) that facilitates the flow of long-term debt into infrastructure projects. IDF-NBFCs raise resources by issuing bonds denominated in Rupees or Dollars with a minimum maturity of 5 years. IDF-NBFCs can only be sponsored by Infrastructure Finance Companies (IFC).
- Non-Banking Financial Companies – Factors (NBFC-Factors): NBFC-Factors are non-deposit taking NBFCs engaged in factoring as their primary business. A factoring company’s financial assets should comprise 50 percent of its total assets, while its factoring income should not be less than 50 percent of its gross income.
- Mortgage Guarantee Companies (MGC): MGC are institutions for which a mortgage guarantee business comprises at least 90% of business turnover or a mortgage guarantee business constitutes at least 90% of gross income and net owned funds are at least INR 100 crores.
- NBFC -Non-Operative Financial Holding Company (NOFHC): NBFC-NOFCH is a financial institution that allows promoters or promoter groups to establish a new bank. It operates as a wholly-owned Non-Operative Financial Holding Company (NOFHC), which holds the bank as well as other financial service companies regulated by RBI or other financial sector regulators.
So, above are some of the types of the NBFCs which can be found in the Indian System. For more details you can visit: RBI Official Site
White label ATM (WLA) – NBFC ATMs
Most of the ATMs belong to banks, but the cash dispensing machines that are owned and operated by NBFCs are called White Label ATMs. Surely they charge extra money for providing this service, and generally operates in semi-urban and rural areas (tier III to VI areas)NBFCs that provides WLA – Tata Communications Payment Solutions, Prizm Payment Services Pvt. Ltd, Muthoot Finance Ltd, Vakrangee Ltd, BTI Payments Pvt. Ltd., Srei Infrastructure Finance Ltd, RiddiSiddhi Bullions Ltd. (total 7 as of May 2014)
- loans and advances
- acquisition of shares, stocks, bonds
- insurance, etc.
Services or facilities available at ATMs or WLAs:
In Along with receiving cash, ATMs and WLAs may provide customers with financial services / facilities. The following are some of these services:
- Account Information
- Purchase of Re-load Vouchers for Mobiles (not permitted at WLAs)
- Regular Payment of Bills
- Cash Deposits
- Generation of Mini or Short Statement
- Change of PIN
- Request for issue of Cheque Books
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