Non Banking Financial Companies

A Non Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 of India, engaged in the business of loans and advances, acquisition of shares, stock, bonds, hire-purchase insurance business or chit-fund business, but does not include any institution whose principal business is that of agriculture, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.

The working and operations of these companies are regulated by the Reserve Bank of India & are covered under the banking regulations .


Non Banking Financial Company (NBFC) plays a very vital role in financial sector of Indian economy which is listed as :

  • The NBFC sector has grown considerably in the last few years despite the slowdown in the economy & is a major contributor to the GDP of our country.
  • NBFCs are more profitable than the banking sector because of lower costs. This helps them offer cheaper loans to customers.
  • NBFCs often take lead role in providing innovative financial services to Micro, Small, and Medium Enterprises (MSMEs) most suitable to their business requirements.
  • NBFCs contribute largely to the economy by lending to infrastructure projects, which are very important to a developing country like India.

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Following are the different types of NBFC’s :-

  1. ASSET FINANCE COMPANY – The main business of these companies is to finance the assets such as machines, automobiles, generators, material equipments, industrial machines etc
  2. INVESTMENT COMPANY – IC means any company which is a financial institution carrying on as its principal business the acquisition of securities.
  3. LOAN COMPANY – The main business of such companies is to make loans and advances (not for assets but for other purposes such as working capital finance etc
  4. INFRASTRUCTURE FINANCE COMPANY – IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of Rs 300 crore, c) has a minimum credit rating of ‘A’ or equivalent d) and a CRAR of 15%.
  5. SYSTEMATICALLY IMPORTANT CORE INVESTMENT COMPANY – A systematically important NBFC (assets Rs. 100 crore and above) which has deployed at least 90% of its assets in the form of investment in shares or debt instruments or loans in group companies is called CIC-ND-SI.

Out of the 90%, 60% should be invested in equity shares or those instruments which can be compulsorily converted into equity shares. Such companies do accept public funds.

  1. INFRASTRUCTURE DEBT FUND (IDF – NBFC) – IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5 year maturity.
  2. MICRO FINANCE INSTITUTION – MFI is a non-deposit taking NBFC which has at least 85% of its assets in the form of microfinance. Such microfinance should be in the form of loan given to those who have annual income of Rs. 60,000 in rural areas and Rs. 120,000 in urban areas. Such loans should not exceed Rs. 50000 and its tenure should not be less than 24 months & must be given without collateral.
  3. NBFC – FACTORS – NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The financial assets in the factoring business should constitute at least 50 percent of its total assets and its income derived from factoring business should not be less than 50 percent of its gross income.

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Thus, in simple words Non-Banking Financial Companies (NBFCs) are the financial institutions that offer the banking services, but do not comply with the legal definition of a bank, i.e. do not hold a bank license.

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