An NBFC is a non-banking institution that provides banking services like loans and advances. It is registered under the Companies Act and regulated by the RBI. The key types of NBFCs include asset finance companies, investment companies, loan companies, and infrastructure finance companies. NBFCs play an important role in extending credit to underserved segments. While they are less stringently controlled than banks, deposits with NBFCs are not insured. The future of NBFCs in India looks promising as they can help meet the large unmet credit demand, especially as banks face rising bad debts. However, NBFCs must comply with various RBI regulations regarding capitalization, branches, audits, and reporting.

1. WHAT IS NON-BANKING
FINANCIAL COMPANY( NBFC) ?
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2. A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in :
❖ The business of loans and advances
❖ acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable
securities of a like nature, leasing, hire-purchase, insurance business, chit business
But does not include any institution whose principal business is that of:
▪ agriculture activity
▪ industrial activity, purchase or sale of any goods (other than securities) or
▪ providing any services and sale/purchase/construction of immovable property.
A non-banking institution which is a company and has principal business of receiving deposits under any scheme or
arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking
financial company which is known as Residuary non-banking company.
What is Non-Banking Financial Company (NBFC)

3. WHAT ARE THE DIFFERENT TYPES AND
CATEGORIES OF NBFC REGISTERED WITH
RBI

4. 2. Investment
Company (IC)
3. Loan
Company (LC):
4. Infrastructure
Finance
Company
7. Micro Finance
Institution
6. Infrastructure
Debt Fund
5. Systemically
Important Core
Investment
Company
8. NBFC-Factors
9. Mortgage
Guarantee
Companies
10. NBFC- Non-
Operative Financial
Holding Company
1. Asset Finance
Company (AFC)
NBFC

5. NBFC REGISTRATION
As per Section 45-IA of the RBI Act, 1934, no company can commence or
carry on business of a non-banking financial institution:
❖ without obtaining a certificate of registration and without having a
Net Owned Funds of Rs. 200 lakhs.
Net owned funds is the balance of “owned funds” minus the amount
of investment in shares of subsidiaries, companies in the same group
and all other NBFCs, book value of debentures, bonds, outstanding
loans and advances including hire purchase and lease finance made to
and deposits with subsidiaries and companies in the same group.
Owned funds is the aggregate of paid-up equity capital , preference
shares which are compulsorily convertible into equity, free reserves ,
balance in share premium account and capital reserves representing
surplus arising out of sale proceeds of asset, excluding reserves created
by revaluation of asset, after deducting therefrom accumulated balance
of loss, deferred revenue expenditure and other intangible assets.
Application for becoming an NBFC must be made in the
requisite form to Regional Office of the Reserve Bank of
India.

6. ▪ Loan Company.
▪ Investment Company.
▪ Equipment Leasing Company.
• Hire purchase Finance Company.
• Residuary Non- Banking company.
Registered and
Regulated by RBI
Not Registered and
regulated by RBI but RBI
issues directions relating to
deposit acceptance
activity.
Exemptions from RBI
regulations including
requirement of registration.
• Mutual Benefit finance Company.(Notified Nidhis)
• Mutual Benefit Company’s ( Potential Nidhis)
• Miscellaneous Non- Banking Company. (Chit Funds)
• Insurance Company.
• Stock Exchange, stock brokers, merchant banking company.
• Housing finance company.
• Micro Finance Company.
NBFC

7. BUSINESS WHICH CANNOT BE REGISTERED AS NBFC
Following businesses cannot be registered as NBFC:
• Any institution whose principle business is of agriculture.
• Or any business who is engaged in industrial activity.
• Or any institution which is engaged in purchase or sale of any goods (other
than securities).
• Or which is providing any services.
• Or which is engaged in sale/purchase/construction of immovable property.
• Or any company whose principle business is receiving deposits under any
scheme or arrangement in one lump-sum or in instalments by way of
contributions or in any other manner.

8. REASON WHY FORMATION OF NBFC BECAME AN INTEGRAL PART OF THE SOCIETY
They complemented the Banking Sector in reaching out credit to the
unbanked sector of the society i.e. micro, small, medium enterprises.
They have a sector specific expertise that allows them to have edge
over there competitors.
Less time-consuming process of registration of NBFC.
Their ground-level understanding of their client’s credit needs.
Low cost of establishing the NBFC as compared to other financial
institutions.
They provide support for economically weaker sections of the
society.
They play a critical role in development of infrastructure, transport
and employment generation.

9. CLASSIFICATION OF NBFCs BASED ON ACTIVITIES UNDERTAKEN : FY: 2017-18

10. CLASSIFICATION OF NBFCs BASED ON ACTIVITIES UNDERTAKEN : FY: 2017-18

11. FUTURE
OF
NBFC IN
INDIA
FUTURE OF NBFC IN INDIA

12. FUTURE OF NBFC IN INDIA
With the ongoing stress on Public Sector Banks due to increase in bad debts, their ability to lend is deteriorating their
demand and providing an opportunity to NBFC to increase their presence. The success of NBFC can be seen by their
effective risk management capability, wider reach to the clients, control over the bad debts, better and understanding of
the customer segment.
The latent credit demand of emerging India will allow NBFC’s to fill the gap especially where traditional banks are unable
to serve. Additionally to improve micro-economic conditions, high credit penetration, increase in consumption will allow
NBFC’s to grow at a healthy rate. As per the report of the CAGR it has been estimated that NBFC’s will
grow at the rate of 25%-33% over the next five years.
Strong urban demand, high credit penetration, will drive the growth in consumer finance segment. Partnership with
Payment Banks, Bill payment provider and other financial institutions such as insurance and asset management
companies will help in their growth. With the reach of NBFC with the strong understanding of the market will them in
proving themselves to be a better alternative as compared to traditional ways of banks.
The number of start-ups in India has grown significantly from merely 2 in 2013 to 40 in 2017. These firm either operate as
NBFC’s /intermediaries for banks and NBFC’s or P2P lending marketplace for connecting the individual borrowers and
lenders directly. Rapid increase in the number of customers over the past few years, speed, simplicity, convenience and
timely credit to borrowers which are regarded as ineligible as per the Bank criteria has increased the demand of NBFC.
The growing importance of NBFC segment in Indian Financial system has led to a change the framework of NBFC on
continuous basis. The regulations of NBFC has gone through a cyclical phase from simplified regulations to stringent
regulations and finally now towards rationalisation.

13. DIFFERENCE BETWEEN NBFCs AND BANKS
• NBFC’s cannot accept
demand deposit.
• NBFC’s cannot issue drawn
cheque on itself.
• Deposits done with NBFC’s
are not insured.
• Controls over NBFCs are
relatively lesser stringent.
NBFC
• A Bank can accept demand
deposit.
• A Bank can issue drawn
cheque on itself.
• Deposits done in Banks are
insured by Deposit Insurance
and Credit Guarantee
Corporation.
• BR Acts and RBI Acts lay
down stringent control over
Banks.
BANKS

14. WHAT IS NBFC TAKEOVER?
What is Takeover?
The term takeover can be defined as to purchase of one company
by the other company. The takeover can take place only when the
two of the companies are already registered. In this process two
companies are involved i.e.:
• Target company.
• Acquirer Company.
Acquirer Company:
Acquirer Company is said to be that
company which is acquiring the
target company.
Target Company:
Target Company is the company
which is being targeted to be
acquired by the other company
which is already existing.

15. Friendly takeover :
friendly takeover as the name insists is the takeover
which takes place between the companies with their
mutual consent. Acquirer Company gives offer to the
target company for being acquired and the same
offer is being accepted by the target company and
the process of takeover take place.
Hostile Takeover :
Hostile takeover is totally different from friendly
takeover. In this process the acquirer company
secretly tries to acquire the acquirer company.
Generally this kind of takeover takes place only
when the management of the acquirer company is
not willing to accept the offer of takeover.
TAKEOVER CAN BE DONE IN 2 WAYS
What is NBFC Takeover?
Likewise, takeover of any other company takeover of NBFC can also take place. All the rules and regulations regarding the takeover of
NBFC is governed & regulated by Reserve Bank of India. In simple words takeover can be said to be takeover of NBFC when any other
NBFC acquires the other NBFC. Similarly it can also be done in two different ways i.e. friendly takeover and hostile takeover.
Pros and Cons of
Takeover:
PROS:
• Increase in profitability of Target
Company.
• Decrease in competition.
• Increase in sales/revenue.
• Expansion in distribution network.
• Economies of scale.
CONS:
• The amount paid for goodwill is often
less as compared to its actual price.
• Conflict in new management.
• Cultural clashes in two companies.
• Reduce of employees’ morale.
• Hidden liabilities of Target Company.

16. RBI REGULATIONS REGARDING TAKEOVER OF NBFC:
The RBI has specified some norms when takeover takes place which are required to be followed by
NBFC’s and they are:
• Takeover or acquisition of any NBFC requires the prior approval of RBI whether there is change in management or
not.
• The approval taken from RBI should be a written approval.
• If on acquisition there is a transfer on shareholding for more than 10% of NBFC then prior approval of RBI will be
required.
• If there is change in shareholding for more than 26% for the reason of buyback/reduction in share capital then no
approval of RBI is required, but this reduction/buyback should have been approved by the competent authority.
• If there is change in the directors of the company i.e. more than 30% change is taking place in directors then the prior
written approval shall be required.
• Any change in director of the company requires a prior public notice is at least 30 days prior to the announcement of
such change.

17. GOLD LOAN BY NBFC
As the NBFC is being regulated by the Reserve Bank of
India. The Reserve Bank of India has now provided a
stringent guideline for NBFC for governing the loan
provided by these NBFC against the Gold Jewellery.
These guidelines will be helpful in bringing transparency
between the Lenders and borrowers.
Views of Industry Experts:
Industry Experts are of the view that it will be more
beneficial if the borrowers borrow the money from
Banks rather than borrowing from Non-Banking
Financial Intuitions. As gold loan companies. As the
Banks provide gold loan at the rate of 12-16% but the
interest rate provided by NBFC’s are 20-26% which is
much higher than the rate provided by the Banks.
As on 17th March, 2017 RBI in consultation with the Income Tax
Department has clarified that No NBFC shall be allowed to give
more than ₹ 20,000/- as a loan against the gold. Earlier this limit
was of ₹1, 00,000 but now this limit has been reduced to ₹
20,000.
The main aim behind reducing this threshold limit is to make
the economy cashless and more focus should be paid on digital
payment.

18. RBI GUIDELINES:
• NBFC before opening branch for more than 1000 should take prior approval of Central Bank.
• And if any existing NBFC which is already in existence and having more than 1000 branches shall take prior
approval of RBI before opening any further branches.
• NBFC’s should have a proper security system for the pledged gold’s of the customers, if no proper security
systems have been made no further branches can be opened.
• In case if the pledged gold is more than 20 grams by a single owner at once or on cumulative basis then the
NBFC is required to keep records of owner verification.
• NBFC’s cannot give misleading advertisements.
RBI stated that NBFC cannot allow loan for more than 60% of the gold value pledged with the NBFC.

19. EVOLUTION OF FDI
FOREIGN DIRECT INVESTMENT IN NBFC
In 1997, guidelines were introduced for permitting foreign investment in the nonbanking financial services sector under FIPB approval
route including norms subject to compliance with minimum capitalization requirement ranging from USD 5 million to USD 60 million
based on percentage of foreign investment. However, the same was introduced only as a new sector classification without specific list of
business activities covered therein. Subsequently, the Government prescribed the list of 14 activities that would be covered under the
said ‘non-banking financial services’ sector.
In the year 2000, a paradigm shift occurred in the FDI policy regime, wherein, except for a negative list, all the remaining activities were
placed under the automatic route and caps were also gradually raised in a number of sectors / activities.

20. Extant FDI Regulatory Framework For NBFCs
Fund based activities
• Merchant Banking
• Underwriting
• Portfolio Management Services.
• Stock Broking.
• Asset Management.
• Venture Capital.
• Custodian Services.
• Factoring.
• Leasing & Finance.
• Housing Finance.
• Credit Card Business.
• Micro Credit .
• Rural Credit
Non-fund based activities
• Investment Advisory Services.
• Financial Consultancy.
• Forex Broking .
• Credit Rating Agencies.
• Money Changing Business

21. COMPLIANCES BY NBFC
COMPLIANCE
S
Transparenc
y
PoliciesRules
Law
Regulations
Requirement
s
Standards

22. 1. Unaudited March Monthly Return - On or before 30th June.
2. Audited March Monthly Return - Upon completion.
3. Statutory Auditor Certificate on Income & Assets - On or before 30th June.
4. Information about Company having FDI/Foreign Funds - On or before 30th June.
5. Resolution for non-acceptance of Deposit Fund - Before commencement of new financial year.
6. File Annual Audited Balance Sheet and P&L Account - One month from the date of sign off.
7. Declaration from the Auditors to act as Auditor of the Company - Annual basis.
Annual Compliances

23. Monthly Compliances
Periodical Compliances
Monthly Return - By 7th of every month.
1. Appointment of the Director - Within 30 days of appointment of the Director.
2. Resignation of the Director - Within 30 days of resignation of the Director.
3. Adoption of any notification in the ensuing Board Meeting & filing the certified copy
with RBI.