Request
Callback

Different type of NBFC in India | Various Types of NBFC (Recently Introduced by RBI)

Bhupender Nagar Bhupender Nagar | Blog Writter | Updated

RBI Update: Reserve Bank of India on 22nd February 2019 issued a notification on Synchronization of the Non-Banking Financial Companies (NBFCs) Categories”.  As per the circular RBI has merged 3 categories of NBFCs into one,  going forward Asset Finance Company (AFC), Investment Company (IC) and Loan Companies(LC) will be merged to  Investment and Credit Company (NBFC-ICC).

 

NBFC stands for Non-Banking Financial Company NBFC’s are institutions generally engaged in offering loans for homes, vehicles, machinery, etc. Generally it classified as companies offering loans |  acquisition of shares and advances majorly involve in stocks | debentures | bonds | marketable securities or securities issued by Government or local authority or of a similar nature | hire purchase | leasing | insurance business | chit business, etc.  

 

New Categories Based on the recent circular of RBI

 

1) INVESTMENT AND CREDIT COMPANY (NBFC-ICC): There are approximately 10,000+ NBFCs running in India, out of which more than 95 per cent NBFC’s are non-deposit taking NBFCs. The merged three categories has been defined as Investment and Credit Company – (NBFC-ICC)” this means any NBFC carrying on as its core business of asset finance, by offering finance whether by offering loans or advances except other than its own and the achievement of securities. Following three categories of NBFC’s are merged into one Investment And Credit Company (NBFC-ICC).

  • Asset Finance Company(NBFC - AFC): According to previous categories defined by RBI, “Asset Finance Company(NBFC - AFC)” can act as an AFC, subject to the condition that the income arising from the aggregate of physical assets supporting its economic activity is not less than 60% of its. Principal Business of an Asset Finance Company (AFC) is comprised of the following 2 activities:
  1. Financing of physical assets that correspond to productive or economic activity such as plant or machinery, automobile, material, equipment, power generators, etc.
  2. The act of pledging assets Viz. Bills of exchange, short-term inventories or investments to borrow funds in the form of loan or cash. This type of financing is used when a person is seeking short-term borrowing for working capital needs.
  • Investment Company (IC) Or (NBFC-IC): An Investment Company which is a financial institution registered with RBI is a type of NBFC engaged in the activity of acquisition of shares, stock, bonds, debentures or securities. These kinds of NBFC cannot deal in the investments they hold. Services of this kind of NBFC is helpful in starting a Venture Capital Fund or a Private Equity Business.
  • Loan Companies (LC): A Loan Company is a financial institution registered under the Companies Act whose principal business is providing loans and advances. 50% of the assets of this kind of NBFC must be in lending and 50% of the total income of such income shall arise from the previously mentioned assets.

 

 

2) INFRASTRUCTURE FINANCE COMPANY (NBFC-IFC): The Infrastructure Finance Company is a type of NBFC engaged in the principal business of providing infrastructure loan. The credit facility(ies) (term loans, project loans, etc.) granted by this kind of NBFC’s to the borrowers in the specific infrastructure sectors Viz. Transport, Energy, Water and Sanitation, Communication, and Social and Commercial Infrastructure are referred to as the Infrastructure Loans.
As per RBI, any NBFC can be registered as an Infrastructure Finance Company, subject to the condition that it should be a non-deposit accepting - loan company and must fulfill the following conditions:

  • Minimum 75% of the total assets of the NBFC should be deployed in the infrastructure loans.
  • The minimum net worth of the Company should beRs 300 Crore.
  • The CRAR (capital to risk-weighted asset ratio)of the company should be at least 15% with minimum Tier-I capital at 10%.
  • The minimum credit rating of the Company should be“A” or equivalent of CRISIL, or equivalent to any other Credit rating agencies
Learn More....

 

 

3) INFRASTRUCTURE DEBT FUND (IDF-NBFC): A debt fund is a pool in which core assets are investments with fixed returns. This type of funds is vital because of the fact that investment/funding in infrastructure sector is complex as compared to other types of funding because of the volume of investment(s) required, long maturity period and period of funds required.

  • In India, and IDF can be set up as a trust or a fund. If it is set up as a trust then it shall be mutual fund and shall be governed by the provisions of SEBI. Such funds are called IDF-MF and would issue rupee-denominated bonds of minimum 5-year maturity for the purpose of raising funds infrastructure projects.
  • If IDF is set up as a Company, it would be categorized as an NBFC and shall be governed by the relevant provisions of RBI.
  • Infrastructure Debt fund is a non-deposit taking NBFC having a net owned fund of Rs 300 Crores of mores. IDF-NBFC provide long-term debt to infrastructure projects. This type of NBFC’s usually raise resources through currency bonds of five years or more and invests majorly in Public-Private Partnerships and in post-commencement operations date (COD) infrastructure projects which have completed at least 1 year of satisfactory commercial operation.

 

 

4) MORTGAGE GUARANTEE COMPANY (MGC)-NBFC: NGC company' has a principle objective of providing mortgage guarantee. Such companies shall comply with at least 90% of the business turnover form mortgage guarantee business or at least 90% of the gross income is from mortgage guarantee business

 

5) NBFC-NON OPERATIVE FINANCIAL HOLDING COMPANY [NOFHC]: A NOFHC is financial business entity through which Entities/groups will be allowed to set up a new bank, which will hold the bank and all other financial services companies regulated by RBI or other financial sector regulators,

 

6) MICROFINANCE INSTITUTION (NBFC-MFI): NBFC-MFI is another type of non-deposit taking NBFC which provides short-term credit facilities to low-income groups. An NBFC can be categorized as an NBFC-MFI subject to the following conditions.

  • A minimum of 85% of the assets of such institution is in the form of microfinance.
  • Such Microfinance shall be provided subject to the following conditions.
  • In rural areas, Loans should be given to people with income of Rs. 60000/-.
  • In urban areas, Loans should be given to people with income of Rs. 120000/-.
  • Such loans should not exceed Rs. 50000/-.
  • The tenure of such loans should not be less than 24 months.
  • Such loans should be given without collaterals.
  • The borrower should be given the choice of repayment on a weekly, fortnightly or monthly basis.
 Learn More....

 

 

7) NON-BANKING FINANCIAL COMPANY – FACTORS (NBFC-FACTORS): NBFC-Factors to finance institution having the principal business of acquisition of receivables on discount or financing against such receivables by way of loans or advances or by the creation of security interest over such receivables but excludes normal lending by a bank.
As per RBI, any NBFC can be registered as an Infrastructure Finance Company, subject to the condition that it should be a non-deposit accepting - loan company and must fulfill the following conditions:

  • Minimum 75% of the total assets of the NBFC should be deployed in the factoring business.
  • Minimum 75% of the gross income of such NBFC shall be from factoring business.
  • The minimum net worth of the Company should beRs 5 Crores.
.

 

 

8) 2. CORE INVESTMENT COMPANY (NBFC - CIC-ND-SI): A CIC-ND-SI is a type of Investment Company which carries on the business of acquisition of shares and securities is recognized as a Systematically important core investment if it fulfills the following conditions:

  • At least 90 percent of the NBFC’s total assets should be in the form of investments in equity shares, preference shares, loan or debt in its group companies.
  • The investment in equity shares, including all securities or instruments convertible into equity within a period of not more than ten years from the date of issue, in the group companies, shouldn't be less than 60% of its total assets.
  • The NBFC does not trade in securities or Loans of its group companies. The only exception to this is if such trading is done through a block sale place in the event of dilution or disinvestment.
  • The company shall only carry the activities of investment in bank deposits, government securities, money market instruments, loans and investment in debt securities or guarantees on behalf of group companies.
  • The minimum Asset Size of such NBFC should be Rs 100 Crore.

 

NBFC companies are of two types on the basis of deposits,

  • NBFCS eligible to accept deposits
  • NBFCS not eligible to accept deposits.

 

Other Allied Activities

E Wallet

NBFC Registration

Non-Banking Financial Company (NBFC) is that kind of financial institution which offers various financial and non-financial services to business enterprises, individuals, entrepreneurs, etc. NBFC License must be taken from RBI


    
READ MORE
E Wallet

NBFC - P2P Lending

Peer-to-peer lending platforms offers a simple key to borrow money for short-term necessities. This shall include buying consumer electronics, medical emergency, business loan, home renovation, repay credit card dues, travel loan, or any other such requirements.

 
READ MORE
Payment Gateway

NBFC Takeover

The procedure for taking over an NBFC is being laid down by the RBI. Takeover of an NBFC refers to purchase of one NBFC by another company. Only registered NBFC under the Act shall undertake to acquire the control of another NBFC.

 
READ MORE
Nidhi Company

NBFC Funding

NBFCs do not have those prosperities, which means that the NBFCs need alternate sources of the money supply, which are higher than the deposits taken by banks, where the interest rate offered is between 4%-6%.


  READ MORE

 

E Wallet

NBFC Collaboration

Collaboration means coming together for a shared goal. India has more than 9000 active NBFC but barely 954 the NBFCs have book size more than 40 crores. Rest 8460 NBFCs are only able to meet the regulatory cap of the loan book of INR twenty Million.

    
READ MORE
E Wallet

NBFC Compliance

RBI and other related regulators set rules and regulations, which keep on altering because of changing needs and circumstances. It is important for the NBFC management to know about what to do and how to do it, and there is a strong need to keep abreast of the times.

 
READ MORE

 

What do you think?



Connect With Us

It`s Time to Change Your

Compliance Officer

chnage compliance officer
  • Get 1 months free compliance support
  • 24/7 Expert Advice anytime anywhere
  • 200+ Top CA/CS/Legal Team

User Rating

4.61 average based on 265 reviews.

  • 5 star
    185
  • 4 star
    65
  • 3 star
    11
  • 2 star
    1
  • 1 star
    2

How can we help you?

Stay update with us

Get helpful tips and info from our newsletter!

`