Introduction: Non-operative Financial Holding Company

Non-operative Financial Holding Company (NOFHC) is a type of Non-Banking Financial Company that is not an inactive form of Finance Business but does hold/acquire and is often termed a promoter/promoter group which will hold the Bank as well as other financial services companies regulated by Reserve Bank of India (RBI) or other financial sector regulators, to the extent permissible under the applicable regulatory prescription.

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A few notable examples of such NOFHC are:-

• ESAF Financial Holdings Private Limited – It is a promoter group/promoter company that promotes the Small Finance Bank called “ESAF Small Finance Bank”
• BANDHAN FINANCIAL HOLDINGS LIMITED – it holds the majority stake of Bandhan Bank as a promoter/promoter group.
• EQUITAS HOLDINGS LIMITED – it is a promoter company of a small finance bank called “Equitas Small Finance Bank”
• Jana Holdings Limited – It is a promoter company that holds a share in a small finance bank called “Jana Small Finance Bank” 

Ideally, on the legacy perspective side, Apex Bank has built the concept of providing licenses to banks who are having experience in this Industry. Therefore the ongoing Non-Banking Financial Company has been offered to apply for the In-principal approval to run a Small Finance Bank in the guidelines of 2014. Where around 72 application is received across India from existing Non-Banking Finance Company. Out of the total applicant, all the ongoing NBFC business has been shifted to small finance banks keeping those NBFCs as NOFHC (i.e. Promoter or Promoter Group of Small Finance Bank) and categorized it as Core Investment Company or NOFHC against the Normal Category of NBFC.

This type of NBFC is not an active finance company dealing on the regular business front instead been holding the capital of the Bank. Therefore it is the legacy front-end category to address the improvisation and development in Banking and Financial Service Sector.

Read Our Blog: Non-Banking Financial Company (NBFC) Compliance – A Complete Guide

The Banking and Financial Service Industry of India consists of:-

Public Sector Undertakings Bank, Private Sector Bank, Small Finance Banks, Regional Rural Banks, Foreign Banks, cooperative Bank, Non-Banking Finance Companies, and Payment Bank precisely, Regulator do regulate and supervise their course of action and business scenarios to promote them for better platforms from existing ones to scale their business. 

Many entrepreneurs doing finance business obviously target to run a better version of finance business, step ahead. Most of them wish to go for Small Finance Bank too. But the promotion of the Small Finance Bank is the subject matter of fiscal policy followed by the Monetary Policy of the Government of India and Reserve Bank of India respectively. Followed by recent events where the Governor of RBI requested Big NBFC for applying Universal Bank License is a positive sign for the market player of this Segment. Precisely few of NBFCs are also looking for acquisition of existing Banks or Small Finance Bank License. Therefore too, the Regulator understands the need of an hour and plays an instrumental role to allow the license of the Bank via a Non-operative Financial Holding Company.

Read Our Blog: What Is Infrastructure Finance Company in India

This is not the service offered by us but do advise the existing market player if they want to promote to the next level.