NBFCs are companies registered under the Companies Act of 2013, which are engaged in the business of acquiring shares, loans, and advances, stocks, bonds, and debentures, or securities issued by the government or local authorities, or marketable securities, hire-purchase business, or insurance business, except for the financing of institutions whose primary businesses are agricultural activity, the sale and purchase of goods (not securities), industrial activity, or commercial activity. Non-banking financial companies (residuary non-banking company) are companies that receive deposits under the scheme or arrangements in a lump sum or in installments by way of contributions or in any other way. The NBFCs are required to obtain a Certificate of Registration before conducting financial services in India. For the purpose of RBI NBFC licensing, go through the procedure that needs to be followed.
Functioning of NBFCs
The principal business and financial activities of the nonbanking financial company and the financial assets of the company represent larger than 50% of the total assets and income that constitute more than 50 percent of the gross income of the company. The company that fulfills the criteria will be registered as an NBFC by the RBI. The principal businesses of the NBFCs are not defined in the RBI Act. As per the RBI, basically, these companies are involved in agricultural operations, industrial activities, the purchase and sale of agricultural goods, and providing services relating to the sale, purchase, or construction of immovable property as their principal business or business in a small way that are not regulated by the Reserve Bank. The NBFC Directions 2015, revised by RBI, state that every NBFC, whether it is accepting deposits or not, will be covered under the new direction, which is more stringent as compared to the earlier directions for the Buy/Buy/Takeover of an NBFC.
The Difference That Lies In The Functioning Of The NBFCs And Banks Are
- NBFC cannot accept demand deposits.
- NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn from it.
- Deposition of the insurance facilities and deposit insurance and credit guarantee corporation that is not available to the depositors of NBFCs unlike in the bank's case.
The registration of the NBFCs with the RBI is not mandatory, as per the Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can commence or carry on the business of the non–banking financial institutions without
- Obtaining the certificate of registration from the bank, and without having net owned funds of Rs. 2 Crore (10 crores as per the recent amendment), in terms of powers given to the Bank.