What is NBFC?

A Non Banking Financial Company or NBFC is a company that is registered under the Companies Act 2013 or 1956, which is engaged in the business of Loans and Advances, equities, debentures or securities issued by the government or any local authority or other marketable securities of  like nature such as leasing, hire-purchase, insurance business, chit business and so on. The NBFCs do 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 main objective of this type of a company is to accept deposits under any scheme. According to Section 451(c) of the RBI Act, a Non Banking Finance Company carrying on the business of a financial institution is an NBFC. It is governed by the Ministry of Corporate Affairs MCA, as well as the Reserve Bank of India, RBI.

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What is NBFC?

Types of NBFCs:

Given below are the various types of NBFCs:

1. Based on the nature of activity:

• Asset finance company, AFC
• Investment company
• Loan company
• Infrastructure finance company
• Core investment company
• Microfinance Institutions, MFI
• Mortgage guarantee company
• Housing finance company, HFC

1. Based on deposits:

• Deposit accepting NBFCs
• Non-deposit accepting NBFCs

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NBFC Regulations:

 Once the Non Banking Financial Company gets itself registered and receives its license, the company has to adhere to the following regulations:

• The entity cannot receive deposits which are payable on demand.
• The Public Deposits which the company can take should be for a minimum time period of 12 months and a maximum time period of 60 months.
• The NBFCs cannot offer the interest rate higher than ceiling rate as prescribed by RBI from time to time.
• The repayment of any amount so taken by the Company will not be guaranteed by the Reserve Bank of India.
• Complete information on the company as well as any change in the composition of the Company, has to be furnished to the Reserve Bank of India.
• The deposits received by the Public will be unsecured.
• The NBFC must submit its audited balance sheet each year.
• A Quarterly Return on the liquid assets of the company has to be furnished.
• A certificate from the auditors had to be taken stating that the company is in a position to pay back all the deposits or money taken from the Public.
• The credit rating has to be done every 6 months and submitted to the RBI.
• A minimum level of 15% of the Public Deposits has to be maintained by the Company in Liquid Assets.
• If the NBFC defaults in the payment of any amount taken, the consumer can go to the National Company Law Tribunal , NCLT, or the Consumer Forum to file a suit against the Company.

Functions of NBFC:

The financial services offered by the NBFCs are disbursement of loans and advances and acquisition of bonds, shares and stocks. Discussed below are the functions of the NBFCs and how they contribute to the growth of the economy:

• Creating Greater employment opportunity: NBFCs attain the objectives of creating more jobs in the country by financing SMEs and small industries by giving loans. Consequently increase in business creates more employment.
• Supply long term credits: Unlike the regular banks, NBFCs extend long-term credits to infrastructure, commerce and trade companies. They fund large projects and also allow industries to participate in equities.
• Mobilising of funds: The NBFCs mobilize funds by converting savings into investments.
• Strengthening of the financial market: NBFCs play an important role in balancing the financial markets and effectively help in its functioning. The start-ups and the small sized businesses are dependent on NBFCs for funds.

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List of NBFCs in India:

There are a large numbers of NBFCs that function in India. Listed below are some of them:

• Power finance corporation limited
• Shriram transport finance company limited
• Bajaj finance limited
• Mahindra and Mahindra financial services limited
• Muthoot finance limited
• HDFC
• Tata capital financial services limited
• L & T finance limited
• Aditya Birla finance limited
• Magma Fincorp limited
• Reliance capital limited
• Edelweiss Retail Finance Limited
• Religare Enterprises Limited
• Fullerton India Credit Company Limited
• Motilal Oswal Financial Services Limited
• Manappuram Finance Limited

Difference between NBFC and bank:

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences:

• NBFC cannot accept demand deposits.
• NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on themselves.
• Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike banks.

NBFC home loan interest rate and FD rates:

• Given below is the list of some NBFCs and the home loan interest and fees they charge:

Name of NBFC	Home loan interest rate	Fees and charges
Bajaj finserv	8.85% per annum	10K Plus GST as PF  + 0.20% of the Loan Amount as MOD Charges
DHFL	Salaried - 8.60% per annum to 9.5% per annum Self Employed - 8.95% p.a. to 9.75% per annum	10K Plus GST as PF  + 0.20% of the Loan Amount as MOD Charges
Indiabulls	8.35% per annum - 11.50% per annum	10K Plus GST as PF  + 0.20% of the Loan Amount as MOD Charges
LIC Housing	7.30% per annum to 7.70% per annum	10K Plus GST as PF  + 0.20% of the Loan Amount as MOD Charges
PNB Housing Finance Ltd.	8.35% per annum - 11.00% per annum	10K Plus GST as Processing Charges/ Zero MOD Charges
IDFC	Salaried - 8.55% per annum to 10% per annum Self Employed - 8.70% per annum to 10.45% per annum	10K Plus GST as PF  + 0.20% of the Loan Amount as MOD Charges
TATA Capital	8.75% p.a. - 9.05% p.a.	10K Plus GST as PF  + 0.20% of the Loan Amount as MOD Charges

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