NON-BANKING FINANCIAL COMPANY

NON BANKING FINANCIAL COMPANY:

                                                                         As per section 45l (f) of RBI (amendment) act 1997 an  NBFC means

(i)                  A financial institution which is a company.

(ii)                A non-banking institution which is a company with principal business of receiving of deposits under any scheme or arrangement or in any other manner, or lending in any manner.

(iii)               Such other non-banking institution or class of such institution as the RBI with the previous approval of the central Govt. may specify by notification in the official gazette.

EXPLANATION:

                              NBFC is a financial institution. It has a dual accountability. As it is registered under companies act but regulated by RBI act. The primary function of NBFC is accepting deposit from public and lending the same. Moreover an NBFC can carry out the following types of activities such as acquisition of share/stock/bonds/debenture/securities issued by Govt. or local authority, leasing, hire-purchase, insurance business, chit business.

It is specifically prohibited that an NBFC does not include the following types of activities:

1.       Agricultural Activities.

2.       Industrial activities.

3.       Sale/purchase/construction of immovable property.

TYPES OF NBFC:

                                Following are the different from of NBFC:

        1.       Loan companies.

        2.       Investment companies.

        3.       Assets financing companies.

RBI regulation in respect of NBFC:-

1.       Mandatory registration.

2.       Minimum owned fund.

3.       An NBFC can accept public deposit only prior approval from RBI.

4.       RBI prescribed the interest rate.

5.       RBI prescribed maturity period of deposit.

6.       RBI prescribed the investment policy.

7.       RBI directs auditors and specify the points to be considered.

8.       RBI provides guidelines in respect of financial reporting framework.

9.       If any principal or interest or both is due for more than 6 months it would be NPA.

From the above discussion it is clear details about of the NBFC. It is seemed That it has some similarity with the banking company but there are some basic differences:

1.       An NBFC can’t accept demand deposit.

2.       In an NBFC there is no cheque facility.

3.       Deposit insurance facility of deposit Insurance and Guarantee Corporation is not available for NBFC depositors unlike in case of bank.