Types of NBFC or Non-Banking Financial Companies

Is still getting loans difficult for you? And you are searching for companies who can provide you with loans from

types of nbfc

Is still getting loans difficult for you? And you are searching for companies who can provide you with loans from time to time? Then stick with us. We will tell you about the types of NBFC or Non-banking financial companies.

Non-banking financial companies or NBFCs are entities that provide banking services including loans, investments, and other financial goods but lack a banking license. NBFCs, unlike banks, are unable to accept demand deposits, write checks, or offer you and your customers overdraft facilities.

Small and medium-sized businesses (SMEs), independent contractors, and rural locations are just a few examples of underdeveloped economic sectors in that NBFCs play a crucial role in providing finance. They provide a variety of financial products, including personal loans, business loans, loans for homes, consumer durables, and more. This helps to plan your business in a more efficient way.

Give yourself a chance to know more about NBFCs. Continue learning with us to make your business more efficient. 

Types of NBFCs or Non-Banking Financial Companies

NBFC can bring some positive changes in your business if implemented properly. Based on the commercial activities, the following types of NBFCs (non-banking financial companies) can be roughly categorized in India:

Asset Finance Company (AFC): AFCs mainly offer to finance the purchase of physical assets including machinery, automobiles, and construction machinery.

Investment Company (IC): ICs invest in government and corporate-issued securities and offer long-term financing to corporate houses.

Loan Company (LC): Individuals and small enterprises can get loans and advances from LCs.

Infrastructure Finance Company (IFC): Infrastructure projects in the areas of power, telecommunication, transportation, and urban infrastructure are long-term financed by IFCs.

Systemically Important Core Investment Company (CIC-ND-SI): These are investment firms with assets of $100 million or more, most of which are invested in shares and other securities as well as loans and advances to group companies.

Microfinance Institution (MFI): MFIs offer small loans to low-income households and individuals who do not have access to traditional banking services.

Non-Banking Financial Company – Factors (NBFC-Factors): NBFC-Factors offer factoring services, which entail the discounted acquisition of accounts receivable from companies.

Non-Banking Financial Company – Mortgage Guarantee Company (NBFC-MGC): Mortgage guarantee services are offered by NBFC-MGCs, which include protecting lenders from mortgage loan borrower failure.

Non-Banking Financial Company – Non-Operative Financial Holding Company (NBFC-NOFHC): Holding companies known as NBFC-NOFHCs own stock in other NBFCs or banks but participate in no financial activity themselves.

These are some of the different types of NBFCs present in India, and the Reserve Bank of India has enacted rules and regulations specific to each type. Thus, you can implement any of these types in your business to make it smoother. 

Difference Between NBFCs and Banks

Non-Banking Financial Companies or NBFCs and banks differ in several ways. The following are some considerable differences that you must know before doing any banking.

Legal Status: NBFCs are registered and subject to regulation under the Reserve Bank of India Act, of 1934, whereas banks are licensed and subject to regulation under the Banking Regulation Act, of 1949.

Acceptance of Deposits: Public demand deposits cannot be accepted by NBFCs; only public deposits can be accepted by banks. Only term deposits with a minimum 12-month maturity duration may be accepted by NBFCs.

Issue of Cheques: Customers of banks can obtain checks from them, but not from NBFCs, which you must keep in mind.

Interest Rates: While NBFCs are free to establish their interest rates on loans and deposits, banks are bound by Reserve Bank of India-imposed interest rate rules.

Capital Adequacy: The capital adequacy ratio (CAR) for banks must be kept at a minimum of 9%, while the CAR for NBFCs must be kept at a minimum of 15%.

Scope of Activities: Banks can provide a large choice of financial services and products, such as savings accounts, current accounts, loans, credit cards, and insurance coverage, whereas NBFCs are limited to a more limited selection.

Besides the fact that both banks and NBFCs offer financial services, their operating environments and business models are distinct. While NBFCs typically offer loans and other financial products to specialized market niches, banks have a wider range of operations and can take public deposits. 

Why NBFCs are a Catalyst in Urban and Rural Areas’ Growth?

Financial services are essential for both urban and rural parts of India. Therefore, non-banking financial companies or NBFCs play a critical role in this. Some of the explanations about why NBFC is crucial in both areas are as follows:

Access to Credit: NBFCs offer loans to underdeveloped economic sectors such as rural areas, self-employed people, and small and medium-sized businesses (SMEs). These groups frequently lack access to traditional banking services for a variety of reasons, including a lack of collateral, poor credit, and insufficient paperwork. NBFCs are a blessing in disguise for them.

Customized Products: NBFCs provide a variety of financial services and products that are specifically suited to the requirements of various societal sectors. For instance, NBFCs offer loans for micro businesses, agriculture, housing, and education, among other things.

Services enabled by technology: NBFCs have embraced technology to connect with a larger customer base and offer financial services via mobile banking, online portals, and digital payments. This has made it possible for them to provide for the needs of clients in remote and rural locations where traditional banking services might not be accessible.

Employment Opportunities: By extending finance to start-ups and small businesses, NBFCs can create employment possibilities, especially in rural areas. Also, this may help the economy’s general growth.

NBFCs have grown to be a significant component of the Indian financial system, giving underserved groups of society, notably those in rural areas, access to loans and financial inclusion. Overall economic growth in the nation has been aided by this. Anyone can now apply for loans and develop their businesses with the assistance of NBFCs. 

NBFC Formation Criteria

If you want to avail the service of NBFC, you need to fulfill the requirements listed below:

Registration as a company: The business must be incorporated and registered under the 2013 Companies Act or an earlier version of the Act.

Minimum Net Owned Fund: A minimum net owned fund (NOF) of Rs. 2 crores are needed to launch an NBFC. The difference between the company’s total assets and total liabilities is used to compute the NOF.

Primary Business: The main objective of the company should be to provide financial products and services, such as loans, advances, and the purchase of shares, stocks, bonds, debentures, and other assets issued by federal, state, or municipal governments.

Management of the company: The organization must have a solid management structure and at least one director with experience in the financial industry. All directors must also be suitable and meet the requirements established by the Reserve Bank of India.

RBI Registration: An NBFC certificate of registration must be obtained, and the business must register with the Reserve Bank of India (RBI). Many documents, including the company’s incorporation certificate, memorandum and articles of association, and the names and contact information for its directors, must be submitted as part of the registration procedure.

Compliance with Regulatory Requirements: From time to time, the Reserve Bank of India will issue regulatory requirements that the company must follow.

Compulsory Reporting: The business is required by law to submit to the Reserve Bank of India several statutory reports, including yearly audited financial statements, monthly returns, and other periodic reports.

It is mandatory for you to fulfill these requirements to register as an NBFC in India. The Reserve Bank of India oversees and controls NBFCs to make sure they adhere to the relevant regulations and protect financial stability.

Summing Up!

NBFCs offer loans to each part of India may it be rural or urban. In contrast to banks, NBFCs cater to people who are self-employed or have small businesses. You can easily make your business stronger and bigger with NBFCs. Fidypay provides you with this opportunity much more easily than others. Fidypay is a financial technology company that aims to revolutionize the digital financial infrastructure in India. We assist Non-Banking Financial Companies with payout collection, and collaboration with financial institutes, and offer extended services like eNach, recurring payments, UPI integration, etc. We strive to provide the payment process and make it more efficient.

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