Introduction to the NBFC The meaning of NBFC is Non-Banking Financial Company; these companies are involved in providing a wide range of financial services which includes insurance, stock-broking, loans for homes, machinery, mobile phones etc. they even accept deposits from people, but they do not provide conventional banking to them. NBFC is defined as a company registered under Companies Act, 2013 and also under RBI act 1934 under section 45-IA.These type of companies provides banking services without holding any banking license. Related Incorporation of NBFC in India under Companies Act
Nature and Type ofNBFC • Non-banking financial companies can be divided into two categories based on their character which is depository and non-depository. If a company does not take any deposits, then they are suffixed with ND. Example of the deposit-taking institution is thrift stores, loans provider. • Investment Company • Loan Companies • Infrastructure Finance Company • Infrastructure Debt Fund • Microfinance Companies
Future ofNBFC Non-banking Financial Companies in the Indian economy is on the rise as they target those left traditionally out by the banks. These companies are tech-driven and may achieve 19% of credit market by 2020.NBFC is hence the critically important component of the financial system of our economy. For a country like India which is diverse and vast, the financial sector is the fuel of the economy, and NBFC’s are crucial links of the economy delivering a different set of services such as lending, Investment banking and capital market operations. Non-banking financial Company is a company registered under the companies act 2013 1st 1956. These type of company mostly engaged in the business of lending, chit business, insurance business, and acquisition of stocks, debentures and securities.
Factors Contributing to Growth of Indian Economy • Stress on public sector units (PSUs) • Latent credit deman • Digital disruption, especially for micro, small and medium enterprises • (MSMEs) and small and medium enterprises (SMEs) • Increased consumption • Distribution reach and sectors where traditional banks do not lend
Contribution of NBFC to Indian Economy • Substantial employment generation • Major thrust on semi-urban rural areas &first time buyers or users • To finance economically weaker sections • Help and increase wealth creation • Supplement bank credit to the rural segment of the Indian economy • Economic development
Applicability of SARFAESI Act for NBFC • The SARFAESI Act now extends to Non-Banking Financial Companies. The Scope of the term "Financial Institutions" has become more extensive and included Non-Banking Financial Institution in its ambit. Ministry of Finance has notified 196 companies regarding their inclusion in the definition after the amendment. Power of NBFC’s and Banks under SARFAESI Act • Take possession of the assets which are hypothecated • sell the assets which have been hypothecated; If the borrower has already sold the asset to a third party, the third party can be ordered to surrender the asset Related Difference between an NBFC and Bank
Frequently Asked Questions • What are the prerequisite of NBFC Registration Procedure? • The minimum net owned funds of the company prior to registration should be 2 crores. • The company should have clean cibil records. • At least one of the directors appointed should have NBFC background or a senior banker should be appointed as a full-time director of the company. • Why Register an NBFC? • With recent amendment of the companies act, they brought NBFC under the purview of the financial institution under companies’ act 2013 and therefore now NBFC companies have got certain privilege’s similar to that of commercial banks. Any company operating as an NBFC needs to register themselves under the companies act and obtain the certificate of registration from RBI. If any company doesn’t register itself and start operating as NBFC, a heavy amount of fine is levied and in certain cases leads to the minimum imprisonment of 6 months which can be extended.
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