What is non banking financial company ( NBFC) - tradecareer.

             FINANCIAL SERVICE ORGANISATION & ITS REGISTRATION PROCESS

NON BANKING FINANCIAL COMPANY (NBFC)

A (NBFC) is a company registered under the Companies Act, 2013 ( or any earlier 

enactments) engaged in the principle business of:

=> Loans and advances, 

=> Acquisition of shares/stocks/bonds/ debentures/securities issued by Government 

     or local authority or other marketable securities of a like nature, 

=> Leasing, 

=> Hire-purchase, 

=> Insurance business, 

=> Chit business 

                                                                            


BUT does not include any institution whose principal business is that of:

=> Agriculture activity, 

=> Industrial activity, 

=> Purchase or sale of any goods (other than securities) or 

=> Providing any services and sale/purchase/construction of immovable property. 


Residuary Non-Banking Company

A non-banking institution which is a company and has principal business of receiving 

deposits under any scheme or arrangement in one lump sum or in instalments by way of 

contributions or in any other manner, is also a non-banking financial company 

(Residuary non-banking company). 

Principal Business / 50-50 test


Financial activity as principal business is when:

=> A company’s financial assets constitute more than 50 % of the total assets and

=> Income from financial assets constitute more than 50 % of the gross income. 

A company which fulfils both these criteria will be registered as NBFC by RBI. This test 

is popularly known as 50-50 test and is applied to determine whether a company is into 

financial business or not.

                                                                       


NBFCs lend and make investments and hence their activities are akin to that of 

banks; however there are a few differences as given below:

i. NBFC cannot accept demand deposits; 

ii. NBFCs do not form part of the payment and settlement system and cannot issue 

cheques drawn on itself;

iii. deposit insurance facility of Deposit Insurance and Credit Guarantee 


Corporation is not available to depositors of NBFCs, unlike in case of banks.

In terms of Section 45-IA of the RBI Act, 1934, no NBFC can commence or carry on business of a NBFI without -

a) obtaining a certificate of registration from the RBI and 

b) without having a Net Owned Funds of 2 crore.

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