Non-Banking Financial Companies (NBFCs): Its Historical Background, Types of NBFCs, Registration Process and its Functions by CS Charu Sharma


Dear Professional Colleagues,

In this Article, I have made all the possible efforts to elaborate Non-Banking Financial Companies (NBFCs): its Historical Background, Types of NBFCs, Registration Process and its Functions.

Introduction

Non-banking financial companies (NBFCs) are fast emerging as an important segment of Indian financial system. It is a heterogeneous group of institutions (other than commercial and co-operative banks) performing financial intermediation in a variety of ways, like accepting deposits, making loans and advances, leasing, hire purchase, etc. They raise funds from the public, directly or indirectly, and lend them to ultimate spenders. They advance loans to the various wholesale and retail traders, small-scale industries and self-employed persons. Thus, they have broadened and diversified the range of products and services offered by a financial sector. Gradually, they are being recognised as complementary to the banking sector due to their customer-oriented services; simplified procedures; attractive rates of return on deposits; flexibility and timeliness in meeting the credit needs of specified sectors; etc.

Historical Background

The working and operations of NBFCs are regulated by the Reserve Bank of India(RBI)within the framework of the Reserve Bank of India Act, 1934 (Chapter III B) and the directions issued by it under the Act. As per the RBI Act, a non-banking financial company is defined as:- (i) a financial institution which is a company; (ii) a non-banking institution which is a company and which has as its principal business the 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 institutions, as the bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify. Under the Act, it is mandatory for a NBFC to get itself registered with the RBI as a deposit taking company. This registration authorizes it to conduct its business as an NBFC. For the registration with the RBI, a company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution, should have a minimum net owned fund (NOF) of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999). The term NOF means, Net owned funds (paid-up capital and free reserves, minus accumulated losses, deferred revenue expenditure and other intangible assets) less, (i) investments in shares of subsidiaries/companies in the same group/ all other NBFCs; and (ii) the book value of debentures/bonds/ outstanding loans and advances, including hire-purchase and lease finance made to, and deposits with, subsidiaries/ companies in the same group, in excess of 10% of the owned funds.

Types of Non-Banking Financial Companies (NFBC)

"All NBFCs are either deposit taking or Non-deposit taking. If they are non-deposit taking, ND is suffixed to their name (NBFC-ND). The NBFCs which have asset size of Rs.100 Crore or more are known as Systematically Important NBFC. They have been classified so because they can have bearing on financial stability of the country."  

The Non-deposit taking NBFCs are denoted as NBFC-NDSI. Under these two broad categories, the different NBFCs are as follows:

Asset Finance Company(AFC): The main business of these companies is to finance the assets such as machines, automobiles, generators, material equipments, industrial machines etc.

      Investment Company (IC): The main business of these companies is to deal in securities.

      Loan Companies (LC): The main business of such companies is to make loans and advances (not for assets but for other purposes such as working capital finance etc.)

     Infrastructure Finance Company (IFC): A company which has net owned funds of at least Rs. 300 Crore and has deployed 75% of its total assets in Infrastructure loans is called IFC provided it has credit rating of A or above and has a CRAR of 15%.

      Systemically Important Core Investment Company (CIC-ND-SI): A systematically important NBFC (assets Rs. 100 crore and above) which has deployed at least 90% of its assets in the form of investment in shares or debt instruments or loans in group companies is called CIC-ND-SI. Out of the 90%, 60% should be invested in equity shares or those instruments which can be compulsorily converted into equity shares. Such companies do accept public funds.

    Infrastructure Debt Fund (IDF-NBFC): A debt fund means an investment pool in which core holdings are fixed income investments. The Infrastructure Debt Funds are meant to infuse funds into the infrastructure sector. The importance of these funds lies in the fact that the infrastructure funding is not only different but also difficult in comparison to other types of funding because of its huge requirement, long gestation period and long term requirements. In India, an IDF can be set up either as a trust or as a company. If the IDF is set up as a trust, it would be a mutual fund, regulated by SEBI. Such funds would be called IDF-MF. The mutual fund would issue rupee-denominated units of five years’ maturity to raise funds for the infrastructure projects. If the IDF is set up as a company, it would be an NBFC; it will be regulated by the RBI. The IDF guidelines of the RBI came in September 2011. According to these guidelines, such companies would be called IDF-NBFC. An IDF-NBFC is a non-deposit taking NBFC that has Net Owned Fund of Rs 300 crores or more and which invests only in Public Private Partnerships (PPP) and post commencement operations date (COD) infrastructure projects which have completed at least one year of satisfactory commercial operation and becomes a party to a Tripartite Agreement.

    Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI): NBFC-MFI is a non-deposit taking NBFC which has at least 85% of its assets in the form of microfinance. Such microfinance should be in the form of loan given to those who have annual income of Rs. 60,000 in rural areas and Rs. 120,000 in urban areas. Such loans should not exceed Rs. 50000 and its tenure should not be less than 24 months. Further, the loan has to be given without collateral. Loan repayment is done on weekly, fortnightly or monthly installments at the choice of the borrower.

 

     Non-Banking Financial Company – Factors (NBFC-Factors): Factoring business refers to the acquisition of receivables by way of assignment of such receivables or financing, there against either by way of loans or advances or by creation of security interest over such receivables but does not include normal lending by a bank against the security of receivables etc. An NBFC-Factoring company should have a minimum Net Owned Fund (NOF) of Rs. 5 Crore and its financial assets in the factoring business should constitute at least 75 percent of its total assets and its income derived from factoring business should not be less than 75 percent of its gross income.

Registration Process:

The registration process involves submission of an application by the company in the prescribed format along with the necessary documents for RBI''''s consideration. If the bank is satisfied that the conditions enumerated in the RBI Act, 1934 are fulfilled, it issues a Certificate of Registration to the company. Only those NBFCs holding a valid Certificate of Registration can accept/hold public deposits. The NBFCs accepting public deposits should comply with the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998,  as issued by the bank. Some of the important regulations relating to acceptance of deposits by the NBFCs are:-

They are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months.

1.) They cannot accept deposits repayable on demand.

2.) They cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time.

3.) They cannot offer gifts/incentives or any other additional benefit to the depositors.

4.) They should have the minimum investment grade credit rating.

5.) Their deposits are not insured.

6.) The repayment of deposits by NBFCs is not guaranteed by RBI.

 

APPLICATION FORMS

Form Name

Purpose of the Form

Department

 

 

 

Application Form

Application Form For Registration With RBI to Commence/Carry On The Business-NORMAL NBFCs

RBI

Form of Application For Certificate of Registration to Commence/Carry on The Business of a Core Investment Company by a Company

RBI

Form of Application For Certificate Of Registration to Commence The Business of a Mortgage Guarantee Company

RBI

Form of Application For Certificate of Registration to Commence / Carry on The Business of a Securitisation Company or  Reconstruction Company

RBI

 

Compliances related to NBFCs:

MONTHLY COMPLIANCES

 

Form Name

Purpose of the Form

Department

submitted by all NBFC-NDSIs(Non-Deposit taking NBFCs)

Monthly Return

Monthly Return on NBFC-ND-SI with asset size of Rs.100 CR. & above

RBI

NBS_ALM-1

Statement of Short term dynamic liquidity(Within 10 days of the close of the Month)

RBI

submitted by all Non-Banking Financial Companies accepting / holding public deposits having asset size above Rs. 100 crores or having public deposits of Rs. 20 crores and above:

NBS-6

Monthly Return On Exposure To Capital Market

RBI

 

QUARTERLY COMPLIANCES

 

Form Name

Purpose of the Form

Department

submitted by all Non-Banking Financial Companies accepting / holding public deposits, and MNBCs - except Residuary Non-Banking Companies:

NBS 1

Quarterly Return on Important Financial Parameters of Deposit Taking NBFCs

RBI

NBS -2

 Quarterly Statement of Capital Funds, Risk Assets/Exposures and risk assets Ratio.

RBI

CA & CEO certificate for NBS-2

Certifying NBS-2

RBI

NBS 3

Quarterly Return On Statutory Liquid Assets

RBI

 submitted by all Residuary Non-Banking Companies:

NBS 3A

Quarterly Return on Statutory Liquid Assets

RBI

Quarterly Return I

Return of investments

RBI

 submitted by all NBFC-NDSIs(Non Deposit taking NBFCs)

 NBS -7

 Quarterly Statement of Capital Funds, Risk Assets/Exposures and risk assets Ratio.

RBI

SA & CEO certificate for NBS-7

Certifying NBS-7

RBI

submitted by NBFCs having asset size between 50-100 cr

Quarterly Return

Quarterly Return by NBFC-ND with asset size of Rs.50 - 100 Cr.

RBI

submitted by all SCRCs(Securitisation and reconstruction company)

SCRC

Quarterly statement of assets acquire, securitised and reconstructed

RBI

submitted by all NBFCs

Branch Info

Branch Details

RBI

 

HALF YEARLY COMPLIANCES

 

Form Name

Purpose of the Form

Department

 submitted by all Non-Banking Financial Companies accepting / holding public deposits having asset size above Rs. 100 crores or having public deposits of Rs. 20 crores and above

NBS_ALM-2

Asset liability mismatches and interest rate exposure(Within 20 days of the close of half year)

Regional office of the Department in whose jurisdiction NBFC is registered

 submitted by all NBFC-NDSIs (Non Deposit taking NBFCs)

NBS_ALM-3

Interest rate sensitivity

statement shall filed with the Bank

 

YEARLY COMPLIANCES

 

Form Name

Purpose of the Form

Department

submitted by all NBFC-NDSIs(Non Deposit taking NBFCs)

ALM_Return

Asset liability mismatches and interest rate exposure

RBI

submitted by all Residuary Non-Banking Companies:

Form  - NBS 1A

Annual Return on Deposits(once in a year, after March 31 and latest by September 30)

Regional Office of Department of Non-Banking Supervision, RBI where registered office of the company is situated

submitted by NBFCs having asset size between Rs 100 to Rs 500cr

NBS-8

Annual Return on NBFC-ND With Asset Size From Rs.100 Cr. To 500 Cr

RBI

submitted by NBFCs having asset size below Rs 100cr

NBS-9

Annual Return on NBFC-ND-SI With Asset Size Below Rs.100 Cr

RBI

submitted by all Non-Banking Financial Companies accepting / holding public deposits, and MNBCs - except Residuary Non-Banking Companies

NBS-4

Repayment of Deposits only in respect of rejected/cancelled companies

Department of Non-Banking Supervision, RBI

CA certificate for NBS 4

Certifying NBS-4

RBI

 

EXTRA COMPLIANCES

 

Form Name

Purpose of the Form

Department

filled in by all residuary non-banking financial companies

Form Schedule "A"

General Information of the Company(once a year as early as possible latest by the 30th September)

Regional Office of the Department of Supervision, Financial Companies Wing

submitted by all  NBFCs whether holding public deposits or not

Special Return

General information and Net Owned Funds

RBI

       

UNDER COMPANIES ACT, 2013

Form Name

Purpose of the Form

Department

E-Form MGT-7

Filing of Annual Return(Within 60 days of AGM)

ROC

 

E-Form AOC-4

Filing of Balance Sheet & P & L A/c(Within 30days of AGM)

ROC

 

E-Form DIR-12

If there is any change in Directors(Within 30days of that change)

ROC

 

 

NBFC-NDSIs(Non-Deposit taking NBFCs)

 

Form Name

Purpose of the Form

Department

Monthly Return

Monthly Return on NBFC-ND-SI with asset size of Rs.100 CR. & above

RBI

NBS_ALM-1

Statement of Short term dynamic liquidity(Within 10 days of the close of the Month)

RBI

 NBS -7

 Quarterly Statement of Capital Funds, Risk Assets/Exposures and risk assets Ratio.

RBI

SA & CEO certificate for NBS-7

Certifying NBS-7

RBI

NBS_ALM-3

Interest rate sensitivity

statement shall filed with the Bank

ALM_Return

Asset liability mismatches and interest rate exposure

RBI

 

Non-Banking Financial Companies accepting / holding public deposits having asset size above Rs. 100 crores or having public deposits of Rs. 20 crores and above

 

Form Name

Purpose of the Form

Department

NBS-6

Monthly Return On Exposure To Capital Market

RBI

NBS_ALM-2

Asset liability mismatches and interest rate exposure(Within 20 days of the close of half year)

Regional office of the Department in whose jurisdiction NBFC is registered

 

submitted by all Non-Banking Financial Companies accepting/holding public deposits, and MNBCs - except Residuary Non-Banking Companies:

 

Form Name

Purpose of the Form

Department

NBS 1

Quarterly Return on Important Financial Parameters of Deposit Taking NBFCs

RBI

NBS -2

 Quarterly Statement of Capital Funds, Risk Assets/Exposures and risk assets Ratio.

RBI

CA & CEO certificate for NBS-2

Certifying NBS-2

RBI

NBS 3

Quarterly Return On Statutory Liquid Assets

RBI

 

NBS-4

Repayment of Deposits only in respect of rejected/cancelled companies

Department of Non-Banking Supervision, RBI

CA certificate for NBS 4

Certifying NBS-4

RBI

 

 submitted by all Residuary Non-Banking Companies:

 

Form Name

Purpose of the Form

Department

NBS 3A

Quarterly Return on Statutory Liquid Assets

RBI

Quarterly Return I

Return of investments

RBI

Form  - NBS 1A

Annual Return on Deposits(once in a year, after March 31 and latest by September 30)

Regional Office of Department of Non-Banking Supervision, RBI where registered office of the company is situated

Form Schedule "A"

General Information of the Company(once a year as early as possible latest by the 30th September)

Regional Office of the Department of Supervision, Financial Companies Wing

 

submitted by NBFCs having asset size between 50-100 cr

 

Form Name

Purpose of the Form

Department

Quarterly Return

Quarterly Return by NBFC-ND with asset size of Rs.50 - 100 Cr.

RBI

 

submitted by all SCRCs(Securitisation and reconstruction company)

 

Form Name

Purpose of the Form

Department

SCRC

Quarterly statement of assets acquire, securitised and reconstructed

RBI

 

submitted by NBFCs having asset size between Rs 100 to Rs 500cr

 

Form Name

Purpose of the Form

Department

NBS-8

Annual Return on NBFC-ND With Asset Size From Rs.100 Cr. To 500 Cr

RBI

 

submitted by NBFCs having asset size below Rs 100cr

 

Form Name

Purpose of the Form

Department

NBS-9

Annual Return on NBFC-ND-SI With Asset Size Below Rs.100 Cr

RBI

 

submitted by all  NBFCs whether holding public deposits or not

 

Form Name

Purpose of the Form

Department

Special Return

General information and Net Owned Funds

RBI

Branch Info

Branch Details

RBI

 

Residuary Non-Banking Company

           

Residuary Non-Banking Company is a class of NBFC which is a company and hasprincipal business the receiving of deposits, under any scheme or arrangement or in any other manner and not being the investment, asset financing, loan company.

 

These companies are required to maintain investments as per directions of RBI, in addition to liquid assets. The functioning of these companies is different from those of NBFCs in terms of method of mobilisation of deposits and requirement of deployment of depositors funds. However, Prudential Norms Directions are applicable to these companies also.

 

       

About Author:


Charu Sharma is an Associate Member of the Institute of Company Secretaries of India. She is registered as an Expert on www.experts.compliancecalendar.in and can be contacted at her E-mail ID: cscharu39833@gmail.com                                                                                              

Click here to read the disclaimer


Write a Comment

  • PayMe India (Financial Happiness)! is partnered with leading NBFCs of India and is offering short term financial support to salaried class.

    25-04-2018 / 05:36:04 PM
    Reply