NBFC Stands for Non-Banking Financial Company. Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 of India, engaged in the business of loans and advances, purchase of shares / stock / bonds / debentures / securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, and chit-fund business.
A non-banking institution is a company which has its principal business of receiving deposits under any scheme or arrangement or any other manner. Non-banking financial companies or NBFCs, are financial institutions that provide banking services, but do not hold a banking license. These institutions are not allowed to take deposits from the public. Nonetheless, all operations of these institutions are still covered under banking regulations.
NBFC's do offer all sorts of banking services, such as loans and credit facilities, retirement planning, money markets, underwriting, and merger activities. The number of non-banking financial companies has expanded greatly in the last several years as venture capital companies, retail and industrial companies have entered the lending business.
NBFC is a company registered under the Companies Act, 1956 of India, Registered under RBI Act, 1934 Under Section 45-IA, Provides banking services without meeting legal definition of bank such as holding a banking license. Originally, NBFCs registered with RBI were classified as
Asset Finance Company (AFC)
Investment Company (IC)
Loan Company (LC)
AFC would be defined as any company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive / economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipment’s moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real / physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively.
The above type of companies IC & LC may be further classified into those accepting deposits or those not accepting deposits. Only those NBFCs holding a valid Certificate of Registration with authorization to accept Public Deposits can accept / hold public deposits. NBFCs authorized to accept / hold public deposits besides having minimum stipulated Net Owned Fund (NOF) should also comply with the Directions such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by the Bank.