Non Banking Financial Companies (NBFCs)

Presented by Tej pratap Vishwakarma PGDM II Year

What is a NBFC?
A company which carried on as its business or part of its business the following activities:
- financing - acquisition of securities - hire purchase - insurance - chit fund - mutual benefit company But does not include a company which carries on as its principal business: - agricultural operations, - industrial activities - Sale and purchase of goods - providing of services - purchase, sale and construction of

immovable property

Classification of NBFCs
Based on nature of business:

Asset finance companies Investment companies Loan companies Infrastructure finance companies

Asset finance co.(AFC) and Infrastructure finance co.(IFC)

AFC: Financing of physical assets supporting productive economic activities such as automobiles, tractors, earth moving machinery, lathe machines, generator sets, material handling equipments and general purpose industrial machinery.

IFC: long term funding for developing or operating and maintaining or developing, operating and maintaining any infrastructure project in road, highway, port, airport inland port, waterways, water supply, irrigation project, water treatment, sanitation and sewage system or solid waste management, telecom services (basic or cellular), network and internet service, transmission or distribution of power, laying down and maintenance of gas, crude oil and petroleum pipelines

Difference between banks & NBFCs

1.an NBFC cannot accept demand deposits; 2.an NBFC is not a part of the payment and settlement system and as such an NBFC cannot issue cheques drawn on itself; and 3.deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors unlike in case of banks.

Some of the important regulations relating to acceptance of deposits by NBFCs are as under: 1.The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand. 2.NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 12.5 per cent per annum. The interest may be paid or compounded at rests not shorter than monthly rests. 3.NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors. 4.NBFCs (except certain AFCs) should have minimum investment grade credit rating. 5.The deposits with NBFCs are not insured. 6.The repayment of deposits by NBFCs is not guaranteed by RBI. 7.Certain mandatory disclosures are to be made about the company in the Application Form issued by the company soliciting deposits

Thank You