Concept and Types of NBFCs in India

Concept and Types of NBFCs in India

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A corporation organised under the Companies Act of 2013 or 1956 is referred to as a NBFC or, a NBFC or, a Non-Banking Financial Corporation. A non-banking company which carries out the operations of any financial institution will be known as an NBFC, as per the section 45-I (c) of the RBI Act. Additionally, it specifies that the NBFC must be active in the loan and advance industry as well as the acquisition of stocks, equities, debt, and other marketable securities issued by the government or other local authority. A non-banking financial company is also one that is a company and whose primary business is accepting deposits under any scheme or arrangement through any channel (Residuary Non-banking Company).

Businesses, whose primary activity is agricultural activity, industrial activity, the acquisition or sale of any items other than securities, or the provision of services relating to the sale, purchase, or construction of any moveable property, are not considered under the ambit of NBFC or, a Non-Banking Financial Corporation businesses. In order to provide clarity regarding the entities that will be monitored and regulated as NBFCs under the RBI Act, the Reserve Bank of India has defined financial activity as principal business. The 50-50 test is the criterion, and it is as follows:

1. Half of the total assets of the organisation must be financial assets.

2. Fifty percent of the overall revenue must originate from financial assets. Both the Reserve Bank of India and the Ministry of Corporate Affairs are in charge of it. It is incorporated as a company under the appropriate local laws and has a license from the RBI to operate.

Types of NBFCs - The NBFCs are divided into groups based on their activities and liabilities. The various kinds of NBFCs in India are as follows:

• AFC or, Asset Finance Company: financing of tangible goods, such as cars, tractors, and generators, that support economic or productive activities.

• IC or, Investment Company: purchasing securities with the intent to sell them again.

• LC or, Loan Company: extends loans or provides funding for activities other than its own. However, an Asset Finance Company is not covered by this.

• NBFC-IFC or, Infrastructure Finance Company: lends money for infrastructure-related initiatives.

• NBFC-IDF or, Infrastructure Debt Fund: facilitates the flow of long-term debt into infrastructure-related projects.

• CIC-ND-SI or, Systemically Important Core Investment Company: acquires securities and shares principally for the purpose of investing in equity shares.

• NBFC-MFI or, Micro Finance Institution: extends loans to those who are economically underprivileged. Additionally, they provide assistance to small and medium-sized businesses (MSMEs).

• NOFHC or, NBFC Non-Operative Financial Holding Company: enables promoters or promoter organisations to establish a new bank.

• NBFC-Factor or, Factor: is in the business of buying an assignor's receivables or extending loans secured by the receivables' security interest at a discount.

• MGC or, Mortgage Guarantee Company: engages in mortgage-related activity.

• NBFC-AA or, Account Aggregator): gathers and provides to the client, or others as requested by the customer, information about the customer's financial assets in a consolidated, organised, and retrievable manner.

• NBFC-P2P or, NBFC Peer to Peer Lending Platform: gives borrowers and lenders a place to meet online in order to facilitate the mobilisation of unsecured financing.