Rules and Procedures for NBFCs in India

Rules and Procedures for NBFCs in India

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According to the Companies Act of 1956 and 2013, a non-banking financial company, or NBFC, is an organisation that has been incorporated. By ushering in efficacy and diversity in the financial industry, NBFCs have meaningfully underwritten to the financial system in the country. The regulatory architecture, profitability, heterogeneity and the operations have all transformed over time. Because they make quick choices, respond quickly to requests for services, and have competence in specialised fields, customers often find these entities convenient. Moreover, by functioning as a back-up where the banks feel pressure, NBFCs consolidate the resilience of the financial system in India. Non-Banking Financial Companies (NBFCs) and their different facets are discussed in this article.

NBFCs versus Banks

• Similar actions are carried out by banks and NBFCs. There are several notable distinctions between the two, though.

• Demand deposits are not allowed to be accepted by NBFCs.

• These organisations are not a part of India's payment and settlement system thus, they will no be able to issue checks that are drawn upon themselves.

• The Deposit Insurance and Credit Guarantee Corporation does not offer deposit insurance to NBFC depositors like it does to bank depositors.

• Under the automatic method, 100% FDI is allowed in NBFCs, specifically in 18 activities.

Guidelines for NBFC Functioning - Once NBFCs have their licences, they must abide by the following rules.

• Deposits that are payable on demand are not allowed to be received by NBFCs.

• An NBFC is only permitted to charge interest up to the limit set by the RBI.

• The lowest and maximum terms of the public deposits that they may accept are 12 and 60 months, respectively.

• The RBI would not ensure that any money obtained in this way by the NBFC would be repaid.

• The public would get unsecured deposits.

• The RBI must be given all relevant information about the company, including any changes to its makeup.

• The annual submission of the company's audited financial sheet is crucial.

• Quarterly return on the company’s liquid assets has to be furnished.

• An NBFC must submit a statutory return on the deposits it has received each year using Form NBS-1.

• An NBFC must submit a statutory return on the deposits it has received each year using Form NBS-1.

• The RBI must be notified every six months of the company's credit rating.

• A half-yearly ALM or, the Asset Liability Management report is required from any company with a public deposit of at least Rs. 20 crore or assets of at least Rs. 100 crore.

• A corporation must submit an Asset Liability Management return every six months if it has assets worth at least INR 100 crores or INR 20 crores in public deposits.

• In terms of liquid assets, an NBFC must keep a minimum of 15% of the public deposits.