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August 12, 2013

Non Banking Financial Companies (NBFCs) - Banking Awareness


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The NBFC (Non-bank financial company) is an organization which  provides banking services without having a banking license. According to the Reserve Bank of India (RBI), NBFC is a a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares / stock / bonds / debentures / securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale / purchase / construction of immovable property.

NBFCs do offer all sorts of banking services, such as loans and credit facilities, retirement planning, money markets, underwriting, and merger activites.

Ofcourse, the functions of NBFCs are almost same as banks, however there are a few differences,


some of the differences between NBFCs and Banks are :

  • An NBFC cannot accept demand deposits (they are not allowed to take deposits from public)
  • An NBFC is not a part of the payment and settlement system and as such an NBFC cannot issue cheques drawn on itself
  • Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors unlike in case of banks.
Different types of NBFCs are :
  • Asset Finance Company (AFC) : An AFC is a 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 equipments, 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.
  • Investment Company (IC) : IC means any company which is a financial institution carrying on as its principal business the acquisition of securities.
  • Loan Company (LC) : LC means any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company.
  • Infrastructure Finance Company (IFC) : IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of Rs. 300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.
  • Systemically Important Core Investment Company (CIC-ND-SI) : CIC-ND-SI is an NBFC carrying on the business of acquisition of shares and securities which satisfies the following conditions :
    • it holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies
    • its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its Total Assets
    • it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment
    • it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.
    • Its asset size is Rs 100 crore or above and
    • It accepts public funds
  • Infrastructure Debt Fund : Non- Banking Financial Company (IDF-NBFC) : IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5 year maturity. Only Infrastructure Finanace Companies (IFC) can sponsor IDF-NBFCs.
  • Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI) : NBFC-MFI is a non-deposit taking NBFC having not less than 85% of its assets in the nature of qualifying assets which satisfy the following criteria :
    • loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs. 60,000 or urban and semi-urban household income not exceeding Rs. 1,20,000
    • loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000 in subsequent cycles
    • total indebtedness of the borrower does not exceed Rs. 50,000
    • tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000 with prepayment without penalty
    • loan to be extended without collateral
    • aggregate amount of loans, given for income generation, is not less than 75 per cent of the total loans given by the MFIs
    • loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower
  • Non-Banking Financial Company – Factors (NBFC-Factors) : NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The 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.

Note : This list is for the sake of information Only. There is no need to remember all these names. 

Sources RBI and MHA websites


  1. Great Work Team gr8ambitionz. The aforesaid post on NBFC is real informative....

  2. guys download ur much awaited admit card of ugc ldc 2013 exam wid ur email id and respective password......................


  3. Dear Admin,
    Please upload the quick reference guide for SBI PO


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