What is NBFC?  The company registered under companies act  registered under RBI Act, 1934 U/S 45-IA  Provides banking services without meeting legal definition of banks such as holding a banking license.  Engaged in the business of loans and advances, acquisitions of shares/stocks/bonds/debentures/securities issued by government or local authority or other securities of like marketable business, chit business, but does not include any institution whose principal business is that of agricultural activity, industrial activity and sale and construction of immovable property.

How NBFCs is different from Banks  A NBFC can not accept DEMAND DEPOSITS  It is not a part of PAYMENT and SETTLEMENT system that’s why it can not issues cheques to its customers

Functions of NBFCs  Development of sectors like transport and infrastructure  Substantial employment generation  Help and increase wealth creation  Broad base economic development  Irreplaceable supplement to bank credit in rural areas.  To finance economically weaker sections

Registration of NBFCs  Apart from being registered with RBI U/S 45-IA RBI Act, 1934 they are also regulated by other regulators.  Housing finance companies are regulated by NATIONAL HOUSING COMPANIES  Venture capital fund, stock broking companies are registered with SEBI

Requirement for registration  A non banking financial company should have minimum net owned fund of 2 Cr  The company is required to submit it’s application for registration in the prescribed for registration in the prescribed format along with necessary documents for bank consideration

Types of NBFC’s  Equipment Leasing Company  Hire purchase company  Loan company  Investment company

Contd ……  INVESTMENT COMPANY is any company which is a financial institution whose principal business is acquisition of securities. E.g.:- Peerless finance, IDBI Ltd., Bajaj alliance etc.  LOAN COMPANY is any company which is a financial institution whose principal business is of providing finance whether by making loans or advances or otherwise for any activity other than its own but does not include an equipment leasing company or a hire- purchase finance company. E.g.:- Mannapuram finance, Sundaram home finance, Birla home finance ltd. etc

Contd ….  HIRE PURCHASE COMPANY:- they mainly fund the purchase commercial vehicles and other business equipments. E.g.:- First leasing Co., Emak software's, Le sun technologies etc.  EQUIPMENT LEASING COMPANY:- equipment leasing company provides quick and painless equipment leasing & provides other leasing solutions. E.g.:- India equipment leasing ltd., GCR Capital etc.

Requirement for accepting Public Deposit  Holding a valid certificate of registration with authorization to accept it  Should have minimum stipulated net owned fund  Comply with the directions issued by the bank

Rate of interest and period of deposit  Max rate of interest a NBFC can offer is 11%. The interest may be paid or compounded at rest not shorter than monthly rest  Minimum period of time 12 months  Maximum period of time 60 month

NBFC Regulation relating to deposits  NBFC cannot offer gifts/incentives to the depositors  The repayment of deposits by NBFC is not guaranteed by RBI  The deposit with NBFC are not insured  NBFC should have minimum investment grade credit rating.

Minimum investment grade rating  CRISIL: FA – ( FA MINUS)  ICRA : MA – ( MA MINUS)  CARE : CARE BBB ( FD )

Regulation for Loan No NBFC shall lend to  Single borrower exceeding fifteen per cent of its owned fund  Single group of borrowers exceeding twenty five per cent of its owned fund.

Regulations for investment No NBFC shall invest in  the shares of another company exceeding fifteen per cent of its owned fund  the shares of a single group of companies exceeding twenty five per cent of its owned fund.

Regulations for defaults  In case there is default by NBFC then the depositor can approach:  1) Company board law  2) Consumer forum  3) File a civil suit