Table of Contents
What is NBFC Abbreviation?
NBFC is an abbreviation for non-banking financial company.
Examples of NBFC
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Some examples of NBFCs include:
-Commercial Banks
-Credit Unions
-Building Societies
-Mortgage Companies
-Finance Companies
-Leasing Companies
-Investment Banks
Eligibility of an NBFC For Registration with RBI
An NBFC can be registered with RBI if it satisfies the following conditions:
The company should be registered under the Companies Act, 1956.
The company should have a minimum paid-up capital of Rs.5 crore.
The company should be engaged in the business of lending, financing, leasing, investing in securities, or providing any other financial services.
The company should not be engaged in the business of chit fund, mutual benefit fund, or Nidhi company.
The company should not be a subsidiary of a banking company.
The company should not be a housing finance company.
The company should be in compliance with the RBI guidelines on NBFCs.
NBFCs Which Need Not be Registered With RBI
NBFCs which are not required to register with RBI are those NBFCs which satisfy either of the following two conditions:
The NBFCs having a net owned fund of Rs.50 lakh or less.
The NBFCs which are engaged only in the business of lending against securities, buying and selling of shares/securities, providing housing finance, and factoring.
NBFCs Which Need to be Registered With RBI
NBFCs which are required to register with RBI are those NBFCs which do not satisfy either of the following two conditions:
The NBFCs having a net owned fund of Rs.50 lakh or less.
The NBFCs which are engaged only in the business of lending against securities, buying and selling of shares/securities, providing housing finance, and factoring.
Procedure to Incorporate an NBFC
The process of incorporating an NBFC is as follows:
1. Draft the Articles of Association for the company.
2. File a company incorporation application with the Registrar of Companies.
3. Hold a board meeting and pass a resolution to incorporate the company.
4. Appoint a company secretary and a director.
5. Deposit the company’s share capital with the Registrar of Companies.
6. File a declaration of commencement of business with the Registrar of Companies.
Guidelines an NBFC Needs to Follow
An NBFC needs to comply with the guidelines set by the Reserve Bank of India (RBI) to ensure that it is functioning in a responsible manner. Some of the key guidelines that an NBFC needs to follow are:
1. An NBFC must maintain a minimum capital adequacy ratio of 15%.
2. An NBFC must not extend more than 50% of its net owned funds to a single borrower.
3. An NBFC must not extend more than 25% of its net owned funds to a single group of borrowers.
4. An NBFC must not make any loans or investments in shares, debentures, and other securities.
5. An NBFC must not enter into any agreement with its borrowers to purchase or sell goods or services.
6. An NBFC must not enter into any agreement with its borrowers to supply goods or services on credit.
