Nbfc

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Topic:Non Banking Finance Company
Author:Hari Krishnan.M
Designation:Student
Co-Author:Adorn.A.Alex
Designation:Student
College:Akshaya Institute of Management Studies.

Abstract

Non-bank financial companies (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should have a minimum net owned fund of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999). A NBFC cannot accept demand deposits. The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand. NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 11 per cent per annum. The interest may be paid or compounded at rests not shorter than monthly rests. RBI has been taking efforts to tighten control over NBFCs, which are more loosely regulated than banks. Any takeover or merger involving deposit-taking NBFCs now requires the prior approval of RBI. In addition, the management of the merged entity must comply with the ‘fit and proper’ criteria of RBI.

Non-Banking Financial Companies

Which is a NBFC?
Non-bank financial companies (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. These institutions are not allowed to take deposits from the public. Nonetheless, all operations of these institutions are still exercised under bank regulation. However this depends on the jurisdiction, as in some jurisdictions, such as New Zealand, any company can do the business of banking, and there are no banking licenses issued. If an organization in New Zealand intends to describe itself as a bank and intends to use the word bank in its title it must first receive approval and official registration and thus license from the nation's central bank, the Reserve Bank of New Zealand. Registration of NBFCs

A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should have a minimum net owned fund of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999). The company is required to submit its application for registration in the prescribed format along with necessary documents for Bank’s consideration. The Bank issues Certificate of Registration after satisfying itself that the conditions as enumerated in Section 45-IA of the RBI Act, 1934 are satisfied.

Residuary non-banking company
A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner. The deposits received do not involve investment, asset financing, or loans. Besides the above class of NBFCs the Residuary Non-Banking Companies are also registered as NBFC with the Reserve Bank of India.

Difference between NBFC’s and Bank’s.
1. A NBFC cannot accept demand deposits (demand deposits are funds deposited at a depository institution that are payable on demand -- immediately or within a very short period -- like your current or savings accounts.) 2. It is not a part of the payment and settlement system and as such cannot issue cheque to its customers drawn to itself. 3. Deposit insurance facility of DICGC (Deposit Insurance and Credit Guarantee Corporation ) is not available for NBFC depositors unlike in case of banks.

Types of NBFC

Asset finance Companies (AFC)
AFC are financial institutions whose principal business is of financing physical assets such as...
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