Non Bank Financial Intermediaries
• NBFCs are privately owned, decentralized and relatively small-sized financial intermediaries.
• Some are primarily engaged in fund-based activities and others provide financial services of diverse kinds.
• The former are know as Non Banking Financial Companies (NBFCs) and the latter are known as Non Banking Financial Services
• Two parts
• During 1995-96, NBFCs had undergone radical
• The post 1995 overview is depicted with whatever
information is available.
• There are thousands of NBFCs and only a small proportion of them report to the RBI.
• The RBI (Amendment) Act, 1997 defines NBFC as an
“institution or company whose principal business is to accept deposits under any scheme or arrangement or in any other manner, and to lend in any manner.”
• As a result, a number of loan and investment companies registered under the Companies act by business houses for the purpose of investment in group companies are now included as NBFCs.
Equipment Leasing Company (ELC)
Hire-Purchase Finance Company (HPFC)
Housing Finance Company (HFC)
Investment Company (IC)
Loan Company (LC)
Mutual Benefit Financial Company (MBFC)
Miscellaneous Non-Banking Company (MNBC)
Residuary Non-Banking Company (RNBC)
• NBFCs perform a diverse range of functions and helps
bridge the credit gaps.
• They have served the households, farm, and small
enterprise sector on a sustained basis.
• A thriving, healthy and growing non-banking financial
sector is necessary for promoting the growth of an efficient and competitive economy.
• The difference between the banks and the NBFCs have
blurred over the years.
Regulation of NBFC’s
In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be registered with RBI to commence or carry on any business of non-banking financial institution.
The minimum net owned funds of Rs 25 lakh, 1997.
The RBI has powers to cancel registration of NBFCs.
They have to maintain 15% of their deposits in liquid assets effective from April 1, 1998.
They have to create reserve fund and transfer not less than 20% of their net deposits to it every year.
The RBI will direct them on issues of disclosures, prudential norms, credit , investment, etc.
They have to achieve a minimum capital adequacy norm of 8% by march 31, 1996.
They have to obtain a minimum credit rating from anyone of the three credit rating agencies.
Types of NBFCs registered with RBI
The NBFCs that are registered with RBI are:
(i) equipment leasing company;
(ii) hire-purchase company;
(iii) loan company;
(iv) investment company.
With effect from December 6, 2006 the above NBFCs
registered with RBI have been reclassified as
(i) Asset Finance Company (AFC)
(ii) Investment Company (IC)
(iii) Loan Company (LC)
• A ceiling of 15% interest rate on deposits has been prescribed for MBFCs or nidhis, effective from July 8, 1996.
• A company will be treated as a nonbanking financial company if its financial assets are more than 50% of its total assets and income from financial assets is more than 50% of the gross
• All NBFCs with an asset size of Rs. 100 crore and more as per the last audited balance sheet are now considered as
systemically important NBFCs and are required to maintain
CRAR of 10%.
• The Maximum interest rate payable on public deposits by
NBFCs are revised to 12.5 % per annum from April 24, 1997.
Some of the important regulations relating to
acceptance of deposits by NBFCs are :
• 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...
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