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‡ A non-bank financial institution (NBFI) is a financial
institution that does not have a full banking license or is not
supervised by a national or international banking regulatory
agency.
‡ A company registered under Companies Act 1956 and RBI Act
1934 u/s 45-IA
‡ It facilitate bank-related financial services, such as investment,
loans and advances, leasing, hire - purchase, insurance, but
does not include that institution whose main business is in
agriculture activity, industrial activity, sale/ purchase/
construction of immovable property etc.
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‡ While some of them are primary engaged in in fund-
based activities, the others primarily provide financial
services of diverse kinds. Former is known as NBFCs
and latter is known as NBFSCs.

‡ RBI has evolved a regulatory framework the salient

features of which are outlined below for the guidance of
depositors.
± An NBFC must be registered with the Reserve Bank
of India (RBI) and have specific authorization to
accept deposits from the public.
± NBFC must display the Certificate of Registration or
acetified copy thereof at the Registered office and
other offices/branches
± RBI does not guarantee the repayment of deposits accepted by
NBFCs. NBFCs cannot use the name of the RBI in any manner
while conducting their business.
± NBFCs which accept deposits should have minimum
investment grade credit rating granted by an approved credit
rating agency for deposit collection, except certain Asset
Finance (equipment leasing and hire purchase finance)
companies and Residuary Non-Banking Companies (RNBCs)
± NBFCs excluding RNBCs cannot
‡ Offer a rate of interest on deposits more than that approved
by RBI from time to time (at present 12.5%)
‡ Accept deposit for a period less than 12 months and more
than 60 months
‡ Offer any gifts/incentives to solicit deposits from public.


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‡ Act as suppliers of loans and credit facilities
‡ Supporting investments in property
‡ Trade money market instruments
‡ Fund private education
‡ Provide wealth management such as managing portfolios
of stocks and shares
‡ Underwrite stock and shares, TFCs and other obligations
‡ Provide retirement planning
‡ Advise companies in merger and acquisition
‡ Prepare feasibility, market or industry studies for
companies
‡ Provide discounting services e.g., discounting of
instruments
CLASSIFICATION OF NBFC¶S

1. Equipment Leasing companies

2. Investment companies
3. Housing finance companies
4. Venture capital companies
5. Discount and guarantee houses
6. Hire ± purchase Finance Companies
7. Loan Companies
8. Mutual Benefit Financial Company
9. Miscellaneous Non-Banking Company
10. Residuary Non-Banking Company
 
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‡ The minimum net-owned funds of Rs.2 crores and RBI
registration are the entry point norms. The RBI has power
to cancel registration of NBFCs.
‡ NBFCs have to maintain 10-15% of their deposits in
liquid assets effective from January 1 1988
‡ Reserve fund of not less than 20% of their net deposits,
every year.
‡ CAR ± 8%
‡ Minimum credit rating
‡ 15% interest rate on deposits
‡ Company having more than 50% of its total assets as
financial assets and income from financial assets is more
than 50% of the gross income, will be termed as NBFCs
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‡ In order to protect depositor¶s interest, all NBFCs
accepting/holding public deposits are advised to full cover
available at all times.
‡ KYC norms
‡ Required to inform RBI within one month where merger
and amalgamation takes place in terms of the high court
order in pursuance of sec. 391 and sec. 394 of Companies
Act 1956.
‡ Entire amount of aggregate liabilities, to the depositors
would be invested in directed investment only no
discretionary investments.
‡ The maximum interest rate on public deposits is 12.5% p.a.
This is the maximum permissible ineterst rate an NBFC
can pay on public deposits; they are free to offer lower
rates
‡ Ceiling on acceptance of Public Deposit
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AFCs maintaining CRAR of Equal to NOF

15% without credit rating
AFCs with CRAR of 12% and 1.5 times of NOF
having minimum investment
grade credit rating
LCs/ICs with CRAR of 15% Equal to NOF
and having minimum
investment grade credit rating
 LOAN COMPANIES
‡ Loan company means a 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 equipment leasing company or a hire-
purchase finance company
‡ They give loans to wholesale and retail traders, small scale
industries, and self employed persons. Loans are often
short term loan
‡ Unsecured loan based on personal credit standing of
borrower
‡ Rate of interest charge is equivalent to money lenders, 18 -
36 %
 INVESTMENT COMPANIES
‡ Investment Company is a company which is a financial
institution carrying on as its principal business the
acquisition of securities
‡ It is a company whose main business is holding securities
of other companies purely for investment purposes. The
investment company invests money on behalf of its
shareholders who in turn share in the profits and losses.
‡ Finance house building, education and medical needs, and
priority sectors
‡ Interest rate is high
‡ Loans are unsecured
 EQUIPMENT LEASING
COMPANY
‡ It is a form of financing employed to acquire the use of
assets. Through lease firms can acquire the economic use
of assets for a stated period of time without owing it.
‡ Two parties lessor and lessee
‡ Operating lease and Financial or capital lease
‡ The extent of the lease business largely depends on upon
the legal framework and tax policy of the government
‡ ICICI, HDFC, SIICs, etc
 HOUSING FINANCE COMPANY
‡ Its an company carrying on as its principal business, the
financing of the acquisition or construction of houses
including the acquisition or development of plots, lands in
connection therewith
‡ Supplier of loan in India are HUDCO, housing boards,
central and state government, etc.
Comparison between Banks and
NBFCs
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