NON BANKINGFINANCE COMPANY

WHAT IS NBFC?A NBFC is a company registered under the CompaniesAct, 2013 which is engaged in the business of loans andadvances, receiving deposits (some NBFC only),acquisition of stock or shares, leasing, insurance business,investment business, micro financing etc.

According to Section 45-IA NBFC have to makeapplication for registration with RBI and shall notcommence or carry on the business of a non-bankingfinancial institution without obtaining registration fromRBI and maintaining NOF.

HOW IS NBFC DIFFERENT FROM BANK?NBFC Bank

Definition NBFC are engaged incarrying on the financialbusiness, who cannot acceptthe demand deposits

Banks are financial institutionswhich receive deposits andmake loans. Banks providefinancial services.

Incorporated under The Companies Act, 2013 The Banking Regulation Act,1949

Maintenance of reserveratio’s

Not required Compulsory

Deposit Insurance Facility Not available available

Payments and settlementsystem

NBFC’s do not form part ofpayments and settlementsystem

Banks comply with thepayments and settlementsystem.

IMPORTANCE OF NBFC’SGrowthThe financial and economic growth of the economycan be achieved with a well-developed marketbased financial system which is achieved by NBFC’s.

Financial IntermediationNBFC’s functioning involves transfer of funds from the savers

to investors. Thus, financial intermediation is economical andless expensive to both small businesses and small savers.

Inducement to save NBFC’s play an important role in promotion of savings in the country. NBFC’s provide a wide range of financial assets as store of value and provide with the expert financial services to its customers.

Types of NBFC’SNBFCs are categorized as

Liability based Asset Based Asset Based Size Based

Ø Having Public Deposits

Ø Not having Public Deposits

Ø Asset Finance Company

Ø Investment Company

Ø Loan Company

Ø Core Investment Companies

Ø Infrastructure Finance Companies

Ø Micro Finance Institutions

Ø Infrastructure Debt Funds

NBFCs with assetsof Rs. 100 crore and

above(NBFCs-ND-SI)

NBFC (ND CATEGORY)NBFC –ND

• NO PUBLIC FUND• NO CUSTOMER INTERFACE

NBFC –ND• WITH PUBLIC FUND

• NO CUSTOMER INTERFACE

NBFC –ND• NO PUBLIC FUND

• WITH CUSTOMER INTERFACE

NBFC –ND• WITH PUBLIC FUND

• WITH CUSTOMER INTERFACE

No customer Interface- not subject to any prudential norms and thus haveComplete regulatory freedom to conduct their business activity.

PROCESS OF REGISTRATIONStep 1: Formation of a company: the first step is formation of a company under companies Act, 2013.The name of the company must reflect the character of the NBFC. For example,

investment, finance etc. may be used.

Step 2: after the incorporation, Net owned fund the paid up share capital should suitably ariseeither at par or premium so as to attain a minimum net owned fund of Rs. 2 crore. The capital to be raised should be equity share capital and not preference share capital.

Step 3: opening of a bank account: the entire sum of Rs. 2 Crore should be kept in a bank account in a deposit account free from all liens. Normally funds are kept in fixed deposit. The RBI at the time of considering the application verifies the deposit held by the company with

the bankers.

Step 4: application for certificate of Registration to RBI along with required documents. (the complete list of documents are provided in official site that is www.rbi.org.in).

COMPLIANCESAnnual compliancesS.No. Particulars Time limit

1Unaudited March Monthly return/NBS7 on or before 30th June2Audited March Monthly return/NBS7 Upon completion3Statutory Auditors certificate on Income & Assets on or before 30th June

4Information about Cos having FDI/Foreign Funds on or before 30th June

5Resolution of Non-acceptance of Public Depositbefore commencement of new Financial year

6File Audited Annual Balance Sheet and P&L AccountOne month from the date of signoff

7Declaration of Auditors to Act as Auditors of the Company annual basis

8 Monthly return By 7th of every month

9.Periodical compliance

Appointment of Director within 30 days of appointment

Resignation of Director within 30 days of resignationAdoption of any notification in the ensuing Board Meeting & filing the certified copy with RBI

How NBFC’s contribute in the Society

Substantial growth in the economy

Helps in increasing wealth creation

Financing weaker sections of economy

Mobilization of resources (savingsto investments)

Long term credit and specialized credit provided

Helps in attracting foreign grants

Raising of Funds

Raising of Funds

Private Placement(for private company)

Equity/ preference instruments

Bonds

Commercial papers

Debentures

Bank finance to NBFC’s

Public issue Foreign Directinvestment

FDI IN NBFC’S

Any foreign investment in the entities falling within the above sub sectors have minimum capitalization norms, as follows:USD 5,00,000 for foreign capital up to 51%USD 5,00,000 for foreign capital more than 51% and up to 75%USD 5, 00,000 for foreign capital more than 75%.

Currently, an NBFC having FDI under automatic route is permitted to engage in only the following 18 financial activities and FDI in financial activities other than those mentioned below

require prior approval of the Government.

Merchant banking Custodian services Rural creditFactoring Underwriting Investment advisoryLeasing and Finance Portfolio Management Services Financial consultancyHousing Finance Stock broking Credit rating agenciesCredit card business Asset management Forex brokingMicro credit Venture capital Money changing business

Clearly after the technical reading of the notification issued by RBI on 9th September 2016, requirementof entity in the NBFC activities should be regulated by a financial sector regulator.The notification does not specifythe requirement of entity being registered or licensed by a financial sector regulator andhence it is believed that emphasis has to be on the entity being regulated rather thanlicensed. Further there is lack of clarity as to whether the above conditions can be seen asFDI linked performance conditions, thereby making LLP’s engaged in financial servicesineligible for receiving FDI. Accordingly it appears that there should be no prohibition onLLP’s engaged in Non- banking financial services sector from accepting foreign investment.Although the ownership and control of the LLP would need to be determined in case ofsuch an LLP in accordance with general principles and conditions laid downunder FDI policy. Furthermore, the rate of interest in many companies in terms of FDI is low.

FDI IN NBFC

Option of doing business apart from NBFC’s

OPTION OPPORTUNITIES LIMITATIONS

NIDHI COMPANY It is recommended for commercial banking business, and the initial capital required is less.

The funding and transactions can be done between the members only

MULTI STATE CREDITCO. SOCIETY

Deposits can freely be obtained from public (with certain limitations)

Government aid provided is low and less credibility.

NBFC (MFI) Bank support is high. Initial capital required is high.

Why to go for NBFC in present scenario? How it shall be helpful?

After demonetization the Indian customers are increasingly adopting Digital ways in daily life.NBFC’s therefore develop strategies such as product portfolio’s, end to end Customer experience.

NBFC’S with strong understanding in the market can help in positioning themselves as A better alternative to traditional ways of banking

NBFC’s ensure substantial growth over a long run, and introduction of such specifiedPlayers and systems will truly transform the banking value chains

Usually the rate of Interest derived by the NBFC’s are high as compared to banks.Therefore high rate of Interest is received, adding on to the benefits of the NBFC.

CREDIT GROWTH OF NBFC’S

Why you Need NBFC software

NBFC’S inevitably require a software to work on databases. Thus, a loan software like loan servicing software, loan management, and loan finance software needs

to be developed for this. These are specially designed and developed for small operations to grow up to large operations.

What a NBFC software should contain?• Loan scheme• EMI calculation• Due date alert• Loan Management• Account access• Regular updates

WHAT SHOULD BE CUSTOM FEATURES ON NBFC SOFTWARE• Loan Scheme Management: Loan is the most demanding product for a bank and

through loan scheme management system you can easily calculate ROI and create/ update schemes as per business need.

• 100% online Application for checking eligibility.• EMI Calculation.• Credit analysis.• Document management system (Customer Master data, document, file I,e).• CIBIL Api Integration.• Business Policies Management.• Approval System.• End to end disbursement management.• Automated EMI collection (ESC, Recovery & Follow-ups).• Due Date Alert (automatic SMS / CALL).• Customer Dashboard to check loan status, EMI Schedule, re-pay loan I.e.• Defaulter List.• PDC Detail.• Enrollment Fee Report.• Application Fee Report.• Late Fee Report.• Commission Pay Report.• Spot Booking Expenditure.

Conclusion

NBFC’S are highly diverse in nature, and continue to offer wide range of financialServices. After demonetization NBFC’s will find ways to serve the customers through

digital means. Also for a diverse and large country like India, ensuring financial Access to growth and entrepreneurship can be achieved by upbringing of

NBFC’s.

NBFC’s have gained substantial success and has ensured growth over a longRun, and introduction of such specified players and system will truly transfer the

Banking value chains in times to come.

NBFC’s play an important role in promotion of savings in the country.NBFC’s provide a wide range of financial assets as store of value and provide

with the expert financial services to its customers.

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