NBFC MEANS– An NBFC (Non-Banking Financial Company) is a financial institution registered under the Companies Act, 2013 (or the earlier Companies Act, 1956). Unlike traditional banks, NBFCs are involved in the business of loans, asset financing, leasing, hire purchase, and investment in stocks, bonds, or other financial instruments, but they do not possess a banking license.

NBFCs play a vital role in providing financial services to sectors underserved by traditional banks, such as small businesses, microfinance, and rural enterprises. However, they cannot accept demand deposits, such as savings or current accounts.

Eligibility to Register as an NBFC

To register as an NBFC an applicant must fulfill the following conditions:

• Incorporation: The company must be incorporated under the Companies Act, 2013 or earlier.
• Minimum Net Owned Funds (NOF): The company must have a minimum net owned fund of ₹2 crore (₹5 crore for microfinance institutions).
• Approval from RBI: Obtaining a Certificate of Registration (CoR) from the Reserve Bank of India (RBI) is mandatory.
• Principal Business Criteria: At least 50% of the company’s total assets and income must come from financial activities.

Types of NBFCs

NBFCs can be classified into various categories based on their business activities:

1. Based on Activities                                                                                               

• Asset Finance Company (AFC): Focuses on financing physical assets like machinery, automobiles, etc.
• Investment Company (IC): Engages in investments in shares, stocks, bonds, or securities.
• Loan Company (LC): Provides loans to individuals and businesses.
• Infrastructure Finance Company (IFC): Finances infrastructure projects.
• Micro Finance Institution (MFI): Extends small loans to low-income groups.

2. Based on Acceptance of Deposits

• Deposit-taking NBFCs (NBFC-D): Authorized to accept deposits.
• Non-deposit taking NBFCs (NBFC-ND): Not authorized to accept deposits.

3. Other Specialized Categories

• Housing Finance Company (HFC)
• Core Investment Company (CIC)
• NBFC-Factor: Engages in the business of factoring.
• NBFC-P2P Lending Platform

Returns to be Filed by NBFCs

RBI Returns:

• NBS-1 Return: Quarterly return for deposits.
• NBS-7 Return: Annual return on financial indicators.

Asset Liability Management (ALM): Periodic reporting of asset and liability mismatches.

CIC Reporting: For credit information to credit bureaus.

Income Tax Filings: Annual tax returns under the Income Tax Act, 1961.

GST Returns: Applicable for NBFCs providing taxable services.

Statutory Audit: Annual financial audit to ensure compliance

Regulatory Authority for NBFCs

NBFCs in India are regulated and supervised by the Reserve Bank of India (RBI). However, specific NBFCs like housing finance companies, insurance companies, and mutual funds also fall under the purview of other authorities such as:

• National Housing Bank (NHB): For housing finance companies.
• Insurance Regulatory and Development Authority of India (IRDAI): For insurance-based NBFCs.
• Securities and Exchange Board of India (SEBI): For NBFCs dealing in securities and mutual funds.

By Ashish