2.4.1. What is NBFC?

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/ stocks/ bonds/ debentures/securities issued by Government or local authority or other marketable securities of a like nature, but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:

♤ NBFC cannot accept demand deposits;

♤ NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself

♤ deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

No NBFC can commence or carry on business of a non-banking financial institution without obtaining a certificate of registration from the Reserve Bank of India and without having a Net Owned Funds of Rs. 25 lakhs.

NBFCs can be classified into two broad categories, viz., (i) NBFCs accepting public deposit (NBFCs-D) and (ii) NBFCs not accepting/holding public deposit (NBFCs-ND). Residuary Non- Banking Companies(RNBCs) are another category of NBFCs whose principal business is acceptance of deposits and investing in approved securities.