N. B. F. C. Non Banking Financial Company

NBFCs are

financial

institutions that

provide banking

services, but do

not hold a banking

license.

What is it?• A NBFC is a company registered under the

Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/ securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business.

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 as defined in clause (a) of Section 45 I of the RBI Act, 1934.

Registration of NBFCs

It does not include any institution whose principal business is that of agriculture

activity, industrial activity, sale/purchase/construction of immovable

property.

(i) equipment leasing company;

(ii) hire-purchase company; (iii) loan company; (iv) investment company.

The NBFCs that are registered with RBI are

(i) Asset Finance Company (AFC)(ii) Investment Company (IC)(iii) Loan Company (LC)

With effect from December 6, 2006

Asset Financing Company

AFCs are financial institutions whose principal business is of financing physical assets such as automobiles, tractors, construction equipment material handling equipment and other machines.

Investment Company

ICs generally are involved in the

business of shares, stocks,

bonds, debentures

issued by government or local authority

that are marketable in

nature

Loan Company

LCs are loan giving companies which operate in the business of providing loans. These can be housing loans, gold loans etc.

Role Of NBFCs70-80% of Commercial Vehicles are finance driven.

Indian economy is more dependent on roadsHeavy Govt. outlay for mega road projectsHeavy replacement demand anticipated – 30

lakh commercial vehicles by the year 2007Another Rs.6000 Crores required for phasing

out old commercial vehiclesCRISIL in its study has placed commercial

vehicle financing under “low risk” categoryEach commercial vehicle manufactured, sold

and financed gives employment to minimum 20 persons (direct and indirect)

Significance of NBFCs in India

According to the Economic Survey 2010-11, it has been reported that NBFCs as a whole account for 11.2 per cent of assets of the total financial system.

NBFCs have turned out to be engines of growth and are integral part of the Indian financial system, enhancing competition and diversification in the financial sector, spreading risks specifically at times of financial distress and have been increasingly recognized as complementary of banking system at competitive prices.

Major Products Offered By NBFCs In India

PERFORMANCE OF THE NBFC SECTOR DURING 2009-10

Hire purchase and

loans and advances

by NBFCs witnessed

a growth of 7.6% and

42.7% respectively

during 2009-10 as

compared to 6.8%

and 14.7%

respectively in the

previous year.

Total assets/

liabilities of NBFCs-

D (excluding

RNBCs) expanded

at the rate of 21.5

percent during

2009-10 as

compared to 3.4

per cent during

2008- 09.

Borrowings, a major source of funds for NBFCs-D, increased by 23.6 per cent, while public deposits increased by 38.4 per cent.

Total

investments of

NBFCs-D

increased by

23.3 per cent

during 2009-10

primarily on

account of rise

in Non-SLR

investments.

The financial performance of NBFCs in 2009-10 witnessed moderate deterioration which also reflected in the decline in the operating profits.

This was

due to

increase in

expenditur

e over

income.

Future prospects of NBFC sector:

NBFCs have been playing a very important role both from

the macroeconomic perspective

and the structure of the Indian financial

system.

They offer quick and efficient services

without making one to go

through the complex

rigmarole of conventional

banking formalities.

The coming years will be very crucial for NBFCs and only

those who will be able to face the challenge and prove

themselves by standing the test of time will survive in

the long run.

Differences Between

NBFCs and Banks.

NBFC cannot collect deposits in the manner of a bank

NBFC cannot issue checks drawn on itself

NBFC cannot issue Demand Drafts like banks

NBFC cannot indulge primarily in agricultural or industrial activity

NBFC cannot engage in construction of immovable property

NBFC cannot accept demand deposits

While banks are incorporated under banking companies act

NBFC is incorporated under company act of 1956