Download - NBFI
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Organization of the financial system
Financial Intermediaries Financial Markets Financial Assets/Instruments
Banks NBFCMutual Funds
Insurance Organization
Leasing Companies
Hire-Purchase/Consumer Finance Companies
Housing Finance Companies
Venture Capital Funds
Merchant Banking Organization
Credit Rating Agencies
Factoring and Forfeiting Org.,
Stock broking firms
Depositories
Money Market
Capital/Securities Market
Primary Market Secondary Market
Primary/Direct Indirect Derivatives
Equity
Preference
Debentures
Innovative debt instruments
Forward
Futures
OptionsConvertible Debentures
Non- Convertible Debentures
Secured Premium Notes
Warrants
Mutual Fund-units
Security Receipts
Pass Through Certificates
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A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary non-banking company).
NBFCs are doing functions similar to banks. What is difference between banks & NBFCs ?
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NBFCs are doing functions akin to that of banks, however there are a few differences:
(i) a NBFC cannot accept demand deposits; (ii) it is not a part of the payment and settlement system and as such cannot issue cheques to its customers
Is it necessary that every NBFC should be registered with RBI?
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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.
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Which is a NBFC?A company which carried on as its business or part of its
business the following activities:
- financing- acquisition of securities- hire purchase- insurance- chit fund - mutual benefit company
But does not include a company which carries on as its principal business:
- agricultural operations,- industrial activities- Sale and purchase of goods- providing of services- purchase, sale and construction of immovable
property
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Definition of Principal Business
RBI Press Release Dt. April 8, 1999
- If 50% or more of a company’s total assets (netted off by intangible assets) are financial assets
and
- If 50% or more of a company’s gross income is from financial assets
then the Principal Business of the company is of a NBFC
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Legal FrameworkAlways Remember NBFC per se is a licensed activity like
Banking, Stock Broking, Money Changing. Acceptance of Public Deposits is
irrelevant for NBFC test. Income earned & Deployment of Funds
are determining factors RBI Press Release No. 1999-2000/1042 dated 8.2.2000
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Registration and Net Owned Fund (Sec 45- IA)
No NBFC shall commence or carry on business of NBFI without obtaining a Certificate of Registration & having minimum Net owned funds
•Registration with RBI is mandatory for all companies interested in carrying on non- banking finance activities.
• Minimum Net Owned funds of Rs.2 Crores.
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Concerned AreasA large number of NBFCs are working without registration:
Companies working without registration and
Companies rejected by RBI still operating.
Penalties: Imprisonment 1 to 5 years and Fine of Rs. 1 lakh to 5 lakhs.
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Change in control/management of a NBFCFor all NBFCs:- public notice 30 days before effecting the
sale or transfer,- in two newspapers one English and local
vernacular language,- jointly by NBFC, transferor and transferee,- within seven days of publication, intimation
to RBI.For Deposit Accepting NBFCs
- Prior approval of RBI- Obligation towards deposit holders
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Classification of NBFCs
• Based on nature of business:
•Asset finance companies•Investment companies•Loan companies•Infrastructure finance companies
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Classification of NBFCs
Based on acceptance of Public Deposits
- Deposit holding/accepting Company - Category ‘A’
- Non-Deposit holding/accepting Company - Category ‘B’
Based on investment pattern
- Investment company (Cat ‘A’ or Cat ‘B’)
- Core Investment company - Category ‘C’
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NBFC Prudential Norms
Accounting policiesAccounting standardsRevenue recognition
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NBFC Prudential Norms Schedule to the Balance Sheet
- to be appended to the Balance sheet prescribed under the Companies Act, 1956
- showing loans and advances and deposits outstanding and overdue
- borrower groupwise classification of all assets, lease, HP and Loans and advances
- Investor groupwise classification of all investment in shares and securities
- information on NPAs.
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Monitoring by RBIOff-site surveillance
Returns Auditors’ Reports Market intelligence
On-site surveillance Inspections Special audits
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Good Corporate Governance-Rotation of partners of statutory auditors
audit firm of companies with deposits of Rs. 50 Crores and more
-Rotation after every three years
-Companies may incorporate terms in the letter of appointment to ensure compliance
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AUDIT OF NBFCs- Reporting Requirements
Under the Companies Act, 1956Report under Section 227(2)Report required by the Companies (Auditor’s
Report) Order, 2003Compliance of accounting standards.
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AUDIT OF NBFCs- Reporting Requirements
Under the Income Tax Act, 1961
Tax Audit Report under section 44AB
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Other Certificates to NBFCs-Yearly Certification of carrying of NBFC
business
- Certification attached to Annual Return and Half Yearly Returns
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Top five NBFCs in India:• Housing Development Finance Corporation
Limited• Power Finance Corporation Limited• Rural Electrification Corporation Limited• National Bank of Agricultural and Rural
Development• Infrastructure Development Finance
Company Limited
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