I WANT TO OPEN A NON-BANKING FINANCE COMPANY. WHAT ARE THE 7 MOST IMPORTANT THINGS I SHOULD KNOW?

What is a Non Banking Financial Company (NBFC)?

A NBFC is a company registered under the Companies Act, 1956.

It is a financial institution that provides banking services without complying with the legal definition of a bank, i.e. it does not hold a banking license.

It excludes any institution which is associated with agricultural or industrial activity and sale/purchase/construction of immovable property.

How is a NBFC different from a Bank?

A NBFC differs from a bank because it cannot:

accept demand deposits issue cheques drawn on itself and serve its depositors with deposit

insurance facility.

What is a mandatory requirement for a NBFC to carry on business?

It should be registered with RBI. List of registered NBFCs can be found on

the website of Reserve bank of India – www.rbi.org.in

What are the different types of NBFCs?

Originally, NBFCs were classified into: Equipment leasing company Hire purchase company Loan company Investment companyWith effect from December 6, 2006: Asset finance company Investment company Loan company

The Company should have a minimum net owned fund of Rs. 200 lakhs

Which NBFCs are exempted from registration by the RBI?

Housing Finance Companies – by National Housing Bank

Merchant Banker/ Venture Capital Fund Company/ Stock exchanges/ Stock brokers/ Sub brokers – by Securities and Exchange Board of India (SEBI)

Insurance Companies – by Insurance Regulatory and Development Authority (IRDA)

Chit Fund Companies – by respective State Governments

Nidhi Companies – by Ministry of Corporate Affairs

What is a Residuary Non banking Company (RNBC)?

A class of NBFC with the principal business of receiving deposits and not being Investment, Asset Financing or Loan company.

They maintain investments as well as liquid assets.

How is a RNBC different from a NBFC?

In terms of : method of mobilization of deposits requirement of deployment of

depositors’ funds