WHY NBFC IS MADE?
Earlier in India there are some areas and industries where banking services cannot be provided. For growing up a business it requires funds but Government cannot establish banks. So in such cases many Private companies come forward and wants to volunteer and ready to do work of banks by providing almost every facility like banks.
These financial institutions does not have banking license but they do the work of banks. Later these financial institutions are known as Non-Banking Financial Company.
TYPES OF NBFCs
- ASSET FINANCE COMPANY (AFC)
An Asset Finance Company is a financial institution that specializes in the funding of physical properties such as vehicles, tractors, lathe machines, generator sets, earthmoving and material processing machinery, and general-purpose manufacturing machines that run on their own power.”
- INVESTMENT COMPANY
An investment company is described as “any financial institution that engages in the purchase of securities (shares, stocks, bonds, and other financial securities) as its primary business.”
- LOAN COMPANY
Any corporation which is a financial entity that provides financing as its primary function, whether by loans or advances or otherwise, for any operation other than its own, but does not include an Asset Finance Company.”
- INFRASTRUCTURE FINANCE COMPANY
Infrastructure financial institution may be a non-banking non-depository financial institution that invests a minimum of 75th of its gross assets in infrastructure loans, includes a minimum net in hand Funds of Rs. 300 crore, and a capital to risk assets ratio of 15%.
- SYSTEMATICALLY IMPORTANT CORE INVESTMENT COMPANY
Systematically Important Core Investment Company is an NBFC with over Rs.100 crores in assets that takes deposits and is engaged within the business of getting shares and securities that meet sure criteria.”
- INFRASTRUCTURE DEBT FUND
Infrastructure Debt Fund is a non-banking financial firm (NBFC) that aims to make it easier for long-term debt to funnel into infrastructure projects. Infrastructure Debt Funds collect funds by issuing rupee or dollar-denominated bonds with a minimum maturity of five years.
- DIFFERENCE BETWEEN NBFC AND BANK
- The NBFCs cannot make demand deposits i.e. they cannot make accounts like saving accounts, recurring account which Banks can easily make.
- The NBFC cannot be a part of any transaction also cannot do any settlement of any money.
- The NBFC cannot issue a cheque on their own name.
REGISTERATION UNDER RBI
The Reserve Bank of India (RBI) has the authority to grant or revoke a Non-Banking Finance Company (NBFC) certificate in India under the Reserve Bank of India Act, 1934. The Reserve Bank of India serves as a central regulatory agency and authority in India, overseeing and regulating NBFCs. The RBI only issues licenses to NBFCs after they have met all of the requirements.
Every NBFC must have to be registered with RBI, but in some cases like, if a NBFC is already registered with any other authorized regulatory authority, then registration of a NBFC is not needed. For example, a Mutual Fund Company are registered under SEBI (Securities Exchange Board of India) or if a NBFC registered with IRDA (Insurance Regularity and Development Authority)
The NBFC must be registered with Companies Act, 2013 with a minimum fund with must be of two crores.
CASES ON WHICH NBFCs LICENSE CANCELLED
- FAILS TO MAINTAIN PAID-UP CAPITAL
In the situation that the NBFC fails to comply with the Act’s registration provisions or conditions, as well as any other additional conditions imposed by the RBI at the time of issuance of the Certificate of Registration. For example, if an NBFC fails to meet the minimum requirement of paid-up money, which is less than two crore rupees, the NBFC’s license may be revoked.
- NON-FULFILLMENT OF DIRECTIONS OF RBI
If the NBFC fails in fulfilling or complying with the directions or notifications issued by the Reserve Bank of India. If there is any form of disobedience by the NBFC to the prohibitory orders issued by the RBI, it may lead to the cancellation of the license. Once the orders are issued for the directors or the promoters of the NBFCs, the RBI makes an inspection to know whether they are following the instructions or not.
- FAILS TO MAINTAIN BOOKS OF ACCOUNTS
If the NBFC fails to maintain books of accounts and records as required by the RBI Act, 1934; if the NBFC fails to send books of accounts, records, and any other related documents to the Reserve Bank of India for inspection as required by the RBI Act, 1934; if the NBFC fails to submit books of accounts, records, and any other relevant documents to the Reserve Bank of India for inspection as required by the RBI Act, 1934;
- UNABLE TO REPAY DEPOSITS
In the event that an NBFC fails to refund deposits. To reclaim their deposits, the depositor will go to the Customer Forum or the Company Law Board. If the RBI determines that an NBFC’s financial situation makes it impossible for it to refund the deposits, it would give the organisation an opportunity to explain its position before cancelling its license.
- NOT OBEY THE PUBLIC INTEREST
The business of NBFCs should be carried out in the public interest. NBFC has a Board-approved Fair Practice Code protocol, as well as a Recovery policy and a Grievance Redressal Program, and both of these policies should be added on the company’s website and posted on the premises. The aim is for customers to become more knowledgeable about NBFC practices. Policies must be in the general interest.
From the date of the issuance of the License Cancellation, any NBFC institution whose registration has been suspended by the RBI (Reserve Bank of India) must cease operations. It would therefore be barred from conducting all routine operations and affairs with immediate effect, as well as transacting as an NBFC.
Since non-banking financial companies (NBFCs) have been an important part of our economy’s financial inclusion, the Reserve Bank of India (RBI) has become stricter in its regulation of NBFCs activities and relations. As a result, the RBI has been more aggressive in recent years, attempting to simplify the NBFC mechanism by modernizing its rules and regulations.