What is NBFC?

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956. The companies predominantly engaged in financial activity are only getting registered with RBI as NBFCs. In other words,  when a company’s financial assets out of the total assets are more than 50 percent and the company’s gross income from financial assets constitutes more than 50 percent, then such a company is known as predominantly engaged in financial activities.

The Non-banking financial companies (NBFCs) may raise money through deposits under any scheme or arrangement either in one lump sum or in installments by way of contributions or in any other manner. However, they cannot accept demand deposits for the above purpose. Further, NBFCs cannot issue cheques drawn on them, as they do not form part of the payment and settlement system. The depositors who made deposits with NBFCs are not eligible for the insurance facility of DICGC unlike in the case of banks.

The business of NBFC is largely in the field of leasing, hire-purchase, and bill discounting facilities. They also engage in the business of loans and advances, acquisition of shares, bonds, debentures, securities issued by the Government or local authority, or other marketable securities such as insurance business, chit business, etc. However, the business of NBFC does not include agriculture activity, industrial activity, purchase or sale of any goods other than securities, or providing any services and sale /purchase /construction of immovable property.

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