Let’s know what is the full form of NBFC. NBFC full form in banking is Non-Banking Financial Companies. To explain the NBFC definition, it refers to financial institutions that provide banking services but do not have a banking licence or meet the legal definition of a bank. These institutions are incorporated or registered under the Companies Act of 1956 and operate as non-banking financial institutions as defined by Section 45-IA of the RBI Act of the year 1934.
We have discussed NBFC meaning and NBFC definition. In this article, we are going to discuss NBFC full form in banking, NBFC bank full form and a lot more.
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Let’s discuss NBFC full form in banking. An NBFC is primarily involved in the loan business, the acquisition of shares, stocks, and government bonds, the insurance business, the chit fund business, and other activities. An NBFC cannot be a company whose primary business is agriculture, industrial activity, or the sale, purchase, or construction of the immovable property.
The main distinction between an NBFC and a bank is that a bank allows us to deposit money and withdraw it when we need it, whereas an NBFC does not accept deposits and does not allow you to withdraw money when you need it. Deposits in NBFCs are not considered savings; rather, they are long-term deposits or premiums, such as the premiums paid for your LIC policy or health insurance policy.
Examples of NBFC
We have discussed NBFC meaning, let’s go through NBFC examples. Insurance companies are regulated by IRDA, while merchant banks, stockbrokers, and venture capital funds are regulated by SEBI. Housing finance companies are regulated by NHB (National Housing Bank)
Chit fund companies, as defined in section 2 clause (b) of the Chit Funds Act of the year 1982, are regulated by the state government.
Nidhi companies are those that have been notified under Section 620A of the Companies Act of 1956 and are governed by the corporate ministry.
Eligibility of an NBFC For Registration with RBI
A company registered under the Companies Act of 1956 that wishes to establish a non-banking financial institution as defined in Section 45 IA of the RBI Act of 1934 must meet the following requirements:
It must be registered in accordance with Section 3 of the Companies Act of 1956.
ii) It should have a net fund of at least Rs. 2 crores. However, the minimum net owned fund requirement for specialised NBFCs may differ.
NBFCs Which Need Not be Registered With RBI
Because they are regulated by other regulators, the following NBFCs are not required to register with the Reserve Bank of India:
Core Investment Firms – (assets are less than 100 crore or public funds not taken)
Merchant Banking Firms
Companies that are in the stock-broking business
Housing Finance Corporations
Companies involved in the venture capital business.
Insurance companies that have an IRDA registration certificate.
Chit Fund Companies are those defined in Section 2 Clause (b) of the Chit Fund Act of 1982.
Nidhi Companies, as defined in Section 620(A) of the Companies Act of 1956.
Procedure to Incorporate an NBFC
We have discussed NBFC full form in banking, NBFC definition, let’s go through the procedure to incorporate an NBFC.
A company must first be registered under the Companies Act 2013 or be registered under the Companies Act 1956 as either a Private Limited Company or a Public Limited Company.
The company's net owned funds should be at least Rs. 2 crores.
One-third of the Board of Directors must have financial experience.
The company's CIBIL records should be clear.
The company must have a detailed five-year business plan.
The company must adhere to the requirements for capital compliances as well as FEMA.
After all of the aforementioned conditions have been met, the online application on the RBI website should be completed and submitted along with the required documents.
A CARN Number will be assigned.
A hard copy of the application must also be sent to the Reserve Bank of India's regional branch.
The License will be granted to the Company once the application has been thoroughly reviewed.
Guidelines an NBFC Needs to Follow
Once the Company obtains a valid licence, it must follow the following guidelines:
They are unable to accept deposits that are payable on demand.
The public deposits that the company can accept should be for a minimum of 12 months and a maximum of 60 months.
The Company's interest rate cannot exceed the ceiling set by the Reserve Bank of India from time to time.
The Reserve Bank of India will not guarantee the repayment of any amount so borrowed by the Company.
All information about the company, as well as any changes in its composition, must be provided to the Reserve Bank of India.
Deposits made by the general public will be unsecured.
Every year, the Company is required to submit an audited balance sheet.
Every year, a statutory return on the company's deposits in the form NBS – 1 must be provided.
A quarterly return on the company's liquid assets must be provided.
A certificate from the auditors stating that the company is able to repay all deposits or money taken from the public as required.
A half-yearly Asset Liability Management (ALM) return must be submitted by any company with a public deposit of Rs. 20 crore or more, or assets worth Rs. 100 crore or more.
Every six months, the credit rating must be obtained and submitted to the RBI.
The Company must keep a minimum of 15% of its public deposits in liquid assets.
If the NBFC fails to pay any amount taken, the consumer may file a suit against the company with the National Company Law Tribunal or the Consumer Forum.