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Paper ..Financial Markets and Institutions Semester .VI Dr. Neeta Tripathi Department of Commerce

This document contains lecture notes on Non-Banking Financial Companies (NBFCs) from a B.com course. It defines NBFCs and distinguishes them from banks. NBFCs can engage in lending and investing activities like banks but cannot accept demand deposits or issue checks. They are regulated by the Reserve Bank of India and must obtain registration and maintain a minimum net owned fund. The document outlines the registration requirements for NBFCs and directs students to read an additional research paper on the role of NBFCs in India's economic development.

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Prafulla Raja Nishad
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40 views3 pages

Paper ..Financial Markets and Institutions Semester .VI Dr. Neeta Tripathi Department of Commerce

This document contains lecture notes on Non-Banking Financial Companies (NBFCs) from a B.com course. It defines NBFCs and distinguishes them from banks. NBFCs can engage in lending and investing activities like banks but cannot accept demand deposits or issue checks. They are regulated by the Reserve Bank of India and must obtain registration and maintain a minimum net owned fund. The document outlines the registration requirements for NBFCs and directs students to read an additional research paper on the role of NBFCs in India's economic development.

Uploaded by

Prafulla Raja Nishad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Lecture Notes…11, dated 31st March 2020

Course…….B.com Sections A and C

Paper…..Financial Markets and Institutions

Semester….VI

Dr. Neeta Tripathi

Department of Commerce

Chapter- Non Banking Financial Companies (NBFCs)

Learning Objective;

*Understanding NBFCs in the Indian context.

*To know the role played by NBFC in the economic development of the country.

LO 1; NBFCs

A Non-Banking Financial Company (NBFC) is a company registered under the Companies


Act, 1956 engaged in the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/securities issued by Government or local authority or other
marketable securities of a like nature, leasing, hire-purchase, insurance business, chit
business but does not include any institution whose principal business is that of agriculture
activity, industrial activity, purchase or sale of any goods (other than securities) or providing
any services and sale/purchase/construction of immovable property. A non-banking
institution which is a company and has principal business of receiving deposits under any
scheme or arrangement in one lump sum or in instalments by way of contributions or in any
other manner, is also a non-banking financial company (Residuary non-banking company).

Difference between Banks and NBFCs;

NBFCs lend and make investments and hence their activities are akin to that of banks;
however there are a few differences as given below:

i. NBFC cannot accept demand deposits;

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ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques
drawn on itself;

iii. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not
available to depositors of NBFCs, unlike in case of banks.

 Regulatory Requirements;

In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can
commence or carry on business of a non-banking financial institution without a) obtaining a
certificate of registration from the Bank and without having a Net Owned Funds of ₹ 25
lakhs (₹ Two crore since April 1999). However, in terms of the powers given to the Bank, to
obviate dual regulation, certain categories of NBFCs which are regulated by other regulators
are exempted from the requirement of registration with RBI viz. Venture Capital
Fund/Merchant Banking companies/Stock broking companies registered with SEBI,
Insurance Company holding a valid Certificate of Registration issued by IRDA, Nidhi
companies as notified under Section 620A of the Companies Act, 1956, Chit companies as
defined in clause (b) of Section 2 of the Chit Funds Act, 1982,Housing Finance Companies
regulated by National Housing Bank, Stock Exchange or a Mutual Benefit company.

Registration requirements;

A company incorporated under the Companies Act, 1956 and desirous of commencing
business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act,
1934 should comply with the following:

i. it should be a company registered under Section 3 of the companies Act, 1956

ii. It should have a minimum net owned fund of ₹ 200 lakh. (The minimum net owned fund
(NOF) required for specialized NBFCs like NBFC-MFIs, NBFC-Factors, CICs is indicated
separately in the FAQs on specialized NBFCs)

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LO2; Role of the NBFC in the economic development of the country;

For this section read Afroze Nazneen and Sanjeev Dhawan “ A Review of Role and Challenges of
Non-banking Financial Companies in Economic Development of India”

Pdf of the research paper is also sharing.

Thank you

Web Reference;

www.rbi.org

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