Check out the types of NBFCs and the difference between each
Non-Banking Financial Company (NBFC) receives deposits under numerous schemes and engages in lending and purchasing securities, among other financial activities. The RBI regulates all types of NBFC in India. According to the Reserve Bank of India Act of 1936, the RBI can regulate, supervise, inspect, and issue directions to NBFCs.
When an NBFC violates any of the provisions of the RBI Act, 1936, it can be penalized by the RBI. Such penalties include termination of registration, prohibition from accepting deposits or selling their assets, or winding up petitions. Start ups, and small businesses rely on the funding provided by NBFCs. An NBFC plays a major role in the functioning and balance of the financial market. Other contributions of the different types of NBFC in India include:
- Capital formation
- Attracting foreign investments
- Proving long term credit
- Mobilising funds
- Creating jobs and employment
Types of NBFC’s
We will now discuss the different types of Non-Banking Financial Companies (NBFCs) in India regulated by the Reserve Bank of India (RBI). We categorize NBFCs as follows:
- The types of liabilities held by NBFCs accepting deposits and non-deposits,
- The size of non-deposit-taking NBFCs will determine the degree of systemic importance and whether their holding companies will be non-deposit-taking (NBFC-NDSI and NBFC-ND).
- Assessment according to their primary financing activities
Investments
A financial institution is defined here as acquiring securities as its primary business.
Loans
Financial institutions are companies that provide financing through loans, advances, or otherwise to businesses other than their own, excluding asset finance companies.
Infrastructure Financing
Infra Finance is a non-banking finance company that: a) has a credit rating of at least ‘A’ or equivalent; b) uses at least 75% of its assets for infrastructure loans; c) has a CRAR or a good credit score of at least 15%.
Asset Financing
A financial institution exists for the sole purpose of financing the purchasing of physical assets supporting production and economic activity. These often include industrial equipment items like lathes, tractors, construction vehicles, automobiles. The primary business of the company is defined as the financing of real or physical assets and the income from those assets that make up not less than 60% of its total assets and income, respectively.
Systematically Important Core Investment Company
An NBFC provides securities and shares acquisition services. NBFCs in India are growing extremely fast. They have assets of more than Rs. 100 crores and accept public funds.
Individuals who can’t acquire bank loan approvals apply to an NBFC instead.
NBFCs offer a higher level of service. Their online loan application process ensures prompt approvals and funds disbursement within hours. In addition, your loan details are available free of charge online 24x7. You can also get a longer repayment term.
Read Also: Everything You Need to Know About NBFC Personal Loan
