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Company Setup
 
Non-Banking Financial Company (NBFC)
 
The reserve bank of India regulates the functioning and operations of NBFC inside the Reserve Bank of India Act, 1934.
Any company registered under the Indian Companies Act of 1956, and doing business in the areas mentioned above, can preferably apply for nbfc registration to the Reserve bank of India (RBI).



If the financial assets involved in its business exceed 50% of company's total capital asset, then the Certificate of NBFC Registration is mandatory. Such as company now must have a minimum amount of capital fund equaling Rs.2 Crore (as raised from April 1999). The aspirant company will have to submit the prescribed nbfc registration form to RBI, along with other requisite documents and enclosures (in duplicate), for a comprehensive and mature consideration by RBI. If the requirements as specified in the section 45-IA of the RBI Act of 1934, are well satisfied, then RBI will grant the applicant company, the needed certificate of NBFC registration.

NBFC’s like banks except for the above differences are engaged in the business of making loans and advances, acquisition and trading of shares/stocks/bonds/debentures/securities, 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. Also a company which is in the principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company.

Nowadays, NBFCs are prominent in a wide range of activities like hire purchase finance, equipment lease finance, consumer finance where there is a high gap between the demand and supply of funds and established banking entitles are not accessible to the borrowers. The importance of NBFCs lies in delivering credit to unorganized sector and to the small borrowers.

Some of the important regulations relating to acceptance of deposits by the NBFCs are:-

They are allowed to accept/renew public deposits for a minimum period of 12 months and
  maximum period of 60 months.
They cannot accept deposits repayable on demand.
They cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to
  time.
They cannot offer gifts/incentives or any other additional benefit to the depositors.
They should have minimum investment grade credit rating.
Their deposits are not insured.
The repayment of deposits by NBFCs is not guaranteed by RBI.

The types of NBFCs :

 
Non-Banking Financial Entity Principal Business
Non-Banking Financial Company In terms of the Section 45-l(f) read with Section 45-i(c) of the RBI Act, 1934, as amended in 1997, their principal business is that of receiving deposits or that of a financial institution, such as lending, investment in securities, hire purchase finance or equipment leasing. 
Equipment leasing company (EL) Equipment leasing or financing of such activity. 
Hire purchase finance company (HP) Hire purchase transactions or financing of such transactions. 
Investment company (1C)  Acquisition of securities. These include Primary Dealers (PDs) who deal in underwriting and market making for government securities. 
Loan company (LC) Providing finance by making loans or advances, or otherwise for any activity other than its own; excludes EL/HP/Housing Finance Companies (HFCs). 
Residuary non-banking company (RNBC)  Company which receives deposits under any scheme or arrangement by whatever name called, in one lump-sum or in instalments by way of contributions or subscriptions or by sale of units or certificates or other instruments, or in any manner. These companies do not belong to any of the categories as stated above. 
Mutual Benefit   Financial Company (MBFC) i.e.,   Nidhi Company Any company which is notified by the Central Government as a Nidhi Company under section 620A of the Companies Act, 1956 (1 of 1956) 
• Mutual Benefit Company
 (MBC), i.e., potential Nidhi company
A company which is working on the lines of a Nidhi company but has not yet been so declared by the Central Government, has minimum net owned fund(NOF) of Rs.10 lakh, has applied to the RBI for COR and also to Department of Company Affairs (DCA) for being notified as Nidhi company and has not contravened directions/ regulations of RBI/DCA. 
• Miscellaneous non-banking company (MNBC), Managing, Conducting or supervising as a promoter, foreman ori.e., Chit Fund Company Managing, conducting or supervising as a promoter, foreman or agent of any transaction or arrangement by which the company enters into an agreement with a specified number of subscribers that every one of them shall subscribe a certain sum in instalments over a definite period and that every one of such subscribers shall in turn, as determined by tender or in such manner as may be provided for in the arrangement, be entitled to the prize amount
 
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