Full Form of NBFC
An NBFC stands for a Non-Banking Finance Company which deals with financial services, especially for lending which might differ on the types of loans and also based on the activities performed by the NBFC. In India, most of the NBFCs based on their size perform under the guidelines and norms of the Reserve Bank of India. Therefore, there are enormous norms terms and conditions to be a registered Non-Banking Finance Company.
History of NBFC
Initially i.e., at the time of its inception, in 1960, it was a small entity and did not influence the financial sector and market. Over time it was registered by the Company Act 1964. And thereafter the NBFCs started flourishing with microfinance and right now it has become the propellant force for the growth of the economy. However, with the changes in the laws, the Reserve Bank of India often implements the mandate to ensure transparency and authoritativeness of the lending services, especially those that provide personal loans.
Classification of NBFC Based on their Activities
Investment Company (IC): As an investment company an NBFC is responsible for the investment in the form of equity shares and provides the return on investment after the loss or profit. To perform such action, the non-banking finance company has to obey the norms of the regulatory authority.
Loan Company (LC): Most of the NBFCs provide personal loans in different terms which differ based on the nature of the loan such as short-term loans, emergency loans, travel loans and many more for household needs. To accomplish such functions, they have to follow the RBI guidelines.
Asset Finance Company (AFC): It’s the type of NBFC which provides financial assistance in terms of capital for assets and equipment. It often runs for the manufacturing industry by providing personal loans as financial support.
Infrastructure Finance Company (IFC): For intracultural development, the NBFCs provide house loans or home renovation loans for such kinds of services and therefore, they provide the loan under the surveillance and norms of the Reserve Bank of India.
Microfinance Company (MFI): The microfinance company facilitates loans for the small and cottage industries where they can get financial support for the inception of their business. It can also be provided for the existing business for different needs.
Example of NBFCs
There are various NBFCs in India which facilitate loan services and a couple of them have become unicorns. Mostly there are app-based lending and many facilitates through the website, where the NBFCs have different products also which follow the guidelines of the Reserve Bank of India, Some emerging fintech companies are Phonepeyloan, Creditwalle and many more.
Role and functions of NBFC
- The NBFCs are known as one of the best entities in the economic growth of the nation where they play a significant role in the nation’s development by providing financial assistance to multiple small industries. A couple of NBFCs with the top layer status are capable of disbursing higher also for the inception of business.
- It provides loans for micro and cottage industries for better financial assistance.
- NBFCs provide instant financial support to the borrowers and their verification and approval process are slightly easier compared to banks. Therefore, it becomes easy for the borrower.
The objective and vision of NBFC
All the NBFCs are committed to having distinct visions and it helps people and small industries to grow with financial support in terms of personal loans and other facilities. Some specific objectives of NBFCs are as follows
- To ensure the hassle-free experience for the eligible customers
- It is guided to accomplish the lending process by following all the ethical solutions.
- It is available funds to private and small companies.
Terms and conditions and minimum eligibility to be a registered NBFC
As per the guidelines of the Reserve Bank of India, it is essential to have certain terms and conditions for the Non-Banking Finance company and to be a registered company, it has to follow some essential norms and these are as follows
- The Non-banking finance company must be Registered Under the Company ACT 2013 or Company ACT 1956. Unless it is registered it can’t proceed with the desired functions and therefore, it must be registered.
- The minimum net owned Fund must be at least RS. 2CR where the company must have a net worth of such amount and it can be accumulated through the investors and board of directors.
- The director’s contributions in the net worth amount must be at least 51%. The director must have at least ten years of experience in the finance sector i.e., banking or NBFCs.
- It must have the certificate of registration from the Reserve Bank of India after fulfilling all the norms.
While registering and becoming registered NBFC you need to have all these documents as per the norm of NBFC, and these are as follows
Memorandum of Association
Articles of Association
Certificate of Incorporation
PAN card
TAN card
GST registration certificate
KYC documents: These documents are essential to have identity proof and therefore it is essential to have these documents.
Bank account statement
Board resolution: To have the complete agreement and declaration, it is essential to have the recorded commitment by the board of directors.
Conclusion
The Non-Banking Finance Company is one of the best components that works for the financial empowerment of the nation and at the same time it works as an opportunity for enormous entrepreneur willing to get their startups and the existing NBFCs are helpful for small and cottage industries where they deliver the lending services. In recent years, after the huge success of UPI and fintech, it’s time for NBFCs, especially for digital lenders because of their accessibility and hassle-free services for customers and industrialists.
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