Different Models of NBFCs In India

NBFC(Non-Banking Financial Corporation), as defined under section 45-IA of the RBI Act 1934 and Company Law, is largely involved in financial operations such as secured and unsecured loans, investments, market loans or financial information provision, or other business goals. NBFC does not have a full-fledge banking license but does have all sorts of lending operations. To acquire an RBI certificate of registration (COR), a firm that is willing to initiate a lending or investment business is necessary. The NBFC Registration, NBFC compliance, and Regulation has been streamlined by RBI, and licensing today is a lot easier than previously.

NBFC Types Not applicable under RBI:

There are certain companies that do not have to register with RBI but which carry on financial operations. Such entities are governed by other authorities in the financial industry and do not require an NBFC license from RBI in order to avoid multiple regulations. We have discussed below:

• Insurance Companies: These are governed by the Indian Insurance Authority (IRDA),
• Housing finance companies: the National Housing Bank is regulated (NHB),
• The Securities and Exchange Board of India (SEBI), Merchant banking companies are regulated by SEBI: once again, the companies are controlled by SEBI.
• SEBI is the regulator, Mutual Funds
• Companies with venture capital: SEBI is a regulator,
• Collective investment schemes companies: SEBI is the authority to regulate
• Chit Fund Companies: controlled in accordance with the Chit Fund Act and the State governments concerned,
• The Ministry of Corporate Affairs regulates Nidhi Companies (MCA).

NBFCs Types

Deposit-taking NBFCs and non-deposit-taking NBFCs can both be registered. If the NBFC is a Non-Deposit Accepting NBFC, the suffix ND is added to the end of the name, as in NBFC-ND. Systematically Important NBFCs are NBFCs having an asset size of Rs.100 crore or more. Because the sorts of NBFCs might have an influence on the country's financial stability, they have been given names. NBFC-NDSI stands for Non-Deposit Accepting Systematically Important NBFCs.

They may be further classified into the following 8 groups under the broad categories of Deposit Accepting and Non-Accepting NBFCs:

1. Investment & Credit Company

An ICC-NBFC is any financial institution that conducts asset finance, the supply of finance, whether via loans or advances or otherwise, for any activity other than its own, and the acquisition of securities as of its primary business.

(a) Asset Finance Company: An AFC is a financial organisation whose primary business is the financing of various assets for individuals and enterprises to promote productive/economic activities. Automobiles, tractors, machinery, heavy industrial equipment, big power generating sets, lathe machines, earthmoving & material handling equipment, production & farming equipment, self-propelled vehicles, and general-purpose industrial machines are examples.

The revenue from these should not be less than 60% of the total assets.

(b) Investment Company: A financial entity primarily engaged in the acquisition of securities. That is, it collects money from the general public and invests it in various assets and financial goods.

The remaining profit is given to shareholders after the firm deducts its operational costs from the produced profit.

Some investment companies include Bajaj Alliance General Insurance Company, IDFC, and HDFC mutual funds.

(c) Loan Company: NBFC – LC is a financial company that provides loans for a variety of purposes, with the exception of AFC. The loan is being given for uses other than assets, such as working capital finance, etc. However, housing finance firms are included.

Some examples of NBFC – LC are LIC Finance Ltd, PNB Housing Finance Firm, and HDFC.

2. Infrastructure Finance Company

• It is a non-bank financial institution that invests 3/4 of its total assets in infrastructure financing.
• Has a Net Owned Fund of at least Rs 300 crores
• Has a credit rating of at least "A" or a comparable CRAR of at least 15 percent
• GMR Infrastructure Ltd., Hindustan Construction Company, and others are instances.

3. Systemically Important Core Investment Company

1. A non-banking financial institution (NBFC) that:
2. At least 90% of its total assets are held in the form of shares, stocks, debt, or a loan group firm.
3. Within a period of not more than 10 years from the date of issuance, 60 percent of the 90 percent shall be invested in equity shares or those that compulsorily convert subsequently into equity shares.
4. Does not trade in its investments in group businesses' shares, debt, or loans, unless through a block sale for dilution or disinvestment.
5. It is not engaged in any of the activities listed in RBI Act 1934 sections 45(c) and 45(f).
6. The asset is worth at least Rs. 100 crore.
7. That receives government funding.

4. Infrastructure Debt Fund in Types of NBFC

Bonds are used by IDFs to raise funds for long-term infrastructure projects. The bonds are available in a variety of currencies and have a minimum maturity of five years for investors. It makes it easier for long-term debt to flow into infrastructure projects. IDF-NBFCs can only be sponsored by IFC-NBFCs.

5. Microfinance Institution

1. NBFC-MFI is a non-deposit accepting non-banking financial institution (ND-NBFC) having at least 85% of its assets in the form of qualifying assets that meet the following criteria:
2. loan disbursed by it to a borrower with a rural household annual income of not more than Rs. 60,000 or an urban and semi-urban household annual income of not more than Rs. 1,20,000, the loan amount is not more than Rs. 35,000 in the first cycle and Rs. 50,000 in subsequent cycles, the borrower's total indebtedness is not more than Rs. 50,000, and the loan duration is not less than 24 months.
3. The total amount of loans granted for income creation is at least 75% of the total amount of loans given by MFIs.
4. The loan can be paid back in weekly, fortnightly, or monthly instalments, depending on the borrower's preference.

Some examples include Bandhan Financial Service Ltd and Ujjivan Financial Service.

6. Factors as NBFC Types

This sort of NBFC is unique and uncommon in India. Such businesses typically purchase loans or advances from lenders at a heavily reduced rate, then alter the debtor's repayment schedule to ensure a simple settlement while earning a modest profit.

A normal loan by a bank against the security of receivables, for example, is not included.

A minimum NOF of Rs. 5 crores is required for an NBFC-factoring firm. And the factoring business' financial assets should account for at least 75% of the company's overall assets. And the amount of money it makes through factoring should not be less than 75% of its total revenue.

7. Mortgage Company in Types of NBFC

NBFC-MGCs are financial institutions with a minimum of 90% of their revenue coming from mortgage guarantees, or a minimum of 90% of their gross income coming from mortgage guarantees, or a minimum of Rs. 100 crores in NOF.

8. Non- operative Financial Holding Company

It is a distinct type of NBFC in which the promoters establish a new bank. It is a non-operative financial holding corporation with 100% ownership. The RBI has granted permission under the appropriate regulatory framework. To establish or maintain a bank or other financial service.

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