Neha Redekar
Quick Summary
What is NBFC (Non-Banking Financial Company)? NBFC is a company registered under the Companies Act, 1956/2013 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 na
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FAQ :
An NBFC is a company registered under the Companies Act engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities, leasing, hire-purchase, and insurance business, but not primarily agriculture, industrial activity, or trading of goods (other than securities).
As per the Reserve Bank of India Act, 1934, an NBFC is a financial institution that is a company, or a non-banking institution whose principal business is receiving deposits or lending in any manner.
The 50-50 test determines if a company's principal business is financial. It's met if financial assets constitute more than 50% of total assets AND income from financial assets constitutes more than 50% of gross income.
Banks can maintain demand deposits and issue cheques, forming part of the payment system. NBFCs can only accept term deposits, do not form part of the payment system, and cannot issue cheques. Deposit insurance is available for bank depositors but not for NBFC depositors.
NBFCs are classified into four layers: Base Layer (NBFCs-BL), Middle Layer (NBFCs-ML), Upper Layer (NBFCs-UL), and Top Layer (NBFCs-TL). This classification is based on their size, activity, and perceived riskiness.
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