Certain firms that provide financial services but do not need to be registered with the RBI are exempt. These firms are regulated by other financial sector authorities and are not needed to get an NBFC License from the RBI in order to avoid duplicate regulation. The types of nbfc are as follows:
The Insurance Regulatory and Development Authority of India regulates insurance companies (IRDA),
The National Housing Bank regulates housing finance companies (NHB),
Stock brokerage firms are governed by the Securities and Exchange Board of India (SEBI), whereas merchant banking firms are governed by the Reserve Bank of India (RBI).
SEBI is the regulator of mutual funds.
SEBI is the regulating authority for venture capital firms.
SEBI is the regulator for companies that manage Collective Investment Schemes.
Chit Fund Companies: These are governed by the Chit Fund Act as well as by the different state governments.
The Ministry of Corporate Affairs regulates Nidhi Companies (MCA).
Types of NBFC
Deposit Accepting or Non-Deposit Accepting NBFC Registration is available. If they are Non-Deposit Accepting NBFCs, the suffix ND is added to the end of their name, as in NBFC-ND. Systemically Important NBFCs are those with assets of Rs.100 crore or more. The different sorts of NBFCs have been designated this way because they can have an influence on the country's financial stability. NBFC-NDSIs are Non-Deposit Accepting Systemically Important NBFCs.
They may be further classified into the following eight 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 providing of finance, whether via loans or advances or otherwise, for any activity other than its own, and the acquisition of securities as its primary business. And it is not one of the other categories of NBFCs described by the RBI in any of its Directives.
(a) Asset Finance Company: As its primary business, an AFC is a financial organisation that finances diverse assets for individuals and enterprises to promote productive/economic activity. Automobiles, tractors, machinery, heavy industrial equipment, huge 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: The primary business of a financial institution is 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 allocated to shareholders after the firm deducts its operational costs from the achieved profit.
Some investment companies include Bajaj Allianz General Insurance Company, IDFC, and HDFC mutual funds.
(c) Loan Company: NBFC – Except for AFC, LC is a financial entity that provides loans for a variety of purposes. The loan is being issued 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 an NBFC that invests over 3/4 of its total assets in infrastructure loans.
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%
GMR Infrastructure Ltd, Hindustan Construction Company, and other companies are examples.
3. Systemically Important Core Investment Company
An NBFC which:
At least 90% of its total assets are held in the form of investments in shares, stocks, debt, or loan group firm.
Within a period of not more than ten years from the date of issuance, 60 percent of the 90 percent should be invested in equity shares or those that compulsorily convert later in equity shares.
Does not trade in its interests in group businesses' shares, debt, or loans, save through block sales for the purpose of dilution or disinvestment.
It is not engaged in any of the activities listed in sections 45(c) or 45(f) of the RBI Act of 1934.
The asset is worth at least Rs. 100 crore.
That takes 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 issued in several currencies and have a minimum maturity of 5 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
NBFC-MFI is a Non-Deposit Accepting NBFC (ND-NBFC) with at least 85 percent of its assets in the form of qualifying assets that meet the following criteria:
loan issued by it to a borrower with an annual income of less than Rs. 60,000 in rural households or less than Rs. 1,20,000 in urban and semi-urban households, 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, d. the loan length is not less than 24 months for loan amounts in excess of Rs. 15,000, with prepayment without penalty, e. the loan is granted without any security,
The total number of loans made for income creation must equal at least 75% of the total amount of loans made by MFIs.
The loan can be repaid in weekly, biweekly, or monthly installments, at the borrower's discretion.
Some examples include Bandhan Financial Service Ltd and Ujjivan Financial Service.
6. Factors as Types of NBFC
This form of NBFC is uncommon in India. Such businesses typically purchase loans or advances at a heavily reduced rate from lenders and then change the debtor's payback schedule to guarantee easy settlement while earning a little profit.
Normal loan by a bank against the security of receivables, etc. is not included.
A minimum NOF of Rs. 5 Crore is required for an NBFC-Factoring firm. Furthermore, its financial assets in the factoring company should account for at least 75% of its overall assets. And its income from the factoring industry should not be less than 75% of its total income.
7. Mortgage Company in Types of NBFC
NBFC-MGCs are financial institutions for whom at least 90% of the business turnover is mortgage guarantee, or 90% of the gross revenue is from the mortgage guarantee business, or the NOF is Rs. 100 crores.
8. Non- operative Financial Holding Company
It is a distinct type of NBFC, consisting of the establishment of a new bank by the entrepreneurs. It is a non-operative financial holding company that is completely owned by the corporation. The RBI has granted permission under the appropriate regulatory prescription. To establish or maintain a bank as well as another financial business.