NBFC Full Form - Non-Banking Financial Company

What is NBFC? The full form of NBFC is Non-Banking Financial Company. NBFC is a company that was established in accordance with the Companies Act of 1956 and is primarily involved in lending and advances, the purchase of shares, stocks, bonds, debentures, and other marketable securities issued by local authorities or the government, leasing, hire-purchase, insurance, and chit businesses.

However, this definition excludes any institution whose primary business is the sale or purchase of any goods (other than securities), the provision of any services, or the sale, purchase, or construction of real estate. A non-banking financial company (Residuary non-banking company) is any corporation whose primary activity is accepting deposits under any plan or arrangement, either in one lump payment or in installments through contributions or in any other method.

When a corporation's financial assets account for more than 50% of its total assets and its revenue from financial assets accounts for more than 50% of its gross income, that company is said to be engaged in financial activity. If a firm meets both of these requirements, RBI will register it as an NBFC. 'Principal business' is not specified in the Reserve Bank of India Act.

It has been defined by the Reserve Bank to guarantee that only businesses that are primarily involved in financial activity register with it and are subject to its regulation and supervision. Therefore, businesses that do small-scale financial transactions in addition to their primary business activities of farming, manufacturing, buying and selling goods, offering services, or buying, selling, or building real estate won't be subject to Reserve Bank regulation. It's interesting to note that this test, sometimes referred to as the 50-50 test, is used to evaluate a company's suitability for the financial industry.

Categories of NBFC

• Asset Finance Company (AFC): An AFC is a financial institution that primarily engages in the financing of tangible assets that support economic and productive activity. Examples of these assets include vehicles, tractors, lathes, generator sets, earth moving and material handling equipment, self-powered vehicles, and general purpose industrial machines. For the purposes of this definition, the company's principal business is the totality of financing real and physical assets that support economic activity and the revenue generated from such activities, which accounts for at least 60% of the company's total assets and income.
• Investment Company (IC): An investment company is any financial firm that primarily engages in the purchase of securities.
• Loan Company (LC): An asset financing company is not included in this definition; rather, LC refers to any firm that is a financial institution and that conducts the primary business of providing finance, whether via loans or advances or otherwise, for any activity other than its own.
• Infrastructure Finance business (IFC): IFC is a non-banking finance business with the following characteristics: a) at least 75% of its total assets are used for infrastructure loans; b) a minimum of ₹ 300 crore in Net Owned Funds; c) a minimum credit rating of "A" or higher; and d) a 15% CRAR.
• CIC-ND-SI (Systemically Important Core Investment Company): CIC-ND-SI is an NBFC that engages in the business of purchasing securities and shares.
• Infrastructure Debt Fund: Non-Banking Financial Company (IDF-NBFC): IDF-NBFC is a business that was established to help long-term debt flow into infrastructure projects. It is registered as an NBFC. IDF-NBFC raises capital by issuing bonds with a minimum five-year maturity denominated in dollars or rupees. IDF-NBFCs can only be sponsored by Infrastructure Finance Companies (IFC).
• Non-Banking Financial Company: Micro Finance Institution (NBFC-MFI): consisting of at least 85% qualifying assets, NBFC-MFI is a non-deposit taking NBFC.
• Mortgage Guarantee Companies (MGC): MGCs are financial organizations with a net owned fund of ₹ 100 crore and a minimum of 90% of their gross income coming from the mortgage guarantee activity.
• NBFC - Non-Operative Financial Holding Company (NOFHC): This permits promoters or promoter groups to establish new banks to the extent permitted by the relevant regulatory prescriptions. The bank and all other financial services businesses governed by the RBI or other financial sector authorities will be held by the wholly-owned NOFHC.