Non-Banking Financial Companies (NBFCs) are financial institutions that provide various financial services and products to individuals and businesses, but they do not hold a banking license. NBFCs are regulated by the Reserve Bank of India (RBI) under the RBI Act, 1934.
The classification of NBFCs in India is based on their principal business activities. The different types of NBFCs in India are:
- Asset Finance Company (AFC): An AFC is an NBFC that primarily finances the purchase of physical assets such as vehicles, machinery, equipment, and other durable goods. The minimum net owned fund (NOF) requirement for an AFC is Rs. 2 crore.
- Investment Company (IC): An IC is an NBFC that primarily invests in securities such as stocks, bonds, and other financial instruments. The minimum NOF requirement for an IC is Rs. 2 crore.
- Loan Company (LC): An LC is an NBFC that primarily provides loans and advances to individuals and businesses. The minimum NOF requirement for an LC is Rs. 2 crore.
- Infrastructure Finance Company (IFC): An IFC is an NBFC that primarily provides long-term finance to infrastructure projects. The minimum NOF requirement for an IFC is Rs. 300 crore.
- Systemically Important Core Investment Company (CIC-ND-SI): A CIC-ND-SI is an NBFC that has assets of Rs. 100 crore or more and meets certain other criteria such as having at least 90% of its assets in the form of investments in shares or debt instruments of group companies. The minimum NOF requirement for a CIC-ND-SI is Rs. 50 crore.
- Infrastructure Debt Fund Non-Banking Financial Company (IDF-NBFC): An IDF-NBFC is an NBFC that primarily raises funds through the issuance of rupee or foreign currency bonds for infrastructure projects. The minimum NOF requirement for an IDF-NBFC is Rs. 300 crore.
- Microfinance Institution (MFI): An MFI is an NBFC that primarily provides microfinance services to low-income individuals and households. The minimum NOF requirement for an MFI is Rs. 5 crore.
- Non-Banking Financial Company – Factors (NBFC-Factors): An NBFC-Factors is an NBFC that primarily engages in the factoring business. Factoring is a financial service where a company sells its accounts receivable to a third party at a discount. The minimum NOF requirement for an NBFC-Factors is Rs. 5 crore.
- Non-Banking Financial Company – Mortgage Guarantee Company (NBFC-MGC): An NBFC-MGC is an NBFC that primarily provides mortgage guarantee insurance to home loan borrowers. The minimum NOF requirement for an NBFC-MGC is Rs. 100 crore.
- Non-Operative Financial Holding Company (NOFHC): A NOFHC is an NBFC that is registered as a holding company for a bank. The minimum NOF requirement for a NOFHC is Rs. 500 crore.
In conclusion, the RBI has classified NBFCs into various categories based on their principal business activities and minimum NOF requirements. This classification helps in regulating and supervising these financial institutions and ensuring their compliance with the relevant laws and regulations.