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Full Form Of NBFC, What Is Full Form Of NBFC ?

The full form of NBFC is Non-Banking Financial Company. It also known as Non-Bank Financial Institutions (NBFIs).  It refers to financial institutions that offer banking services without having a banking license or without fulfilling the legal definition of a bank. Deposits done in NBFC are long term deposits or premiums, e.g., the premium paid for your LIC policy, health insurance policy, etc. Generally, these institutions are not allowed to take traditional demand deposits—readily available funds, such as those in checking or savings accounts—from the public. These institutions are registered under the Companies Act, 1956. They work as non-banking financial institution as defined under Section 45-IA of the RBI Act, 1934. It 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 nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. 

The major difference between NBFC and bank is that in a Bank we can deposit money and withdraw it when we need it, but NBFC does not accept deposits and do not provide you the facility to withdraw money when you need it. Deposits in NBFC are not treated as savings they are basically long term deposits or premiums, e.g., the premium you pay for your LIC policy, health insurance policy, etc.

Examples of NBFC:

·       Insurance companies which are regulated by IRDA

·       Merchant Banking companies, stockbroking companies, venture capital fund which are regulated by SEBI

·       Housing finance companies, which are regulated by NHB (National Housing Bank)

·       Chit fund companies, which are defined in clause (b) of section 2 of the Chit Funds Act, 1982, and are regulated by the state government

·       Nidhi companies, which are notified under section 620A of the Companies Act, 1956, and are regulated by the corporate ministry.

Role of NBFC are:-

·       NBFC plays a significant role in the building of the nation and financial inclusion as it provides funds/Loans to those sections of the society who are unbanked especially small enterprises.

·       It is a major source of funding for new start-ups and entrepreneurs, especially where the government focuses on the promotion of entrepreneurship so that the job seekers can be replaced with the job creators.

·       They play a pivotal role in infrastructure development, generation of employment, development of transport, creation of wealth opportunities, providing financial support to the financially weak sections of the society, etc.

The two types of NBFC are:-

·       Deposit Accepting: These are the NBFC’s which accept deposits from the public and it includes companies like loan companies, investment companies, asset finance companies, etc.

·       Non-deposit Accepting: These are the NBFC’s which do not accept deposits from the public and it is allowed only to lend the money to the public and take the repayment against such loans.

The functions of Non-Banking Financial Companies are provided as follows:

·       Providing loans/advances to the businesses and other persons.

·       Acquisition of various different types of securities such as shares, bond, debentures, stocks, etc., issued by the government authorities or local authorities or any other type of marketable securities.

·       Offering various other types of services to its customers apart from giving loans like currency exchange, underwriting, money market instruments, retirement planning, and merger activities, etc.

Eligibility of an NBFC for registration with RBI:

A company registered under the Companies Act, 1956 and willing to start a business of non-banking financial institution as defined under Section 45 IA of the RBI Act, 1934 is required to fulfil the following conditions:

·       It should be registered under Section 3 of the Companies Act, 1956.

·       It should own a minimum net fund of Rs. 2 crore. However, the requirement of minimum net owned fund for specialized NBFCs may be different.