Non-Banking Financial Company (NBFC) is a financial institution that does not have banking license but is allowed to offer financial products and services to customers. NBFC is primarily concerned with the business of loans and advances, acquisition of shares, finance leasing, hire-purchase, chit fund, etc. It is important to note that an NBFC is different from bank in ways like an NBFC cannot accept savings and current account deposits, cannot issue cheques drawn on itself and its depositors do not get a deposit insurance and credit guarantee coverage.
NBFC’s in India are regulated by the Reserve Bank of India (RBI). As per RBI guidelines, an NBFC cannot carry on non-banking financial business if, a) it does not have a certificate of registration from the bank (except for the NBFC’s who are not regulated by the RBI), and b) it does not have Net Owned Funds of Rs. 2 crore.
An NBFC incorporated under the Companies Act, 1956 or Companies Act, 2013 willing to commence a business of non-banking finance should comply with the following RBI guidelines:
Net Owned Funds can be calculated from the last audited balance sheet of the firm. Paid-up Equity Capital, Free Reserves, Share Premium Account Balance, and Capital Reserve will constitute Total Owned Funds. To calculate, Net Owned Funds, deduct Revaluation Reserves, Balance of Accumulated Loss, and the book value of Intangible Assets from Total Owned Funds. If any investment in shares of other NBFC’s or in debentures and shares of subsidiaries and group companies is in excess of 10% of the owned funds will be subtracted from the Net Owned Funds.