Today, businesses and individuals are growing at a pace, faster than before. People are spending more than before on lifestyle, companies are diversifying their assets to a great extent, and to sustain this growth, everyone needs strong financial institutions. These financial institutions carry out different activities based on their structures and plans. And while building a Bank isn’t easy and allowed to everyone, RBI has come up with NBFC (Non-Banking Financial Company) to allow businesses in the categories like Asset Management, Investments, Loan, Infrastructure, Housing and Micro-finance. sThis structure, being under RBI, mitigates risks, brings transparency and enables to carry out activities of loans and advances, acquisition of shares/ stocks/ bonds/ debentures/ securities of government or private organisation, managing assets, mortgages and other financial activities. Organisations like Bajaj, Muthoot, Tata, Indiabulls, ICICI Securities, Capital first, Reliance, Indian Railways, all operate with NBFC entities to provide financial services.
Different types of NBFCs are categorized on the basis of Liability and Activity. Every entity has its own set of diligence and compliance. These are some of the activities you can conduct as an NBFC:
1. Asset Finance Company
2. Investment Company
3. Loan Company
4. Infrastructure Finance Company
5. Core Investment Company
6. Micro -Finance Company
7. Housing Finance Company
8. Mortgage Guarantee Company
Certain guidelines have been laid down by RBI that has to be complied with. Submission of Income Tax Returns, ROC Returns, Statutory Audit, Tax Audit, various NBS returns for Deposit accepting and non-deposit accepting companies are some of the most important statutory compliances.
Only NBFC’s which have special authorization from the Bank and have an investment-grade are allowed to accept and hold deposits up to 1.5 times of its Net Owned Funds. However, all NBFC’s are barred from accepting demand deposits that include savings and current account deposits.
NBFCs lend and make investments therefore their activities are similar to that of banks.
However there are a few differences: NBFCs cannot accept demand deposits; NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself. NBFCs cannot issue Demand Drafts like banks. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
The documents that might be required too form an NBFC are mentioned here: https://rbidocs.rbi.org.in/rdocs/content/pdfs/01CNA071212FL.pdf