Frequently Asked Questions on NBFCs
QUES -1 What is a Non-Banking Financial Company (NBFC)?
ANS -1 A Non-Banking Financial Company (NBFC) is a company registered under the
Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary non-banking company).
QUES 2. NBFCs are doing functions similar to banks. What is difference between banks &
NBFCs ?
ANS 2. NBFCs are doing functions akin to that of banks, however there are a few differences:
(i) a NBFC cannot accept demand deposits;
(ii) it is not a part of the payment and settlement system and as such cannot issue cheques to its customers; and
(iii) deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks. QUES-3. Is it necessary that every NBFC should be registered with RBI?
ANS 3. In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be registered with RBI to commence or carry on any business of non-banking financial institution as defined in clause (a) of Section 45 I of the RBI Act, 1934.
However, to obviate dual regulation, certain category of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. Venture Capital
Fund/Merchant Banking companies/Stock broking