Introduction
A Non-Banking Financial Company (NBFC) is a financial institution registered under the Companies Act, 2013 and regulated by the Reserve Bank of India (RBI). NBFCs provide financial services similar to banks but cannot accept demand deposits. They play a vital role in the financial ecosystem by catering to the credit needs of individuals, businesses, and small enterprises not typically served by traditional banks.
What is an NBFC?
An NBFC is a company:
- Registered under the Companies Act, 2013, or Companies Act, 1956.
- Engaged in activities such as loans, leasing, hire-purchase, investment, or asset financing.
- Specifically excluded from activities like industrial, agricultural, or constructional operations.
NBFCs are classified under various categories such as Asset Finance Companies (AFC), Loan Companies (LC), and Investment Companies (IC), among others.
Key Features of an NBFC
Regulation
NBFCs are governed by the Reserve Bank of India Act, 1934, and various RBI notifications.
Deposit Acceptance
NBFCs can accept only term deposits, subject to RBI guidelines, but cannot accept demand deposits like savings accounts.
Registration Requirements
NBFCs are governed by the Reserve Bank of India Act, 1934, and various RBI notifications.
Systemically Important NBFCs
NBFCs with asset sizes of ₹500 crores or moreare classified as systemically important and subject to stricter regulations.
Compliance Calendar for NBFCs
NBFCs are required to comply with both Companies Act, 2013, and RBI regulations. Below is the compliance calendar:
Compliance/Form | Description | Due Date | Applicable Regulation |
AOC-4 | Filing of audited financial statements with ROC | Within 30 days of AGM | Section 137 of the Companies Act, 2013 |
MGT-7 | Filing of annual return | Within 60 days of AGM | Section 92 of the Companies Act, 2013 |
DIR-3 KYC | KYC of Directors through their DIN | By 30th September annually | Rule 12A of Companies (Appointment & Qualification of Directors) Rules, 2014 |
PAS-6 | Certificate of compliance with RBI regulations | Within 60 days from the end of each half-year | Rule 9A of Companies (Prospectus and Allotment of Securities) Rules, 2014 |
DPT-3 | Return of Deposits | By 30th June annually | Rule 16A of Companies (Acceptance of Deposits) Rules, 2014 |
ADT-1 | Appointment of Auditor | Within 15 days of AGM | Section 139 of the Companies Act, 2013 |
Additional Governance Requirements
Board Meetings
Minimum four board meetingsper year, with a gap of no more than 120 days between two meetings.
Internal Audit
NBFCs must conduct regular internal audits to ensure compliance with RBI regulations
Risk Management
Implementation of robust risk management frameworks, especially for systemically important NBFCs.
Asset Classification and Provisioning
NBFCs must classify assets into standard, sub-standard, doubtful, or loss categories and provide for them accordingly.
Key Points to Note
Net Owned Fund (NOF) Requirement
Minimum NOF requirement for registration with RBI is ₹10 crores.
Leverage Ratio
Leverage ratio should not exceed 7 timesthe net owned funds for systemically important NBFCs.
Loan Classification
Loans overdue for more than 90 daysare classified as non-performing assets (NPAs).
Capital Adequacy
Minimum Capital to Risk (Weighted) Assets Ratio (CRAR) must be maintained at 15%.
Corporate Governance
Stricter governance norms apply, including appointment of independent directors and maintenance of proper audit trails.
Summary
NBFCs are a cornerstone of financial inclusivity, bridging the gap between formal banking institutions and underserved segments of the economy. Their compliance with statutory and regulatory frameworks ensures transparency, operational efficiency, and sustainable growth.
Conclusion
Non-Banking Financial Companies play an integral role in fostering financial stability and economic growth. By adhering to compliance requirements and governance standards, NBFCs continue to provide innovative solutions to meet diverse financial needs while maintaining trust and accountability.