How does NBFCs play a role in assuring capital to consumers

NBFCs are financial intermediaries and they perform various functions, similar to a bank, just at better rates. It considers the group of individuals, companies or industries that are not considered by banks. Some of its crucial functions include involvement in the business of accepting deposits, delivering credit and channelizing the limited financial resources to capital creation. They basically cater to the financial needs of corporations and individuals that are not accepted by banks.

They are engaged in the business of loans and advances, acquisition of shares, stocks, bonds, debentures, securities issued by the Government or other marketable securities of leasing, insurance business.

NBFCs fulfilling capital requirements of consumers

There are numerous ways in which the NBFCs provide capital to the consumers. Let us talk about some of the important ways in this section.

They provide bank credit to the rural segments of the society

They offer credit to the unorganized sector

They also offer credit to the small borrowers

The NBFC sector has grown tremendously over a few years. These financial companies have played a crucial role in providing capital to the infrastructure sector. The development of this sector is essential and thus by providing capital to this sector, NBFCs have done a tremendous job.

The NBFC loan companies offer different kinds of loans as per the individual's preferences. For instance, some loans demand loan, term loan, secured loan, unsecured loan, home loan, industrial loan, commercial loan, personal loan, and agricultural loan.

NBFC Registration Process

Company Registration as per law

The company must be registered under the Companies Act 2013 or Companies Act 1956.

Ownership of Net Owned Funds

A minimum Net Owned Funds (NOFs) must be held by the company. The amount must be Rs. 2 crore or more.

Presence of Directors

There must be at least one director in the company.

CIBIL Score

Maintaining a Good CIBIL score is essential as it is an important aspect that is considered and it fulfills the eligibility requirements to register as an NBFC.

File the Application form

The next step in the process is to file an application form on the website of RBI.

Submission of important documents

Next, the applicant must Submission of all the required documents along with the application form.

Obtaining CARN Number

After the submission of the application form and the documents, a CARN number will be provided to the applicant

Submission of the application form

Hard copy of the application must be submitted to the regional branch of RBI.

Arrival of NBFC License

After the application is approved and verified, the License will be provided to the company.

Documents for receiving NBFC License

In this section, we will talk about some important documents required for NBFC License to be submitted to RBI along with the application form. Below mentioned are certain documents –

Net Worth Certificate

Banker Report

Detailed Plan

IT and System Policy

Proof of experience in the finance sector

Company structure

Capital test proof

Proof of Educational qualifications

Memorandum of Association(MOA) of the company

Types of Non-Banking Financial Companies (NBFC)

The categorization of the NBFCs are done on the basis of two important factors which are as follows –

On the basis of nature of activity

On the basis of deposits

On the basis of nature of activity, they are further divided into-

Asset Finance Company

Investment Company

Loan Company

Core Investment Company

Infrastructure Finance Company

Core Investment Company

Micro Finance Company

Asset Finance Company

An asset finance company is a company that lends burrowers any asset for a temporary duration.

Investment Company

The major objective of an investment company is the acquisition of securities.

Loan Company

A loan company is a Non –Banking Financial Company that functions with the major objective of providing loans and advances to the public.

Infrastructure Finance Company (IFC)

An Infrastructure Finance Company is a company that contains net-owned funds of a minimum of 300 crores out of which a minimum of 75% of its total assets is utilized in infrastructure loans.

Systematically Important Core Investment Company

A company that has the ownership of assets of 100 crores and above out of which 90% of the assets are used and invested in the form of loans in various companies is called a Systematically Important Core Investment Company.

Infrastructure Debt Fund

Infrastructure debt fund or IDF is established to fulfil the requirements of the infrastructure industry. The funds invested in IDF are utilized for construction purposes of buildings, roads, bridges, dams and similar public properties.

Micro Finance Company

Also known as small finance bank, these institutions are established with the aim to provide banking services to the less privileged sections of society.

On the basis of deposits, they are divided into two types –

Deposit accepting Non-Banking Financial Corporations

Non-deposit accepting Non-Banking Financial Corporations

Conclusion

Since its introduction, NBFCs have and will continue to provide capital to the enterprises as well as individuals that are in dire need. It has proved over the few years that it can work in an effective manner along with fulfilling financial needs.

Enterslice is a Financial Technology Company and CA Firm. Our team of experts helps firms resolve their complex legal, risk, and compliance related issues and to get Company Registration, NBFC License, and FSSAI Registration etc.