Types of Non- Banking Financial Companies

In India, there is a total of 10,190 operating non- banking financial companies as at September end 2018. Out of this 10,190, more than 95 per cent (10,082) are non- deposit taking NBFCs.

1. Prepared By-
CA Jhalak S. Shah
3/26/2019
Types of Non-Banking Financial Companies (NBFCs)

2. NBFCs
Based on Liability
Deposit taking
(NBFC-D)
Non-Deposit taking
(NBFC-ND)
NBFC-ND (Customer
Interface and
Accepting Public
Funds)
NBFC-ND
(Accepting Public
Funds only)
NBFC-ND (Customer
Interface only)
NBFC-ND (Neither
Customer Interface
nor Accepting Public
Funds)
Based on Size
Systematically
Important (NBFC-
ND-SI)
Non-Systematically
Important (NBFC-
ND-NSI)
Based on Activity
Discussed in detail
later

3. NBFCs
Based on
Activities
Investment
and Credit
Company (ICC)
Infrastructure
Finance
Company (IFC)
SI-Core
Investment
Company (CIC-
ND-SI)
Infrastructure
Debt Fund
(IDF)
Micro Finance
Institution
(NBFC-MBI)
Factors (NBFC-
Factors)
Mortgage
Guarantee
Companies
Non-Operative
Financial
Holding
Company
(NOFHC)
Account
Aggregator
(AA)
Peer to
Peer
Lending
Platform
(P2P)

4. ▪ Investment And Credit Company (ICC)
Harmonisation of different categories of NBFCs vide Notification: RBI/2018-19/130 DNBR (PD) CC.No.097/03.10.001/2018-19 dated 22
nd
February,
2019
Over a period of time, evolution of the NBFC sector has resulted in several categories of NBFCs intended to focus on specific sector/ asset classes. Different
sets of regulatory prescriptions were accordingly put in place.
Out of around 10,190 NBFCs operating in India, more than 95 per cent (10,082) are non-deposit taking NBFCs. Too many categories only increase compliance
cost for the entire non-banking sector and monitoring cost for the regulator. On a review, it has been decided that in order to provide NBFCs with greater
operational flexibility, harmonisation of different categories of NBFCs into fewer ones shall be carried out based on the principle of regulation by activity
rather than regulation by entity. Accordingly, it has been decided to merge the three categories of NBFCs viz. Asset Finance Companies (AFC), Loan
Companies (LCs) and Investment Companies (ICs) into a new category called NBFC - Investment and Credit Company (NBFC-ICC).
Differential regulations relating to bank’s exposure to the three categories of NBFCs viz., AFCs, LCs and ICs stand harmonised vide Bank’s circular
DBR.BP.BC.No.25/21.06.001/2018-19 dated, February 22, 2019. Further, a deposit taking NBFC-ICC shall invest in unquoted shares of another company
which is not a subsidiary company or a company in the same group of the NBFC, an amount not exceeding twenty per cent of its owned fund.
The following three categories have been merged into one:
1. Asset Finance Company (AFC): An AFC is a company which is a financial institution carrying on as its principal business the financing of physical assets
supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling
equipment, moving on own power and general purpose industrial machines.
2. Investment Company (IC): IC means any company which is a financial institution carrying on as its principal business the acquisition of securities.
3. Loan Company (LC): LC means any company which is a financial institution carrying on as its principal business the providing of finance whether by
making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company.
The merged category has been defined as follows:
“Investment and Credit Company – (NBFC-ICC)” means any company which is a financial institution carrying on as its principal business- asset finance,
the providing of finance whether by making loans or advances or otherwise for any activity other than its own and the acquisition of securities; and is
not any other category of NBFC as defined by the Bank in any of its Master Directions.
The classification of an NBFC as an AFC or LC or IC was done by the RBI at the time of issuance of the certificate of registration. Apart from satisfying the
principality test, which has now been harmonised for all the three categories, there does not seem any other implementation issue in this regard.

5. Further, the term non-banking financial company has also been defined in the Master Directions for deposit taking NBFCs as follows:
“non-banking financial company” means only the non-banking institution which is an investment and credit company or a mutual benefit financial
company or a factor registered with the Bank under section 3 of Factoring Regulation Act (2011);
According, the broad head of NBFC now consists of only three categories:
▪ NBFC-ICC
▪ Mutual Benefit Financial Company (MBFC)
▪ NBFC-Factor
Here, MBFC means any company which is a financial institution notified by the Central Government under section 620A of the Companies Act, 1956 (Act 1
of 1956) and NBFC Factor means a nonbanking financial company as defined in clause (f) of section 45-I of the RBI Act, 1934 which has its principal business
as defined in paragraph 40 of these directions and has been granted a certificate of registration under sub-section (1) of section 3 of the Factoring Regulation
Act, 2011.
This definition is however restricted to only deposit taking NBFCs and does not extend to non-deposit taking NBFCs. Also, the said definition of NBFC does
not include micro finance institutions, Infrastructure Finance Company and Infrastructure Debt Fund as an NBFC.
All related Master Directions for non-systemically important non-deposit taking, systemically important non-deposit taking company, deposit taking
company, standalone primary dealers and residuary non-banking companies have been updated accordingly.

▪ Infrastructure Finance Company (IFC)
IFC is a non-deposit taking non-banking finance company -
a) which deploys at least 75 per cent of its total assets in infrastructure loans,
b) has a minimum Net Owned Funds of ₹ 300 crore,
c) has a minimum credit rating of ‘A ‘or equivalent
d) and a CRAR of 15 per cent.
Eg. L&T Infrastructure Finance Company Limited, IDFC Limited.

6. ▪ Systematically Important Core Investment Company (CIC-ND-SI)
CIC-ND-SI is an NBFC carrying on the business of acquisition of shares and securities which satisfies the following conditions:-
o it holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies;
o its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the
date of issue) in group companies constitutes not less than 60% of its Total Assets;
o it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;
o it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money
market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group
companies.
o Its asset size is ₹ 100 crore or above and
o It accepts public funds
Eg. Tata Capital Limited.

▪ Infrastructure Debt Fund (IDF-NBFC)

IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through issue of
Rupee or Dollar denominated bonds of minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.
Eg. As on June 30, 2015 only 3 companies are registered with RBI i.e. India Infradebt Limited, L&T Infra Debt Fund Limited, IDFC Infra Debt Fund Limited.
IDF
TRUST
Known as NBFC-MF
(Regulated by SEBI)
COMPANY
Known as IDF-NBFC
(Regulated by RBI)

7. ▪ Non- Banking Financial Company- Micro Finance Institution (NBFC-MFI)
NBFC-MFI is a non-deposit taking NBFC (other than Section 8 companies) having minimum net owned fund of ₹ 5 crores (if registered in the North Eastern
Region - ₹ 2 crores) and shall not less than 85% of its assets in the nature of qualifying assets which satisfy the following criteria:
o loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding ₹ 1,00,000 or urban and semi-urban household
income not exceeding ₹ 1,60,000;
o loan amount does not exceed ₹ 60,000 in the first cycle and ₹ 1,00,000 in subsequent cycles;
o total indebtedness of the borrower does not exceed ₹ 1,00,000;
o tenure of the loan not to be less than 24 months for loan amount in excess of ₹ 30,000 with prepayment without penalty;
o loan to be extended without collateral;
o aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the MFIs;
o loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower
Eg. SKS Microfinance Limited, Asmitha Microfin Limited.

▪ Non- Banking Financial Company- Factors (NBFC-Factors)
NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The term factoring business has been defined under Section 2(j) of
the Factoring Act, 2011 as “the business of acquisition of receivables of assignor by accepting assignment of such receivables or financing, whether by way
of making loans or advances or in any other manner against the security interest over any receivables but does not include-
(i) credit facilities provided by a bank in its ordinary course of business against security of receivables;
(ii) any activity as commission agent or otherwise for sale of agricultural produce or goods of any kind what so ever or any activity relating to the
production, storage, supply, distribution, acquisition or control of such produce or goods or provision of any services”.
The financial assets in the factoring business should constitute at least 50 percent of its total assets and its income derived from factoring business should
not be less than 50 percent of its gross income.
Eg. SBI Global Factors Ltd., India Factoring & Finance Solutions Pvt Ltd.

8. ▪ Mortgage Guarantee Companies (MGC)
MGC are financial institutions for which at least 90% of the business turnover is mortgage guarantee business or at least 90% of the gross income is from
mortgage guarantee business and net owned fund is ₹ 100 crore.
Eg. India Mortgage Guarantee Corporation.

▪ NBFC- Non- Operative Financial Holding Company (NOFHC)
NOFHC is a non-deposit taking financial institution through which promoter / promoter groups will be permitted to set up a new bank. It’s a wholly-owned
Non-Operative Financial Holding Company (NOFHC) which will hold the shares of a bank as well as all other financial services companies in the group,
whether regulated by RBI or other financial sector regulators, to the extent permissible under the applicable regulatory prescriptions.

▪ NBFC- Account Aggregator (NBFC-AA)
NBFC-AA is focused on collecting and providing information about a customer’s financial assets in a consolidated, organised and retrievable manner to the
customer or others as specified by the customer.

▪ NBFC- Peer to Peer Lending Platform (NBFC- P2P)
NBFC- P2P provides an online platform to bring lenders and borrowers together to help mobilise funds.

9. About Taxpert NBFC Solutions
We at NBFC Solutions are a group of professionals known for providing concentrated services to Non- Banking Financial Company (NBFC) through registration,
compliances, accountancy, taxation, legal and regulatory laws advisory in a seamless manner. We believe in the creation of value through advising and assisting
the business.
We offer solutions, which are backed by a broad vision and a thorough research. Our solutions are delivered to provide the highest quality of service to our
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We assist the business with their corporate and regulatory compliances, complex taxation issues, enhancing profitability and efficiency and corporate
restructuring. NBFC Solutions has a team of high-calibre, dedicated and experienced professionals maintaining our hallmark of adding value with quality and
commitment.

We look forward to have interaction with you. Call us for the meeting.
For further information, please contact at [email protected] or at:





CA Jhalak S. Shah
Head- NBFC Solutions
Taxpert NBFC Solutions
Compliance & Advisory Services
[email protected]
Tel: [phone]
CA Sudha G. Bhushan
Associate Director
Taxpert NBFC Solutions
Compliance & Advisory Services
[email protected]