NBFC Full Form – What Is NBFC, Definition, Meaning, Uses

NBFC Full Form Friends, in this article, we’ll look at the full form of the NBFC. It refers to financial institutions that do not have a banking license yet provide banking services. NBFCs are involved in loans and advances, acquisition of shares, bonds, stocks, hire-purchase, insurance business, and chit-fund business, as defined by the Indian Companies Act 2013. NBFCs do not include agricultural activity, industrial activity, sale/purchase/manufacture of fixed assets, or purchase or sale of any goods (other than securities).

NBFC Full Form 

NBFC’s full form is “Non-Banking Financial Company“.  An NBFC is a financial institution that provides banking services despite not meeting the legal standards of a bank. Let us now supply you with a bit more information about it.

NBFC: Non-Banking Financial Company

NBFC Full Form 
NBFC Full Form

Non-Banking Financial Companies, or NBFCs, are regulated by the Companies Act. The Reserve Bank of India, as the central bank, is normally in charge of this. These organizations are not banks, although they can engage in operations such as lending, loans, and advances, credit facilitation, savings, and investment products, money market trading, stock portfolio management, and cash transfers.

It may be involved in leasing, infrastructure finance, venture capital finance, and housing finance, among other things. NBFCs take deposits, but only fixed deposits; for more information on NBFC Fixed Deposits, see here.

We would like to notify you that all firms registered under the Companies Act 1956 that conduct money transactions work in the same way as a bank. Which takes people’s money and deposits it in a savings account, as well as provides them with a variety of loans.

This financial institution resembles a bank in many ways. But, friends, there is no bank; instead, it is referred to as a non-bank financial corporation (NBFC). Non-Banking Financial Company is the full version of NBFC.

it’s known as a Non-Banking Financial Company. It splits the earnings it makes by putting the depositor’s money into a plan with the depositor. Deposits, insurance, loans, shares, and stocks are all investments made by such a corporation.

What is an NBFC?

In today’s world, our country has a plethora of such financial institutions that, even though they are not banks, accept deposits and provide loans. Such organizations are commonly referred to as Non-Banking Financial Companies (Non-Banking Financial Companies) (NBFC).

NBFCs include companies that provide insurance, chit funds, Nidhi, merchant banking, stock broking, and investment services, among other services. Agriculture, industrial activity, commodity trade, construction, and the purchase and sale of immovable property, on the other hand, are not covered by NBFCs.

If we go back to the beginning of this, many people’s deposits in NBFCs were sunk in the 1960s, causing many people to experience financial hardship. Here is some background information for you. From 1963, the Reserve Bank of India (RBI) began monitoring NBFCs and developing guidelines for them.

As a result, NBFCs that perform banking functions are now regulated by the Reserve Bank of India. NBFCs in the insurance business, on the other hand, are regulated by the Insurance Regulatory and Development Authority (IRDA). This was done so that scams could be identified and people’s money could be safeguarded.

Anyone who works for an NBFC Venture Capital Fund, Merchant Banking Company, Stock Brokerage Company, or Mutual Fund can apply to the Securities and Exchange Board of India. Come under India’s jurisdiction (SEBI). PFRDA also regulates pension funds.

Nidhi firms, on the other hand, are governed by the Ministry of Corporate Affairs, whilst Chit fund companies are governed by state governments. The National Housing Bank regulates housing finance companies. You might be shocked to learn that the government’s Mudra scheme is currently being implemented through an NBFC, Micro Units Development, and Refinance Agency Limited (Mudra).

Although its major goal is to aid people as much as possible financially, it also has a goal of providing loans to non-corporate entrepreneurs. Similarly, Asset Reconstruction Companies that are registered under the SARFAESI Act, we can notify you that the government only lists them as NBFCs.

NBFCs are no longer regulated by the Reserve Bank of India. For the company that does some other work, there is a distinct setup. IRDA regulates insurance firms, Merchant Banking Corporations, Venture Capital Corporations, Stock Brokerage Corporations, the Securities and Exchange Board of India (SEBI) regulates mutual funds, and National Housing Bank (NHB) regulates housing finance corporations.

State governments are in charge of the Department of Company Affairs (DCA) and Chit fund companies in this regard. Depending on their activities, NBFCs are needed to register with the RBI and maintain a minimum required capital of Rs 2 crore in the form of a Net Owned Fund (NOF).

They must also keep a reserve fund by transferring at least 20% of their profits each year. Many individuals around you may deposit or borrow money in any NBFC, and you will frequently hear the term ‘NBFC’ used in a casual manner. In this issue, we’ll look at what an NBFC is and how it works.

Banks are regulated by the Banking Regulation Act, while NBFCs are governed by the Indian Companies Act. When it comes to the differences between them, banks are involved in payment and settlement, which is also known as the clearing system, but NBFCs are not. You should be aware that banks are required to maintain a reserve ratio, such as the CRR or SLR. Another point to keep in mind is that NBFCs are not required to maintain a reserve ratio.

Deposit insurance is provided by the Deposit Insurance and Credit Guarantee Corporation to bank depositors (DICGC). In the case of NBFCs, such a facility is not available. The distinction between a bank and a non-bank financial company (NBFC) is that NBFCs are primarily founded to provide credit to the poor.

Banks, on the other hand, are chartered by the government to accept deposits and extend credit to the general population. A bank’s licensing requirements are more severe than those of an NBFC. A bank, on the other hand, cannot perform any business other than banking, whereas an NBFC can do so.

Non-banking financial companies are referred to as NBFCs. Financial institutions that provide banking services without a banking license or that do not match the legal definition of a bank are referred to as shadow banks. These companies are incorporated or registered under the Companies Act of 1956 and operate as non-banking financial institutions, as specified by section 45-IA of the RBI Act of 1934.

An NBFC is primarily engaged in lending, stock acquisition, government bond issuance, insurance, chit fund operations, and a variety of other activities. An NBFC cannot be a corporation whose primary business is agriculture, industry, or the sale, production, or manufacture of immovable property.

The primary distinction between an NBFC and a bank is that at a bank, we can deposit money and withdraw it whenever we need it. NBFC, on the other hand, does not accept deposits and does not let you to withdraw funds as needed. NBFC deposits are not considered savings because they are essentially long-term deposits or premiums, such as those paid for LIC plans, health insurance policies, and so on.

What are some examples of NBFCs?

  • Insurance firms that are governed by the Insurance Regulatory and Development Authority (IRDA).
  • SEBI regulates Merchant Banking Companies, Stockbroking Companies, and Venture Capital Funds.
  • The National Housing Board regulates housing finance companies (National Housing Bank).
  • Chit fund firms are governed by the state government and are defined in clause (b) of section 2 of the Chit Funds Act, 1982.
  • The Ministry of Corporate Affairs regulates Nidhi firms, which are notified under Section 620A of the Companies Act, 1956.
  • A non-banking financial company, or NBFC, is a financial firm that does not have a complete banking license or is not regulated by any national or international banking regulatory agency.

A non-banking financial company (NBFC) is a company that is registered under the Companies Act of 1956 for the purpose of acquiring loans and advances, shares / shares / bonds / debentures / securities issued by the government or a local authority, or other marketable securities, such as nature, leasing, and purchase.

Trading, insurance, and chit business are excluded, as is any firm whose primary business is agricultural or industrial activity, the buying or selling of any items (other than securities), or the sale or providing of any service. Real estate acquisition and building.

A non-banking financial company is one that is primarily engaged in the business of taking deposits under any scheme or agreement, whether in the form of a lump sum payment, periodic payments, or any other method. -financial institution).

NBFCs’ eligibility for RBI registration

A corporation that is registered under the Companies Act of 1956 and wants to operate as a non-banking financial institution, as defined under section 45 IA of the RBI Act of 1934, must meet the following requirements: Section 3 of the Companies Act of 1956 requires registration. It costs Rs. A minimum net worth of Rs. 2 crores is required. However, the minimum net-owned fund requirement for each NBFC may be different.

What is the difference between banks and NBFCs?

NBFCs lend and invest, therefore their operations are similar to those of banks; nevertheless, there are some variations, as detailed below:

  • Demand deposits are not accepted by NBFCs.
  • NBFCs are not part of the payment and settlement system, and therefore are unable to issue checks on their own.
  • Depositors of NBFCs are not eligible for the Deposit Insurance and Credit Guarantee Corporation’s deposit facility, which is provided to bank depositors.

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