Non-Banking Financial Company (NBFC)

A Non-Banking Financial Company (NBFC) is a  company registered under the Companies Act, 1956 and is engaged in the business of

1. loans and advances,
2. acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or
3. other securities of like marketable nature,
4. leasing,
5. hire-purchase,
6. insurance business,
7. chit business

but does not include any institution whose principal business is that of

1. agriculture activity,
2. industrial activity,
3. 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).

NBFC’s are different from banks in various aspects like:

1. an NBFC cannot accept demand deposits; you need to deposit only when they are open
2. an NBFC is not a part of the payment and settlement system and as such an NBFC cannot issue cheques drawn on itself
3. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors unlike in case of banks

NBFCs registered with RBI were classified as:

1. equipment leasing company;
2. hire-purchase company;
3. loan company;
4. investment company.

However, with effect from December 6, 2006 the above NBFCs registered with RBI have been reclassified as

1. Asseance Company (AFC)
2. Investment Fint Company (IC)
3. Loan Company  (LC)

The list of registered NBFCs is available on the web site of Reserve Bank of India here.  Other relevant important details from RBI regarding NBFC’s are here.