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Different NBFC Licenses for different purposes

  • October 07, 2022
  • Registrationwala
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Every NBFC registration or NBFC license holder company has a type. An NBFC is set up for a wide variety of purposes. The intent of the Rbi to set up different kinds of NBFCs in India is to utilize the financial resources in the country into a functioning revenue generation system that has been lying dormant.

If you want to know how to get NBFC license from RBI, this we have already discussed on our service page. You can check it out on  NBFC registration. But in this post, we will talk about and, more importantly, give you clarity on the types of NBFCs prevalent in India, and then you can assess which NBFC model is suitable for your business for adaptation. 

Types of NBFCs

The RBI has categorized the NBFCs in the following manner:

a) In terms of the Type of Liabilities:

  • Deposit-accepting NBFCs
  • Non-Deposit-accepting NBFCs

b) Non-Deposit-taking NBFCs can be further classified on the basis of their size into the following:

  • Systemically Important NBFCs
  • Non-Deposit Holding Companies (NBFC-NDSI and NBFC-ND)

c) Kind of Activity: We have below categorized the NBFCs based on the types of their activities in the market:

 

Asset Finance Company (AFC)

  • An AFC is a finance lending company that carries on as its principal business the financing of physical assets.
  • These physical assets support productive and economic activities.
  • Such activities include automobiles, tractors, lathe machines, generator sets, earth moving, and material handling equipment.
  • These equipment moves on power and general-purpose industrial machines.
  • Therefore, the principal business for this NBFC is defined as an aggregate of financing real assets which support economic activity and, by extension, the income arising from it.
  • The income generated must not be less than 60% of its total assets and income.

 

Investment Company (IC)

An Investment Company is a type of NBFC license in which the principal business is the acquisition of securities in the market. The Company makes investments in the market by acquiring securities of other firms.

 

Loan Company (LC)

A Loan Company is an NBFC license whose principal business is to provide finance by making loans or advances. It can also indulge in an activity other than its own but does not include an AFC (Asset Finance Company).

 

Infrastructure Finance Company (IFC)

Infrastructure Finance Company is an NBFC license with the following features:

  • An IFC deploys atleast three-fourths of its total assets in the infrastructure loans
  • An IFC must have a minimum Net Owned Funds of 300 crore rupees
  • An IFC must have a minimum credit rating of A
  • An IFC must have a CRAR rate of 15%

 

Systemically Important Core Investment Company (CIC-ND-SI)

A systematically Important CIC is an NBFC license whose principal business is the acquisition of shares and securities. Every SI-CIC NBFC must satisfy the following conditions:

(a) Every SI-CIC NBFC must hold atleast 90% of its total assets in the form of the following:

  • Equity Shares
  • Preference Shares
  • Debt
  • Loans in group companies

(b) SI-CIC NBFC's investments in equity shares, which includes instruments compulsorily convertible into equity shares within 10 years from the date of issue, in group companies must constitute atleast 60% of its total assets.

(c) An SI-CIC NBFC must not trade in their investments in shares, debt, or loans in group companies. But it can make an exception through block sale for dilution or disinvestment of the Company.

(d) An SI-CIC NBFC must not carry on any other financial activity mentioned in Section 45I of the RBI Act. But it can make an exception for investment in the following:

  • Bank Deposits
  • Money Market Instruments
  • Government Securities
  • Loans to and Investments in Debt Issuances of Group Companies
  • Guarantees issued on behalf of Group Companies

(e) An SI-CIC's asset size must be worth 100 crore rupees or above, and it must accept public funds.

 

Infrastructure Debt Fund

An Infrastructure Debt Fund Non-Banking Financial Company is a company registered as an NBFC which facilitates the flow of long-term debt into infrastructure projects. An IDF-NBFC can raise resources through the issue of currencies such as the rupee or dollar-denominated bonds. These bonds must be of minimum five-year maturity. Also, only Infrastructure Finance Companies can sponsor Infrastructure Debt Funds NBFCs.

 

Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI)

Non-Banking Financial Company - Micro-Finance Institution is a type of non-deposit-taking NBFC. A Micro-Finance Institution NBFC must have atleast 85% of its assets like qualifying assets. An MFI-NBFC must satisfy the following criteria:

  • An NBFC-MFI can disburse a loan to a borrower with
    • Rural Household whose Annual Income does not exceed one lakh rupees
    • Urban and Semi-Urban households whose annual income does not exceed 1.6 lakh rupees.
  • The Loan Amount by an NBFC-MFI must not exceed 50,000 rupees in the first cycle and 1,00,000 rupees in the subsequent cycles.
  • By providing the loan, the NBFC-MFI must ensure that the borrower's total indebtedness does not exceed 1,00,000 rupees.
  • The NBFC-MFI must limit the tenure of the loan for a minimum of two years for loan amounts over 15,000 rupees with prepayment and without penalty.
  • The MFI must extend the loan without collateral.
  • The MFI can give an aggregate amount of loans for income generation in not less than 50% of the total loans.
  • The MFI must allow the borrower to repay the loan in weekly, fortnightly, or monthly installments arrangement, as per his or her choice.

 

Non-Banking Financial Company – Factors (NBFC-Factors)

NBFC-Factor is a type of non-deposit-taking NBFC. Such NBFCs are primarily engaged in the business of factoring. The financial assets in the NBFC factoring business must constitute at least 50 percent of its total assets. Also, the income derived from such factoring business must be atleast 50 percent of the Company's gross income.

 

Mortgage Guarantee Companies (MGC)

Mortgage Guarantee Companies are financial institutions in which

  • Atleast 90% of the Company's turnover is Mortgage Guarantee business, OR
  • Atleast 90% of the gross income is from Mortgage Guarantee Business, AND
  • The Net Owned Fund of the Mortgage company is 100 crore rupees

 

Knowing the type of NBFC is one of the important registration requirements of an NBFC. If you want to know more about the NBFC registration requirements, connect with the Registrationwala.


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