NBFC is part and parcel of BFSI (Banking, Financial Services and Insurance Sector) Industry. NBFCs in India are regulated at large by the Reserve Bank of India (RBI) but they do not carry a banking license. RBI has the authority to issue certificates of registration (CoR) to non-banking financial institutions under section 45-IA of RBI Act 1934. RBI has two exclusive departments for the regulation of NBFCs i.e. Department of Non-Banking Regulation (DNBR) and Department of Non-Banking Supervision (DNBS)
NBFCs are incorporated under the Company Act of 1956 while the usual banks are incorporated under the Banking Regulation Act 1949. The principal business activity exercised by NBFC include lending investments in shares, stock, bonds, debentures, leasing, hire purchase, chit business etc. The financial services provided by the NBFCs include the loan & credit facilities, money market trading, private education funding etc. but NBFCs are not authorised to accept public deposits. NBFCs have a significant role in economic development through long term credit and fund mobilization. The sources of funding for NBFCs are banks and its shareholders. NBFCs can be categorised on the basis of their principal business:
Although the procedure for setting up NBFC seems to be simple by establishing a private limited or public limited company and fulfilling the requirement of minimum Net Owned Fund (NOF) of rupees two crore yet it involves a wide spectrum of legal complexities including the substantial compliances and multiple stringent audits.
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