When you think of Non-banking finance companies, what are the different types of institutions that come to your mind? These institutions include insurance companies, stock-broking companies that provide loans for vehicles, homes, machinery or even sometimes for your mobile phones. So one might say that NBFC registration provides a diverse range of very specific financial services, except the traditional banking ones. India, unlike any other country in the world, provides licenses for 10 different types of NBFC institutions.
The basic categories of NBFCs are classified in terms of liabilities in deposit and non-deposit accepting NBFCs, size and systematically important NBFCs, non-depositing holding companies, and based on the different kinds of activities performed by the companies.
So these 10 different types of NBFCs are as follows:
- Asset Finance Company
This type of financial institution facilitates the services of financing different assets for individuals or for a company that may include machinery, industrial or production and farming equipment and more. The company or the individual borrowing the funds must provide collateral like a security interest on the asset.
- Investment Company
The principal business of this type of institution is the acquisition of securities by collecting funds from the public and are invested in various securities and financial products. Here the company deducts its operational costs from the earned profits and distributes them among the shareholders.
- Loan companies
As the name suggests, this is a financial company that specializes in offering loans for various purposes that do not include Asset management companies and housing finance firms. The clients of these institutions must provide collateral of equal value to the loan if the payment on the loan is not made.
- Infrastructure Finance Company
These companies use three-fourth of their total assets in infrastructure loans and must have a minimum net owned fund of Rs.300 crores along with a minimum credit rating of ‘A’.
- Core Investment Company
These companies spend 90% of their assets in the form of investment in shares, stocks, debt or loan group companies and of these 90% assets 60% of them must be devoted to equity shares.
- Infrastructure Debt Fund Company
These companies raise funds through bonds for long-term infrastructure projects, issued in multiple currencies to ensure that they have had at least a five–year maturity period for investors.
- Microfinance Company
These institutions provide small loans to people who do not have access to banking facilities and are hesitant to use them as it requires a lot of formalities. In India, these institutions provide no more than Rs.1 lakh as loans.
- NBFC (Factor)
This type of company has its financial assets in the factoring business, which constitutes at least 75% of its assets. These companies have a net-owned fund of 5 crores and have been granted a certificate of registration by RBI.
- Mortgage Company
This type of institution has a net owned fund of Rs.500 crores and 90% of the business turnover is of mortgage guarantee.
- Non- operative Financial Holding Company
This is a wholly-owned non-operative financial holding company permitted to set up the bank as well as other financial services with the permission of RBI.