2. Organization of the financial system
Financial Intermediaries Financial Markets Financial
Assets/Instruments
Banks NBFC Mutual Insurance Money Capital/Securities
Funds OrganizationMarket Market
Leasing Companies Primary Market Secondary
Hire-Purchase/Consumer Finance Market
Companies
Housing Finance Companies Primary/Direct Indirect Derivatives
Venture Capital Funds
Mutual Fund- Forward
Merchant Banking Organization
Equity Innovative debt units
Futures
instruments Security Receipts
Credit Rating Agencies Preference Options
Pass Through
Convertible Debentures
Factoring and Forfeiting Org., Debenture Certificates
Non- Convertible
s Debentures
Stock broking firms
Secured Premium Notes
Depositories Warrants

3. 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).
NBFCs are doing functions similar to banks. What is difference
between banks & NBFCs ?

4. NBFCs are doing functions akin to that of banks,
however there are a few differences:
(i) a NBFC cannot accept demand deposits;
(ii) it is not a part of the payment and settlement
system and as such cannot issue cheques to its
customers
Is it necessary that every NBFC should be registered with RBI?

5. In terms of Section 45-IA of the RBI
Act, 1934, it is mandatory that every
NBFC should be registered with RBI
to commence or carry on any
business of non-banking financial
institution as defined in clause (a) of
Section 45 I of the RBI Act, 1934.
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6. Which is a NBFC?
A company which carried on as its business or part of its business the
following activities:
- financing
- acquisition of securities
- hire purchase
- insurance
- chit fund
- mutual benefit company
But does not include a company which carries on as its principal
business:
- agricultural operations,
- industrial activities
- Sale and purchase of goods
- providing of services
- purchase, sale and construction of immovable property

7. Definition of Principal Business
RBI Press Release Dt. April 8, 1999
- If 50% or more of a company’s total assets (netted
off by intangible assets) are financial assets
and
- If 50% or more of a company’s gross income is
from financial assets
then the Principal Business of the company is of a NBFC

8. Legal Framework
Always Remember
 NBFC per se is a licensed activity like
Banking, Stock Broking, Money
Changing.
 Acceptance of Public Deposits is
irrelevant for NBFC test.
 Income earned & Deployment of Funds
are determining factors
RBI Press Release No.
1999-2000/1042 dated 8.2.2000

9. Registration and Net Owned Fund (Sec 45- IA)
No NBFC shall commence or carry on
business of NBFI without obtaining a Certificate
of Registration & having minimum Net owned
funds
•Registration with RBI is mandatory for all companies
interested in carrying on non- banking finance activities.
• Minimum Net Owned funds of Rs.2 Crores.

10. Concerned Areas
 A large number of NBFCs are working
without registration:
 Companies working without registration and
 Companies rejected by RBI still operating.
 Penalties:
 Imprisonment 1 to 5 years and
 Fine of Rs. 1 lakh to 5 lakhs.

11. Change in control/management of a NBFC
For all NBFCs:
- public notice 30 days before effecting the sale or
transfer,
- in two newspapers one English and local
vernacular language,
- jointly by NBFC, transferor and transferee,
- within seven days of publication, intimation to RBI.
For Deposit Accepting NBFCs
- Prior approval of RBI
- Obligation towards deposit holders

13. Classification of NBFCs
• Based on nature of business:
•Asset finance companies
•Investment companies
•Loan companies
•Infrastructure finance companies

14. Classification of NBFCs
Based on acceptance of Public Deposits
- Deposit holding/accepting Company - Category ‘A’
- Non-Deposit holding/accepting Company - Category ‘B’
Based on investment pattern
- Investment company (Cat ‘A’ or Cat ‘B’)
- Core Investment company - Category ‘C’

15. NBFC Prudential Norms
Accounting policies
Accounting standards
Revenue recognition

16. NBFC Prudential Norms
Schedule to the Balance Sheet
- to be appended to the Balance sheet prescribed
under the Companies Act, 1956
- showing loans and advances and deposits
outstanding and overdue
- borrower groupwise classification of all assets, lease,
HP and Loans and advances
- Investor groupwise classification of all investment
in shares and securities
- information on NPAs.

17. Monitoring by RBI
Off-site surveillance
 Returns
 Auditors’Reports
 Market intelligence
On-site surveillance
 Inspections
 Special audits

18. Good Corporate Governance
-Rotation of partners of statutory auditors audit firm
of companies with deposits of Rs. 50 Crores and
more
-Rotation after every three years
-Companies may incorporate terms in the letter of
appointment to ensure compliance

19. AUDIT OF NBFCs- Reporting Requirements
Under the Companies Act, 1956
Report under Section 227(2)
Report required by the Companies (Auditor’s
Report) Order, 2003
Compliance of accounting standards.

20. AUDIT OF NBFCs- Reporting Requirements
Under the Income Tax Act, 1961
Tax Audit Report under section 44AB

21. Other Certificates to NBFCs
-Yearly Certification of carrying of NBFC
business
- Certification attached to Annual Return and Half
Yearly Returns

22. Top five NBFCs in India:
• Housing Development Finance Corporation
Limited
• Power Finance Corporation Limited
• Rural Electrification Corporation Limited
• National Bank of Agricultural and Rural
Development
• Infrastructure Development Finance Company
Limited