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In the current Indian scenario, NBFCs are generally sophisticated financial operators and financial intermediaries, with a strong presence in the competitive fields of housing and vehicle financing, loans and investments, equipment leasing, etc. NBFCs are a segment of the financial sector which is fast emerging as an important participant in the Indian financial structure. The segment consists of a diverse group of companies/ institutions (not including commercial and co-operative banks) performing a variety of financial activities and operating at different levels of sophistication and scale.

Services and products offered by NBFCs (though in specific areas of the financial sectors) have been very diverse.

Definitions: To understand the characteristics of an NBFC, it is essential to examine the definitions provided under the relevant legislations.

NBFC has been defined under the Reserve Bank of India Act, 1934 (‘RBI Act’) (refer Annexure - A for the definition). The RBI definition of an NBFC covers a company that is a financial institution (‘FI’), a company that is a non-banking institution (‘NBI’) receiving deposits or lending and any NBI as notified. Accordingly, for a company to be an NBFC

  • it should qualify as FI which is in the businesses as covered in (i) to (vi) of Section 45-I(c) (provided in Annexure - B) of the RBI Act, or
  • it should be an NBI receiving public deposits or lending in any manner, or
  • any notified NBI.

Further, under the RBI Act, every non-banking financial company has to obtain registration with the RBI; and RBI is responsible for regulating and supervising the NBFC. As a regulating body, the RBI has been issuing directions to NBFCs from time to time. A direction which is of particular relevance to our discussion is the Acceptance of Public Deposits (Reserve Bank) Directions, 1998 (‘APD Directions’) which further defines1 NBFC to mean ‘only the non-banking institution which is a loan company or an investment company or an asset finance company or a mutual benefit financial company’.

Based on the above definition, NBFCs can be broadly divided into the following type of companies:

  • Loan company
  • Investment company
  • Asset Finance company
  • Mutual Benefit Financial Company

Accordingly, all the activities performed by NBFCs would generally fall under the above categories. A single NBFC could have operations comprising one or more kinds of activities mentioned above.


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