Classification of NBFC
NBFC can be categorized as per following category:
- In terms of Deposit and Non-Deposit accepting NBFC
- In terms of size of Non-Deposit accepting NBFC, and
- By the activity they conduct
Based on the above mentioned category, NBFCs can be classified as below:
- Asset Finance Company (AFC) – An asset finance company is a finance institution whose principal business is to support and finance physical assets supporting productive activities like automobiles, generator sets, material handling equipment etc.
- Investment Company (IC) – Investment company is a finance institution which carries on its principal business of acquisition of securities.
- Loan Company (LC) –A loan company could be any company which carries on its principal business of providing of finance. They do so either by making loans or by making advances.
- Infrastructure Finance Company (IFC) – An infrastructure finance company is a type of NBFC which deploys at least 75% of the its total assets in infrastructure loans and also has a minimum net owned funds of Rs 300 crore. They also have a minimum credit rating of “A” or its equivalent along with a CRAR of 15%.
- Systematically Important Core Investment Company (CIC-ND-SI) – This particular type of NBFC deals with acquisition of those shares and securities which satisfies the following conditions:
- It accepts public funds.
- Its asset size is Rs 100 crore or above.
- At least 90% of its total assets must be in the form of investment in preference shares, equity shares, debts or loans in group companies.
- It does not trade in its investment in shares, debt or loans in group companies.
- It does not carry on any other financial activities as mentioned in Section 451(C) and 451(F) of the RBI Act 1934.
- Infrastructure Debt Fund – This type of NBFC is registered as NBFC to facilitate the flow to long term debt into infrastructure projects.
- Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI) – This is a non-deposit kind of NBFC having at least 85% of its assets in the form of qualifying assets as per the below mentioned criteria:
- Loan is extended without any collateral.
- Borrower can opt to repay the loan on weekly, fortnightly or monthly installments.
- Loan amount should not exceed Rs 50,000 in its first cycle and Rs 1,00,000 in its subsequent cycles.
- Total indebtedness of the borrower should not exceed more than Rs 1,00,000.
- For loan amount of more than Rs 15,000, the tenure of the loan should not be less than 24 months.
- Non-Banking Financial Company – Factors (NBFC –Factors) – This type of NBFC is a non-deposit taking NBFC which is engaged in the principal business of factoring. The financial assets involved need to constitute at least 50% of its total assets and the income coming from the factoring business should not be less than 50 percent of its gross income.
- Mortgage Guarantee Company (MGC) –MGC are financial institutions for which at least 90% of the business turnover is mortgage guarantee business and its net owned income is Rs 100 crore.
- NBFC – Non Operative Financial Holding Company (NOFHC) – Through non-operative financial holding company, the promoter/s are permitted to set up a new bank.
- Housing Finance Company: This type of NBFC engages in its principal activity of financing of acquisition/construction of houses, including the development of plots of lands for the construction of the new houses.
- Chit Fund Company: Regulated by the Chit Fund Act 1982, Chit Fund Company collect funds from its members on a periodic basis and distribute the same amongst them as prizes.
- Mutual Benefit Finance Company: Also known as “Nidhis”, mutual benefit finance company are a type of NBFC wherein the members have the power to pool their money to finance a predetermined investment objective. Its main source of funds are share capital, member deposits and public deposits.
- Residuary Non-Banking Company: This particular type of non-bank financial company deals with their principal business of receiving of deposits, which can be done under any scheme or arrangement except an investment, asset financing and Loan Company. They basically maintain investments as per the guidelines of RBI, in addition to liquid assets.