NBFC stands for Non-Banking Financial Company. Here we will discuss the advantages, disadvantages, features, objectives, and significance of NBFC.
NBFC is known as a Non-Banking Financial Company that is engaged in the endeavor of advances and loans. It is based on several acquisitions of debentures, bonds, shares, and securities that are established by local or governmental authorities related to chit, insurance, leasing, hire-purchase, etc.
There is no involvement of NBFC in the fields like agriculture, sale, and purchase, industrial and construction activities. You can consider any non-banking institution which is involved in the business of the above-mentioned activities as NBFC.
Do NBFCs Accept Deposits From NRIs?
Many years ago it was legal for NBFCs to accept deposits from NRIs. But from 24 April 2004 NBFCs are not supposed to accept any deposit of any current from someone outside India.
If there is an existing history of transactions or already deposited amounts then they need to renew it again. Now, it is entirely illegal to deposit any sum of money from NRIs, if any NBFC is caught in the act, a huge penalty will be filed against it.
Features Of NBFC
There are numerous features of Non-Banking Financial Company, some of them are mentioned below:
- It has a lower investment-grade credit rating.
- The depositary needs to make some disclosures of the company while filling the application form.
- Public deposits are allowed for the tenure of about 12 months to 60 months, based upon the requirement and total sum of the amount.
Is there any role of RBI and does RBI guarantee the repayment of deposits made by NBFCs?
It is better known that any transaction in India is directly linked to the Reserve Bank Of India. No transaction or deposit can be done without the involvement of RBI. Same here, RBI plays a vital role in deposits made by NBFCs.
But, RBI doesn’t guarantee the repayment of deposits made by NBFCs. So, always keep in mind before investing in NBFCs the following things:
- Take the advice of an expert broker before depositing a huge amount of cash in NBFCs.
- If possible, always hand over your money to an experienced broker for investing in NBFCs.
- Public deposits are insecure and have a high possibility of a crack in your privacy and deposit.
- RBI does take any guarantee of your deposits, so make sure you are investing enough money that can be recovered after a big scam.
Is It Necessary For NBFCs To Register With RBI?
Section 45-IA clearly states that every NBFCs must register with RBI before owning funds from corporations and corporations. RBI will assign the batch code to them which can be used for transactions and deposits.
Moreover, it is banned to govern Multi-level marketing without the involvement of any product or services. NBC’s which cross the asset size of more than 500 crores is considered to be the most important for the economy of a country.
All Over it is illegal to govern any NBFC activity without registering to RBI. RBI act 1934 during the time of colonial rule is the set of provisions of rules & regulations for Non-Banking Financial Company’s activities.