In recent years, NBFCs have emerged as a vital part of the growing Indian financial system, especially as providers of services to the underbanked and unbanked.
As far as the financial products they offer are concerned, NBFCs have spread their wings and branched out into different sectors and clientele such as lending, assets investments, etc.
It becomes important to understand which type of NBFC is suitable for a particular situation and who regulates them as their influence continues to grow.
In this in-depth blog post, we will discuss the top 25 types of NBFCs and the roles and importance of NBFCs in India.
What is the NBFC?
A non-banking financial company (NBFC) is a financial institution that provides banking and other financial services including loans, but does not have a banking license.
Like other commercial banks, NBFCs are prohibited from accepting demand deposits in the form of savings accounts or current accounts from the public, but they can provide other important financial services. Some of these services include loans, property purchases, investments, insurance, leasing, etc.
What is the Legal Framework of the NBFC?
The laws relating to NBFCs in India are established and formulated to guarantee stability, transparency, and protection to consumers. The main law is the RBI Act 1934 which requires NBFCs to be registered with the RBI, maintain minimum capital, and follow supervisory regulation.
NBFCs are also regulated under the Companies Act 2013 to follow corporate management, accounting and auditing standards, reporting standards, and annual financials.
How Many Types of NBFCs?
We have mentioned the names of all types of NBFCs in front of you very well, along with which we have also written a lot of information about all those types below:
- Mutual Benefit Finance Company
- Investment Company (IC)
- Loan Company (LC)
- Asset Finance Company (AFC)
- Infrastructure Finance Company (IFC)
- Infrastructure Debt Fund: Non-Banking Finance Company (IDF-NBFC)
- Non-Banking Financial Company: Micro Finance Institution (NBFC-MFI)
- Systemically Important Core Investment Company (CIC-ND-SI)
- Non-Banking Financial Company-Factors (NBFC-Factors)
- Housing Finance Company
- Chit Fund Company
- Equipment Leasing Company (EL)
- Hire-Purchase Company
- Residuary Non-Banking Company
- Mortgage Guarantee Company (MGC)
- Non-Banking Financial Company – Non-Operative Financial Holding Company (NBFC-NOFHC)
- NBFC Peer-to-Peer Lending Platform (NBFC-P2P)
- Account Aggregator (NBFC-AA)
- Merchant Banks (Investment Banks)
- Microfinance Institutions (MFI)
- Venture Capital Firms
- Hedge Funds
- Vulture Funds
- Islamic Banks
- Insurance Companies (under IRDA Act, 1999)
Mutual Benefit Finance Company
A mutual benefit finance company commonly known as a Nidhi company is formed for the benefit of its members. Its main functions are to accept deposits and provide loans to its members. Members deposit money in and receive money from the company, and it operates with special respect for legal mandates.
Mutual Benefit Finance Company is the 1st type among the Top 25 types of NBFCs and also a very important one.
Investment Company (IC)
The main activity of an investment company is the purchase of shares. Its business is to own and maintain shares, bonds, debentures, and other securities, and in fact, it is an investment company. These securities are the source of its revenue and the company also provides investment advisory services.
Investment Company (IC) is the 2nd type among the Top 25 types of NBFCs and also a very important one.
Loan Company (LC)
A loan company is an NBFC that provides loans and advances for a purpose other than the acquisition of tangible assets. This includes loans for personal use loans for business use and loans for education use. This shows the role these companies play in providing loan facilities to people and other small businesses who cannot access traditional forms of loan facilities from commercial banks.
Loan Company (LC) is the 3rd type among the Top 25 types of NBFCs and also a very important one.
Asset Finance Company (AFC)
An asset finance company provides funding for setting up physical assets required in an organization, for example, machinery, automobiles, and industrial equipment. This type of NBFC enables individuals and business entities to purchase assets by providing targeted loans for purchasing assets.
Asset Finance Company (AFC) is the 4th type among the Top 25 types of NBFCs and also a very important one.
Infrastructure Finance Company (IFC)
Infrastructure Finance Companies (IFCs) are also specialized NBFCs that deal in long-term infrastructure financing of projects like highways, airports power plants, etc. These companies help in the large-scale construction of mega structures by taking up a structured finance framework of projects with long-term sunk costs.
Infrastructure Finance Company (IFC) is the 5th type among the Top 25 types of NBFCs and also a very important one.
Infrastructure Debt Fund: Non-Banking Finance Company (IDF-NBFC)
IDF-NBFC directs funds for long-term infrastructure financing programs. It supports new capital structures for already existing infrastructure projects, reduces the cost of capital, and brings liquidity.
Infrastructure Debt Fund: Non-Banking Finance Company (IDF-NBFC) is the 6th type among the Top 25 types of NBFCs and also a very important one.
Non-Banking Financial Company: Micro Finance Institution (NBFC-MFI)
NBFC MFIs are in the directory for lending small loans to subprime borrowers across the country. They exist primarily to serve micro-entrepreneurs, small businesses, and the working population who need capital for income-generating activities but cannot get it from other traditional institutions.
Non-Banking Financial Company: Micro Finance Institution (NBFC-MFI) is the 7th type among the Top 25 types of NBFCs and also a very important one.
Systemically Important Core Investment Company (CIC-ND-SI)
CIC-ND-SI is an NBFC that primarily holds shares and securities for group companies and holds major stakes in its subsidiaries or associates. These companies use the funds to keep investments as long-term investments, and they do not trade in securities.
Systemically Important Core Investment Company (CIC-ND-SI) is the 8th type among the Top 25 types of NBFCs and also a very important one.
Non-Banking Financial Company-Factors (NBFC-Factors)
NBFC factors provide a factoring facility that involves purchasing accounts receivable or invoices from business firms at a low price. This makes the business more liquid as it enables businessmen to convert their receivables into cash immediately.
Non-Banking Financial Company-Factors (NBFC-Factors) is the 9th type among the Top 25 types of NBFCs and also a very important one.
Housing Finance Company
Housing finance companies are NBFCs that provide loans exclusively for the acquisition or development of homes. They also provide home improvement and renovation finance products and play a leading role in housing development in the country.
Housing Finance Company is the 10th type among the Top 25 types of NBFCs and also a very important one.
Chit Fund Company
Chit fund companies operate on a savings process whereby members contribute to a pool from time to time and a member pays the total amount of the contribution to himself in a fixed period. These companies provide securities and credit facilities to their members.
Chit Fund Company is the 11th type among the Top 25 types of NBFCs and also a very important one.
Equipment Leasing Company (EL)
An Equipment Leasing Company is a firm that hires out all forms of equipment and machinery to the business and other individuals. To those business owners who cannot afford to purchase equipment to use in their companies, these companies offer leasing services.
Equipment Leasing Company (EL) is the 12th type among the Top 25 types of NBFCs and also a very important one.
Hire-Purchase Company
A hire purchase company helps raise finance for the acquisition of goods for an individual or business entity. The buyer can use the asset and retain his possession of it for some time after the final payment, even if it is in installments.
Hire-Purchase Company is the 13th type among the Top 25 types of NBFCs and also a very important one.
Residuary Non-Banking Company
Residuary non-banking company is also involved in accepting deposits from the public and paying interest on deposits. These firms are not regular lending institutions but are deposit-accepting and investment-providing services.
Residuary Non-Banking Company is the 14th type among the Top 25 types of NBFCs and also a very important one.
Mortgage Guarantee Company (MGC)
Mortgage Guarantee Company (MGC) is involved in providing mortgage guarantee services that are useful to lenders in hedging against the risk of credit posed by home loan defaulting borrowers. The services of these companies help housing finance institutions to lend to many customers without too many conditions.
Mortgage Guarantee Company (MGC) is the 15th type among the Top 25 types of NBFCs and also a very important one.
Non-Banking Financial Company – Non-Operative Financial Holding Company (NBFC-NOFHC)
NBFC-NOFHCs have investment interests in various financial institutional companies such as banks and insurance firms. Though it acts as an advertising medium for financial groups, these companies play a huge role in facilitating the diversification of financial portfolios by large financial institutions.
Non-Banking Financial Company – Non-Operative Financial Holding Company (NBFC-NOFHC) is the 16th type among the Top 25 types of NBFCs and also a very important one.
NBFC Peer-to-Peer Lending Platform (NBFC-P2P)
NBFC-P2P are platforms where loans are given from one person to another without any intermediary of NBFCs. These platforms are part of the ever-growing fintech industry, which gives individuals and businesses the opportunity to get loans with the help of the Internet without the help of any bank.
NBFC Peer-to-Peer Lending Platform (NBFC-P2P) is the 17th type among the Top 25 types of NBFCs and also a very important one.
Account Aggregator (NBFC-AA)
NBFC-AA is a financial institution that helps consolidate records of a consumer’s financial liabilities across multiple banks and NBFCs. It is helpful in managing aggregates of financial data by various players for efficient use by individuals or business entities.
Account Aggregator (NBFC-AA) is the 18th type among the Top 25 types of NBFCs and also a very important one.
Merchant Banks (Investment Banks)
Merchant banks (investment banks), also known as merchant banks, are involved in providing financial advice to corporations on matters such as their acquisitions, the issuance of shares and stock through underwriting, or helping companies find investors.
Merchant Banks (Investment Banks) is the 19th type among the Top 25 types of NBFCs and also a very important one.
Microfinance Institutions (MFI)
Microfinance institutions (MFI) provide all kinds of banking facilities such as loans, and insurance to customers at the bottom of the pyramid who in most cases do not have access to standard banking services. MFIs are important in providing financial services through microfinance and microloans to small businesses and individuals.
Microfinance Institutions (MFI) is the 20th type among the Top 25 types of NBFCs and also a very important one.
Venture Capital Firms
Venture capital funds (VCs) are financial capital for start-ups and young, growing companies that are deemed worthy of support in exchange for stock. These firms play a vital role in providing seed capital and business development support to new entrepreneurial ventures.
Venture Capital Firms are the 21st type among the Top 25 types of NBFCs and also a very important one.
Hedge Funds
Hedge funds can be best defined as professionally managed investment vehicles that pool individual and institutional money to invest in various markets in efficient ways.
Hedge Funds are the 22nd type among the Top 25 types of NBFCs and also a very important one.
Vulture Funds
Vulture funds are investors who buy over-leveraged assets, i.e. companies with the aim of restructuring them or selling them. These funds are primarily designed to buy debt at less than face value.
Vulture Funds are the 23rd type among the Top 25 types of NBFCs and also a very important one.
Islamic Banks
Islamic banks operate within the context of Sharia law, which prohibits the receiving and paying of interest and engaging in the sale of alcohol, gambling, and any activity considered illegal in Islamic law. These are conventional financial institutions that provide banking services while complying with Sharia laws.
Islamic Banks are the 24th type among the Top 25 types of NBFCs and also a very important one.
If you want to know more about the types of NBFCs then you can click on the below video
Insurance Companies (under IRDA Act, 1999)
Insurance products and services in India are provided by insurance firms as per the Insurance Regulatory and Development Authority of India (IRDA) Act, 1999; insurance services include life, health, and general insurance services. These firms provide insurance services to financially and mentally ill individuals.
Insurance Companies (under IRDA Act, 1999) are the 25th type among the Top 25 types of NBFCs and also a very important one.
Also Read: NBFC Registration
In Conclusion
NBFCs are important players in the financial industry providing a range of services relevant to a number of functions. With financing of infrastructure needs, microloans, peer to peer-to-peer lending, NBFCs step up to fill the gap left by banks.
The customized services of these institutions are relevant across sectors including affordable housing, construction, micro, small, and other related businesses as well as borrowers across the economy that promote economic growth and financial access.
Given the changes still taking place in the financial services industry, NBFCs are still very relevant as they continue to provide solutions that meet the needs of an expanding and dynamic economy.
FAQs
Q1. Which 5 NBFCs are banned by the RBI?
RBI has blacklisted many NBFCs but some names may vary from time to time. Companies violating compliance norms often include some of the NBFCs that are banned.
Q2. Which is the No. 1 NBFC in India?
Many regard Bajaj Finance as the leading NBFC within the country, offering a plethora of financial services and products, as well as commanding a stable dominance in the said market.
Q3. What is Stage 3 in NBFC?
Stage 3 in NBFCs includes Non-Performing Assets (NPAs), which involve those loans or advances where the amount is overdue and has not had any repayment for over 90 days meaning a high risk of default.
Q4. Which is the safest NBFC in India?
HDFC Ltd is one of the safest NBFCs in India because it has maintained good financial stability, complies with the Indian government laws, and is popular in the market.
Q5. What is the 50-50 test for NBFC?
The 50-50 test is one of the regulatory measures under which NBFCs are required to hold at least 50% of their total assets as financial assets and derive 50% of their gross receipts from financial activities.
Q6. What is the maximum period of NBFC?
The tenure of an NBFC loan is generally inversely proportional to the interest rate offered, but can typically be 7 years or less depending on the type of NBFC or product.
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