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Unit 8: Financial Institutions

8.5 Non Banking Financial Institutions / Companies Notes

8.5.1 Introduction

The study of Non-banking Financial Companies (NBFCs) is a difficult proposition in India. This
is because the number of companies working under the roof of NBFC is very large and their
functions are very diverse. Very small portion actually report to the RBI. The blurring of the
definition has been due to large number of multi service companies coming into being. The RBI
(Amendment) Act 1997 defines NBFC as an institution or company whose principle business is
to accept deposit under any scheme or arrangement or in any manner, and to lend in any
manner. Due to this definition many loan and investment companies have been reported as
NBFCs.
The numbers of companies whose activities are listed under NBFC are as follows:

1. Equipment Leasing Companies (ELC) are those whose principle activity is to arrange
leasing of assets.
2. Hire Purchase Finance Companies (HPFC) which finance and does hire purchase of assets
as main activity.
3. Housing Finance Companies (HFC) whose function is to acquire fund and creates housing
for individual or corporate. This includes acquiring of land as well.
4. Investment companies (IC) whose principle activity is to acquire securities.

5. Loan Companies (LC) thrives by providing loan and finances as main business.
6. Mutual Benefit Financial Companies (MBFC) are the companies which are notified by the
Central Government under section 620A of the Companies Act, 1956 (1 of 1956) and are
popularly known as Nidhis.
7. Miscellaneous Non-banking Companies (MNBC) are the ones which carry out any one of
the activity listed below:
(i) Managing, conducting or supervising as a promoter, foreman or agent of any
transaction or arrangement by which the company enters into an agreement with a
specific number of subsidiaries that every one of them shall subscribe a certain sum
in installment over a definite period of time and that every one of such subscribers
shall provide for in the agreement be entitled to the prize sum/amount.
(ii) Conducting any other form of chit or kuri which is different from the type of business
referred to above.

(iii) Undertaking any business or engaging in or executing in any or one of the business
similar to the ones mentioned above.

8. Residuary Non-banking companies (RNBC) means a company which receives any deposit
under any scheme or arrangement, by whatever name called, on a lump sum or
installments, by way of contributions or subscriptions or by sale of units or certificates or
any other instruments, or in any other manner and which according to the definitions
contained in the Non-banking Companies (Reserve Bank) Direction, 1977 or as the case
may be, the Miscellaneous Non-banking Companies (Reserve Bank) Direction, 1977 is not
an insurance company or a company belonging to 1 to 7 above.

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