The financial services sector comprises a wide variety of economic services that exist in the world today. Although this term applies to banking, investment and insurance services without exception, it is not limited to this. The financial services industry as a whole is concerned with funds and, more precisely, acts as a bridge in transferring money between those with a surplus and those with a deficit.
As a result, it has become a major player managing funds, including credit unions, banks, insurance companies, consumer finance companies, stock brokers, mutual funds, individual portfolio managers, and several government-sponsored companies.
The Indian government has implemented several reforms to liberalize, regulate and enhance this industry. This includes the creation of various categories of Non-Bank Financial Companies (NBFC), Asset Recovery Companies (ARC) and Microfinance Institutions (MFIs). Recently, with the advent of mobile technology and major advances in information technology, payment banks have evolved into a new banking model designed by the Reserve Bank of India (RBI).
Now let's get into some details and understand this area of financial services.
NON-BANK FINANCIAL COMPANY (NBFC)
A non-bank financial company (NBFC) is a company established under the Companies Act 2013 (or earlier) that handles loans and advances, purchases of various marketable securities, leases, lease purchases, insurance, fraud, and so on.
In addition, non-banking institutions which are corporations and whose main activity is to obtain deposits with a fixed interest scheme or agreement, in instalments or vice versa, are also non-banking financial (banking) companies.
However, it does not include entities whose main activities are agricultural activities, industrial activities, buying or selling goods (other than securities) or providing services and selling / buying / building real estate.
50-50 TEST
The RBI has established criteria used to determine whether a company is engaged in finance or not. It states that if the company meets the following two criteria, the company’s main business is financial activities and the company must be registered by the RBI as NBFC.
- The company’s financial assets account for more than 50% of total assets and
- Income from financial assets accounts for more than 50% of gross income.
SCOPE OF ACTIVITY
NBFC mainly lends and invests and therefore their activities are similar to those of banks. However, there are some differences as mentioned below:
- NBFC may not accept sight deposits.
- NBFC is not part of the payment and clearing system and cannot write self-drawn checks.
- The Deposit Protection Tool and the Credit Guarantee Company deposit protection tool are not available for NBFC depositors, unlike banks.
In addition, KKNB is divided into several categories based on the following characteristics:
1. With respect to the nature of the obligation to LKNB receiving deposits and deposits,
2. Non-payment by NBFC according to the amount in other important systemic and non-deposit holding companies (NBFC-NDSI and NBFC-ND) and according to the types of activities they carry out.
Registration
NBFC registration involves two steps:
1. Establishment of a company under the Companies Act 2013. Your main business, which must be specified in the Department of State when registering under the Companies Act, is lending, investing in various types of stocks and shares, purchasing leases and leases, business insurance, fraud and earning deposits under the schematic or setting.
Because the company’s net cash must not be less than Rs. 2 crores, it needs to make sure that the authorized share capital of NBFC is not less than Rs. 2 crores.
2. Process the registration with the Reserve Bank of India by submitting an application with the required documentation along with the application. The required documents may differ depending on the category of registration requested by the applicant.
HOUSING FINANCIAL COMPANY (HFC)
Housing Finance Companies (HFCs) are a type of non-bank financial institution that is primarily engaged in providing home loans and other related products. The most important aspect to note here is that, unlike other non-bank financial companies that are managed under RBI regulations, HFCs are regulated by the National Housing Bank (NHB).
Collateral The HFC accepts collateral for the loan provided by the HFC which includes the property that received the loan. Since real estate serves as the main asset for financing, the amount of the loan given depends on the value of the collateral offered. The collateral value ensures that the lender is protected and protected against the risk of default.
Loans provided by HFC tend to be long term. Although property values do not fluctuate much, they are likely to fluctuate over the life of the property. In this way, revaluations are carried out periodically so that the lender is sure that there is little or no deviation in the loan-to-value (LTV) ratio and that the property is valued at its current market value.
Registration
Housing Finance Companies (HFCs) are
1. A company established under the Companies Act 2013 or earlier and whose primary objective is to pursue direct or indirect real estate financing activities.
2. It also requires registration with the National Housing Bank (NHB) to start or operate a real estate finance business. The National Housing Bank was established under the National Housing Bank Act of 1987. Real estate finance companies are governed by the laws mentioned above, as well as circulars, guidelines, notices and instructions issued by the National Housing Bank.
Under Section 29A of the National Housing Bank Act of 1987, no real estate finance company may establish or operate a real estate finance institution without –
- Obtain a registration certificate from the National Housing Bank, issued in accordance with Chapter V of the Act mentioned above, and
- Have a net ownership fund of Rs. 10 crore or other higher amount as determined by notification to the National Housing Bank.
ASSET RECONSTRUCTION COMPANY (ARC)
The origin of ARC in India must be related to the issue of NPA restoration which was recognized by the Indian government in 1997. The Narasimkhan Committee report stated that an important aspect of the ongoing reform process is the reduction of high-level NPAs as a means of revamping the banking sector. It is hoped that with a combination of policy and institutional development, new NPAs can be deployed in the future.
As a result, an Asset Reconstruction Company (Securitization Company / Reconstruction Company) emerged. ARC is a company incorporated under Part 3 of the Securitization and Reconstruction of Financial Assets and Collateral Act of 2002 and regulated by the Reserve Bank of India as a non-bank financial company (u / s 45I (f) (iii)). ). RBI Law, 1934). However, the RBI exempts ARC from complying with Sections 45-IA, 45-IB, and 45-IC of the Reserve Bank Act of 1934. In short, ARC acts as AMC under guidelines issued by the RBI.
ARC was founded to provide a targeted approach to the problem of bad credit availability by:
- Isolation of NPLs from the Financial System (FS);
- Freeing the financial system from a focus on its core activities and
- Facilitating the development of a depressed asset market.
MICRO FINANCIAL INSTITUTIONS (MFIs)
Microfinance institutions are organizations that provide financial services to low-income groups. Basically, these institutions provide almost all credit to their members, and many of them offer insurance, savings, and other services. They are the people who provide credit and other financial services to the poor (excluding those who are very poor). More and more microfinance institutions (MFIs) are seeking the status of a non-bank financial company (NBFC) with RBI to gain broad access to finance, including bank financing.
NABARD defines microfinance as "providing very small amounts of savings, loans, and other financial services and products to the poor in rural, semi-urban and urban areas, which are available to customers to meet their financial needs; only with qualifications (1) low transaction value and (2) bad customers."
Registration
To be registered as an MFI, you must:
- Companies must be registered under the Companies Act 2013. Companies can be private or public
- Once established, the Company must register with the Reserve Bank of India by submitting an application with respect to the required documentation, as Microfinance Institutions (hereinafter referred to as MFIs) is regulated by the Reserve Bank of India.
PAYMENT BANK
The payment bank is a new banking model designed by the Reserve Bank of India (RBI). These banks can accept limited deposits which are currently capped at Rs. 1 paint per customer and can be further upgraded. You can earn interest on these deposits like a savings account. Both current accounts and savings accounts can be managed by these banks.
Payment banks can issue services such as ATMs, debit cards, net banking, third-party transfers, and mobile banking, and offer money transfer services. The main visible limitation is that these banks cannot lend or issue credit cards.
The main objective of paying banks is to expand the distribution of payments and financial services to small businesses and low-income households. Migrant workers in a protected technological environment. With paying banks, the RBI is trying to increase the deployment of financial services in remote areas of the country.
Registration
The payment bank is regulated by the Reserve Bank of India. An application to register a payment bank must be submitted to the Reserve Bank of India on Form III under Section 22 of the Banking Regulations Act of 1949 in order to obtain a banking license from an Indian registered company wishing to start banking.
In addition, paying banks are subject to the Paying Bank Licensing Guidelines published by the Reserve Bank of India and the Paying Bank Operating Guidelines.
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