NIDHI COMPANY VS NBFC
WHAT IS AN NBFC?
A financial institution that lacks a complete banking license or is not under the supervision of a national or international banking regulatory agency is known as a non-banking financial institution (NBFI) or non-bank financial corporation (NBFC). NBFC financial services that are related to banks include investing, risk sharing, contractual savings, and market brokering.
These include companies that provide insurance, pawn shops, cashier’s checks, check cashing, payday loans, currency exchanges, and microloan organizations, to name a few.
Since they offer “several possibilities to transfer an economy’s savings into capital investment and operate as backup facilities should the principal form of intermediation fail,” Alan Greenspan has identified the importance of NBFIs in boosting an economy.
CATEGORIES/TYPES OF NBFC
Deposit- and non-deposit-accepting NBFCs are the two categories under which NBFCs fall. Systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) are the categories under which non-deposit-accepting NBFCs fall. The various NBFC types within this broad classification are as follows:
Asset Finance Company (AFC)
An AFC is a firm that engages in the financing of physical assets that support productive or economic activity, such as cars, tractors, lathes, generators, earthmoving and material handling equipment that can move independently, as well as general industrial machines. For this purpose, the term “principal business” refers to the financing of real or tangible assets that support economic activity and the income derived from such assets that account for at least 60% of total assets and income, respectively.
Investment Company (IC)
An IC refers to any business that engages in the acquisition of securities as its primary business and is a financial institution.
Loan Company (LC)
Asset Finance Companies are not included in the definition of LC, which refers to any company that is a financial institution and conducts the provision of finance as its primary business. This includes making loans, advances, and other types of financial commitments for activities other than its own.
Infrastructure Finance Company (IFC)
IFC is a non-banking finance business with the following characteristics:
- a) infrastructure loans account for at least 75% of the company’s total assets;
- b) a minimum of 300 crores in net owned funds;
- c) a minimum credit rating of “A” or equivalent; and
- d) a CRAR of 15%.
Systemically Important Core Investment Company (CIC-ND-SI)
The following criteria are met by CIC-ND-SI, an NBFC engaged in the business of acquiring shares and securities:
(a) It maintains at least 90% of its total assets in debt or loans to group companies, as well as investments in equity shares, preference shares, and other securities;
(b) At least 60% of its total assets are invested in equity shares of group firms, including instruments that are compulsorily convertible into equity shares within ten years of the date of issue;
(c) unless through a block sale for the purpose of diluting or disinvesting, it does not trade in its investments in shares, debt, or loans in group companies;
(d) Other than investing in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies, or guarantees issued on behalf of group companies, it does not engage in any other financial activity as defined in Sections 45I(c) and 45I(f) of the RBI Act, 1934.
(f) Its asset size is at least 100 crore rupees.
(f) It accepts public funds.
Infrastructure Debt Fund:
IDF-NBFC is a business registered as an NBFC with the purpose of facilitating the flow of long-term loans into infrastructure projects. IDF-NBFC raises funds by issuing bonds with a minimum of 5-year maturity that is denominated in rupees or dollars. IDF-NBFCs may only be sponsored by infrastructure finance companies (IFC).
Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI):
NBFC-MFI is an NBFC that does not accept deposits and has at least 85% of its assets in the form of qualifying assets that meet the following requirements:
- a loan provided by an NBFC-MFI to a borrower whose annual household income is not more than 1,00,000 in a rural area or 1,60,000 in an urban or semi-urban area;
- the loan amount is limited to $50,000 in the initial cycle and $100,000 in subsequent cycles;
- The borrower’s total debt does not exceed 1,00,000;
- For loans over $15,000, the loan term cannot be less than 24 months, and early repayment is not subject to penalties;
- extending a loan without requiring any security;
- The total amount of loans made for income generation accounts for at least 50% of all loans made by MFIs;
- The borrower may choose to repay the loan in weekly, fortnightly, or monthly installments.
Non-Banking Financial Company – Factors (NBFC-Factors):
NBFC-Factor is a non-deposit-taking NBFC engaged in the principal business of factoring. The financial assets in the factoring business should constitute at least 50 percent of its total assets and the income derived from the factoring business should not be less than 50 percent of its gross income.
Mortgage Guarantee Companies (MGC) –
Financial institutions known as MGC have a net owned fund of $100 crore and a mortgage guarantee business that accounts for at least 90% of their company revenue or 90% of their gross income.
The Non-Operative Financial Holding Company (NOFHC) is a financial organization that will allow promoters and promoter groups to establish new banks. It is a wholly-owned Non-Operative Financial Holding Company (NOFHC), and to the extent permitted by the relevant regulatory requirements will hold the bank as well as all other financial services companies regulated by the RBI or other financial sector regulators.
HOW IS A NIDHI COMPANY DIFFERENT FROM AN NBFC?
As everyone is aware, NIDHI is a type of NBFC (Non-Banking Financial Company). In other words, NIDHI is comparable to NBFC in terms of its traits. A Nidhi firm is a business established to inspire individuals to save money and establish a fund for them. Businesses and the less fortunate members of society can get financial support from NBFCs. However, there are still some distinctions between Nidhi Company and the NBFC.
DIFFERENCE BETWEEN NIDHI COMPANY AND AN NBFC:-
|SR. NO.||NBFC||NIDHI COMPANY|
|1||The minimum NOF of NBFC is 2 crores.||The minimum paid-up capital of Nidhi Company is Rs. 10 lacs.|
|2||A corporation that has been registered under the Companies Act of 1956 is referred to as an “NBFC.”||A Nidhi company is a specific kind of business recognized by section 406 of the Companies Act of 2013 in the non-banking financing sector of India.|
|3||It is engaged in the business of loans and advances; the acquisition of shares /stocks /bonds /debentures/ securities issued by a government or local authority or other marketable securities of a like nature; leasing; hire-purchase; insurance business; chit business.||Nidhi company is not allowed to do any business or any other financial activities except providing loans and accepting deposits from its members.|
|4||It excludes any organization whose primary activity is the sale, purchase, or development of real estate, as well as activities related to agriculture, industry, or the purchase or sale of products (other than securities).||It can only lend and borrow money from its own members.|
|5||It can provide loans to the public.||It can provide loans to its members only.|
|6||NBFCs were established with the purpose of providing small businesses with financial assistance.||They were founded in order to promote personal savings and raise money for their own members.|
|7||Members are not fixed in NBFCs.||There should be a minimum of 7 members, including 3 directors.|
|8||NBFC is regulated by RBI.||Nidhi company is regulated by MCA (Ministry of Corporate Affairs).|