Non-Banking Financial Companies, also known as NBFCs are financial establishments that offer financial services and facilities and they are registered under the Companies Act, 1956, some of its major business activities are the acquisition of shares, stocks, bonds, debentures, securities issued by the Government. Its activities also involve offering loans and advances. Know about what is Nbfc Collaboration and what role It plays in Indian Economic.
Importance of NBFC in India
NBFCs contribute on a large scale to the economy by lending to infrastructure projects and offering various banking facilities at lower rates, which are crucial for a country such as India. But the functioning of NBFCs requires a large number of funds and they earn profits after longer durations.
Types of Non-Banking Financial Companies (NBFC)
NBFCs are classified into different types as per the individual’s preference.
NBFC Investment and Credit Company (NBFC ICC)
The NBFC Investment and Credit Company is further divided into-
- Asset Finance Company
- Investment Company
- Loan Company
Asset Finance Company
A company that lends burrowers any type of asset on a temporary basis is called an asset finance company.
The purpose of the establishment of an investment company is an acquisition of securities.
A Loan Company
It is a Non –Banking Financial Company that is established with the aim of offering finance by providing loans and advances to the public.
Infrastructure Finance Company (IFC)
An Infrastructure Finance Company (IFC) is a company that contains net-owned funds of a minimum of 300 crores out of which at least 75 percent of its total assets are used in infrastructure loans.
Systematically Important Core Investment Company
systematically Important Core Investment Company is an establishment that owns assets of 100 Crores and above out of which 90% of the assets are used and invested in the form of loans in different companies. The one aspect that differentiates it from other types is that out of 90% of the assets, 60% is invested in equity shares.
Infrastructure Debt Fund
As the name suggests, the Infrastructure Debt Fund (IDF) is established to fulfill the requirements of the infrastructure industry. The funds invested in this company are further invested for construction purposes of several buildings, roads, bridges, dams, etc.
Micro Finance Institution NBFC
A microfinance institution is also known as a small finance bank are institutions that are set up with the aim to provide banking services to the less privileged sections of society.
Non-Banking Financial Company - Factors
This type of company is involved in the factoring business. It means that the financial assets in the business must be at least 50% of the total assets and the total income must be more than 50% of the gross income.
Mortgage Guarantee Companies
A company in which a minimum of 90% of the revenue is derived by providing a mortgage guarantee is called a mortgage guarantee company. The net owned funds of a mortgage company must be Rs. 100 Crores.
Documents Required for NBFC License
- A verified copy of Memorandum of Association(MOA) and Articles of Association(AOA)
- Verified Copy of Registration Certificate
- A copy of the company’s Certificate of Incorporation
- Latest and updated KYC of all the directors and shareholders
- Financial Statements of the company
- Clean banker’s report with no lien remark on the Fixed Deposit of Rs 2 crores
- Education Proof of all the directors
- Credit report of directors and shareholders
- Prior experience in the Financial Sector
- Underwriting Model
- Organization Matrix
- System and IT Policy
NBFC Collaboration is defined as a process in which companies that hold NBFC license collaborate with Fintech companies for the purpose of sourcing funds and leads.
The need for partnership between a bank and an NBFC is highlighted by the essential benefits such as boosting credit to borrowers, increasing outreach and ensuring greater financial inclusion. However, there exists one main factor that drives banks to engage with NBFCs for fulfilling their own requirements.
NBFC Collaboration Process
The process of NBFC Collaboration of the Fintech companies with the Non-Banking Financial Companies is as mentioned below –
- Both the Fintech and the NBFC companies must sign the co-origination agreement and both the parties must agree to the terms and conditions.
- Sign the Inter-Corporate Deposit Agreement with a Fund Manager.
- The NBFC must also sign a platform service agreement for the payment of the technology services by the Fintech Company.
- The creation of an ESCROW Account for the purpose of reimbursement and repayment is the next step in the collaboration process.
- Hire a Chartered Accountant for the proper management of funds.
- Compliances like GST, TDS, CKYC, credit reporting.
- Reconciliation on a monthly basis and CIC Reporting.
NBFCs have played a major and crucial role in uplifting the Indian economy. It is the responsibility of the Government to encounter issues faced by these companies and tackle them before the companies face any losses and fail to earn profits.
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