Non-Banking Financial Companies are very important.

NBFCs are financial intermediaries engaged primarily in the business of accepting deposits delivering credit. They play an important role in channelizing the scarce financial resources to capital information. NBFCs supplement the role of banking sector in meeting the increasing financial needs of the corporate sector, delivering credit to the unorganized sector & to small local borrowers. All NBFCs are under direct control of RBI in India.

 NBFCs are defined as, Non-Banking financial company (NBFC), which is a loan company or an investment company or a hire purchase company or an equipment leasing company or a mutual benefit finance company.

A non-banking financial company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business, but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property.

NBFC registered with RBI The NBFCs that are registered with RBI are Equipment leasing company, Hire-purchase company, Loan company, Investment company. With effect from December 6, 2006 the above NBFCs registered with RBI have been reclassified as : Asset Finance Company (AFC) Investment Company (IC) Loan Company (LC)

It means any company which is a financial institution carrying on as its main business by providing finance whether by making loans or advances.

Equipment leasing company means the company which is a financial institution carrying on the activity of leasing of equipments as its main business.

It is a company which is a financial institution carrying on its main activity as hire purchase transactions or the financing of such transactions.

It means a company which is a financial institution carrying on as its main business of the acquisition of securities.

A financial institution carrying on as its principle business the financing of physical assets supporting productive/economic activity.

RBI Guidelines for new deposits : Customer identification: 'Know Your Customer' (KYC) should be the key guiding principle for identification of an individual / corporate customer (depositor or borrower). Procedures for existing customers : In respect of existing customers, NBFCs should ensure that gaps and missing information in compliance of KYC guidelines on customer identification procedure is filled up and completed before June 30, 2004.

 Ceiling and monitoring of cash transactions : NBFCs would normally not have large cash withdrawals and deposits. Such information should be made available to regulatory and investigating authorities, when demanded. Guidelines and monitoring procedures : The board of directors of NBFCs should formulate policies and procedures to the guidelines and put in place an effective monitoring system to ensure compliance by their branches.

 Internal control systems : Duties and responsibilities should be explicitly allocated among the staff for ensuring that policies and procedures are managed effectively and that there is full commitment and compliance to an effective KYC programme in respect of both existing and prospective customers/clients.

Training of staff and management : It is important that all the operating and management staff is made fully aware of the implications and understand the need for strict adherence to KYC norms. These guidelines have been issued under Sections 45K and 45L of the RBI Act, 1934 and any contravention of the same will attract penalties under the relevant provisions of the Act.

Internal audit/inspection : Internal auditors must specifically scrutinize and comment on the effectiveness of the measures taken by branches / offices of NBFC in adoption of KYC norms and steps towards prevention of money laundering. Record keeping : NBFCs should prepare and maintain proper documentation on their customer relationships and cash transactions of Rs 10 lakh and above.

 As recognized by RBI & Expert Committees / Taskforce Development of sectors like Transport & Infrastructure Substantial employment generation Help & increase wealth creation Broad base economic development Irreplaceable supplement to bank credit in rural segments major thrust on semi-urban, rural areas & first time buyers / users To finance economically weaker sections Huge contribution to the State exchequer

NBFC provide financial assistance to their borrowers in case of emergency needs. NBFC provide assistance and guidance to their customers in matters relating to insurance.