NBFC stands for Non-Banking Financial Companies. It refers to financial institutions that offer banking services without having a banking license or without fulfilling the legal definition of a bank. These institutions are incorporated or registered under the Companies Act, 1956 and do business as a non-banking financial institution as defined under Section 45-IA of the RBI Act, 1934.
An NBFC is mainly engaged in the business of loans, acquisition of shares, stocks, bonds issued by the Government, insurance business, chit fund business, and more. A company whose main business is related to agriculture activity, industrial activity, sale, purchase/construction of immovable property cannot be an NBFC.
The major difference between NBFC and bank is that in a Bank we can deposit money and withdraw it when we need it, but NBFC does not accept deposits and do not provide you the facility to withdraw money when you need it. Deposits in NBFC are not treated as savings they are basically long term deposits or premiums, e.g., the premium you pay for your LIC policy, health insurance policy, etc.
A company registered under the Companies Act, 1956 and willing to start a business of non-banking financial institution as defined under Section 45 IA of the RBI Act, 1934 is required to fulfil the following conditions:
i) It should be registered under Section 3 of the Companies Act, 1956.
ii) It should own a minimum net fund of Rs. 2 crore. However, the requirement of minimum net owned fund for specialized NBFCs may be different.