The Non Banking Financial Companies have a huge role to play in the economies like India which is still developing. The country is still developing due to its very high population when compared to the area available. When accessibility of credit is not reasonable in the marketplace, it is then, that these non banking financial institutions offer, suitable results. Considerable development of Non Banking Financial Companies has been taking place of late. This has necessitated the need for an appropriate dictatorial method So that the operation of these organizations will be connected in a reasonable and crystal clear approach.

Companies with their financial assets exceeding 50% of their own assets have to get themselves compulsorily registered with Reserve Bank of India. The Non Banking Financial Companies in order to get registered has to submit an application with the Reserve Bank of India. The application must be accompanied with important documents. If RBI is satisfied and feels that the company has met all the requirements, laid down by it then the Non Banking Financial Companies certificate, will be issued.

Responsibilities of RBI in registering a company

The RBI is delegated with the liability of controlling and directing the Non Banking Financial Companies by virtue of authority bestowed in RBI Act. The dogmatic and managerial aim is to:

1. Make sure healthy development of the financial companies;
2. make certain that these companies operate as a division of the financial organization within the policy structure. This has to be carried out in such a manner that their continuation and execution do not escort to general deviations; and
3. the class of observation and direction applied by the Bank on the Non Banking Financial Companies is constant by maintaining speed with the progress that occurs in this division of the financial arrangement.

If a company has become a Non Banking Financial Company then it has to be either a financial institution or the main business of the company should have been that of financial activities or any other system which has been prescribed by RBI. When considering principal business then the financial assets which includes investments in its subsidiaries and / or associates, mutual funds, or any other financial assets will also be considered. Such assets should exceed 50% of the total assets and income from such assets must also be more than 50% of the total income of the company.

Hence if a normally functioning company which is a non-financial company and its monetary assets is more than 50% of the entire assets and more than 50% income is also from such assets then the company has to get itself registered with RBI. The company has to follow all the formalities that an Non Banking Finance Company has to comply with.

Of late RBI issued a circular. It states that if at any point of time during a year a company's entire assets becomes Rs. 100 cores, then the company will automatically be placed under 'systematically important' Non Banking Financial Companies. Such system important companies will have to comply with additional provisions with immediate effect.

Apart from this if a venture capital corporation is created and it has obtained the approval of Securities Exchange Board of India, then such venture capital company should not register as Non Banking Financial Companies. This has been announced by the RBI in one of its circular.

Management of the Non Banking Financial Companies

The administrative structure for Non Banking Financial Companies is supported on three criteria, viz.

1. The magnitude of the company,
2. The kind of activity executed, and;
3. The receiving or otherwise of community deposits.

Thus a 4 point administrative policy which enterprises of inspection on the site founded on:

1. CAMELS which is otherwise known as capital, assets, management, earnings, liquidity, systems and modus operandi methods.
2. Observation of the off-site will be computerized via a periodic power return;
3. An efficient market intellect system, and
4. A scheme of compliance of exemption accounts by auditors of Non Banking Financial Companies has also been introduced.

The instruction and management are all-inclusive for companies accepting or holding deposits from the general public to guarantee security of the interests of shareholders.

Companies which hold or even accept deposits from the public should comply with all the instructions on receipt of deposits from public, prudential standards and liquid assets, and will have to present periodic returns to the Reserve Bank. They will always be supervised with the help of all the supervisory devices pointed out above.

On the other hand if companies which do not hold or even do not accept deposits from the public will be supervised and regulated in a restricted manner. They are obligatory to observe strictly with prudential standards incorporating revenue recognition, accounting norms, asset organization and stipulating adjunct to bad and doubtful obligations. They are checked less regularly. Such companies are at present not obligatory to put forward any returns to the RBI.

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Source by Sowmya Somaiah