Non-Banking Financial Company Corporate Rules
Non-Banking Financial Company (NBFC) – Corporate Rules (India)
An NBFC is a company registered under the Companies Act that engages in:
Loans & advances
Asset finance
Investment activities
Microfinance
Infrastructure finance
But it is NOT a bank.
1. Governing Legal Framework
| Law | Role |
|---|---|
| Companies Act, 2013 | Corporate governance |
| RBI Act, 1934 (Chapter IIIB) | Registration & supervision |
| RBI Directions/Circulars | Prudential norms |
| FEMA | Foreign investment rules |
| IBC | Insolvency of NBFCs (with special framework) |
2. Incorporation & Registration Rules
An NBFC must:
✔ Be incorporated as a company
✔ Obtain Certificate of Registration (CoR) from RBI
✔ Maintain minimum Net Owned Funds (NOF)
Cannot start business without RBI approval.
Case Law:
Peerless General Finance v. RBI (1992) – Upheld RBI’s authority to regulate financial companies to protect depositors.
3. Corporate Governance Norms
NBFCs must ensure:
Fit & proper directors
Board committees
Risk management framework
Internal audit
Systemically important NBFCs have stricter governance.
Case Law:
Sahara India Real Estate Corp. v. SEBI (2012) – Regulatory control over public money raising structures.
4. Prudential Norms
RBI prescribes:
Capital adequacy ratio
Asset classification (NPA norms)
Provisioning requirements
Exposure limits
Ensures financial stability.
Case Law:
ICICI Bank Ltd. v. Official Liquidator APS Star Industries (2010) – Financial institutions’ prudential compliance impacts creditor claims.
5. Deposit Acceptance Restrictions
Only certain NBFCs may accept public deposits, subject to:
RBI permission
Rating requirements
Caps on deposit amount
Case Law:
RBI v. Jayantilal N. Mistry (2015) – Transparency and regulatory oversight of financial institutions.
6. Borrowing and Leverage Controls
NBFCs rely on:
Bank loans
Debentures
Commercial paper
But must comply with:
Leverage norms
Disclosure requirements
7. Related Party Transactions
Strict monitoring to avoid diversion of funds.
Case Law:
Satyam Computer Services Scam Proceedings – Emphasized corporate governance failures and need for financial integrity.
8. Fair Practices & Customer Protection
NBFCs must adopt:
Fair lending practices
Transparent interest rates
Grievance redressal
9. Insolvency and Resolution
Certain NBFCs are under special resolution framework rather than normal IBC.
Case Law:
Dewan Housing Finance Corp. Ltd. (DHFL) Resolution Case – First large NBFC resolution under special RBI-IBC framework.
10. Reporting & Disclosure
Must file with RBI:
Financial returns
Statutory auditor certificates
Asset-liability statements
Non-compliance may lead to cancellation of CoR.
11. Case Law Summary (At Least 6)
Peerless General Finance v. RBI (1992) – RBI regulatory powers
Sahara India Real Estate Corp. v. SEBI (2012) – Public money regulatory oversight
ICICI Bank Ltd. v. Official Liquidator APS Star (2010) – Prudential norms relevance
RBI v. Jayantilal N. Mistry (2015) – Transparency in financial regulation
Satyam Scam Proceedings – Governance failures and regulatory intervention
DHFL Resolution Case – Special insolvency framework for NBFCs
Swiss Ribbons Pvt. Ltd. v. Union of India (2019) – Creditor rights in insolvency
12. Core Regulatory Philosophy
NBFC corporate rules aim to:
✔ Protect depositors
✔ Ensure financial stability
✔ Prevent systemic risk
✔ Enforce strong governance
✔ Maintain RBI supervisory control
In one line:
NBFCs operate under a hybrid regime where company law governs corporate structure while RBI imposes stringent prudential, governance, and financial norms to safeguard the financial system and public funds.
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