When you hear the term NBFC, you might wonder, “What exactly does it mean?” NBFCs, or Non-Banking Financial Companies, help individuals and businesses with loans, investments, and other financial needs, often filling the gaps left by traditional banks. Here is what you need to know about NBFCs, their types, roles and how they differ from banks.
What is a Non-Banking Financial Company (NBFC)?
An NBFC is a company registered under the Companies Act of India that provides financial services similar to banks but doesn’t have a banking licence. They do not accept traditional deposits like banks but can offer loans, credit facilities, and even invest in securities. For example, CASHe is an NBFC that offers quick and convenient personal loans tailored to individual needs.
Services Offered by NBFCs
NBFCs offer a wide range of services, including:
- Loans and Advances: Personal loans, home loans, and vehicle loans.
- Investment Services: Mutual funds and wealth management.
- Insurance: Both life and non-life insurance.
- Hire Purchase and Leasing: Financing for cars, machinery, or equipment.
- Microfinance: Small loans to people in rural areas.
- Housing Finance: Loans to buy or construct houses.
What are the Different Types of NBFCs Registered with RBI?
The different types of NBFCs are as follows:
- Asset Finance Company (AFC): Focuses on financing physical assets like automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipment, moving on own power and general purpose industrial machines.
- Investment Company (IC): Primarily involved in acquiring and managing securities, such as stocks and bonds.
- Loan Company (LC): Provides loans and advances for purposes other than purchasing physical assets.
- Infrastructure Finance Company (IFC): Invests mainly in infrastructure projects like roads, bridges, and power plants.
- Systemically Important Core Investment Company (CIC-ND-SI): Carries on the business of acquisition of shares and securities.
- Infrastructure Debt Fund (IDF-NBFC): Facilitates long-term funding for infrastructure projects.
- Micro-Finance Institution (NBFC-MFI): Provides small loans to individuals or low-income groups.
- Mortgage Guarantee Company (MGC): Offers guarantees for housing loans, ensuring lenders are protected against defaults.
- Non-Operative Financial Holding Company (NOFHC): Acts as a holding company for banks and other financial services, ensuring separation between regulated and unregulated entities.
Role of NBFCs
The various roles of NBFCs are listed below:
- Credit Availability: NBFCs provide quick and flexible loans to individuals and businesses. They provide credit to sectors that are not served by traditional banks.
- Economic Growth: By funding infrastructure and businesses, NBFCs contribute to national growth.
- Support for Startups and SMEs: NBFCs help small businesses, startups and even low-income households with easy financing options.
- Promoting Financial Market Stability: NBFCs have played a key role in strengthening the stability of India’s financial markets by acting as dependable intermediaries and financial institutions.
- Mobilising Resources: NBFCs bridge the gap between savers and investors by channelling savings from individuals into productive investments.
What is the Difference Between Banks and NBFCs?
NBFCs lend and make investments and hence their activities are similar to that of banks. However, there are a few key differences. They are as follows:
1. When it comes to deposit acceptance, banks accept demand and time deposits while NBFCs do not accept traditional deposits.
2. While banks can issue cheques, debit cards, etc., NBFCs cannot do so.
3. Banks are regulated by RBI under the Banking Act while NBFCs are regulated by RBI under the Companies Act.
4. Banks are required to maintain CRR/SLR while NBFCs have no such requirement.
How NBFCs are Regulated
The Reserve Bank of India (RBI) regulates NBFCs to ensure they operate fairly and transparently. Here’s how they are monitored:
- Registration: NBFCs must register with RBI before starting operations.
- Capital Requirements: They need a minimum net-owned fund of ₹2 crore.
- Compliance: They must follow RBI’s guidelines on lending, asset quality, and financial disclosures.
- Regular Audits: The RBI regularly audits NBFCs to check for compliance and transparency.
Conclusion
Whether it’s helping small businesses grow or providing individuals with instant personal loans, NBFCs like CASHe empower people with financial independence while adhering to RBI’s fair practice codes and policies. Further, as regulated by the RBI, all loan transactions are in line with the stipulated rules and regulations.
Apply for an instant personal loan with CASHe today!
