The Reserve Bank Of India has defined NBFC as the Companies which are registered under the Companies Act, 1956 and are engaged in the business of loans and advances, acquisition of shares/ stocks/ bonds/ debentures/ securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but they does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services related to it and sale/purchase/construction of immovable property are known as Non-Banking Financial Company. Reserve Bank Of India has further extended the definition of NBFC as the Companies having principal business of receiving deposits under any scheme or through any arrangement in one lump sum or in installments by way of contributions or in any other manner.
Functions Of NBFC
Hire Purchase Services
Hire purchase service is a way through which the seller delivers the goods to the buyer without transferring the ownership of the goods. The payment of th goods is made in installments. Once the buyer pays all the installments of the goods, the ownership of the good is automatically transferred to the buyer.
Companies that Provides short term funds for Loan against shares, gold, property, primarily for consumption purposes.
Companies dealing in Dealer/distributor finance so that they can for working capital requirements, vendor finance, and other business loans.
This is the largest section where major NBFCs deal in. A lot of portion of this segment alone makes up a major portion of funds lent, amongst the different segments. This majorily includes Real Estate, railways or Metros, flyovers, ports, airports, etc.
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Asset Management Company:
Assest managment companies are those companies consists of fund managers (who invest in equity shares to gain handsome gains) who invest the funds pooled by small investors and actively manage it.
The companies that deals in leasing or for a better understanding of this word we can understand it in such a way that the way we rent property or flat for living similary these companies provide property to small businesses or sometime even larger ones who cannot afford it for whatsoever reason. The only difference between renting and leasing is that in leasing contracts are made for fixed period of time.
Venture Capital Services
The companies that invest in the small businesses which are at their initial stage but their success rate is high and are promising enough of sufficient return in coming time.
Micro Small Medium Enterprise (MSME) Financing
MSME is one of the roots of our economy and millions of livelihood depends on this sector that is why government announced such luring schemes for MSME sector to promote its growth.
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Difference between NBFC and Bank?
|Demand Deposits||It Can accept all types of deposits||It Can’t accept demand deposits|
|Deposit insurance||It Covered under the RBI’s deposit insurance.||There is No deposit insurance|
|Payment and Settlement system of the RBI||They are supported by the Payment and Settlement System (RTGS, NEFT etc.,)||NBFCs Can not avail the payment and settlement system.|
|Foreign investment||It is Allowed up to 74%||It is Allowed upto 100%|
|CRR||It is Applicable||It is Not applicable|
|CRAR||It is Applicable||There is 15% CRAR for Deposit taking NBFCs and Non-Deposit taking – Systemically Important NBFCs.|
|SLR||It is Applicable||15% SLR for Deposit taking NBFCs|
|SARFAESI||It is Applicable||It is Applicable|
|Provisioning||It is Applicable||It is Applicable|
|Incorporation||Banking Regulation Act||Companies Act (mostly)|
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Regulators of Non-Banking Financial Companies
Given below is the complete overview of different types of NBFCs and how they are controlled.
Frequently Asked Questions:
Q. What is NBFCs?
Ans. Any Non-Banking Financial Institution which deals in services of banks but are not banks. For difference see the table given above.
Q. What is full form of NBFC?
Ans. Non-Banking Financial Company is the full form of NBFC.
Q. Who regulates NBFC?
Ans. Reserve Bank Of India is the regulator of NBFCs.
Q. Can NBFC give loan?
Ans. Yes! they deals in credit services.
Q. What is difference between NBFC and bank?
Ans. Major difference between NBFC and Bank is that NBFC cannot issue cheques. For more differences refer to the table given above.