Banking Awareness: What are NBFC And Their Functions

A Non-Banking Financial Company (NBFC) is a functioning entity that gives loans and advances to the public as per the Indian companies act. In this article, we’ll be discussing what is NBFC and what are its functions, in detail so keep reading.

What is NBFC?

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 do 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 a principal business of receiving deposits under any scheme or through any arrangement in one lump sum or in instalments by way of contributions or in any other manner.

Functions Of NBFC

Hire Purchase Services

A 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 the goods is made in instalments. Once the buyer pays all the instalments of the goods, the ownership of the good is automatically transferred to the buyer.

Retail Financing

Companies that Provides short term funds for Loans against shares, gold, property, primarily for consumption purposes.

Trade finance

Companies dealing in Dealer/distributor finance so that they can for working capital requirements, vendor finance, and other business loans.

Infrastructural Funding

This is the largest section where major NBFCs deal in. A lot portion of this segment alone makes up a major portion of funds lent, amongst the different segments. This majority includes Real Estate, railways or Metros, flyovers, ports, airports, etc.

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Asset Management Company

Asset managment companies are those companies that consist of fund managers (who invest in equity shares to gain handsome gains) who invest the funds pooled by small investors and actively manage it.

Leasing Services

The companies that deal in leasing or for a better understanding of this word we can understand it in such a way that the way we rent a property or flat for living similarly these companies provide property to small businesses or sometimes even larger ones who cannot afford it for whatsoever reason. The only difference between renting and leasing is that leasing contracts are made for a fixed period of time.

Venture Capital Services

The companies that invest in small businesses are at their initial stage but their success rate is high and are promising enough of sufficient return in the 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 the government announced such luring schemes for the MSME sector to promote its growth.

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Difference between NBFC and Bank?

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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.

ANNEX-I

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