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.
Companies that Provides short term funds for Loans 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 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.
|List of Presidents||List of Prime Ministers||Largest State of India||Governers of RBI|
|Chief Election Commissioner of India
||Make in India||Fundamental Rights||What is PMJDY?|
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.
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.
|SEBI Grade A Paper-1 General Awareness Practice PDF||SEBI Grade A Paper-1 Quantitative Aptitude Practice PDF||SEBI Grade A Paper-1 English Language Practice PDF||SEBI Grade A Paper-1 Reasoning Ability Practice PDF|
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)|
|UPSC EPFO Preparation Strategy- Know How to Crack the 2020 Recruitment Test||Book list for UPSC EPFO 2020 exam!|
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 are NBFCs?
Ans. Any Non-Banking Financial Institution which deals in services of banks but is not banks. For differences see the table given above.
Q. What is the 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 a loan?
Ans. Yes! they deal in credit services.
Q. What is the difference between NBFC and bank?
Ans. The major difference between NBFC and Bank is that NBFC cannot issue cheques. For more differences refer to the table given above.