NON-BANKING FINANCIAL COMPANIES (NBFC's)

We know very well about Banks, apart from banks in India there are large number of private owned, decentralised and small sized financial Institutions known as Non-Banking Financial Companies. In recent times, the Non- Banking Financial Companies (NBFCs) have contributed to the Indian Economy and its growth by providing Credit and Deposit facilities to certain segment of the society such as unorganized sector and small borrowers.

NBFCs provide financial services like hire-purchase, leasing, loan, investments etc. NBFCs can be classified into deposit accepting and non- accepting deposit Companies. NBFCs are small in size and owned privately. The NBFCs have grown rapidly since 1990. They offer attractive rate of return. They are fund based as well as service oriented companies. In India it is compulsory to register NBFCs with the Reserve bank of India (RBI).

The NBFCs in developed countries have grown significantly and are now coming up in a very large way in developing countries like India, Brazil and Malaysia etc. The non-banking companies are varied group of finance companies means all NBFCs provide different type of financial services.

Non-Banking Financial Companies constitute an important segment of the financial system. NBFCs are the intermediaries engaged in the business of accepting deposits and delivering credit. They play very crucial role in channelizing the scare financial resources to the capital formation.

NBFCs supplement the role of the Banking sector in meeting the increasing financial need of the corporate sector, delivering credit to unorganized sector and to small local borrowers. NBFCs have more flexible structure than banks. As compare to bank they can take quick decisions, assume greater risks and tailor-make their services and charge according to the needs of the clients. Their flexible structure helps in the broadening the market by providing the saver and investor a bundle of services on the competitive basis.     

Non Banking Financial Companies (NBFCs) are the constituent of the institutional structure of the organized financial system in India. The Financial system of any country consists of financial markets, financial intermediaries and financial products. All these items facilitate transfer of funds and are not always mutually exclusive. Inter-Relationship between these are the parts of system e.g. Financial Institutions operate in financial markets and are, therefore, a part of such markets.

Non – Banking Financial Company

Meaning –

A Non-Banking Financial Company play a vital role in the context of Indian economy. They are indispensible part in the Indian financial system because they supplement the activities of the banks in term of deposit mobilization and lending. They play a very important role by providing finance to activities which are not served by organized banking sector.

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 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 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 and sale/purchase/construction of immovable property. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).

Definition of NBFC.

Non-Banking Financial Company has defined as:

i) A non-banking institution, which is a company and which has its principal business the receiving of deposits under any scheme or lending in any manner.

ii) Such other non-banking institutions, as the bank may be with the previous approval of central government and by notification in the official gazette, specify.

NBFCs provide a range of services such as hire purchase finance, equipment lease finance, loan and investments. NBFCs have raised large amount of resources through deposit from public, shareholders, directors, and other companies and borrowing by issue of non-convertible debentures, and so on.

Non-Banking Financial Institutions carry out financing activities but their resources are not directly obtained from the savers as debt. Instead, these institutions mobilize the public savings for rendering other financial services including investment. All such institutions are financial intermediaries and when they lend, they are known as Non-Banking Financial Intermediaries (NBFIs) or Investment Institutions.