NBFC stands for Non-Banking Financial Company. These are institutions that provide banking services without holding a banking license.
NBFCs play a significant role in India’s financial landscape. They provide services like loans, credit facilities, asset financing, and more. NBFCs are particularly essential for enhancing financial inclusion, especially in under-banked and unbanked areas.
The primary difference between NBFCs and traditional banks lies in their functionality and regulatory norms. Unlike banks, NBFCs cannot accept demand deposits or issue checks. However, they supplement banking services in various ways.
There are several types of NBFCs, such as Asset Finance Companies (AFC), Investment Companies (IC), Loan Companies (LC), Infrastructure Finance Companies (IFC), among others. Each serves a unique purpose in the economy.
NBFCs in India operate under the regulatory oversight of the Reserve Bank of India (RBI).
The scope of NBFCs is vast, extending beyond basic banking services. They adapt to the evolving landscape of the financial sector, tapping into markets that are less accessible to traditional banks.
The Scale-Based Regulatory Framework is a system introduced by the RBI in 2021. This framework classifies NBFCs into three layers – the Base layer, Middle layer, and Upper layer – based on their size, complexity, and risk profile. Different regulatory requirements apply to each layer.
NBFCs play a crucial role in promoting economic growth in India. By providing a wide range of financial services, they help more individuals and businesses avail of these services, driving financial inclusion and economic growth.
Some NBFCs can accept deposits, such as deposit-taking NBFCs (NBFCs-D), but they do not have a demand deposit facility. Non-deposit taking NBFCs (NBFCs-ND), on the other hand, cannot accept deposits from the public.
Yes, certain types of NBFCs like Housing Finance Companies provide home loans. They often have more flexible eligibility criteria and processes compared to traditional banks, making them a popular choice for many borrowers.
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