About Non-Banking Financial Company (NBFC):
- An NBFC is a company registered under the Companies Act 1956engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by the Government or local authority or other marketable securities of a like nature.
- They offer various banking services but do not have a banking license.
- They provide banking services like loans, credit facilities, TFCs, retirement planning, investing and stocking in the money market.
- Generally, these institutions are not allowed to take traditional demand deposits—readily available funds, such as those in checking or savings accounts—from the public.
- NBFCs also provide a wide range of monetary advice like chit-reserves and advances.
- Regulation:
- NBFCs are regulated by the Reserve Bank of India (RBI), the central bank of India.
- The RBI has the authority to issue licenses to NBFCs, regulate their operations, and ensure that they adhere to the established norms and regulations.
- Banks vs NBFCs: NBFCs lend and make investments and, hence their activities are akin to that of banks; however, there are a few differences as given below,
- NBFC cannot accept demand deposits;
- NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
- Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
- Unlike banks, NBFCs are not subjected to stringent and substantial regulations.
- Examples of NBFCs include investment banks, mortgage lenders, money market funds, insurance companies, equipment leasing companies, infrastructure finance companies, hedge funds, private equity funds, and P2P lenders.
