NBFCs provide important financial services like lending and investing. They help drive economic development by creating employment, supplying long-term credit for infrastructure and commerce, mobilizing funds, strengthening financial markets, and contributing to growth in national income and GDP. However, NBFCs have some restrictions compared to banks like not accepting demand deposits or issuing cheques.
2. DEFENITION
A Non Banking Financial Company (NBFC) is a
company registered under the Companies Act 1956
of India, engaged in the business of loans and
advances, acquisition of shares, stock, bonds, hire-
purchase insurance business or chit-fund business but
does not include any institution RBI act, 1934
Nonâbanking financial company
3. FUNCTIONS OF NBFC
⢠Non Banking Financial Company also known
as NBFC company, functioning as per the
Indian Companies Act, giving loans and
advances to the public. An NBFC company
can acquire shares, stocks, bonds, debentures
and securities from Government as well as
local authority or any other marketable
securities.
4. FUNCTIONS OF NBFC
⢠Marketing securities are considered to be leasing, hire
purchase, insurance brokerage, chit fund etc. An
NBFC Company mainly accepts deposits in various
schemes -it may be a lump-sum amount or multiple
installments in order to roll their business active.
⢠Though NBFC company lend and make investments
with public just like what a commercial banks do.
5. FUNCTIONS OF NBFC
There are some apparent restrictions to them issued
by RBI mainly as given below:
⢠NBFC company should keep away from accepting
demand deposits from any sources.
⢠NBFC company can't issue cheque drawn on itself.
⢠NBFC Company can't form part of the payment and
settlement system.
⢠Depositors of a NBFC company cannot have
facilities like deposit insurance
6. NBFC ON ECONOMIC DEVELOPMENT
Greater Employment Opportunities and Standard of
Living:
⢠NBFCs help attain the objective of macroeconomic
policies of creating more jobs in the country by
promoting SMEs and private industries through lending
them loans. This increase in new businesses
consequently raises the demand for manpower and
creates employment. Furthermore, the Purchasing
Power Parity (PPP) of people rises and so does their
standard of living.
7. Supplying long-term credits
and Mobilisation of Funds
⢠Unlike the regular banks, NBFCs extend long-term credits to
infrastructure, commerce and trade companies. The traditional
banks expect timely, schedules and short-term repayment of
loans that may not always suit the requirements of these
industries. NBFCs, on the other hand, fund large projects and
so promotes economic growth. They also allow industries to
participate in equity.
⢠Non-banking financial companies help in rotation of
resources, asset distribution and regulation of income to shape
the economic development. They enable converting saving
into investments and thus helps in the mobilisation of
funds/resources in the economy.
8. Strengthening of Financial Market
⢠The financial market relies heavily on Non-banking
financial institutions for raising capital. The start-ups
and small-sized businesses are dependent on funds
offered by NBFCs and also in order to maintain
liquidity. For an effective functioning and balance in
the financial market, NBFCs play a significant role.
9. Growth of National Income
⢠As NBFCs aim to build capital for several industries
private and otherwise they aid in accumulating a
capital stock for the country. This directly adds on to
the national income and results in the progression of
Gross Domestic Product (GDP).
