Non-Banking Financial Company

NBFC stands for a non-banking financial company.
Is there anything safer, quicker or more efficient than a bank? The answer is Non-Banking Financial Companies or NBFCs.NBFC are the companies that have the features of that of a bank. But however, the legal definition of the bank does not apply in true sense. However, it's normal function is different from that of the banks. They are registered under the company act of 1956 where the other banks are registered under banking regulation. The significance of NBFC is to revive the banking sector of our country.

HOW DID NBFC EVOLVE?

1. Chit fund and nidhi scam came into the picture

2. High-interest rate and unlicensed money leaders

3. Widening of a gap in pricing inefficiencies.

DIFFERENCE BETWEEN BANKS AND NBFC

NBFC does accept demand deposit
NBFC does not form part of the payment and settlement system
NBFC can not withdraw cheque on itself
NBFC does not provide deposit insurance provided by deposit insurance and credit guarantee cooperation

NBFC does not need to fulfil the cash reserve requirement
NBFC is governed and regulated by other act and organization however RBI has its own act governing and regulating

The norms of public sector lendingnorms do not apply to NBFC

CLASSIFICATION OF NBFC

1. Asset financecompanies

2. Loan companies

3. Investment companies

4. Systematically important core investment companies

5. Infrastructure financecompanies

6. Infrastructure debt fund NBFC

7. NBFC factors

8. Microfinance companies

The working of NBFC is not as per the vision. It's undergoing stress and loss. RESERVE BANK OF INDIAchecks and balances to tackle the stress

Advantage:

1. A significant contributor to the growth and financial inclusion

2. Useful for core development

3. The alternative source offunding and liquidity in the country

4. Boost to economic growth

5. It provides access to a larger audience at a quicker pace

Some of the NBFC in India are

Mahindra bad Mahindra finance service limited
Bajaj finance limited
Power finance corporation limited
Aditya Birla finance limited
L&T finance limited.

Is it necessary that every NBFC should be registered with RBI?

In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can commence or carry on business of a non-banking financial institution without a) obtaining a certificate of registration from the Bank and without having a Net Owned Funds of ₹ 25 lakhs (₹ Two crore since April 1999). However, in terms of the powers given to the Bank, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking companies/Stock broking companies registered with SEBI, Insurance Company holding a valid Certificate of Registration issued by IRDA, Nidhi companies as notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982,Housing Finance Companies regulated by National Housing Bank, Stock Exchange or a Mutual Benefit company.