NBFC: Full form, Types, Characteristics, Importance & Example

NBFC

NBFC Full Form: Non–Banking Financial Institution

Key Highlights

It is a financial institution that provides banking services such as loans and advances, credits, and investments but it does not have a banking license.
Types of NBFCs involves asset finance companies (AFCs), investment companies, loan companies, infrastructure finance companies (IFCs).

What is an NBFC?

NBFC stands for Non–Banking Financial Institution. It is a financial institution that provides banking services such as loans and advances, credits, and investments but it does not have a banking license. It does not take demand deposits and does not issue cheques. There are no cheque books or savings accounts that are linked to NBFCs.

Important Characteristics of NBFC

Loans and Advances: They provide credit services to the public as well as businesses.
Investments: NBFC engages in the investment of securities as well as the leasing and hire purchase activities.
No Demand Deposits: They cannot take in money which can be redeemed anytime, quite different from what is offered by banks.
RBI Regulated: All NBFCs in India are subject to the rules and regulations of Reserve Bank of India

Types of NBFCs

1. Asset Finance Companies (AFCs): These NBFCs give finance for physical assets such as automobiles and machinery.

2. Investment Companies: These NBFCs mainly deal in acquisition of securities like shares and bonds etc.

3. Loan Companies: Provide loans to individuals and businesses.

4. Infrastructure Finance Companies (IFCs): Providing finances for infrastructure projects like power and irrigation.

Why NBFCs Companies are Significant in India?

1. Financial Inclusion: They serve the people and businesses in the rural and semi-urban areas, who may not be able to access financing from conventional banks.

2. Economic Growth: NBFCs cater for mortgage finance, business finance, and infrastructure finance thereby supporting the growth of India.

3. Flexibility: They offer more lenient terms of loans hence many people can be able to acquire the loans.

Some of the Notable NBFCs in India

Bajaj Finance: Known for providing personal loans.
HDFC Ltd: It deals mainly in housing finance.
Muthoot Finance: It is primarily engaged in providing gold loans.

These NBFCs play a vital role in bridging the gap between traditional banking services and underserved communities.