What is NBFC?
By offering a wide range of financial services, non-banking financial institutions are playing a noteworthy role in the economy. In reality, NBFCs are diversified organizations offering a range of services from insurance to microfinance. They offer insurance, MFI loans, chits, and other products.
The RBI has recently placed strict limitations on NBFCs. Some of the rules are as strict as those that apply to banks. In reality, there is a trend toward putting nearly all bank regulatory standards on the NBFC industry. This is due to the fact that the economy is also at risk from the failure of large NBFCs. NBFCs are frequently referred to as the “shadow banking sector.”
Functions of NBFC
- Retail Financing: Businesses that provide short-term money for loans secured by gold, stocks, and other property, typically for consumer goods.
- The most important area where leading non-banking financial companies operate is in infrastructure funding. A sizeable chunk of the money lent among the various segments is made up by this section alone. This mainstream includes real estate, ports, flyovers, airports, railroads or metros, etc.
- Services for Hire-Purchase: It’s a method for the vendor to deliver the goods to the customer while maintaining ownership of the things. Installments are used to pay for the items. Ownership of the item instantly passes to the customer once all instalments for the items or products have been paid.
- Trade Finance: Organizations that deal with dealer or distributor financing so they can get vendor financing, working capital loans, and other business loans.
- Asset Management Companies: Asset Management Companies (AMCs) are businesses that employ fund managers, who invest in equity shares in order to get strong returns, and actively manage the money that small investors pool together and invest.
- Venture Capital Services: Although these organizations are only getting started, their success rate is high and they are poised to provide a sufficient return in the near future.
- Leasing Services: The organizations that deal in leasing or, for a clear understanding of this word, we can recognize it in such a way that the way we rent a house or apartment for living similarly, these organizations offer the property to small businesses or, on occasion, even larger ones, who cannot afford it for any reason. The sole distinction between renting and leasing is that lease agreements are negotiated for a set amount of time.