NBFC Full Form: Services, Objectives & Role

NBFC’s full form is Non Banking Financial Company. An NBFC is a financial institution that provides banking services without holding a full-fledged banking license. 

An NBFC is also known as NBFI, which is short for Non Banking Financial Institution. The Reserve Bank of India (RBI) is responsible for NBFC registration in India. 

History of NBFCs

The journey of NBFCs began in the 1960s, as an alternative for individuals whose financial needs weren’t properly met by the banking system of that time. The regulation and supervision of Non Banking Financial Companies came under the lens of the Reserve Bank of India with the introduction of Chapter III B in the Reserve Bank of India Act, 1934.

In recent years, NBFCs have evolved and adapted to technological advancements such as data analytics, artificial intelligence and blockchain technology. They have become an indispensable part of India’s financial system over the decades. 

Services Offered by NBFCs

Non Banking Financial Institutions in India offer the following services:

• Hire purchase finance
• Leasing
• Bill discounting
• Insurance Services
• Term loans
• Asset Financing
• Payment Services
• Venture capital
• Bridge loans
• Equipment finance
• Credit Rating Services
• Microfinance

Note: NBFCs cannot accept demand deposits, issue cheques drawn on themselves or offer deposit insurance facilities, unlike traditional banks.

Objectives & Roles of NBFCs

The objectives and roles of Non Banking Financial Companies are as follows:

• One of the major objectives of NBFCs is to promote financial inclusion by extending credit and financial services to the underprivileged and underserved sectors of the economy that the traditional banks typically do not serve. 

• They cater to specific financial needs of their customers like microfinance, housing finance, asset finance, consumer finance and car finance among others.

• They specialize in offering loans, asset financing and credit facilities for purchasing assets like machinery, equipment and vehicles.

• They finance MSMEs and start-ups that require funding for their projects.

• Certain NBFCs may provide investment related services, such as wealth management, portfolio management and assistance in trading of securities.

Types of NBFC

NBFCs come in different shapes and sizes based on factors like liability structure and activities they conduct. Here are some of the major types of NBFCs in India:

• Asset Finance Company: It primarily deals with financing physical assets that correlate to productive or economic activities like generator sets, tractors and industrial machinery. 

• Loan Company: The principal business of this NBFC is to provide finance, whether by making loans or advances or otherwise, for any activity other than its own. However, it does not include an Asset Finance Company.

• Investment Company: It is engaged in acquisition of securities. Its business activity includes holding and managing investment of other business entities.

• Infrastructure Finance Company: This type of NBFC provides infrastructure loans. Infrastructure finance company - NBFCs are essential for developing infrastructure across India.

• NBFC-Factor: It is engaged in the factoring business. Factoring refers to a financial transaction wherein a company sells its receivables to a third party, known as a factor, at a discounted price to receive immediate cash rather than waiting for customer payments to come in.

• Micro Finance Institution: This type of NBFC provides small scale financial services in form of credit, savings and insurance to low-income individuals. It promotes financial inclusion. 

• Infrastructure Debt Fund: Infrastructure Debt Fund - NBFCs facilitate the flow of long term debt into infrastructure projects. They raise sources through issuance of rupee/dollar denominated bonds with a minimum of five years maturity. 

• Systemically Important Core Investment Company: This type of NBFC is engaged in acquisition of shares and securities. It must satisfy a certain set of conditions outlined by the Central Bank. 

Examples of NBFCs in India

Here are some examples of NBFCs in India:

• Muthoot Finance

• Shriram Finance

• LIC Housing Finance

• Aditya Birla Finance

• Respo Financial Service Limited

• Bajaj Finance

• Tata Capital

• Piramal Capital & Housing Finance

• Mahindra & Mahindra Finance

• Indiabulls Housing Finance

• L&T Finance

• Cholamandalam Investment & Finance Company

Conclusion

Non Banking Financial Companies are key players in the financial system of India. They promote financial inclusion by providing various financial services like credit and investment to the underserved sectors of the country. NBFCs are regulated by the Reserve Bank of India (RBI). In order to secure NBFC registration, an application must be submitted to the RBI. For assistance, connect with Registrationwala.