NBFCs (Syllabus: GS Paper 3 – Economy)

Context: Non-banking financial companies (NBFCs) need to diversify funding sources and reduce excessive reliance on banks as they pursue steady growth in loan book with robust asset quality and capital position, according to a Reserve Bank of India (RBI) study.

Non-Banking Financial Companies (NBFCs)

• About: NBFC is a company that provides loans, leases, insurance, and other financial services.
• Registered under: Companies Act, 1956.
• Objective: To help promote financial inclusion by extending credit and financial services to underserved population segments.
• Criteria for NBFC Licence: The corporation should be either a Limited Company or a Private Limited Company (PLC).

o The company's Net Owned Fund must be at least Rs. 2 crores.

• Examples of NBFCs: LIC Housing Finance, Bajaj Finance, Mahindra & Mahindra Financial Services, Tata Sons, Muthoot Finance, Tata Capital Financial Services, Aditya Birla Finance, and Bajaj Housing Finance.

Features of NBFCs

• NBFC cannot accept demand deposits.
• NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.
• Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs.
• Foreign investment is allowed up to 100% in NBFCs.