Non-Banking Financial Company
What is a Non-Banking Financial Company (NBFC)?
- An NBFC is a company registered under the Companies Act, 1956 which provides banking services without meeting the legal definition of a bank.
- They engage in the business of loans and advances, acquisition of shares, bonds, etc. issued by Government or local authority. They also deal in other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business.
What is the difference between banks & NBFCs?
- NBFCs lend and make investments and hence their activities are similar to that of banks; however there are a few differences:
- NBFC cannot accept demand deposits;
- NBFCs cannot issue cheques drawn on itself;
- Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in the case of banks.
Examples of NBFCs
- Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies are examples of NBFCs.
Does the Reserve Bank regulate all financial companies?
- Housing Finance Companies are regulated by National Housing Bank, Merchant Banker/Venture Capital Fund Company/stock-exchanges/stock brokers/sub-brokers are regulated by Securities and Exchange Board of India, and Insurance companies are regulated by Insurance Regulatory and Development Authority.
- Similarly, Chit Fund Companies are regulated by the respective State Governments and Nidhi Companies are regulated by the Ministry of Corporate Affairs.
Why in News?
- Loan disbursements by non-banking financial companies-microfinance institutions (NBFC-MFIs) declined 96% to ₹570 crore in the first quarter of the current financial year.
- It had stood at ₹15,865 crore in the corresponding quarter of the previous year.
- NBFC-MFI falls under the category of non-deposit taking NBFC.
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