Non-Banking Financial Companies (NBFCs) are financial institutions that offer various banking services, such as loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by the government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business, but do not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. NBFCs play a crucial role in providing access to financial services, especially for those who are unable to access traditional banking services.
Key Differences between NBFCs and Banks
The primary difference between NBFCs and banks lies in the fact that while NBFCs can provide banking services, they are not licensed to accept deposits from the public. Additionally, NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.
Types of NBFCs
There are different types of NBFCs, each catering to specific financial needs. Some of the common types include Asset Finance Companies, Investment Companies, Loan Companies, Infrastructure Finance Companies, and Systemically Important NBFCs.