History of Non Banking Financial Companies– Classification of Non

Banking Companies –Classification of Activities of Non Banking

Finance Companies - Fund Based Activities – Fee Based Activities-
Role of NBFCs in Indian Economy

MODULE 2

HISTORY OF NBFC
We studied about banks, apart from banks the Indian Financial System has a
large number of privately owned, decentralized and small sized financial
institutions known as Non-Banking financial companies. In recent times, the
non-financial companies (NBFC’s) have contributed to the Indian economic
growth by providing deposit facilities and specialized credit to certain
segments of the society such as unorganized sector and small borrowers. In the
IFS, the NBFC’s play a very important role in converting services and provide
credit to the unorganized sector and small borrowers.

NBFCs provide financial services like hire-purchase, leasing , loans,

investments, chit-fund companies etc. NBFCs can be classified into deposit
accepting companies and non-deposit accepting companies. NBFCs are small
in size and are owned privately. The NBFCs have grown rapidly since 1990.
They offer attractive rate of return. They are fund based as well as service
oriented companies. Their main companies are banks and financial institutions.
According to RBI Act 1934, it is compulsory to register the NBFCs with the
Reserve Bank of India.

Non-banking Financial Institutions carry out financing activities but their

resources are not directly obtained from the savers as debt. Instead, these
Institutions mobilize the public savings for rendering other financial services
including investment. All such Institutions are financial intermediaries and
when they lend, they are known as Non-Banking Financial
Intermediaries(NBFI’s) or Investment Institutions.
NBFCs constitute an important segment of the financial system. NBFCs are
the intermediaries engaged in the business of accepting deposits and delivering
credit. They play very crucial role in channelizing the scarce financial
resources to capital formation.

NBFCs supplement the role of the banking sector in meeting the increasing
financial need of the corporate sector, delivering credit to the unorganized
sector and to small local borrowers. NBFCs have more flexible structure than
banks. As compared to banks, they can take quick decisions, assume greater
risks and tailor-make their services and charge according to the needs of the
clients. Their flexible structure helps in broadening the market by providing
the saver and investor a bundle of services on a competitive basis.

The RBI Act, 1934 was amended on 1 st December, 1964 by the Reserve Bank
Amendment Act, 1963 to include provisions relating to non-banking
institutions receiving deposits and financial institutions. It was observed that
the existing legislative and regulatory framework required further refinement
and improvement because of the rising number of defaulting NBFCs and the
need for an efficient and quick system for Redressal of grievances of
individual depositors. Given the need for continued existence and growth of
NBFCs, the need to develop a framework of prudential legislations and a
supervisory system was felt especially to encourage the growth of healthy
NBFCs and weed out the inefficient ones. With a view to review the existing
framework and address those shortcomings, various committees wre formed
and reports were submitted by them. Some of the committees and its
reccomendations are given here under.

1. James Raj Committee (1974)

This committee was constituted by the RBI in 194. After studying the various
money circulation schemes which were floated in the country during that time
and taking into consideration the impact of such schemes on the economy, the
committee after extensive research and analysis had suggested for a ban on
Prize chit and other schemes which were causing a great loss to the economy.
Based on these suggestions, the Prize chits and Money Circulation Schemes
(Banning) Act, 1978 was enacted.

2. Dr. A. C. Shah Committee (1992)

The Working Group on Financial Companies constituted in April 1992 i.e. the
Shah Committee set out the agenda for reforms in the NBFC sector. This
committee made wide ranging recommendations covering, inter-alia entry
point norms, compulsory registration of large sized NBFCs, prescription of
prudential norms for NBFCs on the lines of banks, stipulation of credit rating
for acceptance of public deposits and more statutory powers to Reserve Bank
for better regulation of NBFCs.

3. Khan Committee (1995)

This Group was set up with the objective of designing a comprehensive and
effective supervisory framework for the non-banking companies segment of
the financial system.

4. Narasimhan Committee (1991)

This committee was formed to examine all aspects relating to the structure,
organization and functioning of the financial system.

NON BANKING FINANCIAL COMPANIES (NBFCs)

Non-banking financial companies (NBFCs) are financial institutions that offer

various banking services, but do not have a banking license. Generally, these
institutions are not allowed to take deposits from the public, which keeps them
outside the scope of traditional oversight required under banking regulations.
NBFCs can offer banking services such as loans and credit facilities,
retirement planning, money markets, underwriting and merger activities.
They are responsible for providing financial services but are not regulated by a
national or international governing body and do not hold a full-fledged license
for conducting operations. The financial services offered by
NBFCs include disbursement of loans and advances, acquisition of stocks,
shares or bonds etc. They supplement the role of the banking sector in meeting
the increasing financial needs of the corporate sector, delivering credit to the
unorganized sector and to small local borrowers. In India, despite being
different from banks, NBFC are bound by the Indian banking industry rules
and regulations.

TOP 10 NBFCs IN INDIA

REGULATORY AUTHORITIES OF NBFC

 Sl. No.
 Type of NBFCs
 Name of Regulatory
Authority
 1
 Equipment Leasing
Companies
 RBI
 2
 Hire-Purchase Finance
Companies
 RBI
 3
 Loan Companies
 RBI
 4
 Investment Companies
 RBI
 5
 Residuary Non-
Banking Companies
 RBI
 6
 Misc. Non-Banking
Companies
 (Chit Funds)
 RBI and Registrar of
Chits of the concerned
 States
 7
 Mutual Benefit
Finance Companies
 (Nidhis and Potential
Nidhis)
 Department of
Company Affairs, GoI
 8
 Micro Finance
Companies
 Department of
Company Affairs, GoI
 9
 Housing Finance
Companies
 NHB
 10
 Insurance Companies
 Insurance Regulatory
and Development
 Authority of
India(IRDA)
 11
 Stock Broking
Companies
 SEBI
 12
 Merchant Banking
Companies
 SEBI
  Source: Report on
Trend and Progress of
Banking in India, 2003-
04, RBI, Page 147.
DEFINITION OF NBFC

Non-Banking Financial Company has been defined as :

(i) A non-banking institution, which is a company and which has its

principal business the receiving of deposits under any scheme or
lending in any manner.
(ii) Such other non- banking institutions, as the bank may with the
previous approval of the central government and by notification in
the official gazette, specify.

Non- banking Financial Institutions carry out financing activities but their
resources are not directly obtained from the savers as debt. Instead, these
Institutions mobilize the public savings for rendering other financial services
including investment. All such Institutions are financial intermediaries and
when they lend, they are known as Non-Banking Financial Intermediaries
(NBFI’s) or Investment Institutions. Examples like,

 UNIT TRUST OF INDIA (UTI)

 LIFE INSURANCE CORPORATION (LIC)
 GENERAL INSURANCE CORPORATION (GIC)

TYPES/CATEGORIES OF NBFCs
NBFCs are categorized;

a) in terms of the type of liabilities into Deposit and Non-Deposit accepting

NBFCs,

b) non deposit taking NBFCs by their size into systemically important and
other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and

c) by the kind of activity they conduct. Within this broad categorization the
different types of NBFCs are as follows:

I. Asset Finance Company (AFC)

An AFC is a company which is a financial institution carrying on as its

principal business the financing of physical assets supporting
productive/economic activity, such as automobiles, tractors, lathe machines,
generator sets, earth moving and material handling equipments, moving on
own power and general purpose industrial machines. Principal business for this
purpose is defined as aggregate of financing real/physical assets supporting
economic activity and income arising therefrom is not less than 60% of its total
assets and total income respectively.

II. Investment Company (IC)

 IC means any company which is a financial institution carrying on as its
principal business the acquisition of securities,

III. Loan Company (LC)

LC means any company which is a financial institution carrying on as its

principal business the providing of finance whether by making loans or
advances or otherwise for any activity other than its own but does not include
an Asset Finance Company.

IV. Infrastructure Finance Company (IFC)

IFC is a non-banking finance company a) which deploys at least 75 per cent of

its total assets in infrastructure loans, b) has a minimum Net Owned Funds of
300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR
of 15%.

V. Systemically Important Core Investment Company (CIC-ND-SI)

CIC-ND-SI is an NBFC carrying on the business of acquisition of shares and

securities which satisfies the following conditions:-

(a) it holds not less than 90% of its Total Assets in the form of investment in
equity shares, preference shares, debt or loans in group companies;

(b) its investments in the equity shares (including instruments compulsorily

convertible into equity shares within a period not exceeding 10 years from the
date of issue) in group companies constitutes not less than 60% of its Total
Assets;

(c) it does not trade in its investments in shares, debt or loans in group
companies except through block sale for the purpose of dilution or
disinvestment;
(d) it does not carry on any other financial activity referred to in Section 45I(c)
and 45I(f) of the RBI act, 1934 except investment in bank deposits, money
market instruments, government securities, loans to and investments in debt
issuances of group companies or guarantees issued on behalf of group
companies.

(e) Its asset size is 100 crore or above and

(f) It accepts public funds

VI. Infrastructure Debt Fund

Non- Banking Financial Company (IDF-NBFC) : IDF-NBFC is a company

registered as NBFC to facilitate the flow of long term debt into infrastructure
projects. IDF-NBFC raise resources through issue of Rupee or Dollar
denominated bonds of minimum 5 year maturity. Only Infrastructure Finance
Companies (IFC) can sponsor IDF-NBFCs.

VII. Non-Banking Financial Company -Micro Finance Institution (NBFC-

MFI)

NBFC-MFI is a non-deposit taking NBFC having not less than 85% of its
assets in the nature of qualifying assets which satisfy the following criteria:

a. loan disbursed by an NBFC-MFI to a borrower with a rural household

annual income not exceeding 1,00,000 or urban and semi-urban household
income not exceeding 1,60,000;

b. loan amount does not exceed 50,000 in the first cycle and 1,00,000 in
subsequent cycles;

c. total indebtedness of the borrower does not exceed 1,00,000;

d. tenure of the loan not to be less than 24 months for loan amount in excess of
15,000 with prepayment without penalty;

e. loan to be extended without collateral;

f. aggregate amount of loans, given for income generation, is not less than 50
per cent of the total loans given by the MFIs;

g. loan is repayable on weekly, fortnightly or monthly instalments at the choice

of the borrower

VIII. Non-Banking Financial Company – Factors (NBFC-Factors)

NBFC-Factor is a non-deposit taking NBFC engaged in the principal business

of factoring. The financial assets in the factoring business should constitute at
least 50 percent of its total assets and its income derived from factoring
business should not be less than 50 percent of its gross income.

IX. Mortgage Guarantee Companies (MGC)

MGC are financial institutions for which at least 90% of the business turnover
is mortgage guarantee business or at least 90% of the gross income is from
mortgage guarantee business and net owned fund is ₹ 100 crore.

X. NBFC- Non-Operative Financial Holding Company (NOFHC)

It is financial institution through which promoter / promoter groups will be

permitted to set up a new bank .It’s a wholly-owned Non-Operative Financial
Holding Company (NOFHC) which will hold the bank as well as all other
financial services companies regulated by RBI or other financial sector
regulators, to the extent permissible under the applicable regulatory
prescriptions.

CLASSIFICATION OF NBFC’s
Depending on the nature of their major activity, NBFCs can be classified into
the following categories;

1. EQUIPMENT LEASING COMPANY

Equipment leasing company means any company which is carrying on the

activity of leasing of equipment, as its main business, or the financing of such
activity. In finance leasing , the producer of the capital equipment sells the
equipment to the leasing company, then the leasing company leases it to the
final user of the equipment. Hence, there are three parties in finance leasing.
The leasing company acts as a middleman between the producer of equipment
and the user equipment.

2. HIRE PURCHASE COMPANY

Hire purchase finance company means any company which is carrying on the
main business of financing , physical assets through the system of hire-
purchase. It is a less risky business because the goods purchased on hire
purchase baaasis serve as securities till the installment on the loan is paid.The
problem of recovery of loans does not occur in most cases, as the borrower is
able to pay back the loan out of future earnings through the regular generation
of funds out of the asset purchased.

3. HOUSING FINANCE COMPANY

A housing finance company means any company which is carrying on its main
business of financing the construction or acquisition of houses or development
of land for housing purposes. The ICICI and the Canara Bank took the lead to
sponsor housing finance companies, namely, Housing Development
Corporation Ltd. And the Canfin Homes Ltd. All the information about the
Housing Finance Companies is available with the National Housing Bank.
Housing finance companies also have to compulsorily to register themselves
with the RBI. National Housing Bank is the apex institution in the field of
housing. It promotes housing finance institutions, both on regional and local
levels.

4. INVESTMENT COMPANY

Investment company means any company which is carrying on the main

business of securities.Investment companies I India can be broadly classified
into two types;

Holding companies:

(i) In case of large industrial groups, there are holding companies

which buy shares mainly for the purpose of taking control over
another institution.

Other Investment companies:

(i) Investment companies are also known as Investment trusts.

(ii) Investment companies collect the deposits from the public and
invest them in securities.
5. LOAN COMPANY

A loan company means any company whose main business is to provide

finance through loans and advances. It does not include a hire purchase finance
company or an equipment leasing company or a housing finance company.
Loan company is also known as Finance company.Most of their loans are
given without any security. Hence, they are risky. Due to this reason, the loan
company charges high rate of interest on its loans. Loans are generally given
for short period of time but they can be renuewed.

6. MUTUAL BENEFIT FINANCIAL COMPANY

They are the oldest form of NBFC’s. A mutual benefit financial company
means any company which is notified under section 620A of the Companies
Act, 1956. It is popularly known as “ Nidhis”.

7. CHIT FUND COMPANY

The chit fund schemes have a long history in the southern states of India. Rural
unorganized chit funds may still be spotted in many southern villages.
However, organized chit fund companies are now prevalent all over over India.
The word id Hindi and refers to a small note or piece of something. The word
passed into the British colonial “lexicon” and is still used to refer to a small
piece of paper, a child or a small girl.

8. RESIDUARY NON-BANKING COMPANY

The term “residue” means a small part of something that remains. As the
meaning of the term shows, a residuary company is one which does not fall in
any of the above categories. The collection of deposits is done at the doorsteps
of depositors through bank staff, who is paid commission.

FUND BASED ACTIVITIES

The traditional services which come under fund based activities are the
following;

a) Underwriting of or investment in shares , debentures, bonds, etc of new

issues (primary market activities)
b) Dealing in secondary market activities
 c) Participating in money market instrument like commercial papers,
certificate of deposits, treasury bills, discounting of bills etc.
d) Involving in equipment leasing, hire purchases, venture capital seeds
capital etc.
e) Dealing in foreign exchange market activities.

TYPES OF FUND BASED ACTIVITIES

1. HIRE PURCHASE

Hire purchase is an arrangement for buying expensive consumer goods, where

the buyer makes an initial down payment and pays the balance plus interest in
installments. The main features of hire purchase finance are:

1. The hire purchaser becomes the owner of the asset after paying the last
installment.

2. Every installment is treated as hire charge for using the asset.

3. Hire purchaser can use the asset right after making the agreement with
the hire vendor.
4. The hire vendor has the right to repossess the asset in case of
difficulties in obtaining the payment of installment.

2. VENTURE CAPITAL

Venture capital is a form of private equity and a type of financing that

investors provide to startup companies and small businesses that are believed
to have long-term growth potential. Venture capital generally comes from
well-off investors, investment banks and any other financial institutions.
However, it does not always take a monetary form; it can also be provided in
the form of technical or managerial expertise. Venture capital is typically
allocated to small companies with exceptional growth potential, or to
companies that have grown quickly and appear poised to continue to expand.

3. WORKING CAPITAL FINANCE

Working capital financing is done by various modes such as trade credit, cash
credit/bank overdraft, working capital loan, purchase of bills/discount of bills,
bank guarantee, letter of credit, factoring, commercial paper, inter-corporate
deposits etc. The arrangement of working capital financing forms a major part
of the day to day activities of a finance manager. It is a very crucial activity
and requires continuous attention because working capital is the money which
keeps the day to day business operations smooth. Without appropriate and
sufficient working capital financing, a firm may get into troubles. Insufficient
working capital may result in nonpayment of certain dues on time.
Inappropriate mode of financing would result in loss of interest which directly
hits the profits of the firm.

4. SHORT TERM FINANCE

Short term finance refers to financing needs for a small period normally less

than a year. In businesses, it is also known as working capital financing. This
type of financing is normally needed because of uneven flow of cash into the
business, the seasonal pattern of business, etc. Business owners in need of cash
to finance their growth may want to consider one of several short-term loans to
help meet their needs.

5. BILL DISCOUNTING

Bill Discounting is a method of trading the bill of exchange to the financial

institution before it gets matured, at a price that is in a smaller amount than its
par value. The discount on the bill of exchange will be based on the remaining
time for its maturity and also the risk concerned in it.

Bill discounting is a discount/fee which a bank takes from a seller to release

funds before the credit period ends. This bill is then conferred to the seller’s
client and the full amount is collected. Bill discounting is mostly applicable in
scenarios when a buyer buys goods from the seller and the payment is to be
made through a letter of credit. It is an arrangement whereby the seller
recovers an amount of sales invoice from the financial intermediaries before
it’s due. It is a business vertical for all kinds of financial intermediaries such as
banks, financial institutions etc.

6. BUYER’S CREDIT/ SUPPLIER’S CREDIT

Buyer's credit is a short-term loan facility extended to an importer by an

overseas lender such as a bank or financial institution to finance the purchase
of capital goods, services, and other big-ticket items. The importer, to whom
the loan is issued, is the buyer of goods, while the exporter is the seller.
Buyer’s credit is a very useful financing method in international trade as it
gives importers access cheaper funds compared to what may be available
locally.

A supplier credit is an agreement in a commercial contract under which an

exporter will supply goods or services to a foreign buyer on credit terms.
Since the exporter is also called a supplier, the agreement is called the
supplier credit .Payment on credit terms means the foreign buyer will pay
either a single amount at a later date or make payments in several instalments
on several future dates agreed between the parties. Since the foreign buyer is
from another country this type of commercial contract includes export of
goods or services from the exporter’s country and their import into the
foreign buyer’s country.

7. EXPORT FINANCE

Export in simple words means selling goods abroad. International market

being a very wide market, huge quantity of goods can be sold in the form of
exports. Export refers to outflow of goods and services and inflow of foreign
exchange. Export finance is short-term working capital finance allowed to an
exporter. Finance and credit are available not only to help export production
but also to sell to overseas customers on credit. Export finance is a finance
agreement similar to factoring, whereby money is advanced against the value
of unpaid invoices. It's a form of asset based finance, specifically tailored to
businesses involved with exporting to international markets.

FUND BASED LIMIT

Fund based limits can be categorized as sources of actual finance. Here banks
allocate certain fund towards the borrower or forwards certain credit to the
borrower. Fund based limits consists of various lending facilities:

1. Term loans
2. Working capital term loans
3. Cash credit/ Over draft
4. Discounting of bills
5. Pre shipment credit
6. Export packing credit

FEE BASED/NON FUND BASED ACTIVITIES

Non- fund based activities/services are those where funds are not involved and
financial institution gets income in the form of fee such as;

 Commission on Demand Draft

 Bank Guarantee/ Letter of Credit
 Managing capital issue ( pre-issue and post issue management
services)
 Advisory/ consultancy services
 Project preparation/appraisal
 Assisting in the process of getting clearances from Govt/Govt
bodies.

Letter of credit is a legal document issued by a buyer’s bank that upon

presentation of required documents payment would be made. Usually
confirmed by the seller's bank, protection is given to the seller that payment
will be made if the goods are shipped correctly, following the conditions laid
down when the LC is opened or based on subsequent amendments and
protection is given to the buyer that the goods will be shipped before the
payment is made.
The LC facility can be granted to the importers after assessing their
requirement/ credit worthiness/ financial strength and other parameters being
to the satisfaction of the Bank. 
China trust Commercial Bank can extend Import financing through Letters of
Credit, which are well accepted globally and are supported by a strong trade
finance set-up. We are direct members of SWIFT and have correspondent
banking arrangements with many banks worldwide. The Society for
Worldwide Interbank Financial Telecommunication (SWIFT) provides a
network that enables financial institutions worldwide to send and receive
information about financial transactions in a secure, standardized and reliable
environment.

Bank Guarantee is a contract to perform the promise or discharge the liability

of a third person in case of his default. China trust Commercial Bank sanctions
Bank Guarantee limit to facilitate issue of guarantees on behalf of its clients.
Various types of guarantees offered are – financial, performance, bid bond,
tenders, customs, etc. Our guarantees are accepted by all government agencies
including Customs, Excise, Insurance Companies, Shipping Companies, all
Capital Market Agencies such as NSE, BSE, ASE, CSE etc. and all major
corporates.

TYPES OF FEE BASED ACTIVITIES

1. Issue Management

The process of issue management is same as that of ordinary issue. It is,

however, the duty of the Non-Banking Financial Company to supply a
complete set of services and must try to improve and develop the process of
marking the issues by which the network of the promoters will be extended.

2. Portfolio Management

Portfolio management implies the investment of funds taken from

numbers/clients in various securities and an adequate return should be given to
them. The manager must be authorized by the Securities and Exchange Board
of India positively. The manager is, however, entitled to a fixed fee and not a
variable one depending upon the returns to the clients/members accordingly.

3. Loan/Lease Syndication

When a company finds it difficult to procure funds who has some problems,
weakness and is not able to get various services, these firms appear in the
picture and act as an intermediary between the institution and the company as
well In this particular case, NBFC, can play a very prominent role for
procuring funds and assist them in various ways, can supply the necessary
services for those clients. They can act as a broker and their fees must be
comparable with the fees charged by the Chattered Accountant firms.

4. Corporate Counseling
The corporate counseling is an another attractive fee based service. At the time
of diversification, expansion and development, a medium size company needs
the service of an expert relating to the above for which they seek the advice
from various institutions.

5. Arranging Foreign Collaboration

As a result of the liberalization relating to industry and capital market by the

Government of India, the companies are employing their resources which they
acquire by issuing shares via primary capital route and as such, are interested
for good projects relating to either export oriented project or import
substitution projects. NBFC must contain such data and keep the information
relating to the latest technology from them who have already acquired earlier
along with the result. 

6. Advising on Acquisison or Mergers

In order to consolidate the firm and to form a new one or to enjoy the benefits
of economies of large scale, many companies are interested to amalgamate.
NBFC should pay the proper attention in this field.

7. Project Counseling

It is practically coming from the concept of corporate counseling in Project

Management. If the client desires to invest his resources on long term basis to
any project and is ready to invest such funds accordingly as per guidelines
presented by the consultant company, the same task can be performed by the
NBFC accordingly. Better result can be achieved if these companies form an
informal association.

8. Advising on Capital Restricting.

For the purpose of fresh issue, the companies have to present and prepare their
Balance Sheet in a healthy form.  NBFC can supply the necessary service for
the purpose on various matters by giving their valued advices and instructions,
e.g., capital structuring/restricting, so that the financial health of the enterprise
through the Balance Sheet would be looked better. Since, it is a fee based
service it will, no doubt, earn a lucrative amount.

ROLE OF NBFCs IN INDIAN ECONOMY

NBFCs (Non Banking Financial Companies) play an important role in

promoting inclusive growth in the country, by catering to the diverse financial
needs of bank excluded customers. Further, NBFCs often take lead role in
providing innovative financial services to Micro, Small, and Medium
Enterprises (MSMEs) most suitable to their business requirements. NBFCs do
play a critical role in participating in the development of an economy by
providing a fillip to transportation, employment generation, wealth creation,
bank credit in rural segments and to support financially weaker sections of the
society. Emergency services like financial assistance and guidance is also
provided to the customers in the matters pertaining to insurance.
 
NBFCs are financial intermediaries engaged in the business of accepting
deposits delivering credit and play an important role in channelizing the scarce
financial resources to capital formation. They supplement the role of the
banking sector in meeting the increasing financial needs of the corporate
sector, delivering credit to the unorganized sector and to small local borrowers.
However, they do not include services related to agriculture activity, industrial
activity, sale, purchase or construction of immovable property. In India,
despite being different from banks, NBFC are bound by the Indian banking
industry rules and regulations.
 
NBFC focuses on business related to loans and advances, acquisition of shares,
stock, bonds, debentures, securities issued by government or local authority or
other securities of like marketable nature, leasing, hire-purchase, insurance
business, chit business.
 
The banking sector would always be the most important sector in the field of
business because of its credibility in supporting manufacturing, infrastructural
development and even being the backbone for the common man's money. But
despite this, the role of NBFCs is critical and their presence in a country would
only boost the economy in the right direction.

IMPACT AND GROWTH OF ACTIVITIES OF NBFC’s

The Reserve Bank of India (RBI)  has recognized the role of NBFCs in

providing credit to rural segments. Non-Banking Financial Companies offer
finance to small-scale industries thereby resulting in the growth of rural areas
and the development of the economy as a whole.

As of 2017, NBFCs have grown tremendously both in terms of volumes and

the number of service offerings;

 These financial institutions cater credit to infrastructure projects, which

helps a developing country like India to a great extent. As of March
2013, NBFCs have lent over one-third of 35.8% of their total assets to
the infrastructure sector, as compared to banks which lent a mere 7.6%.
 Non-Banking Financial Companies also provide loans for those
seeking finance for a home purchase.
 Besides home loans, such financial institutions offer business loans,
education loans, and personal loans, among many others. The number
of individuals opting for such loans through NBFCs has increased.
 Moreover, the amount of money being lent to customers grew an
average of 24.3% per year for NBFCs as compared to 21.4% for banks.
This statistics shows that NBFCs are indeed a popular option for the
masses.
 NBFC’s acting as account aggregators has helped in cross-selling of
financial products to customers and contributed to fee-based income
for NBFCs.

NBFCs: A Game Changer in Financial Sectors

 NBFC’s are growing due to their facility to innovate and customize
their products based on the needs of their clients.
 Non-Banking Financial Companies have a detailed understanding of
customers’ profiles hence it offers the best product as per their
requirements.
 NBFCs are known to offer competitive interest rates, which help the
customer in making a preferred choice. Such lowered rates reduce the
cost of borrowing and help individuals obtain finance without any
financial constraints.
 Non-Banking Financial Companies offers flexible repayment schemes,
extended loan tenure, and lower fees and charges.
 Non-Banking Financial Companies require loan seekers to submit
minimal documentation as compared to the extensive paperwork
required by banks. Applicants also have flexible eligibility criteria
against banks that require loan seekers to fulfill stringent eligibility
criteria.
 NBFCs have therefore carved a niche in the finance sector. These
alternative lenders also offer quick and efficient services to Micro
Small and Medium Enterprises (MSMEs), the backbone of Indian
economy.
 As Non-Banking Financial Companies have continuously played a
critical role in encouraging the development of the Indian economy,
this sector is expected to grow in the years to come.