Non-Banking Financial Company

An NBFC, or Non-Banking Financial Company, is a type of financial institution that offers various financial and non-financial services to individuals, business enterprises, entrepreneurs, and others. They differ from Cooperative and Commercial Banks in that they do not require a banking license but must adhere strictly to the rules and regulations set by the Reserve Bank of India (RBI) at different times. NBFCs typically operate in areas such as industrial and commercial loans and advances, deposits, leasing, hire-purchasing, investment funds, chit fund business, insurance business, and instruments of the capital and money markets, including stocks, debentures, bonds, and other similar activities. India's financial sector has exhibited consistent growth over the past two decades, and the NBFC segment has undergone significant transformation in recent years. NBFCs have played a leading role in facilitating new credit disbursals for the country's under served retail and MSME market. To operate as an NBFC, a license must be obtained from the RBI under Section 45-IA of the RBI Act of 1934. The financial institution seeking NBFC registration must first be duly registered under either the Companies Act of 2013 or the earlier Act of 1956. RBI rigorously regulates and ensures that NBFCs comply with the provisions and regulations outlined in Chapter III B of the RBI Act. The primary business activity of NBFCs is to raise capital from the public, depositors, and investors, and subsequently lend these funds to borrowers. NBFCs serve as intermediaries that connect investors or depositors with borrowers. They have emerged as a viable alternative to the traditional banking and financial sector by offering financial solutions to the unbanked and unorganized segments of society.