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NBFC s are financial institutions that provide banking services without meeting the legal definition of a bank, i.e.

one that does not hold a banking license. These institutions are not allowed to take deposits from the public. Nonetheless, all operations of these institutions are still exercised under bank regulation.[1] However this depends on the jurisdiction, as in some jurisdictions, such as New Zealand, any company can do the business of banking, and there are no banking licenses issued. Introduction Definition Services Provided by NBFCs Classification of NBFCs Overview of NBFCs Role of NBFCs Introduction o Non-Banking Financial Companies are very important. o NBFCs are financial intermediaries engaged primarily in the business of accepting deposits delivering credit. o They play an important role in channelizing the scarce financial resources to capital formation. o NBFCs supplement the role of banking sector in meeting the increasing financial needs of the corporate sector, delivering credit to the unorganized sector and to small local borrowers. o All NBFCs are under direct control of RBI in India. NBFCs - Definition NBFCs are defined as, Non-Banking financial company (NBFC), Which is a loan company or an investment company or a hire purchase company or an equipment leasing company or a mutual benefit finance company. Services o NBFCs provide a wide range of services such as, o A Hire purchase o Equipment lease finance o Loans and investments o Due to the rapid growth of NBFCs and a wide variety of services provided by them, there has been a gradual confusion between Banks and NBFCs except that commercial banks have the authority to issue cheques. Classification of NBFCs o Equipment Leasing Company o Hire Purchase Company o Investment Company o Loan Company o Miscellaneous Non-Banking Companies (Continued) o Equipment Leasing Company o Equipment Leasing Company means the company which is a financial institution carrying on the activity of leasing of equipments as its main business. Hire Purchase Company o It is a company which is a financial institution carrying on its main activity as hire purchase transactions or the financing of such transactions. Investment Company o It means a company which is a financial institution carrying on as its main business of the acquisition of securities. Loan Company o It means any company which is a financial institution carrying on as its main business by providing finance whether by making loans or advances. Miscellaneous Non-Banking Companies
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Miscellaneous Non-Banking Companies are the companies engaged in the chit fund business. Overview Of NBFC Sector o NBFCs have seen considerable business model shift over last decade because of regulatory environment and market dynamics. o Majority of NBFCs were not able to face the pressure created on, and were wiped out. o However, since 2001-2002, there has been significant improvement in the business model of existing NBFCs. Continued o In the early 2000s, the NBFC sector in India was facing following problems: o High cost of Funds o Slow industrial growth o Stiff competition with NBFCs as well as with banking sector o Small balance sheet size resulting in high cost of fund and low asset profile o Nonperforming assets Role of NBFCs o As recognized by RBI and expert committees Development of sectors like Transport & Infrastructure Substantial employment generation Help & increase wealth creation Broad base economic development Irreplaceable supplement to bank credit in rural segments major thrust on semi-urban, rural areas & first time buyers / users To finance economically weaker sections Huge contribution to the State exchequer Role of NBFCs (Contd...) o 70-80% of Commercial Vehicles are finance driven Indian economy is more dependent on roads Heavy Govt. outlay for mega road projects Heavy replacement demand anticipated 30 lacs commercial vehicles by the year 2007 Another Rs.6000 Crores required for phasing out old commercial vehicles CRISIL in its study has placed commercial vehicle financing under low risk category Each commercial vehicle manufactured, sold and financed gives employment to minimum 20 persons (direct and indirect) Other Customer Services o NBFCs provide financial assistance to their borrowers in case of emergency needs o NBFCs provide assistance and guidance to their customers in matters relating to insurance