NBFCs and their types
The finance sector has revolutionized since NBFC in India has emerged in the economic domain. Non-Banking Financial Companies or NBFCs have witnessed rapid growth due to their alternative lending roles compared to traditional banks.
NBFC in India has regularly met the credit demand that was left out like a gaping wound by the country’s traditional banks in the event of economic crises. Based on their functions, NBFCs are broadly classified into these types:
- NBFCs that accept deposits from banks (NBFC-D)
- NBFCs that do not accept or hold public deposits (NBFC-ND)
- Core Investment Companies(CIC)
- Asset Finance Company (AFC)
- Infrastructure Finance Company(IFC)
- Investment Company(IC)
- Loan Company(LC)
- Micro Finance Institution(MFI)
The rising popularity of NBFCs
Established under the Companies Act 1956, NBFC in India is engaged in major financing activities that enhance competition and diversify the financial sector. Due to its complementary role to the banking sector at lower prices, NBFCs have become an essential part of the Indian financial system.
The total number of NBFCs has grown immensely in the past few years ever since retail businesses, venture capital companies, and large-scale industrial companies have donned the hat of the lending business leaders. Recognized as a crucial financial intermediary, NBFC in India is particularly growing because of inclusive models for small-scale and retail sectors in both rural and urban populace. Being a heterogeneous entity of financial institutions, they have an abundance of services like personal loans, hire purchase finance, lease finance, working capital loans, housing loans, vehicle financing, loans against shares, etc.
Why NBFCs over banks are preferred by the majority
Unlike traditional lending in banking sectors, NBFCs have introduced several innovative products like three-wheeler financing, infrastructure financing, vehicles financing, construction financing, IPO financing, mutual fund distribution, small personal loans, asset management, and insurance advisory, and so on.
NBFCs are preferred over banks by the majority because they aspire to be the one-stop-shop for all kinds of financial services that are all-encompassing, inclusive, and diversified. Especially in the past few years, NBFCs have created niches for themselves that the banking sector has neglected for a long time. These include financing for the non-salaried individuals, transporters, traders, stockbrokers, and those who do not have direct access to banking facilities.
Another reason NBFCs are popular over banks is that they have offered financing in riskier segments like purchase financing, unsecured loans, funding for commercial vehicles, capital market lending, etc.
Types of Services that NBFCs provide in India
NBFC in India offers a broad range of services, as can be seen on the site of the Cashfree payment. Some of these services are mentioned below:
Under credits, NBFC in India provides advance credit facilities, acquisition of shares, bonds, stocks, investment plans, and hire-purchase.
NBFC in India allows for gold loans, loans against shares, loans for consumer durables and two-wheelers, Microfinance, unsecured personal loans, etc.
This includes private education funding, funding for commercial vehicles and cars, funding for infrastructure assets, funding construction equipment, and funding for tech plants and machinery.
Project finance, retail financing, trade finance, venture finance, small and medium-sized enterprises financing, specialized equipment financing, etc.
Operating leases of cars, financial leases, and other commodities operating Lease
6. Miscellaneous Services
NBFC in India further provides TFCs (Term Finance Certificate), underwriting stocks and shares, retirement planning, wealth management, trading in money markets, and handling portfolios of stocks, shares, and discounted services.
Other than the above categories, NBFC in India has now expanded to the non-bank lending sector, popular as peer-to-peer lending or P2P lending. P2P has been quite instrumental due to its power of social networking that assists in bringing like-minded people together for a common purpose.