India’s financial sector is huge; it comprises commercial banks and NBFC. The non-banking financial company offers various banking services without a banking license such as loans and credit facilities, retirement, planning money markets underwriting, and major activities. NBFC’s may be small but they are important and this is true especially because at least seventy percent of the population in India lives in rural areas and most of them are catered by NBFCs. This is also the main reason why getting NBFC registration is profitable. NBFC’s are not subjected to the banking regulations and oversight by the government authorities. Various types NBFC’s can be as follows –
Types of Non-Banking Financial Company-
NBCF’s can be categorized on the following basis :
- On the basis of activity, it conducts.
- On the basis of deposits.
- Asset Finance Company (AFC): An Asset finance company is a Non-Banking financial company that is engaged in the business of financing physical assets such as Automobiles, Industrial Machines, Tractors, etc.
- Investment Company(IC): A company that carries out the principal business of acquiring securities is known as an Investment Company.
- Loan Company (LC): Loan Company is a financial institution that carries out the principal business which provides loans and advances for any activity but does not include the Asset Finance Company.
- Infrastructure Finance Company (IFC): The goal of this company is to obtain conditions like, deploys at least 75 percent of its total assets in infrastructure loans, Having a minimum net owned funds of three hundred crores, Having a minimum credit rating of ‘A’ or equivalent, Having CRAR of fifteen percent.
- Infrastructure Debt Fund – Non-Banking Financial company (IDF-NBFC): It is an NBFC that provides long-term debt for infrastructure projects. IDF-NBFC shall be sponsored by IFC.
- Mortgage Guarantee Company: It is a financial institution for which at least ninety percent of the business turnover is from mortgage guarantee business or at least ninety percent of gross income is from mortgage guarantee business and the net owned fund is one hundred crores.
- Non- Banking Financial Company – Micro Finance Institution: It is a non-deposit taking NBFC having not less than eighty-five percent of its assets in the nature of qualifying assets that satisfy the criteria prescribed.
- Systemically important Core Investment Companies: Systematically Important Core Investment company is a Non-Banking Financial Company that is engaged in the business of obtainment of stakes and insurances and satisfies the prescribed circumstances.
- Non-Banking Financial Companies – Factors: It is a non-deposit taking NBFC carrying in the principal business of factoring.
- Non-Banking Financial Company – Non-operative Financial Holding Company: It is a configuration of a new bank started by the proponents.
Why smart technologies are important?
- If Non-Banking financial is embraced with smart technologies today it will build strong reachability by moving from legacy systems to cloud and Artificial Intelligence.
- This Artificial intelligence will be helpful to assist NBFCs to access customers efficiently and effectively.
- This smart technology helps by saving NBFC’s from frauds and they would help to build a fraud-free database.
- These fraud-free customers will be calculated based on workflow.
- These smart-systems will give us the informed decisions, new product ideas, and strategies to grow the business network.
- The use of smartphones would be seen a lot and it would be beneficial if the government initiatives would get involved with these smart technologies plan, for instance, Aadhaar pay or Direct Benefit Transfer.
- Adopting smart technologies in Non-Banking financial companies may reduce the manpower and workload.
- This may be one of the fast services and the customer can make the payment from any location irrespective of the device.
What is the Crisis of NBFC –
- After NBFC incorporation, these entities become eligible to borrow money from the banks to sell commercial papers to mutual funds to raise money.
- This money is then given as a loan to small and medium enterprises, retail customers, and so on.
- But when NBFCs face a liquidity crunch, this may lead to an NBFC crisis.
To Conclude:
In 1965, chapter 3B was introduced to bring Non-Banking Financial Company under the Reserve bank of India, this was before the financing business was covered under The Companies Act, A separate regulatory framework was introduced in 1991 the Indian economy witnessed liberalization, Privatization, and globalization. In 1992, Measures for the effective regulation of the industry were suggested, which ranged from compulsory registration to Prudential Norms. In 1997 the Reserve bank of India Amendment Act made it compulsory for NBFC’s to start operations during the great recession from 2007 to 2009 the credit demands were unmet by traditional banks which led to the proliferation and rapid and gigantic growth of NBFC. They have grown significantly over the last decade with a total assets size if more than three hundred and seventy billion dollars in India, which means they provided up to twenty percent of all credit in India till March 2018 not only that the NBFC contributed to at least twenty-two percent of leading every year. Interestingly NBFCs are more profitable than traditional banks, that is because NBFCs have lower costs and inexpensive loans. The amount of money that NBFCs lend to customers are higher than the banking sector. NBC’s contribute largely to the economy by lending to infrastructure projects which require a large number of funds. They earn profits only over a longer time frame and NBFCs promote inclusive growth by catering to customers in both urban and rural areas. Non-Banking financial companies provide finance project for small scale companies and they provide small-ticket loans for affordable housing projects. In the future of NBFCs may look tremendous to encounter strong growth with minimal representatives of negligence that is if the credit flow does not stop and the risk mitigation mechanisms improve. Few examples of Non-Banking financial companies in India are – Bajaj Finance Limited this company provides wealth advisory and they do lend money with general insurance. Mahindra and Mahindra financial services limited, offering gold advances, vehicle advanced, home credits, and so on. Muthoot Finance Limited is a parent company of Muthoot Housing finance they provide gold loans and finance markets. The mentioned above companies are popular among these Non-Banking financial companies.