NBFCs or Non-banking financial company in India is a financial institution that offers financial services without any bank licenses. They are allowed to carry out some banking activities; however, they do not need any pre-banking permits for such a task. NBFCs in India operates under the companies act which came into effect in 1956. Services provided by NBFCs include financial investment, hire purchase, and chit funds. Generally, these institutions are not enabled to take standard demand deposits– conveniently available funds, such as those in checking or savings accounts– from the general public. Their principal activities should not be that of farming, industrial business, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of the unmovable property. This restriction keeps them outside the extent of traditional oversight from regulatory authorities.
There are various kinds of Non-banking Financial Companies in India, such as loan companies, asset finance companies, as well as investment companies. The primary objective of the loan companies is to give loans and advances. Asset finance companies offer the financing the properties of business like machines, tools, and so on while the investment companies generally deal in securities. There are specific standards that RBI has mandated for Non-Banking Financial Business in India.
NBFCs must have a reserve of more than 5% but less than 25%. NBFCs do not require commercial licenses, but they do need to get a registration certification from RBI to carry their business. Some examples of NBFC’s are Power Finance Corporation Limited, Shriram Transport Finance Company Limited, Bajaj Finance Limited as well as Mahindra & Mahindra Financial Services Limited.