Category Archives: BANKING

Non Banking Financial Institutions

Non – banking financial institutions or companies perform banking operations. These institutions do not have banking licenses. That is why these institutions cannot receive deposits as they do not have banking licenses. They can offer other financial services.

Non-banking financial companies perform shadow banking. These institutions must register themselves under companies Act 1956 in India. Working conditions and rules and regulations of these companies runs under rules and regulations formulated by Reserve Bank of India (RBI).

Only limited and restricted information they access which is for know your customer (KYC). Other than this these companies cannot access more informations of individuals.

Types of Non banking Financial Companies (NBFC):

  1. Asset Financial Company (AFC): This supports lending and the managing of finances related to physical assets such as automobiles, tractors, cranes, generators and so on.
  2. Investment Companies (IC): This deals with assets for management of securities.
  3. Loan Company (LC): This provides loans and advances to companies other than own.
  4. Infrastructure Financing Company: Provides credit infrastructure companies.
  5. Infrastructure Debt Fund (IDF): Provides long-term debt to infrastructure companies. It can provide currency bond of the five-year maturity to these companies.
  6. Gold Loan NBFC: In India the amount of NBFC related to gold loan is on increase. Due to rise of gold price people are going to these institutions for loans. Aggressive and faster approval and increase of loan to value provides increase of such institutions.
  7. Residuary Non banking companies (RNBC): Residuary non banking companies comes under such non banking companies that receives funds not through investment but it has its own source of money.

Functions of non banking financial companies (NBFC):

  1. It provides financial and banking services to people without banking licenses.
  2. Demand deposits are no for NBFCs.
  3. Banks perform payment in terms of loan and then go for settlement, but NBFC has no right in this.
  4. It cannot issue checks.
  5. It cannot enagae in agricultural, mineral and primary non movable sectors.
  6. 100% foreign investment allowed.

In some states of India, micro-finances comes under heavy criticism. Allegation is that they cheat poor and downtrodden with high interest and then use coercive force to collect money from them. Some small and micro finances evaporated after an allegation of irregular activities. A stronger and stringent measure and action is the need for the hour.

There are allegation that many small finances illegal take money from people in the name of refunding them on higher intrest rates and when the payment time comes they and their offices disappear all of a sudden. It needs a stronger law and stronger and vigilant law enforcing authorities to disperse these illegal activities.

People on the other hand needs to acknowledge and invest their hard earned money in good sources. Especially in nationalised banks which RBI and Governement of India recognises. It is important for people to seek entire details of these instituions before investment.

Article Updated on 3 April 2019
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