Name: SUMANTH B NALIGE

SURYA S

Class: SECTION D Concept Review: NBFC Date: 06/08/2009

Article Details: NON-BANKING FINANCIAL COMPANY

About the Concepts: Non-Banking Financial Company’s are financial institutions

that provide banking services without meeting the legal definition of a bank. i.e.
one that does not hold any banking license.
On the other hand, Non banking financial company is a heterogeneous group of
institutions that is registered under the company’s act, 1956 and is engaged in the
business of loans, advances, acquisition of shares/stocks /debentures/ securities.
They also raise funds from the public, directly or indirectly, and lend them to
ultimate spenders.

Importance of the Concept: Non-Banking Financial Companies (NBFCs), such as

equipment leasing/hire purchase finance companies, have made great strides in recent years
and are meeting the diverse financial needs of the economy. In this process, they have
influenced the direction of savings and investment. The resultant capital formation is
important for our economic growth and development. NBFC s that succeed are likely to do
so by making the most of their ability to contain risk, adapt to changes and tap demand in
markets that are likely to be avoided by the bigger players. Risk containment is critical in
the financial sector. For a category supposed to cater to the relatively riskier areas, top-rung
NBFC s have proved the most adept at containing risks. The small size of the loans coupled
with a better collection mechanism resulted in effective risk containment by the NBFC s.

Applications of the Concepts: NBFC s are the institutions that provide loans to
companies, public, pension schemes and they almost work like a normal bank with the
same features such as lending and borrowing of funds and accepting deposits.

Registration of an NBFC: The registration process involves submission of an

application by the company in the prescribed format along with necessary documents for
RBI’S consideration Once the requirements are satisfied the bank issues a ‘Certificate of
Registration’. Only those NBFC s holding a valid certificate of registration can
accept/hold public demonstration.

References: Ebsco
Wikipedia