definition # NBFC and its regulation # kinds or types of NBFC and their activities # benefits of NBFC # services provided by NBFC # functions or role of NBFC # NBFC V/s commercial banks

1. NON BANKING FINANCIAL
COMPANY
BY-
P. SAI PRATHYUSHA
M.COM (BUSINESS FINANCE)
PONDICHERRY UNIVERSITY

2. DEFINITION
Non- banking financial company is a company registered
under companies act 1956(2013) of India engaged in the
business of giving loans and advances, acquisition of
shares, stocks, bonds, hire purchase, insurance business
lease or chit fund business but does not include any
institution whose principal business is that of agriculture,
industrial activity, purchase and sale of goods or providing
any service and sale or purchase or construction of
immovable property.

3. NBFC AND ITS REGULATION
NBFC is regulated by RBI, SEBI. SEBI regulates
business such as merchant banking, stock broking,
venture capital funds and collective instrument
schemes.
NBFC is regulated by MCA (ministry of corporate
affairs). MCA regulates business such as Nidhi
company.
NBFC is regulated by NHB (national housing bank)
which controls housing financing companies.
NBFC is regulated by IRDA which regulates insurance
companies.
NBFC is regulated by state government which

4. KINDS OR TYPES OF NBFCs
 NBFC - Asset finance company
 NBFC - investment company
 NBFC - infrastructure finance company
 NBFC - systematically important core investment company
 NBFC - infrastructure debt fund
 NBFC - micro finance institutions
 NBFC - factors
 NBFC – mortgage guarantee companies
 NBFC – Non operative financial holding company
 NBFC – Account aggregator
 NBFC – peer to peer lending platform
 NBFC – loan company

5. TYPES OF NBFCs AND THEIR
ACTIVITIES
Asset finance company – financing of physical assets supporting
productive or economic activity including automobiles, tractors
and generators.
Loan company – providing finance by extending loans or otherwise for
any activity other than its own but does not include an asset finance
company.
Investment company – acquiring securities for the purpose of selling
Infrastructure finance company – providing infrastructure loans.
Systematically important core investment company – acquiring shares
and securities for investment in mainly equity shares.
Infrastructure debt fund – for facilitating flow of long term debt into
infrastructure projects.

6. TYPES OF NBFCs AND THEIR ACTIVITIES
cont……
Micro finance institutions – extending credit to economically
disadvantaged groups as well support micro, small and medium
enterprises.
Factor – undertaking the business of acquiring receivables of an
assignor or extending loans against the security interest of the
receivables at a discount.
Non operating financial holding company – for permitting promoter
or promoter groups to set up a new bank
Mortgage guarantee company – for undertaking mortgage activities
Account aggregator – collecting and providing the information of
customer’s financial assets in a consolidated, organised and
retrievable manner to the customer or other as specified by the
customer.
Peer to peer lending- providing online platform to bring lenders and

7. BENEFITS OF NBFC
 Easily accessible
They offer customer oriented services and
simplifying procedures which attracts the rate
of interest
Flexibility
Saving of time

8. SERVICES PROVIDED BY NBFCs
Generally the type of services provided by NBFCs can be looked at two
angles- lending and deposits.
Hire purchase services by NBFCs:- Under this system the seller
delivers the goods to the buyer without transferring the ownership of
goods. The payment for the goods will be made by the buyer in
installments if the buyer pays all the installments the ownership of
the goods will be transferred on payment of the last installment. Eg:
Hero Honda motor finance company and Sanjay Auto finance company.
Rural financing by NBFCs:- Providing finance for farm loans and small
commercial vehicles.
Retail financing by NBFCs:- Providing short term funds for loan against
shares, gold, property, basically for consumption process.
Trade finance by NBFC:- dealer or distributor finance for meeting
working capital requirements, vendor finance and other business loan.

9. SERVICES PROVIDED BY NBFCs
cont.….
Infrastructural funding by NBFC:- This segment alone makes up a
major portion of funds lent. This includes real estate, flyovers, ports,
airports, etc.,
Asset management company:- it consists of those fund managers who
invest the funds pooled by small investors to actively manage it.
Leasing services by NBFCs:- leasing is an arrangement between lessor
and lessee. Lessor is the owner of the asset and lessee is the user of
the asset. In leasing the lessor may transfer the asset to the lessee for
a consideration called lease rental for a fixed period of time. NBFC
may help to purchase land or building on lease
Venture capital services by NBFC:- venture capital invests in those
companies that are in their early stages, considered as risky and has
potential success and could promise sufficient return to justify such
gamble.

10. SERVICES PROVIDED BY NBFCs
cont.….
Micro small medium enterprise financing:- MSMEs forms a
crucial part of the economy. NBFC provides funds to MSME
units.
There are other services that are handled by NBFC such as
underwriting, stock broking, merchant banking, portfolio
management services, giving credit rating to other
companies, etc.
Helps in mobilization of savings, provision of easy credit,
acting as a financial super market, channelizing funds for
productive purposes, encourages saving habit among
people, providing housing finance, increases the standard
of living, promoting economic development, rendering

11. FUNCTIONS OR ROLE OF NBFCs
It plays an important role in promoting inclusive growth in the
country by catering to the diverse financial needs of bank excluded
customers.
It provides innovative financial services to MSME, which is most
suitable for their business requirements.
Plays a crucial role in participating in the development of an
economy by providing finance to transportation.
Helps in employment generation
Helps in wealth generation
Establishes bank credit in rural segment and supports financially
weaker segments of the society.
Provides emergency services like financial assistance of guidance.

12. FUNCTIONS OR ROLE OF NBFCs
cont….
Provides small term loans for affordable housing projects
It contributes largely to the economy by lending to infrastructure
projects
Helps in mobilization of resources where it converts savings into
investments
Helps in development of financial markets by providing loans and
advances to purchase shares, stock, bonds and debentures,
securities issued by government or local authority
Helps in authenticating foreign grants
Helps in breaking vicious cycle of poverty by serving as fund
providers
It has become prominent in India in wide range of activities like hire

13. COMMERCIAL BANKSBASIS NBFC COMMERCIAL BANK
MEANING Provides banking services to people without
holding a bank license
It is a government authorized intermediary that
aims at providing banking services to general
public.
INCORPORATED
UNDER
Companies Act 1956 Banking regulation Act 1949
DEMAND DEPOSIT Not accepted Accepted
FOREIGN INVESTMENT Allowed up to 100% Allowed up to 74% for private sector banks
PAYMENT AND
SETTLEMENT SYSTEM
Not a part of the system Integral part of the system and provides
services like RTGS, NEFT, UPI, debit and credit
cards, EFT, etc.
CREDIT CREATION Do not create credit Creates credit
LEGAL RESERVE RATIO No such requirement Maintains CRR and SLR as per regulations of RBI
SCOPEOF BUSINESS Various types of business regarding financial
activities
It is limited
NEED FOR A LICENSE Easier to get registration as a NBFC License norms are tightly controlled
TYPE OF GROUP Heterogeneous group Homogeneous group
REGULATION Much lesser control over NBFC Banking Regulation act and RBI act lay down
the stringent control over bank

14. THANK YOU!!!!!