Non Banking Financial Company (NBFC) in India – Role and Importance

Non Banking Financial Company (NBFC)

Role and Importance of Non Banking Financial Company (NBFC) in India

(a) A financial institution that is a company

(b) A Non-banking institution that is a company whose principal business is the receiving of deposits

(c) Such other institution registered with RBI with prior approval of Government

A Non Banking Financial Company supplement banks by providing the infrastructure to allocate surplus resources to individuals and companies with deficits.  It also produces competition in the financial services industry.  NBFC’s keep their services flexible to meet the needs of specific client.  NBFCs may specialize in one particular sector and develop an information advantage.  It enhances competition through unbundling targeting and specializing.

Roles of a Non Banking Financial Company

As recognized by the RBI the specific roles of a Non Banking Financial Company are

  1. Development of sectors like transport and infrastructure

  2. Substantial employment generation

  3. Help and increase wealth creation

  4. Broad base economic development

  5. To finance economically weaker section

  6. Huge contribution to state exchequer

  7. Irreplaceable supplement to bank credit in rural segments, major thrust on semi-urban, rural areas and first time users.

NBFCs are spread all across the country with more than 13,000 + players registered with the RBI. Approx. 570 NBFCs are authorised  to  accept  public  deposits. Assets  worth Rs. 15000 crores are financed annually. Asset financing includes providing finance for commercial vehicles, passenger laws, multi-utility vehicles, construction equipment and consumer durables.

Role of Non Banking Financial Company in Economic Development

NBFCs aid in economic development in the following ways –

  1. Mobilization of Resources – It converts savings into investments

  2. Capital formation – Aids to increase capital stock of a company

  3. NBFC`s provide long term credit and Specialized credit

  4. Aid in employment generation

  5. Help in development of financial markets

  6. Helps in attracting foreign grants

  7. Helps in breaking the vicious circle of poverty by serving as government’s instrument

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