Non-Banking Financial Companies(NBFCs) are financial institutions that provide financial services without holding a banking license. NBFCs raise funds from the public, including individuals and corporates, and provide a range of financial services such as loans, leasing, hire purchase, insurance, and investment-related services.
NBFCs can raise funds through various sources, such as fixed deposits, debentures, commercial paper, and bank loans. They use these funds to provide loans to individuals and businesses, invest in securities, and engage in other financial activities.
NBFCs work by raising funds from the public and using those funds to provide loans and other financial services. NBFCs can raise funds through various sources such as deposits, commercial paper, bonds, and bank loans. Once they have raised funds, they use them to provide loans to individuals and businesses, invest in securities, and engage in other financial activities.
NBFCs earn a profit by charging a higher interest rate on the loans they provide compared to the interest rate they pay on the funds they raise. They also earn a profit through fees and commissions charged for their financial services.
NBFCs also face risks such as credit risk, interest rate risk, liquidity risk, and operational risk. To manage these risks, NBFCs follow strict risk management practices, maintain adequate capital, and comply with prudential norms set by the RBI.
The main difference between banks and NBFCs is that banks can accept demand deposits, issue checks, and provide credit cards, while NBFCs cannot. However, NBFCs can provide loans and other financial services that are similar to those offered by banks.
NBFCs are regulated by the Reserve Bank of India (RBI) under the RBI Act, of 1934. The RBI issues guidelines and regulations to ensure that NBFCs operate in a safe and sound manner and that they comply with prudential norms such as capital adequacy, asset quality, and liquidity.
