Types of NBFCs in India - NBFC (Non Banking Finance Companies) - Bajaj Finance Limited (2024)

In the ever-expanding financial ecosystem in India, Non-Banking Financial Companies (NBFCs) play a crucial role in providing diverse financial services to different segments of the population. NBFCs have witnessed remarkable growth and significance in recent years. They engage in financial services in a variety of ways, such as accepting deposits, providing secured and unsecured loans, leasing, hiring purchases, and more.

What is NBFC?

While we know that NBFC stands for Non-Banking Financial Company, let’s understand in a little more detail what an NBFC is.

NBFC is an institution that provides financial services similar to traditional banks but does not hold a banking license. NBFCs are an important part of the financial ecosystem, especially in countries like India, where they play a crucial role in bridging the credit gap and promoting financial inclusion. In India, NBFCs are regulated and supervised by the Reserve Bank of India (RBI) under the provisions of the RBI Act, of 1934.

Everything about NBFCs in India

Non-banking financial companies (NBFCs) in India are financial institutions that provide banking services without meeting the legal definition of a bank. They offer various financial products, such as loans, credit facilities, and investment services. NBFCs play a crucial role in extending financial inclusion by reaching underserved segments. The Reserve Bank of India (RBI) regulates and supervises an NBFC company, imposing prudential norms to ensure their stability. They contribute significantly to the Indian financial landscape, fostering economic growth and supporting diverse financial needs.

How does an NBFC company work?

Non-banking financial companies (NBFCs) operate by raising funds through deposits, loans, or other financial instruments, excluding traditional demand deposits. NBFC companies in India lend to individuals, businesses, or other entities, often focusing on specific sectors or niches. NBFCs earn revenue through interest on loans, fees, and other financial services. Regulatory compliance, risk management, and maintaining liquidity are essential aspects of their operations. NBFCs play a vital role in complementing traditional banking services, catering to a diverse range of financial needs.

What are the types of NBFCs in India?

Listed below are a few types of NBFCs in India and their respective contributions to the nation's financial landscape.

1. Asset Finance Companies (AFCs)

Asset Finance Companies, as the name suggests, primarily engage in financing assets such as machinery, vehicles, equipment, and other tangible assets. AFCs cater to individuals, small and medium-sized enterprises (SMEs), and corporates by offering customised financing solutions for the acquisition of essential assets. By providing loans and lease options, AFCs help businesses expand their operations while also promoting economic growth.

2. Loan companies

Loan Companies are significant players in the consumer finance sector, offering personal loans, home loans, education loans, and more. Additionally, they extend credit facilities to businesses in the form of working capital loans, trade finance, and project financing. Loan companies fill the gap left by traditional banks by serving customers with specific financial needs or limited access to formal credit channels.

3. Infrastructure Finance Companies (IFCs)

With the objective of funding infrastructure projects, IFCs play a crucial role in supporting the nation's infrastructural development. IFCs primarily finance projects in sectors like power, roads, telecommunications, and transportation. By providing long-term loans and project-specific funding, IFCs contribute to the creation of robust infrastructure, enabling economic progress and enhancing the overall quality of life.

4. Microfinance Institutions (MFIs)

Microfinance Institutions have emerged as essential players in financial inclusion, targeting the economically disadvantaged sections of society. MFIs provide small loans, also known as microloans to low-income individuals and self-help groups (SHGs). By extending credit to micro-entrepreneurs and marginalised communities, MFIs empower them to establish or expand small businesses, lifting them out of poverty and fostering sustainable livelihoods.

5. Investment companies

Investment companies are predominantly engaged in the acquisition and management of financial assets such as stocks, bonds, mutual funds, and securities. These NBFCs cater to both retail and institutional investors, facilitating investment opportunities across various asset classes. Through their expertise in financial markets, Investment companies contribute to capital formation, mobilising funds for productive use and encouraging responsible investing practices.

6. Systemically Important Core Investment Companies (CICs-SI)

Systemically Important Core Investment Companies (CIC-SI) are a subset of Investment Companies that play a significant role in the Indian financial system. A CIC-SI is an NBFC that holds at least 90% of its total assets in the form of investments in the equity shares, debt, or other financial assets of its group companies. These entities are systematically important due to their potential to impact the stability of the financial sector. To maintain financial stability, the Reserve Bank of India (RBI) regulates and supervises these companies more closely.

The wide array of NBFCs in India showcases the diversity and depth of the nation's financial sector. Each type of NBFC serves specific financial needs and plays a distinct role in contributing to economic growth. From providing asset financing and personal loans to promoting infrastructure development and empowering marginalized communities, NBFCs have become integral to India's financial ecosystem.

As the Indian economy continues to evolve, NBFCs will remain instrumental in channeling funds to different sectors and fostering innovation in financial services. However, policymakers and regulators need to strike a balance between promoting NBFC growth and ensuring their stability to safeguard the overall financial system.Through effective governance and regulations, India's NBFC sector can continue to thrive, catalysing economic progress.

Additional read: Bank or NBFC: Which is Better To Choose

Types of NBFCs in India - NBFC (Non Banking Finance Companies) - Bajaj Finance Limited (2024)

FAQs

Types of NBFCs in India - NBFC (Non Banking Finance Companies) - Bajaj Finance Limited? ›

Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies are NBFCs but they have been exempted from the requirement of registration under Section 45 ...

What are the types of NBFCs in India? ›

Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies are NBFCs but they have been exempted from the requirement of registration under Section 45 ...

Is Bajaj Finance Ltd a NBFC? ›

Bajaj Finance Limited is one of the leading NBFCs in the country, offering a host of products including personal loans, fixed deposits, insurance, and more.

What is a non-banking non-financial company? ›

How many NBFCs are there in India? ›

How many NBFC are in India? Registered NBFCs with Reserve Bank of India (RBI) in India are nearly 10,000 out of which 89 are deposit accepting NBFC.

What are the top 16 NBFC in India? ›

RBI releases list of NBFCs in the Upper Layer (NBFC-UL) under Scale Based Regulation for NBFCs
Sl. No.Name of the NBFC
1LIC Housing Finance Limited
2Bajaj Finance Limited
3Shriram Finance Limited (formerly Shriram Transport Finance Company Limited)
4Tata Sons Private Limited
11 more rows
Sep 14, 2023

Is Bajaj Finance a bank or NBFC? ›

Bajaj Finance Limited (BFL) is an Indian non-banking financial company headquartered in Pune. It is one of the leading non-banking financial companies (NBFCs) of India with a customer base of 73 million and holds assets under management worth ₹270,050 crore (US$34 billion).

What type of bank is Bajaj Finance? ›

('BFL', 'Bajaj Finance', or 'the Company'), a subsidiary of Bajaj Finserv Ltd., is a deposit taking Non-Banking Financial Company (NBFC-D) registered with the Reserve Bank of India (RBI) and is classified as an NBFC-Investment and Credit Company (NBFC-ICC).

Who is Bajaj owned by? ›

The Bajaj family controls the 97-year-old Bajaj Group, best known for motorcycle maker Bajaj Auto and financial services arm, Bajaj Finserv. The group was chaired by Rahul Bajaj, who shared the fortune with cousins Madhur, Niraj and Shekhar. The patriarch died in February 2022 at age 83.

Are there NBFCs in the USA? ›

NBFCs in the United States generally fall under the regulations of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The legislation was passed in 2010 among the broad financial reform within the United States as a response to the 2008 Global Financial Crisis.

How to start a NBFC in India? ›

NBFC Registration Procedure:
  1. Fully filled application form.
  2. Certified copy of COI (Certificate of Incorporation) / MOA / AOA.
  3. Latest audited annual accounts.
  4. Statutory auditor certificate.
  5. Net Worth Certificate of Directors, Shareholders & Company.
  6. Educational qualification documents of the proposed directors.

How is NBFC different from bank? ›

The difference between a bank and NBFC is that a bank is a government-authorized entity that provides banking services to the people, whereas NBFC is a company providing banking services to the people without holding a bank license.

Is NBFC legal in India? ›

RBI is the sole regulatory authority for NBFCs, State Money Lenders Act does not apply to NBFC – State Money Lenders Act does not apply to NBFCs, as they are solely and entirely regulated by RBI. Section 45Q of RBI Act confers overriding effect upon Chapter III-B of RBI Act, 1934 – Nedumpilli Finance Co Ltd.

How safe is NBFC in India? ›

Similar to Bank Fixed Deposits, NBFC Fixed Deposits allow investors to deposit a lump sum amount for a fixed tenure at a predetermined interest rate. These deposits are considered a safe and secure investment option, making them an attractive choice for risk-averse investors.

Can NBFCs give loans? ›

Yes, Non-Banking Financial Companies (NBFCs) are authorised to provide an NBFC personal loan online to individuals. They operate outside the traditional banking system and play a significant role in consumer lending.

How do you classify NBFCs? ›

NBFCs are categorized a) in terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs, b) non-deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and c) by the kind of activity they conduct.

Which is the largest NBFC in India? ›

Shriram Finance:

The largest retail NBFC in India, Shriram Finance provides lending options for business loans, house loans, auto loans, two-wheeler loans, gold loans, and loans for small businesses.

Is Paytm a NBFC? ›

Paytm is a fintech company, and its subsidiary Paytm Entertainment is a non-banking financial institution (NBFC). According to RBI regulations, a company must register as an NBFC if its financial assets account for 50% of its total assets and income.

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