What is NBFC and it functions?

What is NBFC? – NBFC stands for Non-Banking Financial Company. It is a type of financial institution that provides financial services and products similar to banks, but it does not hold a banking license. NBFCs are registered under the Companies Act, 2013 and regulated by the Reserve Bank of India (RBI).

Functions of NBFCs

The functions of NBFCs in India are as follows:

  1. Credit intermediation: NBFCs provide credit facilities to individuals and businesses, including loans, leasing, hire-purchase, and factoring services. They also offer various types of consumer finance, such as personal loans, auto loans, and home loans.
  2. Investment activities: NBFCs invest in various types of securities such as stocks, bonds, and other financial instruments. They also provide services like asset management, portfolio management, and wealth management.
  3. Payment and settlement services: NBFCs offer payment and settlement services such as money transfer, electronic clearing services, and payment gateway services.
  4. Advisory services: NBFCs offer financial advisory services to clients, which include financial planning, investment advice, and risk management services.
  5. Microfinance: NBFCs play an important role in providing microfinance services to small and micro businesses and low-income households. They provide loans and other financial services to this sector, which often lacks access to traditional banking services.

NBFCs are important in the Indian financial system because they provide credit to sectors that are underserved by traditional banks. They also play a key role in financial inclusion by providing credit to the unbanked and underbanked sections of society. However, as they are not banks, they have some limitations in terms of the type of services they can offer and the regulatory framework they operate under.

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