Page 89 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes Introduction

The Reserve Bank of India defines a non-banking financial company as, "A Non-banking Financial
Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the
business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued
by Government or local authority or other securities of like marketable nature, leasing, hire-
purchase, insurance business, chit business but does not include any institution whose principal
business is that of agriculture activity, industrial activity, sale/purchase/construction of
immovable property. A non-banking institution which is a company and which has its principal
business of receiving deposits under any scheme or arrangement or any other manner, or
lending in any manner is also a non-banking financial company (Residuary non-banking
company)."

7.1 Concept of Non-banking Financial Companies

Non-banking financial companies frequently acts as:
1. Suppliers of loans and credit facilities,
2. Supporting investments in property,

3. Trading money market instruments,
4. Funding private education,
5. Wealth management such as managing portfolios of stocks and shares and underwrite
stock and shares, TFCs and other obligations,
6. Retirement planning,
7. Advise companies in merger and acquisition,
8. Prepare feasibility, market or industry studies for companies,
9. Discounting services e.g., discounting of instruments.

However they are not allowed to take demand deposits from the general public and consequently
have to find other means of funding their operations such as issuing debt instruments.
Depending upon their nature of activities, non-banking finance companies can be classified into
the following categories:
1. Development finance institutions
2. Leasing companies

3. Investment companies
4. Housing finance companies
5. Venture capital companies

6. Discount and guarantee houses
7. Underwriting practitioners.

7.2 Guidelines of Non-banking Financial Companies

Recent years have witnessed significant increase in financial intermediation by the NBFCs. This
is reflected in the proposal made by the latest Working Group on Money Supply for a new

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