|
An NBFC is registered under the Companies Act of 1956 which are engaged in the business of stock, acquisition of shares, loans and advances, chit business or insurance business, but it does not include any institution whose business is that of industrial activity, agricultural activity, and construction/sale/purchase of any immovable property.
An NBFC is registered with the RBI and if not so then it's considered as a fraudulent company. According to section 45-IA of the RBI act, it is mandatory for any NBFC to register and if they fail to do so they cannot conduct business.
Can NBFCs be called as Banks?
NBFCs are not banks as they do not accept deposits and also are confined to certain rules and regulations. They offer services such as supporting investments in property, credit facilities, private education funding, trading money market instruments, money transfers, savings, mutual fund, underwrite shares and stocks, retirement planning, wealth management, deposits through debit investments, advise companies in acquisitions and mergers etc.
NBFCs get major margins from investing in agricultural equipments and as they are confined to government rules and regulations, they cannot have huge interest rates.
India is an agrarian country, where major of its population lives under the semi-urban and rural areas. The people living in this area are mostly farmers, suppliers, tractor holders etc and it's very often that farmers require loans to carry on their business. These farmers find it easier to approach NBFCs for finances. As the new law regulates these NBFCs, there are no soaring interest rates and also the credit system has been upped in the last 5 years providing for better loans at reasonable interest rates. The NBFCs further have built strong relations in rural India, local presence, and sturdy customer relationships. As many local borrowers don't have the proper documentation and are often rejected by state and national banks, this is when an NBFC understands and tries to work the whole transaction. (Article contributed by IIFL)
|
