Explain the role of NBFCs in capital market
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The role of NBFC :
NBFCs (Non Banking Financial Companies) play an important role in promoting inclusive growth in the country, by catering to the diverse financial needs of bank excluded customers. Further, NBFCs often take lead role in providing innovative financial services to Micro, Small, and Medium Enterprises (MSMEs) most suitable to their business requirements. NBFCs do play a critical role in participating in the development of an economy by providing a fillip to transportation, employment generation, wealth creation, bank credit in rural segments and to support financially weaker sections of the society. Emergency services like financial assistance and guidance is also provided to the customers in the matters pertaining to insurance.
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Answer:
Non-Banking Financial Companies in India: Types, and Supervision
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Here is your paragraph on the definitions, types, and supervision of the non-banking financial companies:
The Non-Banking Financial Companies (NBFCs) which are heterogeneous in nature in terms of activity and size are important financial intermediaries and an integral part of the Indian Financial system.
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They can help to fulfill the credit needs of both wholesale and retail customers. Their number is increasing considerably, while their functions and services they render are different.
Definition:
According to the Reserve Bank of India (Amendment Act) 1997, A Non-Banking Finance Company means:
(i) A Financial Institution which is a company;
(ii) A non-banking institution which is a company and which has as its principal business the receiving of deposits under any scheme or arrangement or in any other manner or lending in any manner;
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(iii) Such other non-banking institution or class of such institutions as the bank may with the previous approval of the Central Government specify.
The definition excludes financial institutions besides institutions which carry on agricultural operations as their principal business. Non-banking finance companies consist mainly of finance companies which carry on hire purchase finance, housing finance, investment, loan, equipment leasing or mutual benefit financial companies but do not include insurance companies or stock exchanges or stock-broking companies.
Types of NBFCs:
The Non-Banking Finance Companies operating in India fall in the following broad categories.
(1) Equipment Leasing Company is a company which carries on as its principal business, the business of leasing of equipments or the financing of such activity. Apart from their Net Owned Funds (NOF), the leasing companies raise finds in the form of deposits from other companies, banks and the financial institutions.
Public deposits and inter-corporate deposits account for 74 percent of their total funds. Leasing is a form of rental system. A lease is a contractual arrangement whereby the lessor grants the lessee the right to use an asset in return for periodical lease-rent payments.
There are two types of leasses (i) operating lease, and (ii) financial or capital lease. The operating lease is a short-term lease which can be cancelled. Financial lease is a non-concealable contractual commitment.
(2) Hire Purchase Finance Company is a company which carries on as its principle business, hire purchase transactions or the financing of such transactions. The sources of hire-purchase finance are
(i) Hire purchase Finance Companies.
(ii) Retails and Wholesale Traders.
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(iii) Bank and Financial Institutions.
Explanation:
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(iii) Bank and Financial Institutions.