Showing posts with label Non-Banking Financial Companies. Show all posts
Showing posts with label Non-Banking Financial Companies. Show all posts

Tuesday, September 4, 2018

The Stature of Non-Banking Financial Companies


As per the survey reads India is the second largest populated country in the world. The population consists of rural and urban parts of the country. According to the Census conducted in 2011, nearly 70% of the country’s population lives in rural areas where, unemployment is an issue. The growing population is very crucial for the country’s economy. As the rural population is so high it’s a task to sustain the economy. But with changing times, the rural India has fought back many odds and emerged stronger. Many stories of young entrepreneurs from the rural regions are appreciated and applauded. With limited resources and knowledge, entrepreneurs started running small businesses and are achieving new goals every day. This was possible with the help of Non-Banking Financial Companies (NBFCs).

Non-Banking Financial Companies has flourished in the recent times. NBFCs are financial institutes not holding a business license. The fact that it provides banking services that is not abiding the legal definition of a bank is the reason it catches attention of many. The impact and growth set by NBFC have given rise to organizations ready to invest in it. Establishment of such organizations has majorly helped the economically weaker section of society. Due to the various benefits provided by NBFC, it has become a platform for women entrepreneurs to build up their business.

NBFCs is registered under the Companies Act, www.years.it is divided into two main categories which include NBFCs accepting public deposit and NBFCs not accepting public deposit .The services provided by NBFCs are unlimited. NBFCs include Asset Finance, Investment, Loan, Infrastructure Finance, Systemically Important Core Investment, Infrastructure Debt Fund and Non-Banking Financial Company-Micro Finance Institution.

Protocols to Run the System

NBFC must be registered with the Reserve Bank of India (RBI) and have fixed legal authorization to accept deposits from the public. It is obliged to exhibit the Certificate of Registration or a certified copy at the registered office. The registration of NBFC with the RBI solely authorizes it to regulate the business of NBFC.RBI is not responsible for the repayment of deposits approved by NBFCs. NBFCs is strictly forbidden from using the name of RBI in any manner while regulating their business. The Certificate of Registration is an application which is requested by NBFCs .If the Certificate of Registration gets rejected or cancelled by the RBI then it does not authorize to accept new deposits or renew existing deposits.

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The Revival of Non-Banking Financial Companies


India is a country where procuring a loan, is a process which is not just confined to the boundaries of a bank. Banks with all their corporate glamour and credit rating criteria may intimidate a common citizen of our country, which in most parts, still remains a ‘developing country’. Indians are known worldwide for their creativity when it comes to finding a ‘Jugaad’, a colloquial Hindi term for finding a hack to a challenging situation. And find a ‘Jugaad’they did. Lending money for absurd interest rates became a blossoming business opportunity. What started off as a means for farmers without a piece of land to set their business off soon became a common substitute for banks among both the rural and urban population of our country.

Through this crude concept of moneylending led to the rise of small financial institutes which were mainly involved in the business of lending loans and advances, something which was already in practice in other parts of the world. Over time such businesses grew, they were registered under the companies’ act of 1956, India. They expanded the list of services offered. From acquisitions of shares and stocks, purchasing of bonds to the insurance business and the chit fund business, they seemed to have everything covered. It was almost as if they had become a bank without actually becoming one. These businesses came to be known as Non-Banking Financial Companies (NBFC’s).

What made them successful?

Banks tend to scrutinize an applicant thoroughly before issuing a loan. NBFC’s on the other hand, were comparatively easier to accrue a loan from. Such flexible scenarios made such organizations seem lucrative to Indian masses, so much so that it made the people overlook the higher interest rates.

Their flexibility in functioning serves them the advantage of being able to serve a broader range of clientele. For instance multiple NBFC’s are setup with the motive of funding only a particular kind of a business, currently there are NBFC’s dedicated towards helping businesses pertaining to power generation, transport and so many more.

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Participation of Non-Banking Financial Companies in the Economic Development


In the present economic system, Non-Banking Financial Companies are playing a significant role in providing accessible and affordable financial services. The NBFCs are becoming a vital player in financial inclusions indirectly boosting the economy. These companies majorly focus on the business of loans, acquisition of shares, stocks, bonds, debentures and securities allotted by the government, local authority or by other market securities. NBFCs are engaged in maturity transformation and core banking functions. The operations carried out by the NBFCs merely aid threat to growing market thereby leading to the economic development respectively.

Mobilization of Assets

NBFCs allow and provide with the mobilization of resources; funds and capitals. These companies help the mobilization of assets by converting investment into most preferable sets. NBFCs create a balance between intra-regional income and asset distribution. Turning the savings into investment practices, these companies make a wide and strong contribution to the economic development as compared to the traditional bank practices. Such companies work without expecting to gain the maximum profit which clears its idea of economic development and, are also engaged in activities that generate substantial or no revenue. Proper organization of capital will surely help in the development of the trade and industry leading to the economic expansion and progress.

Providing Long-Term Credits

NBFCs play a key role in providing the corporations with funds through equity participation. Unlike other traditional banks, NBFCs offer long-term credit to trade and commerce industry. These companies help to fund large projects and mega infrastructure projects which boost economic development to a great extent. The definition of long-term credit loans is precisely transformed with the emergence of NBFCs. Long-term credit allows sustainable growth and development of economic sector with stable and softening interest rates. NFBCs are also engaging in funding small-scale industries and MSMEs which will create a base for the development and growth of the economy.

Upliftment in the Employment Sector

The operations and policies of NBFCs are uplifting the job scenario. More job opportunities are arising with the influence of these companies in the private as well as government sector. NBFCs help in achieving full employment in the economy by working with the government and investing in the private sectors. Also, the business activities in the private sector provide more employment opportunities and occupation practices due to such non-banking financial companies. These companies go hand-in-hand with the economy where the need for personnel to handle secured operations is high, thereby its enhancing the motive to provide more employment. The NBFCs lead to increase in the capital stock which results in employment growth.

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