These market instruments are issued by governments, municipal governments, or competent corporate entities. According to RBI regulations, it cannot contain any company whose major business is agriculture, industrial activity, the acquisition or sale of any products (other than securities), the provision of any services, or the sale/purchase/construction of immovable property. Additionally, any non-banking institution that is registered as a company and has a major business of receiving deposits under schemes it floats, or has arrangements in one lump sum or in instalments by way of contributions is designated as a Non-Banking Financial Company, according to RBI guidelines. As a result, an NBFC is a firm whose primary business is financial activity.
During the global economic crisis of 2009, companies all around the world became stranded due to a lack of funds. The banks that lent them money were struggling to stay solvent. For many organizations, relying on only a few institutions has proven to be an expensive error. As a result, new ways to convert the economy’s savings into capital investment were required. Large gaps in credit availability existed in India, and it was critical to establish institutions to assist fill these voids. An NBFC, or Non-Banking Financial Company, played a key part in this. By meeting the wide range of financial demands of clients who do not have access to banks or their services.
Here are some points that helps you to understand the role of NBFC in Indian economy.
- The NBFC industry outperformed the banking sector in terms of year-on-year (YoY) growth rate in contributing to the GDP every year. In its early phases, this category grew at a rate of 22% per year on average. Despite the slowing economy and a slew of setbacks in recent years, the industry is nevertheless expanding and improving operations.
- Because of their reduced expenses, NBFCs have been more lucrative than banks. Customers were able to get credit at a lower cost as a result of this. As a result, the quantity of money lent to consumers by NBFCs is larger than that lent by banks, and NBFCs are preferred by more customers.
- All of India’s top NBFCs serve a diverse range of consumers, both in urban and rural regions. They provide funding for small-business initiatives, which is critical for rural development. They also provide small-dollar loans for low-cost housing developments.
- The policies of NBFCs are uplifting the job situation as small industries and companies expand their operations. With the impact of NBFCs in both the private and public sectors, more job possibilities are opening up. The private sector’s business operations give additional job possibilities and occupation practices. And NBFCs play a critical role in their development and stability.
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