Definition:
A Non-Banking Financial Company (NBFC) is a financial institution that offers various bank-like services but does not hold a banking license. NBFCs are regulated by financial authorities (like the central bank), but they cannot accept demand deposits like traditional banks (e.g., savings or current accounts).
Key Functions of NBFCs:
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Provide loans and credit facilities
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Investment in stocks, bonds, and debentures
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Asset financing
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Leasing and hire purchase services
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Microfinance and insurance services (in some cases)
Differences Between NBFCs and Banks:
| Feature | NBFC | Bank |
|---|---|---|
| Accepts demand deposits | ❌ No | ✅ Yes |
| Part of payment system | ❌ No | ✅ Yes (issue cheques, cards) |
| Regulated by | Central Bank or Finance Authority | Central Bank (e.g., RBI in India) |
| Can offer savings account | ❌ No | ✅ Yes |
Example:
A microfinance company that provides small loans to rural communities without offering savings accounts is an NBFC.