NBFCs are very important for the financial sector of India, because they work as entities giving diversified types of financial services, without a banking license; their major business activities consist of advancing loans, financing assets, investment in securities, and giving advisory services in matters of finance. It had brought financial inclusion to the country with NBFCs catering to the needs of the masses who may not easily have access to the facility of traditional banking.
The types of NBFCs include Asset Finance Companies (AFCs), which provide financing to physical assets like automobiles, machinery, etc. Some deal in loan companies, which issue personal and business loans. Others deal in investment companies, engaged with securities, Micro Finance Institutions (MFIs), which give small loans to the low-income group, and Infrastructure Finance Companies (IFCs), which fund infrastructure projects.
They are controlled by the Reserve Bank of India, hence have to adhere to certain norms and also aim for financial stability. While NBFCs may not be able to accept demand deposits, most funding for such organizations usually comes from borrowings and capital markets. Thus, it is somewhat flexible because sometimes loans can be approved very quickly and different financial packages can be tailored for various customers.
NBFCs in India have assumed much significance in recent years, particularly within the channels of housing finance, microfinance, and financing for vehicles. They play very important functions as credit-market intermediaries, providing critical financial support for all sections of the economy. NBFCs, too, are making use of technology within the context of the digital transformation of the finance sector, toward enhancing their services, improving the experience of customers, and extending their reach across urban and rural areas, which further enhances the growth of the economy as a whole.
