What is Non-Banking Financial Companies

In any economy, financial sector consists of several intermediaries. Apart from banking entities, there are many intermediaries’ like- investment intermediaries (such as mutual funds, hedge funds, pension funds, and venture funds), risk transfer entities (such as insurance companies), information and analysis providers (such as rating agencies, financial advisers, etc), investment banks, portfolio managers and so on.

All such entities that offer financial services other than banking may be broadly called Non-Banking Financial Institutions. NBFC are essentially companies which are defined as a company registered under the Companies Act. Which provides banking services without meeting the legal definition of bank such as holding a banking license, NBFC are basically engaged in the business of loans and advances, acquisition of shares, stocks, bonds, debentures, securities issued by government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business, but does not include any institution whose principle business is that of agricultural activity or any industrial activity or sale, purchase or construction of immovable property. Trading in shares & securities in capital market is also falls under the definition of the NBFC.

NBFC cannot accept demand deposits and do not form part of the payment and settlement system. NBFC provide banking services without meeting the legal definition of a bank, that’s institutions are often still covered under a country's banking regulations.

In Simple word NBFC is a company that is not a Bank but provide Finance to others. NBFCs offer most sorts of banking services, such as loans and credit facilities, private education funding, retirement planning, trading in money markets, underwriting stocks and shares. There are two types NBFC’S