All you need to know about NBFC and NBFI

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By TBN Staff

An NBFC or non-banking financial company is an organization that provides financial services but does not take deposits from the public or provide other kinds of loans, such as mortgage loans like banks do. An NBFI, or non-banking financial institution, works similarly except that it provides services to foreign individuals and organizations. Both types of companies help individuals and organizations access loans when traditional banks don’t have the capital to help them out. Here’s what you need to know about NBFCs and NBFI.

Definition of NBFC

NBFC stands for a non-banking financial company. It is a company that provides banking services but does not have a banking license. They are regulated by the Reserve Bank of India (RBI).

NBFCs can be either deposit taking or non-deposit taking. Deposit-taking NBFCs can accept deposits from the public. Non-deposit-taking NBFCs cannot accept deposits from the public.
However, they offer loan products such as credit cards, loans, mortgages, etc. Non-deposit-taking NBFCs should also comply with norms for credit rating agencies and maintain provisions for bad debts etc. Deposit-taking NBFCs must comply with RBI’s directives on foreign exchange norms.

Some of these banks also offer loans in foreign currencies so you can purchase property abroad. Credit Unions are an example of this type of bank. In many countries, such as India and Bangladesh, NBFSIs must be organized as non-profit organizations with members who elect the board of directors.

Definition of NBFIs

NBFIs are non-bank financial institutions that provide banking services but don’t have a banking license. This means they can’t accept deposits from the public. NBFIs include building societies, credit unions, insurance companies, and moneylenders. They provide services such as loans, mortgages, and investments.

NBFC and NBFI contribution to economic development

NBFCs play an important role in the economic development of a country by providing credit and investment capital to businesses of all sizes. They also help promote entrepreneurship and job creation. They provide more accessible funding for small enterprises, making investing in growth opportunities easier, expanding their customer base and generating more jobs. 

NBFI often work with microfinance institutions (MFIs) that offer small loans or credits to low-income individuals that might not be able to secure traditional financing options because they have no collateral or have had bad credit histories due to health problems, disabilities, etc. MFIs support these people by giving them access to financial services such as savings accounts, debit cards, insurance products and other financial services. These can cover emergency expenses like medical bills or unemployment benefits when needed.

Major Benefits to NBFCs & NBFIs

Non-banking financial companies (NBFCs) and non-banking financial institutions (NBFIs) play an important role in the economy by providing banking services to individuals and businesses. They offer various services, such as loans, credit cards, savings accounts, and investment products. Here are some of the major benefits of NBFCs and NBFIs:
• As banks tighten lending requirements for borrowers, NBFCs are filling the gap by offering more loans at competitive rates.

• These companies provide different loan options for customers, including secured or unsecured loans, mortgages; overdraft protection; student loans, credit cards, home equity lines of credit, and more. The risks associated with these companies are also lower than with banks because they don’t have depositors’ money. That means if the company goes bankrupt, it will not have any funds from depositors to give back. 

• The interest rates offered by these firms are usually lower than what is available from bank accounts or credit cards because there is no deposit insurance on the funds held in these organizations. 

• Customers who want to open an account need to show identification and proof of address.

• Customers must meet certain income criteria before applying for a mortgage.

Customers may be required to have an active checking account before opening a line of credit or taking out a loan. If you’re interested in becoming a customer of an NBFC or NBFI, it’s important to know that you might be charged higher fees than you would with traditional banks.

Difference between NBFCs and NBFIs

Both the terms – NBFC and NBFI – refer to non-banking financial companies. They provide banking services but don’t have a banking license. 

The main difference between the two:

• NBFCs are regulated by the RBI, while NBFIs are not. 

• NBFCs can accept deposits from the public, while NBFIs cannot.NBFCs can issue cheques drawn on themselves, while NBFIs cannot.

• NBFCs can give loans and make investments, while NBFIs cannot. 

• NBFCs must maintain reserves with the Reserve Bank of India (RBI) against every deposit they receive. However, NBFIs do not need to maintain any such reserves.

• NBFCs must compulsorily invest their funds in low-risk assets like government securities or bank fixed deposits. On the other hand, NBFIs are free to invest their funds per their risk profile.