A Non-Banking Financial Company (NBFC) provides banking and other lending services without meeting the legal definition of a bank. It is Incorporated under Companies Act, 2013 or Companies Act, 1956 (Old). Every NBFC has to obtain Commencement of business certificate from RBI as defined under Section 45 I(a) of the RBI Act, Read NBFC Regulations. NBFC shall not commence or carry on the business of Non- Banking Financial Institution without obtaining a Certificate of Registration issued by the Reserve Bank of India. NBFC registration or NBFC License can be obtained in 90-120 days.
The principal business of NBFC is providing loans and advances, acquisition of shares, debentures and other stocks issued by Government or other local authorities, insurance business, leasing, hire-purchase, etc. Moreover, any other non-banking institution, incorporated as a company under the Companies Act and having the principal business of receiving deposits under any scheme or arrangement in one lump sum or instalment, is also a non-banking financial company (NBFC).
In general, NBFC is filling up the gap of financial needs for the organized and unorganized section of the population. In the recent times, banks have targeted big commercial houses and individuals with excellent credit rating as their prime customers; This provided NBFCs with an opportunity to enlarge its presence in the financial market.
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The primary difference is that NBFCs is involved in providing loans and only few type of NBFCs can accept deposit. Whereas Banks are involved in entire gamut of services, right from accepting deposit, investment advisory, giving various types of loans and many more.
While NBFCs are considered safe, they do not offer deposit insurance that is typically provided to bank depositors by government insurance schemes in many countries. The safety of your investment or deposit depends on the NBFC's credit rating and performance.