Services offered by NBFCs

Non-Banking Financial Companies offer a wide variety of services ranging from private loans to wealth management and pension plans. They work as an all-rounder bank that does not have a banking license but is registered under The Companies Act, 1956 or 2013.

The Indian finance sector is rapidly revolutionizing. Everyone now recognizes NBFCs as an essential financial intermediary, particularly for the small-scale and retail sectors with the growing importance of financial inclusion.

Services Provided by NBFCs

NBFCs offer a variety of products and services, including but not limited to the following:

• loans and advances, 
• credit facilities, 
• savings and investment plans, 
• acquisition of shares, 
• stock, 
• Bond Hire - Purchase, 
• insurance business or chit business,
• Money Transfer Services,
• private education funding, 
• Retirement Planning, 
• underwriting stocks and shares, 
• trading in money markets, 
• TFCs (Term Finance Certificate) and 

NBFCs typically go into the funding of:

• Construction equipment
• Commercial vehicles and cars
• Gold loans
• Microfinance
• Consumer durables and two-wheelers
• Loan against shares, etc.

NBFCs offer the following products in India:

• Funding for commercial vehicles
• Funding for infrastructure assets
• Retail financing
• Loan against shares
• Financing of plants and machinery
• Project finance
• Unsecured personal loans
• Trade finance
• Venture finance

Small and Medium Enterprise Financing:

• Specialized in equipment financing
• Operating leases of cars, etc.

Types of instruments generally executed:

• Loans
• Hire purchase
• Financial lease
• Operating Lease

Important regulations concerning NBFCs’ acceptance of deposits:

1. NBFCs have permission to accept or renew public deposits for a minimum of 12 months and a maximum of 60 months. They are not eligible to receive deposits repayable on demand.
2. NBFCs have no power to offer interest rates higher than the ceiling rate, which RBI prescribes from time to time. 
3. NBFCs are not allowed to offer gifts, incentives, or any other additional benefit to their depositors.
4. NBFCs must maintain their minimum investment-grade credit rating.
5. Deposits made with NBFCs are uninsured.
6. The RBI gives no guarantee of repayment of deposits by NBFCs.
7. All companies must make certain disclosures to them in the Application Form issued by the company soliciting deposits.

Though NBFCs are emerging as a helping hand for those whose help banks cannot do, every deposit needs to be scrutinized by the company before proceeding.

Precautions for depositors willing to deposit with NBFC:

1. Always check whether the NBFC is registered with RBI and authorized by the RBI to accept deposits. The depositor shall check both the lists where NBFCs are permitted to accept public deposits and are forbidden to do the same.
2. Each NBFC must display its Certificate of Registration (CoR) while dealing with any depositor. RBI issued the CoR on its official website. This certificate always precisely reflects the authorization of RBI to accept deposits. It should be the duty of every depositor to scrutinize their certificate correctly. 
3. A depositor must be aware that the maximum interest rate cannot exceed 12.5% by NBFC while paying to a depositor. However, the RBI keeps altering the interest rates depending upon the macro-economic situation of the nation. 
4. The depositor should never forget to ask for a proper receipt for every deposit placed with the company. It shall have the signature of the company's authorized officer and display the following:

• the date of the deposit, 
• the name of the depositor, 
• the amount in words and figures, 
• rate of interest payable, 
• maturity date and 
• amount.

5. The depositors should properly scrutinize the authorization given by the NBFC to the brokers/agents when collecting public deposits on behalf of NBFCs.
6. The depositor must be aware that all public deposits are unsecured and the facility of Deposit Insurance is unavailable to depositors of every NBFC.
7. RBI does not bear any responsibility or guarantee regarding the following: 

• current position of the company or 
• validity of any statements or representations made or expressed opinions by or on behalf of any company and 
• Repayment of deposits or discharge of the liabilities by the company, thereof.

Conclusion: 

The services offered by the NBFC are somewhat similar to that of banks but not the same. It is vital to know the key differences between the services of these two. You will get a fair idea about it through this article.