What are the Various Types of NBFCs Recognized by the RBI?
NBFCs or Non-Banking Financial Companies(NBFC) are important financial intermediaries in the Indian market. They can offer their services to both wholesale and retail customers.
The following are some of the common types of NBFCs that are recognized by the Reserve Bank of India:
- Housing Finance Companies
As the name implies, a housing finance company provides financial assistance in the acquisition of an existing property, or for the construction of a new one.
Housing finance companies come under the National Housing Bank which regulates and supervises the housing loans issued by co-operative banks, scheduled commercial banks, and of course, the housing finance companies. It also covers the loans issued by the apex co-operative housing finance societies.
- Loan Companies
Loan companies provide finance either through loans or through advances. They may also collect fixed deposits from the public and offer interest benefit. Usually, these companies obtain their funds from self-employed individuals, small businesses, and retail traders.
- Equipment Leasing Companies
Equipment leasing companies conduct business by leasing equipment or financing the activity itself. There are two types of lease possible:
- Finance Lease (or Capital Lease): In this, the lessee agrees to pay a certain rent until the expiration of the lease contract. However, the contract can’t be canceled.
- Operating Lease: It’s usually for a short duration and allows for contract cancellation.
- Mutual Benefit Companies
Mutual benefit companies, which are also known as Nidhi companies, are the firms that allow its members to pool their funds to meet a predetermined investment objective. These companies have to be notified by the Central Government as Nidhis under the section 620A of Companies Act, 1956.
- Chit Fund Companies
Chit Fund Companies allow their subscribers to pay a fixed amount of money every month, the sum of which is auctioned to the one that needs the most at a price they are willing to pay. The profit generated from this is then distributed amongst the subscribers every month.
- Investment Companies
These companies conduct the business by investing in securities and are generally set up as holding companies by sizeable businesses.