What is NBFC (Non-Banking Financial Companies)?
NBFC stands for Non-Banking Financial Companies. They include insurance companies, giant stock-broking firms, organizations that provide loans for vehicles, homes, machinery, aircraft or even mobile phones.
In brief, NBFC can be defined as:
NBFCs are companies that can provide a wide range of specific financial services, without offering traditional banking facilities.
NBFCs also accept deposits from customers but unlike banks, these are in form of insurance premiums and shares listed on stock markets or held privately.
They are not authorized to offer savings bank and other deposit schemes. For example, a cooperative credit society will accept your deposit and give you shares.
Instead of paying interest on your deposits, they will pay part of profits as a dividend on your shares.
Thanks to the diverse needs of Indians, this country is home to over 200 small and large NBFC (Non-Banking Financial Companies). India is the only country in the world that licenses financial institutions in nine different categories as NBFCs.
Also Checkout: 13 Key Difference Between NBFC and Bank
These NBFCs are licensed and regulated by Reserve Bank of India. In recent years, RBI has witnessed a minor growth in the number of financial institutions seeking NBFC licenses under various categories.
Types of NBFC in India:
As mentioned earlier, there are nine different types of Non Banking Financial Companies licensed by RBI.
1. Asset Finance Company (AFC): They finance various assets for individuals and businesses including automobiles, machinery, heavy industrial, production and farming equipment and large power generators for utility providers, among others. Learn more about Top Asset Reconstruction Companies in India.
2. Investment Company: Generally, investment companies take money from their stakeholders or public. It is invested in various securities and other financial products. Profits made from these securities are shared with stakeholders and the public after the company deducts its operational and other costs.
3. Loan Company: Financial organizations that offer loans for any purpose other than that of AFCs are called Loan Companies. They also include housing finance firms.
4. Infrastructure Finance Company: This distinction is given to financial organizations that have a capital of Rs 3 billion or more. They invest three-fourths of their assets in building or redeveloping infrastructure of the government or any large industrial group.
5. Infrastructure Debt Funds: IDFs raise money through bonds for long-term infrastructure projects such as power plants, seaports and airports and other very large projects. These bonds are issued in multiple currencies to ensure maximum flow of funds that have a five-year maturity for investors.
6. Factoring NBFCs: The number of Factoring NBFCs in India is fairly low. These are financial institutions that buy out large loans at a discounted rate from lenders. They readjust repayment schedules of the debtor to ensure easier settlement but add a small profit.
7. Gold Loan Lenders: The number of NBFCs offering loans against gold collaterals in India is on the rise. These NBFCs will keep your jewellery or gold chips as collateral and lend you money at interest rates that are slightly below those of conventional banks.
8. Residuary Non Banking Companies: They accept deposits from people for investment. However, RBI has strict rules regarding investments made by RNBCs to ensure that investors are not cheated.
9. Microfinance Institutions (MFI): An increasing number of small financial organizations are seeking RBI licensing to operate as MFIs. Generally, MFIs offer soft loans to Self Help Groups (SHGs), individuals who wish to open a small business with capital less than Rs. 50,000 and persons with physical disabilities to earn the livelihood to engage in some trade. Have a look at this top 10 Microfinance Institutions (MFI)
NOTE: Some Public Sector Undertaking banks and their private, cooperative and foreign counterparts are also playing roles of financing vehicles, homes and investments. However, they cannot be classified as NBFCs. Hence, these banks open separate departments that can get NBFC licensing from RBI.
List of 20 Best NBFC in India in 2018:
Here we list some of the top Non Banking Financial Companies of India. The listing is random and does not indicate financial standing or any other ratings whatsoever.
Hence, we have not included financial results of any NBFC. The below listing is not meant to influence customers, investors or have any bearing on the stock markets.
1. LIC Housing Finance Ltd
LIC Housing Finance Ltd is a division of Life Insurance Corporation of India, the government-owned and largest insurer of this country.
LIC-HFL offers home loans and claims to have helped over two million Indians to realize the lifelong dream of owning a house. It is one of the best Nbfc Company in India.
2. HDB Finance Services
HDB Financial Services is operated by India’s largest private sector HDFC Bank.
It offers a wide range of secured and non-secured financial loans to customers through its network of over 1,000 branches spread over 22 Indian states and three Union Territories. It is billed as the fastest growing NBFC in India.
3. PNB Housing Finance Ltd
Keeping in view the large demand for housing loans, state-owned Punjab National Bank opened its NBFC in India in 1988 under the name PNB Housing Finance Ltd.
This NBFC is also listed on the National Stock Exchange and Bombay Stock Exchange. PNB-HFL offers finance for buying or building a new home as well repair and upgrade of existing dwellings.
4. Bajaj Finserv Ltd
“Bajaj Finance Limited is the lending and wealth advisory arm of Bajaj Finserv Limited.
It is the most diversified non-bank in the country with 19 product lines across consumer, commercial and SME finance, making it one of the most profitable companies in the category,” states its website.
5. Kotak Mahindra Investments Ltd
Kotak Mahindra Investment Ltd is a multirole finance NBFC launched in 1992. It has a total of 20 separate branches including Kotak Mahindra Bank.
Additionally, KMIL’s portfolio of companies includes 19 NBFCs in wealth management, insurance, financial advisory and asset management, alternative assets, mutual funds and pension schemes, stock broking and foreign currency trade, among others.
6. Indiabulls Group
Indiabulls Group started in 1999 as a small stock-broking company.
Since, Indiabulls has diversified its NBFC offerings to include housing finance as well as stock trading services for the public.
In mid-2017, Indiabulls Ventures created a world record of sorts briefly: The company stocks shot up by around 900 percent in August that year, though the record stands disputed by finance market observers.
7. Power Finance Corporation Ltd
Power Finance Corporation Ltd (PFC) is a state-owned NBFC that is designated as a ‘Navratna’ (nine jewels) of Indian industries. PFC invests in mega-projects for electric power generation in India.
It raises this money from the public, through bonds that offer investors an attractive interest rate and tax benefits. PFC lends for power generation, transmission and distribution projects.
8. Muthoot Finance Ltd
Muthoot Finance Ltd deserves the accolade of being the first NBFC in India. It traces its history back to the year 1888 when it began as a small lender from a village in Kerala.
Today, Muthoot Finance ranks as a leader in India’s gold loan and finance market. It is also the parent company of Muthoot Housing Finance (India) Ltd, which offers home loans.
9. Sundaram Finance Ltd
Another major NBFC from South India is Sundaram Finance Ltd. This financial institution traces its history back to 1954 when it registered for lending money for individuals to own cars and commercial vehicles. In those days, its paid-up capital was Rs.200,000.
Today, Sundaram Finance Ltd is a major NBFC with diverse offerings. It offers deposit schemes, leasing services for the broad spectrum of industries as well as automobile finance.
10. LKP Finance Ltd
Few may have heard of LKP Finance Ltd, but it is one of the leading stock-broking firms of India.
As NBFC, this company allows investors to create a portfolio of shares listed on Bombay Stock Exchange and National Stock Exchange, through its flagship LKP Securities.
LKP was one of the first stock-broking companies in India and opened in 1948. In the financial year 2016-2017, LKP had a net worth of Rs.1.58 billion.
LKP Securities and its parent organization have offices in all Indian metros and other cities.
11. Citicorp Finance (India) Ltd
Citicorp Finance (India) Ltd is a subsidiary of Citigroup Inc, one of the largest financial organizations in USA. In India, Citigroup operates Citibank and an NBFC, CFIL.
Citicorp Finance offers loans for buying new or pre-owned automobiles for personal and commercial use to individuals and businesses.
CFIL also finances construction equipment while offering trade advance facilities to spare parts dealers and other industries to ensure adequate inventory.
Other services offered by CFIL include loans against securities such as stocks and bonds as well as lends to consumers.
12. Reliance Capital Ltd
Reliance Capital Ltd ranks as one of the biggest NBFCs in India and is renowned worldwide. It manages asset worth Rs. 4 trillion and has 20 million customers.
Reliance Capital, through its various branches, offers housing and consumer finance, funding for Small and Medium Enterprises.
Additionally, other divisions of the company deal with asset management, health, life and general insurance. Listed on stock markets, its shares are the most sought after.
13. SBI Global Factors Ltd
SBI-GFL is a Member of Factors Chain International (FCI), an umbrella organization of worldwide factoring companies.
FCI aims to facilitate international trade through factoring and related financial services.
Currently, the FCI network has 273 Factors in 75 countries, actively engaged in more than half of the world’s cross-border factoring volume. It is one of the very limited factors NBFCs in India.
14. Tata Capital Financial Services Ltd
Also ranking among on top of India’s leading NBFC is Tata Capital Limited.
TCFS was established in 2007 and is a subsidiary of Tata Sons Limited Tata Capital Financial Services Limited provides what the company describes as:
A one-stop financial service provider that caters to the diverse needs of retail, corporate and institutional customers across businesses.
It is registered with RBI as ‘Systemically Important Non-Deposit Accepting Non-Banking Financial Company (NBFC)’. TCFS offers various products to individuals, families and businesses.
These include commercial finance, infrastructure finance, wealth management, consumer loans and distribution and marketing of Tata Cards, among others.
15. CanFin Homes Ltd
CanFin Homes Ltd is a division of Canara Bank and was launched in 1987 to mark “The International Year of Shelter for the Homeless”.
It has the distinction of being the first housing company launched by a nationalized bank in India. CanFin Homes Ltd ranks top players in the housing finance sector.
It has over 132 Branches, 20 Affordable Housing Loan Centers (ALHCs) and 20 smaller offices spread across India that are directly linked to the Canara Bank and Canfin Homes head offices in Bangalore through the national Core Banking Solution.
CanFin Homes offers a range of housing loans as well as non-housing loans.
16. Axis Finance Ltd
Axis Finance Limited (AFL) is a wholly owned direct subsidiary of one of India’s leading, private financial institutions- Axis Bank. This NBFC offers a wide range of financial solutions and products to individual, family and business customers.
They include loan against shares, loan against mutual funds, fixed deposits and bonds, Margin Trade Funding, Employee Stock Option Financing, loan against property and Initial Public Offering funding.
In the wholesale lending sector, Axis Finance offers promoter funding, special situations Funding, structured and mezzanine financing and real estate financing.
17. Infrastructure Development & Finance Corporation Ltd
Infrastructure Development and Finance Corporation Ltd, better called IDFC is the parent organization of an eponymous bank. IDFC Ltd has diverse interests.
It has a Non-Operative Finance Holding Co (NOFHC) licensed by RBI in addition to the bank.
IDFC Ltd is involved in Securities, Alternative Wealth Management, private equity, real estate, infrastructure and public market asset management as well as mutual funds.
IDFC Ltd plans to acquire some leading NBFCs of India through mergers but these plans are awaiting approval from RBI and the Indian government.
18. ICICI Venture Funds Management Co Ltd
Renowned Indian finance group, Industrial Credit and Investment Corporation of India, better known as ICICI, has NBFCs as well as an eponymous bank.
ICICI Venture specializes in alternative assets management in India. Indeed, it ranks among the best in this sector and is a wholly owned subsidiary of ICICI Bank.
ICICI Venture has various funds managed and has invested in over 500 companies. This NBFC has also provided growth capital funding to almost every important sector of the Indian economy.
19. L&T Financial Services Ltd
L&T Financial Services is perhaps the sole NBFC or financial institution launched by any engineering group. It has been operating since 2007.
LTFS offers a wide array of financial services to Indian consumers and corporate client. These include home finance and vehicle finance.
LTFS is also engaged in the business of microloans to help India’s rural areas develop indigenous cottage industries and individual enterprises.
LTFS offers real estate finance for building projects undertaken by L&T civil engineering division as well as housing and industrial complexes and ventures of other renowned developers and builders across India.
L&T offers farm equipment finance for the agricultural sector by offering its own brand of tractors and other gear on the soft loan basis.
It is actively engaged in funding the development of the logistics chain in India and also offers corporate and structured finance for small and large businesses.
20. GIC Housing Finance Ltd
GIC-HFL is another state-owned NBFC that operates primarily in the housing sector of India.
It is promoted by General Insurance Corporation of India and its former subsidiaries including National Insurance Company Limited, The New India Assurance Company Limited, The Oriental Insurance Company Limited and United India Insurance Company Limited.
Other promoters include Unit Trust of India. GIC-HFL is relatively a smaller NBFC when compared with other state-owned and private ones. However, the company recently opened its 53rd branch in the country, at Guwahati, to mark its presence in India’s North East region.
GIC-HFL has tie-ups with various builders to provide loans quickly to home buyers. Additionally, the financial institution also finances companies wanting to open new offices or expand their existing facilities.
Importance of NBFC in India
Getting finance from NBFCs has proved easier for many homeowners, small businesses and also budding entrepreneurs.
Generally, NBFCs process loan and finance applications faster. Those engaged in wealth and asset management work purely on a profit basis.
Meaning, they get a share of the profits made by your assets they handle. Hence, sufficient care is often taken to ensure your investment does not lose unless there is a severe downturn in the global and Indian economy.
NBFC has also helped millions of economically and socially underprivileged Indians to achieve their dreams by providing micro finance that helped start cottage industries and homegrown ventures.
Since all NBFCs come under the purview of the Indian government, RBI, National Housing Bank and other state-run organizations, they ensure that investor interests are cared for.
In The Pipeline
A great example of NBFCs is Shamrao Vitthal Cooperative Bank which started in 1906 as a small credit society on the stairwell of a ‘chawl’ in Girgaum locality of Mumbai.
Today, SVC Bank ranks as India’s third largest cooperative bank. In those days, the would-be bank offered microcredit. Today, microloans in India are big business as more women and men strive for entrepreneurship.
Consequently, a large number of cooperative credit societies and groups of private entrepreneurs are applying to RBI and other concerned authorities for licenses.
The coming years will also see some large NBFCs merge. Negotiations for mergers and acquisitions of NBFCs are already underway between their senior management, RBI and concerned authorities.