NBFC’s play an immense role in catering to the customers’ needs that are excluded by banks. It often tends to micro, small and medium enterprises to satisfy their financial requirements.
NBFCs are mediators engaged in the operation of accepting deposits distributing credit and play an important role in channelizing the funds to capital formation. They also help the growth of the economy by meeting the increasing financial requirements of the country and also extend loans and credit in rural areas. But they do not include services related to agriculture, industrial activity, sale, purchase or construction of an immovable property. Even though they are quite different from banks they still have come under the Banking Act and regulations.
The role of NBFC in the financial sector is no doubt critical and helps to boost the economy in the right direction of growth and prosperity.
·Magnitude: Even with the economic slowdown, NBFC’s continue to expand
·Growth: NBFC’s continue to grow at a fast pace
·Profits: NBFC generally offers cheaper loans as compared to Banks and therefore they can earn huge profits as more people turn towards them for their liquidity needs.
·Development: NBFC’s extend and invest in large infrastructure projects to promote economic growth. In the past few years, loans for infrastructure projects have been granted more by NBFC than banks.
·Encouraging inclusive growth: NBFCs attend to both urban as well as rural area customers hence promoting rural development which is immensely important for a developing country like India.
Other than this NBFC’s help the economy in the following ways-
- Mobilization of Resources – Conversion of savings into Investments
- Capital Formation – Helps to grow the capital formation of the Economy
- Provides long term and specialized credit
- Supports Employment Generation in the Economy
- Development of Financial Markets
- Plays an important role to gain foreign Grants