Site Loader
Rock Street, San Francisco

Financial
sector of our country needed to be strong to caters the needs of all the
sections of the economy so that the overall development of the economy can be
made specially in developing country like India.

In
this paper mainly the significance and recent growth of NBFC’s is explained. As
the NBFC are the intermediary who plays very important role in the development of
any economy like in India. As the financial needs of corporate as well as the
unorganized sectors are increasingly day by day and in this respect NBFC provides
the best services to all these sectors.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

NBFC
are especially not covered under the banking scenario but these are regulated
by central Government and reserve bank of India, so that their functioning can
be properly managed and regulated. Their structure is so flexible so the amendments
regarding up gradation can be introduced.

The
paper titled “Economic development in India with special reference to NBFC” presents
the recent growth of Indian economic due to flow of credit with latest
technology by NBFC and how their growth affect the long term growth of Indian
economy.

Keywords:
NBFCs, Economic Development, Financial Credit, Financial Intermediary.

 

1.     
INTRODUCTION

NBFC
is playing a very significant role by offering various direct/indirect
financial supports to meet the various credit needs of all the sectors of the economy.
Their numbers are increasing day by day as every investor in their field want
to expand its operations and for it they need credit facility. NBFC provides
many credit assistances by introducing flexible credit schemes and policies
according to the needs of the entrepreneurs which help the investors in
fulfilling their dreams of growth which came into existence and convert into
reality. They contribute to the Indian economy’s growth by supplementary to
banks and other financial institutions.

In
present study the development of Indian economy through the role and
performance of NBFC is studied. NBFC helps in development of developing country
especially like in India by providing facilities for development in the areas
of capital formation, employment generation, rural credit, and infrastructure
sector.

Over
the last 3 years NBFC provides the double the housing loans in India. Market share
of NBFC in MSME rose to 18% in 2017 from 8% five year ago. NBFC mainly contributing
60 percent of credit facility to the small, medium and large entrepreneurs
which helpful in increasing the output of the nation and GDP.

NBFCs
are regulated by the RBI under the RBI Act, 1934. The principle business is
receiving of deposits under any scheme of arrangement or in any other manner or
lending in any other manner. The regulation of NBFC falls under the preview of
RBI. The first regulation framework was introduced by the Shah Committee in
1992 & the by the Khanna Group in 1997.

The
RBI (Amendment) Act, 1997 provides for compulsory registration with the Reserve
Bank of all NBFCs, irrespective of their holding of public deposits, for
commencing and carrying on business, minimum entry point norms, maintenance of
a portion of deposits in liquid assets, creation of Reserve Fund and transfer
of 20 Percent of profit after tax annually to the fund. RBI Issued directions to companies on acceptance of public deposits,
prudential norms like capital adequacy, income recognition, asset
classification, provision for bad and doubtful debts, exposure norms and other measures
to monitor the financial solvency and reporting by NBFCs.

As
per section 45I (a) of the RBI Act, 1934 the NBFC Should be comply the
following provisions to act as a NBFC in India:-

i)                   
It must be registered under section 3 of
the Companies Act , 1956

ii)                 
Net worth of the NBFC should be 200 lacs
minimum.

 

Different
Categories of NBFCs are:-

a)      Loan
companies

b)      Insurance
companies

c)      Investment
companies

d)     Hire
purchase finance companies

e)      Equipment
leasing companies

f)       Housing
finance companies

g)      Residuary
NBC

RBI-
regulates the NBFC through-

a)      Mandatory
registration

b)      Minimum
owned funds

c)      Only
RBI authorized NBFC can accept deposits

d)     RBI
prescribes the interest rate and Investment policies for the NBFCs

e)      RBI
prescribes the period of deposits

f)       RBI
prescribes the prudential norms regarding the better utilization of the funds.

2.     
OBJECTIVES
OF THE STUDY

 

1.      Role
of NBFC towards the growth of Indian Economy.

2.      To
determine the present scenario & future prospects of NBFCs

3.      Presence
of NBFCs is a boom for the development of the national.

 

3.     
RESEARCH
METHODOLOGY

Present
study is based on secondary data, hence it is descriptive. Data has been
collected from the published records/ periodicals /publications. In addition to
this the data collected from various statistics based reports issued by economy
survey of India, newspapers, magazines, books, websites, and journals etc.

 

4.     
GROWTH
AND DEVELOPMENT OF NBFC

Well
developed & efficient financial system is important for economic growth. In
India at present NBFCs are more popular as they provides wide range of activities
to their clients like risk absorber, quicker decision maker and works according
to the needs of their client. NBFCs help in reduction the degree of risk
involved and there is also a more efficient utilization of the resources in the
economy. They provide benefits of higher returns, lower risk and liquidity. On an
average it grows 22 percent every year.

Between 2014 & 2017, the share of NBFCs in total
loans is estimated to have increased from 21 % to 44 %. NBFC had the maximum
market share of 49% in the total loan financial.

For
safety and security purpose in 2017, RBI has issued a notification master
direction-Information Technology Framework for the NBFC sector .through these
directions on IT Framework for the NBFC sector are expected to enhance safety,
security, efficiency in processes leading to benefits to their customers.

At present in India, most developed and best
services provided NBFC are:-

a)      HDFC

b)      Mahindra
and Mahindra Financial Services Limited

c)      L&T
Finance

d)     Reliance
Capital

e)      Bajaj
Finserv

Some
others Information about NBFC in India as on November 30, 2017 (as per the RBI
Bulletin)

a)      NBFC-MFI
registered with RBI as on November 30, 2017- 
84

b)      Asset
Finance Companies registered with RBI as on November 30, 2017-  399

c)     
Core Investment Companies
registered with RBI as on November 30, 2017- 
50

d)     Non
Deposit Accepting NBFCs as on November 30, 2017-  11284

NBFC helps in the growth of Indian Economy in the
followings ways:-

a)      Capital
formation

b)      Provides
employment

c)      Provides
long term loans to different sectors.

d)     Development
of financial markets

e)      Helps
the invertors to convert their saving into investments.

f)       Stability
to financial sector

 

Table
1: Numbers of different types of NBFCs in India (as on end March position)

 

Year

NBFC-D

NBFC-ND-SI

NBFC-ND

Total

2012

273

375

12010

12385

2013

254

418

11553

12225

2014

241

465

11323

12029

2015

220

420

11202

11842

2016

202

209

11271

11682

2017 P

178

218

11126

11522

 

P: Provisional

 Sources: 1. Report of trend and progress of
Banking in India

                 2. Supervisory returns, RBI

Table 1
show that numbers of different types of NBFCs in India. There is tremendous
progress in numbers of NBFC recorded. In the last 5 years there number is
varies between 220-260 under NBFC-D and 11100-11500 under NBFC-ND, but there is
steady growth in both the NBFC-D as well as in NBFC-ND.

Table
2: Credit Growth of NBFCs and banks

        (per cent)

Year

NBFCs-ND-SI

Banks

Private Sector
Banks

Public Sector
Banks

2011-12

30.5

16.08

21.08

16.4

2012-13

23.7

14.0

18.5

12.0

2013-14

8.8

14.2

16.1

13.09

2014-15

15.0

9.3

18.6

7.8

2015-16

12.4

10.9

25.7

1.4

2016-17 P

13.0

5.4

17.1

0.6

 

P: Provisional

 Sources: 1. Report of trend and progress of
Banking in India

                 2. Supervisory returns, RBI

 

Table 2
shows the credit growth of NBFCs and banks during the last five years from 2011
to 2017. A figure in percentage indicates that there is tremendous growth of
credit by NBFCs than banks in financial sector.  It indicates that NBFCs are more favorable
credit & finance option opted by different sectors of the economy as they
provides attractive  rates of return on
deposits and flexibility and timeliness in meeting the credit needs of
specified sectors.

Many
initiatives have been taken by Government of India and RBI to fascinate the development
of NBFCs services. In India after 1996 there is a rapid growth of NBFCs as its
contribution towards the economic development shows positive response. Central
bank of India i.e RBI is continuously monitoring their services and functions
towards the each and every area so that they cannot be prove threat to ant part
of the economy specially financial stability..

In
the recent scenario to cope with the increase of competition, the RBI and Government
of India take a step to introduce the IT Governance in the area of financial
sector. The main motive is behind this is to provide transparent services to
the customers and others.

 

 

5.     
REVIEW
OF LITERATURE

 

Brij Mohan,
Non-Banking Financial Companies In
India: types, needs, challenges and importance in Financial Inclusion, (2014)
have observed in his study that the financial institutes and NBFCs are playing
a vital role and now more dominated than banks in Indian financial sector. As
they are intermediary between the savers and the investors, they meet the
credit needs of all the sectors whether it is small, medium or large
enterprises. Their profitability has been studied with the help of tables
showing increase in loans, advance, assets etc they provide to economy.

H.R. Kaushal, Impact of Non
–Banking Financial Companies In India Economy Growth, (2016)
explained in their study the role and growth of the NBFC, players in the Indian
Financial economy and presented various information for the growth of NBFCs in
India. They study that NBFCs are playing as an intermediary by facilitating the
flow of credit to end customers.

Shewta Singh,
the Role & Regulations of NBFCs in
India: The Structure and status profile (2016), said that more flexible
rate in credit policy helps the invertors to get different types of the loans.
NBFC meets different capital requirement of all types of invertors. There is
always some more scope to improve the performance of NBFC in India.

P. Sravan Kumar,
Growth & Development of NBFC in
India, (2016) studied and stated in his paper that NBFC are emerging as an alternative
to mainstream banking. They are emerged as the internal part of the Indian Financial
System & contribute development of Indian Economy by development of major
sectors of the economy like road transport and infrastructure.

S. K. Das, Performance and Growth
of Non-Banking Financial Companies as compared to Banks in India, (2016)
has studied and concluded that the scope of NBFC in India much more as compared
to the other financial institutions in India in future. In his study he
observed that the risk arising from regulatory gaps should be minimized. NBFC
provided better services towards the infrastructure sector than banks in
present as well as in future. Overall the NBFC contribute capital formation as
well as overall economy growth at the higher rate than other financial
institutions in India

K. Ranjan Singh, Growth &
Development of NBFC in India, (2016) concluded that NBFCs
enjoy more flexible structure than banks in organized sector. NBFCs growth
cannot be neglected as their role in economy development is very significant. RBI
must make more relevant polices for the development of the NBFC as well as for
the investors protection.

 

 

6.     
RESULTS
AND DISCUSSION

It
is clearly found out that NBFCs is playing a vital role in the development of
Indian economy. As the services and schemes provides by NBFC and the number of
NBFC is increasing day by day, and at the same time the users of the NBFC is
also increasing, so it has to be know about why the customers using their services,
what are the mains future prospects and challenges for NBFC etc. Measures
should be adopted in such a way that the frauds and risk associated with the
use latest technology should be minimize if any. The study concludes that the
NBFCs are the very convenient mode of provides finances/ credit to the society
and the nation which helps in the really development of Indian economy with the
faster way. NBFCs are the starters to develop strong financial sector in the India,
as the time passes their existence will be shown the great results in the
development and growth of the economy.

 

Post Author: admin

x

Hi!
I'm Velma!

Would you like to get a custom essay? How about receiving a customized one?

Check it out