How does NBFC Raise Money?
By BYJU'S Exam Prep
Updated on: November 9th, 2023
NBFC raises money by accepting non-chequable deposits and borrowing money from other financial institutions. Non-Banking Financial Companies are known as NBFCs. Mutual funds and insurance companies are two examples of non-banking financial institutions. Other examples of NBFCs include investment banks, mortgage lenders, money market funds, insurance firms, hedge funds, private equity funds, and peer-to-peer lenders.
Table of content
Types and Funding Sources of NBFC
Following are the types of Non-Banking Financial Institutions in India.
Mutual funds
- Intermediaries between investors and the stock market.
- The corpus is the sum of money people obtain by selling their units.
- UTI is India’s oldest mutual fund firm (Unit Trust of India).
- Almost all of the factors are provided by mutual funds.
Insurance Companies
- Obtain funds from the general population by selling insurance policies.
- Life insurance and general insurance are the two categories of insurance.
- Property, car, house, and other losses are covered by general insurance.
- Health Insurance is also included.
NBFC Raising Money
According to the Foreign Direct Investment (FDI) policy, automatic route foreign investment is allowed in the NBFC sector.
- The planned investment can be made using the automatic method without approval from the RBI or the Foreign Investment Promotion Board (FIPB).
- Under the automatic, foreign investment of up to 100% is permitted without FIPB approval.
- All foreign transactions must be carried out solely through entities to which the RBI has granted a license, as per the regulations established by FEMA.
- Under the automatic route, only non-banking financial service activities are admissible for foreign investment.
- Merchant banking, underwriting, portfolio management services, stock broking, asset management, venture capital, custodian services, factoring leasing & finance, housing finance, credit card business, microcredit, rural credit, non-fund-based activities, investment advisory services, financial consulting, forex broking, credit rating agencies, money changers, etc., are just a few examples.
Summary:
How does NBFC Raise Money?
Non-Banking Financial Companies (NBFCs) borrow money from other financial institutions and take non-chequable deposits as their main funding sources. Because NBFCs lend money and make investments, their operations resemble those of banks.
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