Factors contributing to the Growth of NBFCsAccording to A.C. Shah Committee, a number of factors have contributed to the growth of NBFCs. Comprehensive regulation of the banking system and absence or relatively lower degree of regulation over NBFCs has been one of the main reasons for their growth. During recent years regulation over their activities has been strengthened, as see a little later.The merit of non-banking finance companies lies in the higher level of their customer orientation. They involve lesser pre or post-senction requirements, their services are marked with simplicity and speed and they provide tailor-made services to their clients. NBFCs cater to the needs of those borrowers who remain outside the purview of the commercial banks as a result of the monetary and credit policy of RBI. In addition, marginally higher rates of interest on deposits offered by NBFCs also attract a large number of depositors

MFIs go for NBFC licences

An Increasing number of microfinance institutions (MFIs) are seeking non-banking finance company (NBFC) status from RBI to get wide access to funding, including bank finance

Exemptions granted to NBFCs engaged in microfinance activities

The Task Force on Supportive Policy and Regulatory Framework for Microfinance set up by NABARD in 1999 gave various recommendations. Accordingly, it was decided to exempt such NBFCs which are engaged in (i) micro financing activities, (ii) licensed under Section 25 of the Companies Act, 1956 and (iii) which are not accepting public deposits from the purview of Sections 45-IA (registration), 45-IB (maintenance of liquid assets) and 45-IC (transfer of profits to Reserve Fund) of the RBI Act, 1934.[5]

NBFCs (Non Banking Finance Companies)registered with the Reserve Bank of India may take up insurance agency business on fee basis and without risk participation and the need to seek the bank's approval.

In a notification issued, the RBI said such NBFCs should obtain permission from the Insurance Regulatory and Development Authority and comply with the IRDA regulations for acting as "composite corporate agent with insurance companies