Are NBFCs just smaller banks that are not regulated as strictly? Are there are differences like customers not being able to deposit money into an NBFC? If so, where does an NBFC get their money from? Why was this type of entity created?
NBFCs are finance companies that perform many of the same functions as banks, but aren’t regulated the same way. Yes, they can’t take deposits repayable on demand like banks do, so they rely on own capital or loans from banks and other NBFCs for their lending activities - this sort of explains their current liquidity crisis as well. Banks have been unwilling to lend to NBFCs following all the NPA news.
Good question on why they were created! Not sure about their history, but now they fill gaps that even banks can’t, like NBFC-MFIs which primarily have microfinance loans on their book and have good rural penetration, and NBFC-P2Ps that intermediate peer lending, etc.