The Role and Impact of Non-Banking Financial Companies (NBFCs) in India’s Financial Sector

Abstract: Non-Banking Financial Companies (NBFCs) have become a vital part of India’s financial system by providing credit and financial services to sectors underserved by traditional banks. This paper explores the classification, functioning, and regulatory framework of NBFCs, highlighting their significant contribution to financial inclusion and economic growth. It also examines the challenges faced by the sector, including liquidity risks and governance issues, particularly in the wake of the IL&FS crisis. Finally, the study proposes policy recommendations aimed at strengthening the NBFC sector’s resilience and ensuring sustainable growth in the evolving financial landscape. Keywords: Non-Banking Financial Companies (NBFCs) ,Financial Inclusion, NBFC Regulation, Liquidity Risk, Asset Quality, IL&FS Crisis, Corporate Governance ,Capital Adequacy, Credit Risk, NBFC Challenges, Infrastructure Financing, Financial Stability