TAG: GS-3: ECONOMY
THE CONTEXT: The Reserve Bank of India (RBI) reported that the non-banking financial companies (NBFC) sector is resilient under the scale-based regulations (SBR) framework.
EXPLANATION:
About Non-Banking Financial Company (NBFC):
An NBFC is a company registered under the Companies Act, 1956 or Companies Act, 2013, involved in various financial activities like lending, investing in securities, leasing, insurance. the acquisition of shares/stocks/bonds/debentures/securities issued by the Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business.
- It does not include any institution whose principal business is that of agriculture activity, industrial activity, the purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
- A non-banking institution which is a company and has the principal business of receiving deposits under any scheme or arrangement in one lump sum or in instalments by way of contributions, or in any other manner, is also a NBFC (Residuary non-banking company).
Key Features:
- NBFCs provide diverse financial services like personal loans, home loans, vehicle loans, gold loans, microfinance, insurance, and investment management.
- They can accept public deposits for a minimum of 12 months and a maximum of 60 months.
- However, NBFCs cannot accept demand deposits.
- They do not form part of the payment and settlement system and cannot issue cheques drawn on itself.
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- NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 12.5 per cent per annum.
- available to depositors of NBFCs, unlike in the case of banks.
- Unlike banks, NBFCs are not subjected to stringent and substantial regulations.
What are important NBFCs?
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- NBFCs whose asset size is ₹ 500 crore or more as per the last audited balance sheet are considered systemically important NBFCs.
- The rationale for such classification is that the activities of such NBFCs will have a bearing on the financial stability of the overall economy.
Regulation:
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- The functions of the NBFCs are managed by both the Ministry of Corporate Affairs and the RBI.
- The RBI has the authority to issue licenses to NBFCs, regulate their operations, and ensure that they adhere to the established norms and regulations.
NBFCs are categorized:
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- In terms of the types of liabilities into Deposit and Non-Deposit accepting NBFCs,
- Non-deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and
- By the kind of activity, they conduct.
Source:
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