RBI on NBFC

Topic: Economics

Context: RBI supersedes the board of Anil Ambani’s Reliance Capital

Concept:

RBI on NBFC regulation:

Recently, the Reserve Bank of India (RBI) has proposed a tighter regulatory framework for Non-Banking Financial Companies (NBFCs) by creating a four-tier structure with a progressive increase in intensity of regulation.
It has also proposed classification of Non-Performing Assets (NPAs) of base layer NBFCs from 180 days to 90 days overdue.
Earlier in 2020 the RBI announced a host of measures to provide liquidity support to NBFCs.

Non-Banking Financial Company (NBFC):

About:

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, 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 principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).

Features of NBFCs:

NBFC cannot accept demand deposits.
NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.
Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs.

Difference between NBFC and bank: