Editorials, GS-3, Indian Economy, Uncategorized

RBI to ease registration process for NBFCs

Reserve Bank of India (RBI)  has decided to simplify the registration process for non-banking finance companies (NBFCs).

What is a Non-Banking Financial Company (NBFC)?

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).

NBFCs are doing functions similar to banks. What is difference between banks & NBFCs?

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:

  1. NBFC cannot accept demand deposits;
  2. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
  3. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

Objective of this move

The new application forms will be simpler and the number of documents required to be submitted will be reduced. The entire process could be made online for ease, speed and transparency.

Additional points

  • The NBFC sector cannot be on a par with the banking sector and the central bank’s stance is  to harmonise and not equalise.
  • Totally exempting small NBFCs from regulations may not be feasible from the customer service point of view.
  • ‘Make in India’ and ‘Start Up’ businesses could offer fresh opportunities to NBFCs for growth.

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