{"id":12154,"date":"2024-05-06T02:09:37","date_gmt":"2024-05-05T20:39:37","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=12154"},"modified":"2025-09-29T16:10:37","modified_gmt":"2025-09-29T10:40:37","slug":"what-is-a-non-banking-financial-company-nbfc","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/what-is-a-non-banking-financial-company-nbfc\/","title":{"rendered":"What is a Non-Banking Financial Company (NBFC)?"},"content":{"rendered":"<h2>About Non-Banking Financial Company (NBFC):<\/h2>\n<ul>\n<li>A NBFC is a <strong>company registered under<\/strong> the <strong>Companies Act, 1956,<\/strong> engaged in the <strong>business of loans and advances<\/strong>, the <strong>acquisition of shares<\/strong>\/<strong>stocks<\/strong>\/bonds\/debentures\/<strong>securities issued by the Government or local authority or other marketable securities <\/strong>of a like nature, leasing, hire-purchase, insurance business, chit business.<\/li>\n<li>It <strong>does not include<\/strong> any <strong>institution whose principal business is<\/strong> that of <strong>agriculture activity, industrial activity<\/strong>, the <strong>purchase or sale of any goods<\/strong> (<strong>other than securities<\/strong>) or <strong>providing any services<\/strong> and <strong>sale\/purchase\/construction of immovable property<\/strong>.\u00a0<\/li>\n<li><strong>A non-banking institution<\/strong> which is a company and has the <strong>principal business of receiving deposits under any scheme or arrangement <\/strong>in one lump sum or in installments by way of contributions, or in any other manner, <strong>is also a NBFC<\/strong> (Residuary non-banking company).<\/li>\n<li>Generally, these institutions are <strong>not allowed to take traditional demand deposits<\/strong> from the public. They can <strong>only accept time deposits<\/strong>, and they do not provide savings or current account facilities.\n<ul>\n<li>They <strong>cannot accept deposits<\/strong> for a period <strong>less than 12 months and more than 60 months.<\/strong><\/li>\n<li>NBFCs <strong>cannot offer interest rates higher than<\/strong> the <strong>ceiling rate prescribed by <a href=\"https:\/\/vajiramandravi.com\/current-affairs\/reserve-bank-of-india\/\" target=\"_blank\">RBI<\/a><\/strong> from time to time. The <strong>present ceiling is 12.5 <\/strong>per cent per annum.<\/li>\n<\/ul>\n<\/li>\n<li>NBFCs also <strong>provide<\/strong> a wide range of <strong>monetary advice like chit-reserves and advances.<\/strong><\/li>\n<li>NBFCs lend and make investments, and hence their <strong>activities are akin to that of banks; <\/strong>however, there are a <strong>few differences<\/strong> as given below:\n<ul>\n<li>NBFCs <strong>do not have<\/strong> a <strong>banking license;<\/strong><\/li>\n<li>NBFCs <strong>cannot accept demand deposits<\/strong>;<\/li>\n<li>NBFCs <strong>do not form part of<\/strong> the <strong>payment and settlement system<\/strong> and <strong>cannot issue cheques drawn on itself<\/strong>;<\/li>\n<li><strong>Deposit insurance facility<\/strong> of Deposit Insurance and Credit Guarantee Corporation is <strong>not availableto depositors of NBFCs<\/strong>, unlike in the case of banks.<\/li>\n<li>Unlike banks, NBFCs <strong>are not subjected to stringent<\/strong> and substantial <strong>regulations<\/strong>.\u00a0<\/li>\n<\/ul>\n<\/li>\n<li><strong>Regulation:<\/strong>\n<ul>\n<li>The functions of the NBFCs are <strong>managed by<\/strong> both <strong>the Ministry of Corporate Affairs and the RBI.<\/strong><\/li>\n<li>The <strong>RBI<\/strong> has the authority to <strong>issue licenses to NBFCs<\/strong>, <strong>regulate their operations<\/strong>, and ensure that they adhere to the established norms and regulations.<\/li>\n<\/ul>\n<\/li>\n<li><strong>NBFCs are categorized<\/strong>\n<ul>\n<li>In terms of the types of liabilities into <strong>Deposit and Non-Deposit accepting<\/strong> NBFCs,<\/li>\n<li><strong>Non-deposit taking<\/strong> NBFCs by their size <strong>into systemically importantand other non-deposit holding companies<\/strong> (NBFC-NDSI and NBFC-ND) and<\/li>\n<li>By the kind of activity, they conduct.<\/li>\n<\/ul>\n<\/li>\n<li><strong>What are systemically important NBFCs?<\/strong>\n<ul>\n<li>NBFCs whose <strong>asset size is \u20b9 500 crore or more<\/strong> as per the last audited balance sheet are considered systemically important NBFCs.<\/li>\n<li>The rationale for such classification is that the activities of such NBFCs will have a bearing on the financial stability of the overall economy.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Examples<\/strong> of NBFCs include <strong>investment banks, mortgage lenders, money market funds,insurance companies<\/strong>, <strong>equipment leasing companies<\/strong>, infrastructure finance companies, <strong>hedge funds<\/strong>, private equity funds, and P2P lenders.<\/li>\n<\/ul>\n<hr \/>\n<h3>Q1: What is the Deposit Insurance and Credit Guarantee Corporation (DICGC)?<\/h3>\n<p>DICGC is a wholly-owned subsidiary of the Reserve Bank of India (RBI). It provides deposit insurance that works as a protection cover for bank deposit holders when the bank fails to pay its depositors.The agency insures all kinds of deposit accounts of a bank, such as savings, current, recurring, and fixed deposits up to a limit of Rs. 5 lakh per account holder per bank. In case an individual&#8217;s deposit exceeds Rs.5 lakh in a single bank, only Rs.5 lakh, including the principal and interest, will be paid by DICGC if the bank becomes bankrupt.<\/p>\n<p><strong>Source: <\/strong><a href=\"https:\/\/www.financialexpress.com\/money\/nbfcs-raise-fixed-deposit-rates-go-for-longer-tenures-in-fds-with-higher-credit-ratings-3477869\/\" target=\"_blank\" rel=\"nofollow noopener\">NBFCs raise fixed deposit rates: Go for longer tenures in FDs with higher credit ratings<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A NBFC is a company registered under the Companies Act, 1956, engaged in the business of loans and advances, the acquisition of securities issued by the Government or local authority or other marketable securities.<\/p>\n","protected":false},"author":5,"featured_media":12155,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-12154","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-prelims-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/12154","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=12154"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/12154\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/12155"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=12154"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=12154"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=12154"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}