NON-BANKING FINANCIAL COMPANY (NBFC)

About:

• A 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.
  
  
• RBI, under the RBI Act 1934 has the power to register, lay down policy, issue directions, inspect, regulate, supervise and exercise surveillance over NBFCs that meet the 50-50 criteria of principal business.
  
  

Banks vs 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.
   
   

Systemically important NBFCs:

• NBFCs whose asset size is of ₹ 500 cr or more as per last audited balance sheet are considered as 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.