NBFCs are RBI-regulated financial institutions that provide banking-like financial services without a banking licence, and the RBI has recently eased their access to bank credit by reducing risk weights on bank loans by 25 percentage points.
News: The Reserve Bank of India (RBI) has eased lending norms for Non-Banking Financial Companies (NBFCs) by reducing the risk weight on bank loans to NBFCs by 25 percentage points, improving their access to bank credit.
About NBFCs
- Financial institutions that provide banking-like financial services without holding a banking licence.
- Registered under the Companies Act, 1956 and regulated by the Reserve Bank of India (RBI).
- A company qualifies as an NBFC if more than 50% of its assets and income are from financial activities ("50-50 test").
- Minimum Net Owned Fund (NOF): ₹10 crore.
Functions of NBFCs
- Provide loans and credit.
- Invest in shares, bonds, and securities.
- Offer leasing and hire purchase services.
- Provide asset management and venture capital funding.
- Undertake insurance-related financial activities.
Key Features
- Cannot accept demand deposits (e.g., savings/current account deposits).
- Cannot issue cheques drawn on themselves.
- Not part of the payment and settlement system.
- Deposits (where accepted) are not covered by Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance.