NBFCS - ECONOMY
News: Tata Group seeks RBI waiver
from listing NBFC
What's in the news?
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Tata Group has sought a formal waiver from the
central bank to avoid listing Tata Sons, its holding company and non-banking
finance firm, on stock exchanges, Bloomberg News reported, citing people
familiar with the matter.
Non-Banking Financial
Company (NBFC):
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An 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 the Government or local
authority or other marketable securities of a like nature.
Types of NBFC:
There are two types of NBFCs based on their liability structure such as
1. Deposit-taking NBFCs
(NBFC-D):
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They accept deposits from customers and use that
money to provide loans and other financial services.
2. Non-deposit taking
NBFCs (NBFC-ND):
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They don’t accept deposits from customers but raise
funds through other means, such as issuing bonds or borrowing from banks.
Features:
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They offer various banking services but do not have a banking license.
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They provide banking services like loans, credit
facilities, TFCs, retirement planning, investing and stocking in the money
market.
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Generally, these institutions are not allowed to take traditional demand
deposits - readily available funds, such as those in checking or savings
accounts from the public.
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NBFCs also provide a wide range of monetary advice
like chit-reserves and advances.
Regulation:
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NBFCs are regulated
by the Reserve Bank of India (RBI), the central bank of India.
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The RBI has the authority to issue licenses to
NBFCs, regulate their operations, and ensure that they adhere to the
established norms and regulations.
Difference between Banks
and 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.
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NBFC cannot
accept demand deposits.
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NBFCs do not
form part of the payment and settlement system and cannot issue cheques drawn
on itself.
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Deposit insurance facility of Deposit Insurance and
Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in
case of banks.
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Unlike banks, NBFCs are not subjected to stringent and substantial regulations.
Examples:
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Investment banks, mortgage lenders, money market
funds, insurance companies, equipment leasing companies, infrastructure finance
companies, hedge funds, private equity funds, and P2P lenders.