for all defence aspirants RBI to three categories of NBFCs-NCA ACADEMY

RBI to merge three categories of NBFCs

The reserve bank of india (RBI) has decided to merge three categories of non banking financial companies (NBFCs) into a single category to provide greater operational flexibility to non-banking lenders.

Key points

NBFCs categorized as asset finance companies (AFC),loan companies (LCs) and investment companies (ICs) will be merged into a new category called NBFC-investment and credit company (NBFC-ICC)

Asset finance company (AFC): an AFC is a financial institution focussing on financing of physical assets supporting productive/ economic activity ,such as automobiles, tractors, generators sets etc.

Investment company (IC): an ICĀ  is a financial institution carrying on as its principal business the acquisition of securities.

Loan company(LC): an LC is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an asset finance company.

How NBFCs are different from banks?

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

NBFCs cannot accept demand deposits.

NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.

Deposit insurance facility of deposit insurance and credit guarantee corporation is not available to depositors of NBFCs ,unlike in case of banks.

Non-banking financial company (NBFC)

NBFCs are financial institutions registered under the companies act,1956 that offer various banking services but do not have a banking license.

NBFCs can offer banking services such as loans and credit facilities planning ,money markets, underwriting and merger activities.

Generally ,these institutions are not allowed to take deposits from the public,which keeps them outside the scope of traditional oversight required under banking regulations.