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RBI report on NBFCs
Why is it in the news?
- As per the Financial Stability Report by RBI, the on-going crisis in the non-banking financial companies (NBFC) sector has brought it under greater market discipline.
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Report Analysis:
- The better performing companies(NBFCs) continued to raise funds, while those with an asset liability mismatch and asset quality concerns faced higher borrowing costs.
- NBFCs are facing a crisis of confidence post the IL&FS debt default last year, with a sharp increase in their borrowing costs.
- As on March 31, there were 9,659 NBFCs registered with the RBI, of which 88 can accept public deposits.
- The bank borrowings, debentures and commercial papers are the major sources of funding for the NBFCs.
- However, borrowings from banks have shown an increasing trend as their (banks) share in total borrowings has increased.
- This indicates that banks are compensating for the reduced market access for NBFCs in the wake of stress in the sector.
NBFCs:
- A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956.
- NBFCs provides banking services without meeting the legal definition of a bank.
- Unlike Banks , NBFC cannot accept demand deposits. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.