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Lending to NBFCs
Why is it in the news?
- The Reserve Bank of India (RBI) to take several measures to increase credit flow to the NBFC sector.
More in the news
- The on-going liquidity crunch faced by non-banking finance companies (NBFCs) has made the Reserve Bank of India (RBI) to take further measures.
- The central bank has decided to increase the cap on a bank’s exposure to a single NBFC to 20% of its tier-I capital from 15% now.
- RBI has decided to give ‘priority sector’ tag for banks lending to NBFCs, for on-lending to farm, small and medium enterprises and housing sector.
- Banks have been allowed to lend to the NBFCs for on-lending to the agriculture sector up to ₹10 lakh, up to ₹20 lakh to micro and small enterprises, and for housing, up to ₹20 lakh per borrower.
- These will be classified as priority sector lending.
- This will improve the available sources of funding, especially for new-age mid and small-sized NBFCs.
NBFCs:
- A Non-Banking Financial Company (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
- 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.
- Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
Source
The Hindu.