An Overview on Nbfc Sector in India

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Non-Banking Financial Companies (NBFC) have rapidly emerged as an important segment of the Indian financial system. Moreover, NBFCs assume significance in the small business segment as they primarily cater to the credit requirements of the unorganised sector such as wholesale & retail traders, small-scale industries and small borrowers at the local level. NBFC is a heterogeneous group of financial institutions, performing a wide range of activities like hire-purchase finance, vehicle financing, equipment lease finance, personal loans, working capital loans, consumer loans, housing loans, loans against shares and investment, etc. NBFCs are broadly divided into three categories namely (i) NBFCs accepting deposits from banks (NBFC-D); (ii)…show more content…
Within the NBFC sector also, the prudential norms applicable to deposit taking NBFCs were more stringent than those for non deposit taking NBFCs. Since 2000, the RBI has initiated measures to reduce the scope of ‘regulatory arbitrage’ between banks, NBFCs-D (Deposit taking NBFCs) and NBFCs-ND (Non-Deposit taking NBFCs). The regulatory framework has undergone significant change in the last few years. The regulatory policies, which mostly focused on NBFCs-D until past few years, are now paying increasing attention to NBFCs-ND as well. The change in regulatory stance is largely due to a significant increase in both the number and balance sheet size of NBFCs-ND segment that gave rise to systemic concerns. In view of these developments, NBFCs-ND with assets size of Rs 1 bn and above were classified as systemically important NBFCs (NBFCs-ND-SI) and were subjected to ‘limited norms & regulations’ such as CRAR and exposure norms prescribed by the RBI. The CRAR for these companies has been set at 12% since March 31, 2009 and has been raised to 15% upto March 31, 2010. Trends & Progress of the NBFCs’ Business Since late 1980s up to mid 1990s, the number of NBFCs increased substantially on the back of easy access of funds from capital market IPOs and deposits from the public. In 1981, there were 7,063 NBFCs. The number went up to 24,009 in 1990 and there were as many as 55,995 NBFCs by 1995. The high deposit rates offered by NBFCs led investors to invest their funds
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