Banking licenses for the NBFCs: A necessary evil?
NBFCs are financial institutes that offer all sorts of banking services, such as loans and credit facilities, retirement planning, money markets, underwriting, and merger activities without holding banking licenses. The number of non-banking financial companies has expanded greatly in the last several years as venture capital companies, retail and industrial companies have entered the lending business. Many a times these institutions are not allowed to take deposits from the public depending on the jurisdiction. For e.g. in New Zealand any company can carry on the business of banking without any banking licenses.
These institutions also provide wealth management such as managing…show more content… Considering the financial inclusion steps undertaken these days it is beneficial for the growth of rural areas. Following are NBFCs that could be reckoning for the new banking licenses.
* Rural segment Focus through micro Finance
Governments and donors have to realize that financial systems and functioning networks of MFIs evolve over long periods of time. It contributes to development, but requires a climate of broader development to be fully effective, both macro economically and at the local level. NBFCs cater to numerous micro, small and medium entrepreneurs (MSMEs) who form the backbone of the ‘India Growth Story’ and yet continue to remain outside the ambit of normal banking channels. Thus NBFCs will help strengthen the financial architecture.
Negative Impact of NBFC’S
Also the NBFCs will face a challenge with respect to the regulation. Unlike the banks they are not regulated to a great extent. However with this banking licenses coming up NBFCs will have to adhere to strict norms. Some NBFCs, for instance, give loans against shares to company promoters or for real estate activities. Banks are either not allowed to undertake such transactions or face restrictions.
Banking is not a business of one or three years. Therefore, looking at