RBI suspended licence of seven non-banking finance companies

The Reserve Bank of India (RBI) has suspended the licences of seven non-banking finance companies (NBFC). The seven companies are

  • Religare Finance
  • Eden Trade & Commerce
  • Artisans Micro Finance
  • Nott Investments
  • RCS Parivar Finance
  • Swetasree Finance
  • Dewra Stocks & Securities

There are around 12,000 NBFCs in the system. RBI has the power to cancel licence if the companies do not fulfil various norms including minimum net owned funds.

What is NBFC? What is it’s role?
  • A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956.
  • The NBFC is engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities.
  • NBFC does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
What is the difference between NBFC and a Bank?

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

  • 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.

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