CRISIS IN NBFC SECTOR COULD HURT ECONOMIC GROWTH’

Prelims level : Economics Mains level : Technology, Economic Development, Bio diversity, Environment, Security and Disaster Management
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Why in News:

  • The investors are worried over potential impact on the overall growth of the economy in the near term on current liquidity crisis in the non-banking financial companies’ (NBFCs).

Details:

  • “Many investors appear concerned about the ongoing financial crunch led by the NBFC sector and its impact on discretionary consumption and hence overall growth.
  • High risk aversion, delayed monetary transmission and subdued mutual fund flows could result in a further slowing of the sector.

NBFC

  • NBFC – An NBFC is a company registered under the Companies Act, 1956.
  • It engages in the business of loans and advances
  • acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature
  • leasing, hire-purchase, insurance business, chit business, etc. NBFCs largely depend on market-based funds.
  • They aim at bridging the gap in pricing inefficiency based on perceived risk.
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