Prelims level : Banking Mains level : GS-III Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
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Why in News?

  • The Reserve Bank of India (RBI) has announced a host of measures to provide liquidity support to non-banking financial companies (NBFCs), apart from giving them certain benefits for loans extended to the commercial Real Estate Sector.

What Measures did RBI took?

  • Banks have to invest the funds availed under targeted long-term repo operation (TLTRO), in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs. Small and mid-sized NBFCs and micro-finance institutions (MFIs) should receive at least 50% of these funds.
  • Banks can avail Rs. 50,000 crore through the targeted long-term repo operation. The first auction of TLTRO for Rs. 25,000 crore will be conducted on April 23.
  • The RBI has also decided to provide special refinance facility of Rs. 50,000 crore to NABARD, SIDBI and NHB to enable them to meet sectoral credit needs.
  • The regulator has also allowed non-banking institutions to extend the date for commencement for commercial operations (DCCO) by an additional one year, without treating the same as restructuring, if the project is delayed due to reasons beyond the control of the promoter.

What are the NBFC’s?

  • 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 or local authority or other marketable securities of a like nature.
  • 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.
  • A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).

How they are Differed from other Commercial Banks?

  • NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:
  1. 1.NBFC cannot Accept Demand Deposits;
  2. 2.NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
  3. 3.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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