Why in the News?

According to the study of RBI, the performance of NBFCs has improved since 2022 after the regulators adopted scale-based regulations- a framework linked to the size, activity and risk levels. But it has also warned that they need to be watchful of cyber-security and climate risks and proactively identify and manage risks, it said.

About NBFC

• These are companies registered under the Companies Act 1956 or Companies Act 2013.
• They are involved in various financial activities like lending, investing in securities, leasing, insurance etc.
• They can accept public deposits for a minimum of 12 months and a maximum of 60 months.
• They cannot accept demand deposits.
• They do not form part of the payment and settlement system and cannot issue cheques drawn on themselves.
• Classification of NBFC’s
  • Based on Deposits
    • Deposit-taking non-banking finance companies
    • Non-Deposit taking Non-Banking Financial Institutions
  • Based On the Nature of their Major Activity:
    • Investment and Credit Company
    • Consumer Durable Loan Finance
    • Core Investment
    • Company (CIC)
    • Infrastructure Finance Company (IFC)/Infrastructure Debt Fund (IDF)
    • Asset Reconstruction Companies (ARC)
    • Factoring Companies
    • Gold Loan Companies
    • Fintech cos: P2P Lenders