The Union Cabinet has approved liberalization of foreign investment norms for the non-banking finance companies (NBFCs) to improve the ease of doing business. Decision in this regard, Union Cabinet meeting chaired by Prime Minister Narendra Modi in New Delhi. Cabinet has approved Foreign investment in NBFCs can now come under the automatic route provided they are regulated by any of the financial sector
regulators. Entities not regulated by any of the regulators (RBI, SEBI, PFRDA etc.)/government agencies will need approval from the Foreign Investment Promotion Board (FIPB). Minimum capitalisation norms as mandated under FDI policy have been eliminated as most of the regulators have already fixed minimum capitalisation norms. What is a Non-Banking Financial Company (NBFC)? A NBFC is a financial institution that provides banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. It is established as a company registered under the Companies Act, 1956 but its operations are often still covered under a country’s banking regulations. NBFCs may be engaged in the business of loans and credit facilities, savings products, investments and money transfer services. What is difference between banks and NBFCs? NBFCs business activities are akin to that of banks as they can lend and make investments; however there are a few differences between them. NBFCs cannot accept demand deposits. They cannot issue cheques as they do not form part of the payment and settlement system. 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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