Union Cabinet approves liberalization of FDI norms for NBFCs

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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