The internal working group of the Reserve Bank of India (RBI) suggested that large Non-Banking Financial Company (NBFCs) can convert into banks if they fulfill certain criteria. The Internal Working Group of the RBI was headed by PK Mohanty.
Context
The internal working group of the Reserve Bank of India (RBI) suggested that large Non-Banking Financial Company (NBFCs) can convert into banks if they fulfill certain criteria. The Internal Working Group of the RBI was headed by PK Mohanty.
Which NBFCs can be converted into banks?
- Well-run large non-banking finance companies (NBFCs), with an asset size of Rs 50,000 crore and above.
- They include NBFCs which are owned by a corporate house.
- It is subjected to completion of 10 years of operations
- The IWG was constituted by the RBI on June 12 to examine and review the extant licensing and regulatory guidelines relating to ownership and control, corporate structure, and other related issues.
What are the concerns over it?
- NBFCs which were converted into banks, in the past, are facing issues in terms of higher provisioning for legacy NPAs.
- Considering the current economic scenario and fear of tighter regulations, NBFCs may not be too eager to convert into bank unless there is a substantial incentive in doing so.
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What is NBFC?
- A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956.
- It is engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority.
- It also deals with other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but 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 the immovable property.
What is the difference between banks & NBFCs?
- NBFC cannot accept demand deposits
- NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself
- No deposit insurance
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