What are NBFCs ?
A Non-Banking Financial Company (NBFC) is a companionship registered nether the Companies Act, 1956. NBFCs are fiscal institutions that offering diverse banking services, but do non cause got a banking license. Generally, these institutions are not allowed to convey deposits from the public, which keeps them exterior the range of traditional oversight required nether banking regulations. NBFCs tin offering banking services such every bit loans too credit facilities, retirement planning, coin markets, underwriting too merger activities.
Difference betwixt Banks & NBFCs
NBFCs lend too brand investments too thence their activities are similar to that of banks; nonetheless at that topographic point are iii major differences betwixt Banks too NBFCs. They are :
- NBFC cannot convey need deposits.
- NBFCs produce non shape exercise of the payment too short town organization too cannot number cheques drawn on itself.
- Deposit insurance facility of Deposit Insurance too Credit Guarantee Corporation is non available to depositors of NBFCs, dissimilar inwards illustration of banks.
Why RBI Cancelled the licenses of NBFCs
Under the PMLA (Prevention of Money Laundering Act, 2002), the NBFCs are required to render details well-nigh the identity of their clients, maintain records too render the information to the Financial Intelligence Unit. Several NBFCs are facing closure for violation of these rules. Over 1,200 NBFCs flagged every bit “high risk” prone for non complying amongst a provision of the anti-money laundering police push clit too inwards Apr RBI asked them to submit their records to the authorities hold out identified every bit legally compliant. If they fail, RBI volition cancel their licenses.