Union Cabinet Approves Liberalization of FDI Norms for NBFCs [ Current Affairs - Policies & Governance ]


Union cabinet approval to amend regulation for foreign direct investment in the non-banking finance companies (NBFCs). The government has annoused liberalisation in eight sectors including defense and civil aviation sectors.

  • Since November 2015, this is the third major relaxation in FDI norms.
  • 100% FDI through automatic route is permitted in 18 NBFC activities including:

    • Merchant banking
    • Under writing
    • Portfolio management services
    • Financial consultancy
    • Stock broking
  • FDI of India grew by 29% year on year to USD 40 billion in 2015-16.

Cabinet has approval:

  • Foreign investment in other financial services are not regulated and it can be made on approval route.
  • Foreign investment in NBFCs can now come under the automatic route and it provided or regulated by any of the financial sector regulators.
  • Minimum capitalization rules are mandated under FDI policy.
  • They have been eliminated as most of the regulators, which have already fixed minimum capitalization norms.
  • Entities not regulated by any of the regulators (RBI, SEBI, PFRDA etc.) government agencies.
  • They will need approval from the Foreign Investment Promotion Board (FIPB).


  • NBFCs: Non-Banking Finance Companies
  • NBFCs  company registered under the Companies Act, 1956
  • Its operations covered under a country’s banking regulations.
  • NBFC (Non-Banking Finance Companies) is a financial institution that provides banking services without meeting the legal definition of a bank.
  • Simply can say that one that does not hold a banking license.
  • It may be engaged in the business of:

    • Loans and credit facilities
    • Savings products
    • Investments
    • Money transfer services

Difference between bank and NBFCs:

  • Bank and NBFCs both are key financial intermediaries.
  • NBFC cannot issue self-drawn cheques and demand drafts they do not form part of the payment and settlement system.
  • In NBFCs deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors when in bank it’s available.
  • NBFC came into existence for both in public and private sector when banks in providing finance to people.

- Published on: August 12, 2016