Union Cabinet Approves Liberalization of FDI Norms for NBFCs [ Current News (Concise) - 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
- 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