Banks can provide finance to NBFCs in India, subject to certain conditions. The conditions vary depending on whether the NBFC is registered with the Reserve Bank of India (RBI) or not.
NBFCs registered with RBI
NBFCs that are registered with the RBI are subject to the RBI’s prudential norms. These norms include requirements on capital adequacy, liquidity, and asset classification. Banks can provide finance to these NBFCs without any restrictions.
NBFCs not requiring registration with RBI
NBFCs that do not require registration with the RBI are subject to the provisions of the Companies Act, 2013. These NBFCs can also obtain finance from banks, but the banks are required to take certain additional steps before providing finance. These steps include:
- Conducting a due diligence of the NBFC
- Obtaining a comfort letter from the promoter of the NBFC
- Securing the loan with collateral
MCQs on bank finance to NBFCs registered/not requiring registration with RBI in India
- Which of the following NBFCs can obtain finance from banks without any restrictions?
- An NBFC that is registered with the RBI
- An NBFC that is not registered with the RBI
- All NBFCs
- None of the above
- Which of the following steps are required for banks to provide finance to an NBFC that does not require registration with the RBI?
- Conducting a due diligence of the NBFC
- Obtaining a comfort letter from the promoter of the NBFC
- Securing the loan with collateral
- All of the above
- What is the purpose of the additional steps that banks are required to take before providing finance to NBFCs that do not require registration with the RBI?
- To protect the interests of the banks
- To ensure that the NBFC is creditworthy
- To comply with the RBI’s regulations
- All of the above