Nomenclature and Regulatory Norms of NBFC in India

Non-Banking Financial Companies (NBFCs) in India are classified into different categories based on their activities. The main categories are:

  • Housing finance companies: These companies provide loans for the purchase or construction of homes.
  • Leasing companies: These companies provide leases on vehicles, machinery, and other equipment.
  • Factoring companies: These companies buy the accounts receivable of businesses.
  • Investment companies: These companies invest in securities, such as stocks and bonds.
  • Insurance companies: These companies provide insurance products, such as life insurance and health insurance.
  • Other NBFCs: This category includes NBFCs that do not fall into any of the other categories, such as asset management companies and credit rating agencies.

Regulatory norms for NBFCs in India

The regulatory norms for NBFCs in India are set by the Reserve Bank of India (RBI). The main regulatory norms are:

  • Capital adequacy: NBFCs are required to maintain a minimum capital adequacy ratio of 15%. This means that they must have capital in the amount of 15% of their risk-weighted assets.
  • Liquidity: NBFCs are required to maintain a minimum liquidity ratio of 25%. This means that they must have liquid assets in the amount of 25% of their demand liabilities.
  • Investments: NBFCs are restricted in the types of investments they can make. They are not allowed to invest in real estate, for example.
  • Borrowing: NBFCs are required to obtain the prior approval of the RBI before borrowing from any source.
  • Audit: NBFCs are required to have their accounts audited by an independent auditor every year.
  • Winding up: NBFCs can be wound up by the RBI in the event of financial distress.

MCQs on the nomenclature and regulatory norms of NBFCs in India

  1. Which of the following is not a category of NBFCs in India?
    • Housing finance companies
    • Leasing companies
    • Factoring companies
    • Investment banks
  2. What is the minimum capital adequacy ratio required for NBFCs in India?
    • 10%
    • 15%
    • 20%
    • 25%
  3. Which of the following is not a type of investment that NBFCs are allowed to make?
    • Real estate
    • Stocks
    • Bonds
    • Money market instruments