Font size:
Print
NBFC
Context:
Education loans for NBFCs grew over 80% in FY2023 and 70% in FY2024, expected to rise 40-45% to over Rs 60,000 crore in FY 2024-25, driven by demand for overseas education.
- Despite growth, only a small portion of Indian students studying abroad are funded by NBFCs or banks, indicating room for expansion.
More in News:
RBI has made following changes in NBFC regulations:
- Revised Fixed Deposit (FD) Regulations (Effective from January 1, 2025): New RBI rules enhance transparency and depositor protection for FDs with NBFCs.
About NBFC:
- According to RBI, a Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956
- Engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business
- NBFC does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
- Financial activity as principal business is when a company’s financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income.
- A company which fulfils both these criteria will be registered as NBFC by RBI.
- A non-banking institution which is a company and has the principal business of receiving deposits under any scheme or arrangement in one lump sum or in instalments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).
NBFC crisis and Health score Index:
- During the liquidity crisis affecting India’s NBFC sector, both debt and equity investors faced significant wealth erosion due to defaults.
- Debt mutual funds with exposure to stressed NBFCs lost around ₹4,000 crore, leading to increased redemptions and reluctance to finance the NBFC sector. This reduced credit growth and impacted GDP.
- According to the Economic Survey 2019-20 to assess early warning signs, the Health Score index was developed, measuring the financial fragility of NBFCs. It tracks key refinancing risks, such as asset-liability management and reliance on short-term funding.
- The Health Score indicated consistent financial stress from 2011-2019, with a sharp decline in 2017-18, signalling trouble well in advance.
- According to the Economic Survey 2023-24 lending by NBFCs accelerated, led by personal loans and loans to the industry, and their asset quality has improved.
