Earlier this week, a top government official, Corporate Affairs Secretary Injeti Srinivas, flagged an imminent crisis in the Non-Banking Financial Companies (NBFC) sector. Specifically, he pointed to a credit squeeze, over-leveraging, excessive concentration, a massive mismatch between assets and liabilities, coupled with some misadventures by some large entities, as primary concerns in the sector.
What are NBFCs? How are they different from banks?
An NBFC is a financial institution that gives out loans and advances, involves in the acquisition of shares, stock, bonds, hire-purchase insurance business or chit-fund business. NBFCs lend and make investments. But, unlike banks, an NBFC does not issue demand deposits, does not form part of the payment and settlement system and cannot issue cheques drawn on itself nor Demand Drafts.
