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12/12/2018 - Indian Economy

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December 12, 2018

In the light of recent banking crisis, discuss the necessity of Non-Banking financial companies in the banking sector and the importance of tightening norms of NBFCs. (200 Words )

Refer - Business Standard

Enrich the answer from other sources, if the question demands.

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IAS Parliament 5 years

KEY POINTS

Necessity of NBFCs

·        NBFCs supplement the banks by providing the infrastructure to allocate surplus resources to individuals and companies and produces competition in the financial services industry.

·        It provides specialization one particular sector and develops an information advantage.

·        Flexible services to meet the needs of the specific client.

·        Enhances the competition through unbundling targeting and specialization.

Importance of tightening norms of NBFCs

·        Enables RBI for reviewing the quality of assets.

·        Helps in prevention of further Banking crisis like IL&FS.

·        Suitable control over liquidity management by RBI.

·        Transformation of balance sheets of NBFCs resulting in more equity capital and systemic stability in the financial sector.

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