Union Cabinet approves liberalization of FDI norms for NBFCs

In Indian Affairs
August 14, 2016

The Cabinet approved liberalization of foreign investment norms for the non-banking finance companies (NBFCs), in yet another measure aimed at improving the ease of doing business.

Foreign investment in NBFCs can now come under the automatic route provided they are regulated by any of the financial sector regulators. But entities not regulated by any of the regulators will need approval from the Foreign Investment Promotion Board (FIPB).

At present, only investments in 18 specified NBFC activities are permitted under the automatic route. Finance minister Arun Jaitley announced in his budget speech this year that foreign investment in other activities will also be put under the automatic route.

This is the third major relaxation in FDI norms since November 2015. In June, the government had announced changes in FDI norms across nine key sectors including ease in FDI caps for defence, aviation and food processing sectors.

the government did away with the need for prior government approval for up to 74 per cent FDI brownfield investment in pharmaceuticals and removed the condition of access to ‘state-of-the-art technology’ for FDI in the defence sector. The government last made changes to the FDI policy in November 2015, when norms for 15 sectors including banking, defence and construction were changed.

India’s FDI inflows in 2015-16 increased to record $55.46 billion as against $45.15 billion in 2014-15 and $36.04 billion during 2013-14.

NBFCs:

(NBFCs) Non-Banking Finance Companies registered under the Companies Act, 1956 Its operations covered under a country’s banking regulations.

NBFC (Non-Banking Finance Companies) is a financial institution that provides banking services without meeting the legal definition of a bank.

.It may be engaged in the business of: Loans and credit facilities, Savings products , Investments ,Money transfer services

Difference between bank and NBFCs:

Bank and NBFCs both are key financial intermediaries. NBFC cannot issue self-drawn cheques and demand drafts they do not form part of the payment and settlement system.

In NBFCs deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors when in bank it’s available. NBFC came into existence for both in public and private sector when banks in providing finance to people.