Context: Walmart’s Flipkart has secured an Non-Banking Financial Company (NBFC) licence from the Reserve Bank of India allowing it to directly disburse loans for EMIs and BNPL (Buy Now, Pay Later) schemes. This is the first time the RBI has granted a large e-commerce player in India a NBFC licence.
Relevance of the Topic:Prelims: Key facts about Non-Banking Financial Company (NBFC); NBFCs vs Banks.
NBFC licence to Flipkart
- The NBFC licence will allow Flipkart to lend directly to customers on its platform and through its fintech App- ‘super.money’.
- Flipkart can offer loans independently rather than through partners, potentially boosting profitability.
- It may also offer financing to sellers on the platform.
What is a Non-Banking Financial Company?
- NBFC is the Non-banking financial institution registered under the Companies Act, 1956, that provides diverse financial facilities like lending, pension and insurance.
- NBFCs do not have a full banking license and cannot accept deposits from the public. They cannot issue cheque books or open savings accounts.
- NBFCs have played a pivotal role in making formal credit accessible to MSMEs, retail sectors and underserved populations.
- The sector contributes 12.5% to the country's GDP.
- The sector's credit share has grown from 15% in 2014 to 22.5% of total Scheduled Commercial Bank credit in 2024.
- The growth of NBFCs has been supported by diverse funding streams like bank loans, commercial papers and other debt instruments- where term loans and debentures consist of 75% of borrowings.
- Regulation: The working and operations of NBFCs are regulated by RBI within the framework of the Reserve Bank of India Act, 1934.
Types of NBFCs:
- Based on Asset-Liability Structures: Deposit-taking NBFCs (NBFCs-D) and non-deposit-taking NBFCs (NBFCs-ND).
- Based on Systemic Importance: Among non-deposit taking NBFCs, those with asset size of Rs 500 crore or more are classified as non-deposit taking systemically important NBFCs (NBFCs-ND-SI).
NBFCs vs. Banks:
The NBFC sector plays an important role in supplementing credit creation along with the Banks.
| Difference between Banks and NBFCs | ||
| Characteristics | Banks | NBFCs |
| Deposits | Accepts all types of deposits | Cannot accept demand deposits (some NBFCs can accept fixed deposits after RBI’s approval) |
| Deposit insurance of DICGC | Applicable (up to Rs.5 lakh per depositor) | Non-Applicable |
| Payment and Settlement system of the RBI | Supports RTGS, NEFT, IMPS etc., | Not supported. Cannot issue their own cheque books. |
| Foreign investment | Up to 74% | Up to 100% |
| Cash Reserve Requirement | Applicable | Not Applicable |
| Capital Adequacy Norms | Applicable | Applicable only to Deposit-taking NBFCs and Systematically Important NBFCs (CRAR - 15%) |
| SLR | Applicable | Applicable only to Deposit-taking NBFCs (SLR - 15%) |
| Incorporated under | Banking Regulation Act, 1949 | Incorporated under Companies Act 2013; and regulated under RBI and various bodies depending on category. |
Role of NBFCs in Economy:
- Credit access to the underserved sectors like small businesses, rural areas, and the informal sector & MSMEs.
- Promoting financial inclusion by institutionalisation of the lending market in India, eliminating the unregulated lenders.
- Driving infrastructural growth by funding the long-term and risky infrastructure projects, as banks lack the capacity to fund large projects due to their asset-liability mismatch.
- Strengthening the financial market through the activities like leasing, hire-purchase and securitisation, improving the overall efficiency of the financial system.
- Contributing capital formation as the NBFCs mobilises the resources, savings and investments to foster economic growth.