Context:
Non-Banking Financial Companies are in news as the Reserve Bank of India (RBI) has revised the regulatory framework for Upper Layer Non-Banking Financial Companies (NBFC-ULs), changing the criteria for mandatory listing.
Explanation:
- Non-Banking Financial Companies (NBFCs) are companies registered under the Companies Act, 2013 that provide financial services such as loans, investments and asset financing but do not hold demand deposits like banks.
- NBFCs are regulated by the Reserve Bank of India (RBI) under the Reserve Bank of India Act, 1934.
- RBI follows a Scale-Based Regulation (SBR) framework that classifies NBFCs into Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL) and Top Layer (NBFC-TL) according to their size, risk and systemic importance.
- NBFC-ULs are subject to stricter prudential norms, governance standards, disclosure requirements and enhanced regulatory supervision.
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