Topic – Indian economy : issues
6) Examine the role played by NBFC sector in the Indian economy and issues plaguing the sector?(250 words)
Why this question
The question discusses the role NBFC sector has played in the Indian economy and delves deep into the nature of liquidity issue that is faced by the sector in the backdrop of IL&FS crisis. The issue of NBFC has been in the news and is currently at the centre of alleged tussle between RBI and Govt. Hence this question is important.
Key demand of the question
The question expects us to first explain what NBFCs are and the role they play in our economy. Thereafter we need to explain the problem of liquidity crisis in the sector and RBI’s position on it. Finally, we need to discuss what needs to be done to address the crisis.
Examine – When you are asked to examine, you have to probe deeper into the topic, get into details, and find out the causes or implications if any .
Structure of the answer
Introduction – Explain what NBFCs are
- Discuss the role played by NBFC sector in the economy – NBFCs being financial intermediaries are supposed to play a supplementary role to banks. NBFCs, especially those catering to the urban and rural poor — including the micro-finance institutions (NBFC-MFIs) and asset finance companies — have a complementary role in the financial inclusion agenda of the country. Further, some of the big NBFCs — infrastructure finance companies — are engaged in lending exclusively to the infrastructure sector, and some are into factoring business, thereby giving a fillip to the growth and development of various sectors. In short, NBFCs bring diversity to the financial sector.
- Discuss the issues plaguing NBFC – that of liquidity crunch, regulatory challenges etc. Explain the relevance of IL&FS crisis and how it is related to the problems being faced currently.
- Discuss how government and RBI have responded to the situation and the steps taken by RBI to address the liquidity problem of NBFCs
Conclusion – Give your view on the way this problem should be dealt with.