Topic:Indian Economy and issues relating to planning, mobilization of resources, growth, development.
5) Discuss the recent liquidity crisis that the NBFCs are facing in the country and its impacts on various financial aspects of the economy. Throw light upon the steps taken by the government in this regard and suggest way forward to address the problems that have contributed to the crisis.(250 words)
Why this question:
The Reserve Bank of India (RBI) has announced new measures to increase credit flow to the Non-Banking Finance Companies (NBFCs) so as to overcome the on-going liquidity crunch in the sector. Thus, it is important to examine the environment of NBFCs in the country.
Key demand of the question:
The answer must discuss in detail the liquidity crisis facing the NBFCs and the role of government in dealing with the crisis.
Discuss – This is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.
Structure of the answer:
Define what are NBFCs.
Students must first bring out in brief the worsening credit situation of NBFCs and the causes for it, then explain the recent measures taken by the RBI to deal with the same – RBI has increased the cap on a bank’s exposure to a single NBFC to 20% of its tier-I capital from 15% now.
Bank lending to registered NBFCs (other than MFIs) for on-lending to Agriculture up to ₹10.0 lakhs; Micro and Small Enterprises up to ₹ 20.0 lakh and housing up to ₹ 20.0 lakh per borrower to be classified as priority sector lending.
Also explain the measures taken in the last year and its effect on NBFCs.
Conclude with way forward.