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15 NBFCs surrender license to RBI


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The Reserve Bank of India (RBI) has recently announced that 15 non-banking finance companies (NBFCs) have surrendered their licences to the central bank. These surrenders have been attributed to various reasons such as businesses exiting the market, amalgamation, merger, dissolution, and voluntary strike-off.

According to the RBI’s release, six NBFCs have chosen to surrender their licences due to their exit from the Non-Banking Financial Institution (NBFI) business. These companies include Vian Growth Capital Pvt Ltd, Drap Leasing and Finance Pvt Ltd, Jewel Strips Pvt Ltd, Revolving Investments Ltd, Anshu Leasing Pvt Ltd, and A. V. B. Finance Pvt Ltd.

Additionally, the release states that nine NBFCs have surrendered their licences as they have ceased to exist as legal entities. This has occurred due to reasons such as amalgamation, merger, dissolution, voluntary strike-off, and others. The companies mentioned in this category are JDS Securities Pvt Ltd, Jodhani Management Pvt Ltd, ABRN Finance Pvt. Ltd, Tata Capital Financial Services Ltd, Tata Cleantech Capital Ltd, Naperol Investments Ltd, USG Financial Services Pvt Ltd, Urja Capital Pvt Ltd, and Vandana Dealers Pvt. Ltd.

What is NBFC crisis & How it happens?

  • NBFCs borrow money from banks or sell commercial papers to mutual funds to raise money.
  • This money is then given as a loan to small and medium enterprises, retail customers and so on.
  • But when NBFCs face liquidity crunch i.e. shortage of money, this leads to NBFC CRISIS.

The NBFC business model itself is flawed. It raises short-term funds which are then lent out as long-term loans. For example, an NBFC raises money by selling 6-month debt papers and on-lends this as a car loan with a tenure of 5 years. Now, every time the NBFC has to renew the 6-month debt paper or raise fresh loans to repay the old debt paper. This cycle continues but the cycle gets broken by the default of some firms. This creates fear among banks, mutual funds that more such entities could default. Due to this many institutions refused to give money to NBFCs. This leads to NBFC crisis.

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