Why in NEWS
Flipkart has become the first Indian e-commerce firm to receive a Non-Banking Financial Company (NBFC) licence from the Reserve Bank of India (RBI). This allows Flipkart to directly lend to its customers and sellers, marking a major step in integrating fintech with e-commerce.
Key Concepts & Terms
| Term | Definition |
|---|---|
| NBFC | A company registered under the Companies Act, engaged in financial activities like lending, leasing, investments, etc. |
| Net Owned Fund (NOF) | The minimum capital (₹10 crore) required by a company to be eligible for NBFC registration. |
| DICGC | Deposit Insurance and Credit Guarantee Corporation; NBFC deposits are not insured under it. |
| Residuary NBFC | NBFCs collecting deposits in lump sum/installments under schemes. |
| Demand Deposits | Funds that can be withdrawn on demand (like in savings/current accounts) – NBFCs can’t offer these. |
Flipkart NBFC Licence: Implications & Requirements
| Aspect | Details |
|---|---|
| Issuer | Reserve Bank of India (RBI) |
| Recipient | Flipkart |
| Requirement for Licence | – Incorporated under Companies Act – ₹10 crore Net Owned Fund (NOF) |
| NBFC Activities Allowed | Lending, leasing, investments |
| NBFC vs Bank | Cannot accept demand deposits Cannot issue cheques No DICGC cover |
| Residuary NBFC | Special category accepting deposits under schemes |
| Excluded Activities | Agriculture, Industry, Real Estate, Goods/Services Trading |
NBFC vs Banks: A Comparative Overview
| Feature | NBFC | Bank |
|---|---|---|
| Regulator | RBI under Chapter III B of RBI Act, 1934 | RBI under Banking Regulation Act, 1949 |
| Incorporation | Companies Act, 1956 or 2013 | Banking Companies Act, 1949 |
| Accept Demand Deposits | Not allowed | Allowed |
| Cheque Facility | Cannot issue cheques | Can issue cheques |
| Part of Payment System | Not a part | Integral to payment and settlement system |
| Deposit Insurance (DICGC) | Not applicable | Deposits insured up to ₹5 lakh |
| Statutory Reserve Requirements | No CRR/SLR compliance | Must maintain CRR and SLR |
| Interest Rates | Free to determine | Regulated by RBI |
| Foreign Investment Norms | 100% FDI under automatic route (with conditions) | Also permitted but with stricter scrutiny |
| Example | Flipkart Financial Services, Bajaj Finance | State Bank of India, HDFC Bank |
In a Nutshell (Memory Code: “F.L.I.P.”)
F – Flipkart’s fintech leap
L – Licensed to lend under RBI norms
I – Integrated e-commerce & credit system
P – Protected? No DICGC cover for NBFCs
Prelims Practice Questions
- Which of the following is NOT true about NBFCs?
a) NBFCs can issue cheques
b) NBFCs cannot accept demand deposits
c) NBFCs are regulated by RBI
d) NBFCs require minimum ₹10 crore NOF - Flipkart receiving an NBFC licence enables it to:
a) Accept deposits from the public
b) Launch its own payment settlement system
c) Lend directly to customers and sellers
d) Conduct agricultural credit services - Which of the following activities is NOT typically undertaken by an NBFC?
a) Investment in securities
b) Leasing and hire-purchase
c) Collecting demand deposits
d) Providing
Prelims Answer Key & Explanation
| Q No. | Answer | Explanation |
|---|---|---|
| 1 | a | NBFCs cannot issue cheques as they are not part of the payment system. |
| 2 | c | Flipkart can now directly lend under NBFC licence. |
| 3 | c | Only banks can accept demand deposits; NBFCs are restricted. |
