economics medium True/False

Non-Banking Financial Companies (NBFCs) whose asset size is Rs. 500 crore or more are classified by the RBI as 'Systemically Important' (NBFC-ND-SI) because their distress could potentially trigger a contagion effect across the broader financial system.

  1. True
  2. False

Answer: True

Because large NBFCs are deeply interconnected with commercial banks (borrowing heavily from them) and retail investors, the failure of a massive NBFC could collapse the credit market. Consequently, the RBI subjects these Systemically Important NBFCs to much stricter prudential norms, capital adequacy requirements, and liquidity coverage ratios, similar to those applied to commercial banks.

Topic Banking - NBFCs
Exam Relevance Banking, UPSC Prelims, SSC
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