NBFCs — Set 3
Banking · NBFC · Questions 21–30 of 60
What is the primary function of a 'Mortgage Guarantee Company'?
Correct Answer: C. Guaranteeing the repayment of
The correct answer is 'Guaranteeing the repayment of'. Mortgage Guarantee Companies provide a guarantee against the default of mortgage-backed loans. At least 90% of their business turnover must come from this guarantee activity. This helps lenders mitigate risk and increases the availability of housing finance.
Chit Fund companies are regulated by which authority?
Correct Answer: A. State Governments
Chit Funds are primarily governed by the Chit Funds Act, 1982, and are regulated by the respective State Governments. The RBI does not regulate the day-to-day operations of these companies. However, they are technically non-banking financial entities.
Which of the following is NOT an NBFC regulated by the RBI?
Correct Answer: B. Insurance Company
Insurance companies are regulated by the Insurance Regulatory and Development Authority of India (IRDAI), not the RBI. While they provide financial services, they fall under a different specialized regulator. Loan companies and MFIs are directly under the RBI's supervision.
What is the 'Tier 1 Capital' of an NBFC primarily composed of?
Correct Answer: C. Owned funds like equity and
Tier 1 Capital is the core capital of an NBFC, consisting primarily of paid-up equity capital and free reserves. It is the most reliable form of capital as it is fully owned and available to absorb losses. Regulators require a minimum Tier 1 capital ratio to ensure solvency.
Which category of NBFC exists to cater to the funding needs of the power sector specifically?
Correct Answer: B. PFC (Power Finance Corporation)
The Power Finance Corporation (PFC) is a specialized NBFC focused on the Indian power sector. It provides financial assistance to power projects, including thermal, hydro, and renewable energy. It is a systemically important government-owned NBFC.
Can an NBFC offer a higher rate of interest on deposits than the ceiling prescribed by the RBI?
Correct Answer: D. No, they cannot exceed the maximum rate
NBFCs are strictly prohibited from offering interest rates higher than the ceiling prescribed by the RBI from time to time. This prevents unhealthy competition and ensures that NBFCs do not take excessive risks to pay high returns. The current ceiling is typically revised based on market conditions.
What is the purpose of the 'Ombudsman Scheme for NBFCs'?
Correct Answer: B. To resolve customer grievances
The Ombudsman Scheme for NBFCs was launched by the RBI to provide a cost-free and efficient mechanism for complaint redressal. Customers can approach the Ombudsman if the NBFC does not resolve their complaint satisfactorily. This enhances consumer protection in the non-banking sector.
A Loan Company is an NBFC whose principal business is?
Correct Answer: D. Providing finance by making
A Loan Company is defined as any financial institution whose principal business is providing finance by making loans or advances. This excludes asset finance activities. They cater to a wide range of needs including personal, business, and consumer loans.
Which of the following is true about NBFC-Account Aggregators?
Correct Answer: B. They do not take deposits or provide loans;
NBFC-Account Aggregators are a unique category that only helps in the retrieval and consolidation of a user's financial information. They cannot engage in lending or deposit-taking activities themselves. They facilitate the sharing of financial data between different service providers with user consent.
What happens if an NBFC fails to maintain the required NOF?
Correct Answer: A. Its registration can be cancelled by the RBI.
Maintaining the minimum Net Owned Fund (NOF) is a mandatory condition for holding a Certificate of Registration. If an NBFC fails to meet this requirement, the RBI has the power to cancel its license to operate. This ensures that only financially stable players remain in the market.