Consider the following statements with respect to Non-Banking Financial Companies (NBFCs):
1. They are regulated under the Companies Act, 1956.
2. They are not required to maintain the Reserve Ratios prescribed by the Reserve Bank of India.
3. Foreign Direct Investment (FDI) in NBFCs is allowed only through the automatic route.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Explanation Statement 1 is correct: NBFCs are regulated under the Companies Act, 1956, and they also have to comply with the regulations issued by the Reserve Bank of India (RBI) under the RBI Act, 1934.
Statement 2 is correct: Unlike banks, NBFCs are not required to maintain statutory reserve ratios such as the Cash Reserve Ratio (CRR) or Statutory Liquidity Ratio (SLR), which are mandatory for scheduled commercial banks. However, they do need to follow other regulatory norms as prescribed by the RBI.
Statement 3 is not correct: FDI in NBFCs is allowed through the automatic route, but with certain conditions. However, it is not strictly limited to only the automatic route. There are also restrictions on the types of activities that FDI can be involved in, and certain sectors within NBFCs may require prior approval from the Government of India (e.g., for activities that are sensitive to national security or strategic importance).
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