Impactb of Inflation on Nbfcs in India

Topics: Financial services, Inflation, Asset Pages: 22 (6649 words) Published: February 24, 2013



One of the most important indicators of the economy is “Inflation”. It is the rate at which the general level of prices for goods and services is rising and simultaneously purchasing power is falling. There are two main indices used to measure indices used to measure inflation. The first is the Consumer Price Index or the CPI. The CPI is a measure of the price of set group and services. The second measure of inflation is the Producer Price Index, or the PPI .The CPI indicates the change in the purchasing power of a consumer and the PPI measures the change in the purchasing power of the producers of those goods. The PPI measures how much producers of products are getting on the wholesale level, i.e. the price at which a good is sold to other businesses before the good is sold to a consumer. The PPI actually combines a series of smaller indices that cross many industries and measure the prices for three types of goods: crude, intermediate and finished. Generally, the markets are most concerned with the finished goods because these are a strong indicator of what will happen with future CPI reports. The CPI is a more popular measure of inflation than the PPI.

Types of Inflation
There are four main types of inflation with four different causes. The most important inflation is called demand-pull or excess demand inflation. It occurs when the total demand for goods and services in an economy exceeds the available supply, so the prices for them rise in a market economy. Historically this has been the most common type and at times the most serious. Another type of inflation is called cost-push inflation. The name suggests the cause--costs of production rise, for one reason or another, and force up the prices of finished goods and services. A third type of inflation could be called pricing power inflation, but is more frequently called administered price inflation. It occurs whenever businesses in general decide to boost their prices to increase their profit margins. This does not occur normally in recessions but when the economy is booming and sales are strong. It might be called oligopolistic inflation, because it is oligopolies that have the power to set their own prices and raise them when they decide the time is ripe. The fourth type is called sectoral inflation. The term applies whenever any of the other three factors hits a basic industry causing inflation there. Any underdeveloped and developing economy has to bear an impact of inflation during its economic development especially when the process of growth happens at the rapid pace.
Non Banking Financial Corporation’s (NBFCs)

  A Non-Banking Financial Company (NBFC) is a  company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company.

Residuary Non-Banking Companies (RNBCs)

Residuary Non-Banking Companies (RNBCs) are another category of NBFCs whose principal business is acceptance of deposits and investing in approved securities. These companies are required to maintain investments as per directions of RBI, in addition to liquid assets.


* To study the overview of Non Banking Financial Corporation’s (NBFCs) in India. * To study the overview of Residuary Non-Banking Companies (RNBCs) in India....
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