Financial intermediaries

Classification: Bank vs NBFI

PS
L
ap r u
MS pl le
F g ies
ive
n

NO PSL
NO PSL

Commercial

Cooperative

CRR, SLR: yes yes

Commercial

PSL: yes

Cooperative

PSL: Nope

Commercial

Profit motive

Cooperative

No profit no loss
motive

Commercial

Voting power
as per
shareholding

Cooperative

1 person 1 vote

Commercial banks
Public sector: 22 | 27 (PJ Nayak 2014)
iba.org.in/viewmembanks.asp?id=1
Private sector: 23
iba.org.in/viewmembanks.asp?id=3
Foreign banks: 41
iba.org.in/viewmembanks.asp?id=4
FDI (in Indian banks)= 49% automatic | 74% FIPB
approval
FDI (foreign banks)= 100% if wholly owned subsidiary

Narsimhan:=Hybrid (Comm.
Bank + Coop. soc.)
The Sponsor bank: HRM,
Training
All Indiax; few district.yes
Ownership
1. Union Government: 50%
2. State: 15%
3. Sponsor bank: 35%

Comm.
RRB

structure
RRB
This is
an RRB

This is its
Sponsor
bank
Payment Gateway

1.Urbanization => Private

banks, SCB
2.Deposit- low; NABARD
depend.
3.Debt Waiver =>NPA
4.Solution : Amalgation [2005]

Comm.
RRB
Problems

Allowedem to raise more

capital
Gave flexibility to
shareholding
Imposed term limits on
directors
http://
mrunal.org/2014/12/banking-rrb
-amendment-bill-regional-rural
-banks.html

RRB
Amendme
nt
bill
2014

PS
L,

MS
F

40
De %
pe | 3
Br ndi 2%
a n ng
ch
on
es

O
N

L
PS

PSL: What if targets not met?

Desi (+Foreign 20)
Remaining $$ to RIDF
Rural infra.
Development fund
NABARD manages
NABARD pays interest to
bank

Foreign bank <20

To SEDF
small enterprises
development fund
SIDBI manages

State governments
get infra. Loan

Similar case: state

industrial fin.corp.

Same by SIDBI

State registrar:
Cooperative society.
66: Banking regulation
Act.
No-profit, no-loss;
one member one vote.
All India? Noonly Guj,
MH, Andhra, TN

CoopBanks
Origin

SLR, CRR yes.

PSL: no. (only
Sch.coom.B)
Problems
politicization,
Scandals: Madhupura:
Ketan Parekh,
Visnagar/Kalupur: NPA.

CoopBanks
Features

1.Urban (women)
2.Rural
1.State Cooperative
Banks
2.District: Central
Cooperative banks
3.Village: PACS.
Land Development Bank:

CoopBanks
Classificati
on

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AIFI

1. Export-Import Bank of
EXIM Bank
India
(82)
2. loan/credit/finance to
exporters and importers.
3. promotes cross border
trade and investment
4. Boss: Government of
India (100%)

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National Bank for Agriculture and

Rural Development
BOSS: GoI (99.3%) + RBI (0.7%)
regulatory authority: Coop + RRB
Rural infra. Development fund
(RIFD) if PSL not met
Helps State cooperative banks
(SCB), (RRBs), MFI, cooperative
societies etc.
farmers, Cottage/handicraft, (SHG)

AIFI
NABARD
(82)

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National Housing Bank

Boss: RBI (100%)
apex institution for housing
finance in India
Finance to banks and NBFCs for
housing projects
RESIDEX index (housing sectorinflation)

AIFI
NHB(88)

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Small industries development

bank of India
BOSS: SBI, LIC, IDBI other public
sector banks, insurance companies
etc.
SIDBI's SEDF= small enterprises
development fund. (Foreign banks
will <20 branches, PSL)
MSME sector, finance to State
Industrial Development
Corporation (SIDC), State finance

AIFI
SIDBI
1990

Fifth FI = Industrial Investment

Bank of India (IIBI)
Closed in 2012

AIFI
IIBI

DFI/DB; Gone
after Narsimhan II 1998

PS
L
ap r u
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es

Mock Question 2007 (UPSC)

The national housing bank (NHB) was
setup in India as a wholly owned
subsidiary of which of the following bank?
A.State bank of India
B.Reserve Bank of India
C.ICICI
D.LIC
1. Skip

2. Attempt

3.

Mock Question 2004- find correct

A. NHB, the apex institution of housing
finance in India, was setup as a wholly
owned subsidiary of RBI
B. Small industries development bank of
India was established as a wholly owned
subsidiary of the Industrial development
bank of India
C. Both A and B
D.Neither A nor B
1. Skip
2. Attempt
3.

Mock Question 2004- find correct

Find Correct Statement(s)
A.(RIGHT) NHB, the apex institution of housing
finance in India, was setup as a wholly owned
subsidiary of RBI
B.(WRONG) Small industries development bank of
India was established as a wholly owned
subsidiary of the Industrial development bank of
India
C.Both A and B
D.Neither A nor B

1. Skip

2. Attempt

3.

Mock Question
Which of the following grant(s) direct credit assistance
to rural households? (2013)
1.RRB
2.NABARD
3.Land development Banks
Choice:
A.Only 1 and 2
B.Only 2
C.Only 1 and 3
D.1, 2 and 3.

1. Skip

2. Attempt

3.

Mock Question CSAT 2013

Which of the following grant(s) direct credit assistance
to rural households?
1.RRB
2.NABARD
3.Land development Banks
Choice:
A.Only 1 and 2
B.Only 2.
C.Only 1 and 3
D.1, 2 and 3.

1. Skip

2. Attempt

3.

Short term

l
l
i
T-B

Fresh G-Sec
Fresh securities
Securities resold
here

Long term

1. deal in "primary" market.

directly buy G-sec via "auction".
2. Can Participate in OMO
3. Must get license from RBI.
4. Morgan Stanley , Goldman
Sachs, JP Morgan Chase,
Standard Chartered Bank, HSBC
(Hongkong and Shanghai
Banking Corpn. Ltd)
5. Even: SBI, BoB, Kotak Mahindra
etc.

NBFI #2
Primary
Dealers

NBFI: Type #3 NBFC

NBFI: Type #3 NBFC= Not Banks

Bank

"Non-Banking" Financial
Company

RBI gave them license

under Banking
regulation Act.

No. They take license under

Company Act.

All supervised by RBI.

NOT all. e.g. Insurance cos=IRDA;

Merchant Banking Cos.=SEBI.

deposit from public

1. time deposit
(FDRD)
2. demand deposits
(CASA)

They can accept Time deposit.

(such NBFC are called Deposit
taking NBFC)
But They cannot accept demand
deposits.
Not part of Payment settlement,
CTS.

Bank

RBI gave them

license under
Banking regulation
Act.

NBFC

Registered under
Companies Act

Bank

RBI supervises
them all.

NBFC
Depends
IRDA: Insurance
Merchant Banks:
SEBI
Microfinance:
State+RBI

Bank

deposit from public

time deposit
(FDRD)
demand deposits
(CASA)

NBFC
They can accept
Time deposit. (such
NBFC are called
Deposit taking
NBFC)
But They cannot
accept demand
deposits (CASA)
Not part of Payment
settlement, CTS.

Bank

4% CRR,
22% SLR

NBFC

No.
Only Deposit taking
NBFC. 15% SLR

Bank

PSL: 40% | 32%

NBFC

PSL doesnt apply.

Bank
Entry Capital
requirement 500 Cr.
commercial bank,
small bank 100
crores.
To begin
operations: 1000 cr.
(Bandhan-IDFC)

NBFC

5 Cr. NBFC-MF
Others 2 cr

Bank

Bank lends
"deposited" money
to someone.
But cannot invest
in sharemarket

NBFC
They also lend
money to someone.
(="Finance"
Companies)
CAN invest in
sharemarket. E.g
MF, PF, Insurance
Cos.

Bank

Loan rates
linked with
Base Rate
system

NBFC

Depends
Gold Loans= risk
factor (15%, 25%)
Not all directly lend.
Shares: dividend.
TCS 4, Coal India
29.
Bonds: 8/12/16%

Bank

SARFAESI:
loan recovery
powers

NBFC

SARFAESI Only
for Housing
finance companies
Gold loan:
auction
Bonds: first
Shares: last

NBFINBFC Source of fund?

1.From clients: insurance, mutual funds.
2.Borrow from banks
3.Get finance from NABARD, National
Housing bank, SIDBI etc apex
institutions
4.Can issue of bonds
5.Very few permitted External Commercial
Borrowing (ECB)

2010: Find correct statement

1.They cannot engage in the acquisition of
securities issued by government.
2.They cannot accept demand deposits like
savings account.
Find Correct statement(s)?
A.Only 1
B.Only 2
C.Both 1 and 2
D.Neither 1 nor 2

1. Skip

2. Attempt

3.

Mock Question (2010)

With reference to Non banking financial companies
(NBFCs) in India, Consider following statements
1.They cannot engage in the acquisition of securities
issued by government.
2.They cannot accept demand deposits like savings
account.
Find Correct statement(s)?
A.Only 1
B.Only 2
C.Both 1 and 2
D.Neither 1 nor 2

1. Skip

2. Attempt

3.

Classification

NBFINBFCClassification

Type #1 Regulated by RBI

Asset Finance
Company
(AFC)
Infrastructure
Finance
Company
Infrastructure
Debt Fund
(IDF-NBFC)

loan to buy economically productive assets e.g.

truck, tractor, pumpset, bulldozer, earthmover, etc.
2013: $200mn ECB, automatic window.
SREI Equipment Finance (WHITE LABEL ATM)
Gives loan for infra. Projects. (IDFC got separate
bank license)
Rural Electrification Company (REC)
Rajiv Gandhi Gramin Vidhyutikaran (Power Ministry)
Rs.3,500 crore through tax-free bonds.
Just like above, but they give very long term loans.
Can even raise money from abroad.

NBFINBFCRBI controlled
Investment Cos.

Core Investment
Same. They too invest in
Cos
securities

Invest in securities
Muthoot finance
L&T finance.

Investment long term

(speculative, aam junta
x)
Accept public funds
(NBFC-D.)
Cannot enter in insurance
E.g. Tata Capital, Birla
Capital

NBFINBFCRBI controlled
Loan
Company

Muthoot gold loan,

Mannapuram Gold
LTV.
Factor
Factoring business
Company HSBC
Misc. Chit RBI + Registrar of Chit fund.
Fund
Residuary --

NBFINBFCClassification
RBI regulated
AFC
Infra. Finance
IDF
Investment Co.
Core investment
Loan Company
Factor Company
Chit Fund, Misc.

Other than RBI

NBFINBFCClassification (not regulated)

Insuranc Take "premium" LIC, Bajaj Allianz

from you,
e
invest It in
compani shares/bonds.
es
They arrange
DHFL, Muthoot
Housing money from
Housing finance
Finance variety of
etc.
Compan sources, lend it
to home-loan
ies
seekers
They help
buying-selling

1.Indiabulls
2.Sherkhan

IRD
A
NHB

NBFINBFCClassification (not regulated RBI)

Investm
ent
Banks
(US
term)
Merchan
t
Banking
Compani
es
(UK
term)

Merger,
Kotak Mahindra,
acquisition,
Citigroup,Bank of
Wealth
America
Management;
Merchant Banker:
Underwriting
Underwriting,
Corporate
advising, They
lend money to
company via
buying its
"shares"

DSP Merrill Lynch,

Morgan Stanley,
Canara Bank, SBI
capital (separate
license)

SEBI

SEBI

NBFINBFCClassification (not regulated RBI)

Nidhi

Microfina
nce
companie
s

One type of
'club'. Borrow
money from
members, lend
it among the
members.
mutual benefit
funds
Non-Banking
Financial
Company Micro Finance
Institution
(NBFC-MFI)

SOUTH
MADRAS
BENEFIT FUND
ltd.

1.SKS
(Andhra),
2.Cashpor
(UP),
3.Ujjivan

Departmen
t of
Company
affairs

Departmen
t of
AN
H
Company AND
B
affairs

NBFINBFCMFI
Department of company affairs.
Entry capital 5 cr.
Individual person not given loan above
Rs.50000
Focus on poor people, women clients, SHG.
Loan without collateral.
Borrower given flexibility to decide EMI and
repayment
Actual interest rate: 26%
SKS (Andhra), Cashpor (UP), Ujjivan (Karnataka),

Pending
DURING Economic Survey (Ch.5 FI)
P J Nayak Committee- reforms in public
sector bank ownership
Bifurcation of CMD posts in PSB
BASEL norms
Insurance amendment
.
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