nbf's

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• MEANING & DEFINITION

Non-banking financial company. A non-banking financial company (NBFC) is acompany registered under the Companies Act, 1956 of India and is engagedin 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 institutionwhose principal business is that of agriculture activity, industrial activity,sale/purchase/construction of immovable property.

•

DEFINITION“NON BANKING FINANCE COMPANY IS DIFIN AS A COMPANY

WHICH IS A FINANCIAL INSTITUTION & HAS ITS BUSINESS OF RECEIVINGTHE DEPOSITS OR PENDING UNDER ANY SCHEME OR ARRENGEMENT”.

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Difference between NBFCs & Banks

• NBFCs perform functions similar to that of banks; however

there are a few differences:

• (i) an NBFC cannot accept demand deposits• (ii) an NBFC is not a part of the payment and settlement

system and as such an NBFC cannot issue cheque drawn

on itself; and

• (iii) deposit insurance facility of Deposit Insurance and

Credit Guarantee Corporation is not available for NBFC

depositors unlike in case of banks.

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• Current Status: Prudential Norms:

1. The Reserve Bank put in place in January 1998 a new regulatory framework involvingprescription of prudential norms for NBFCs which are deposited taking to ensure thatthese NBFCs function on sound and healthy lines. Regulatory and supervisoryattention was focused on the „deposit taking NBFCs‟ (NBFCs – D) so as to enable the

Reserve Bank to discharge its responsibilities to protect the interests of thedepositors

2. The application of the prudential guidelines / limits is thus not uniform across thebanking and NBFC sectors and within the NBFC sector. There are distinct differencesin the application of the prudential guidelines / norms as discussed below:

• Banks are subject to income recognition, asset classification and provisioning norms;

• capital adequacy norms; single and group borrower limits;

• prudential limits on capital market exposures; classification and valuation norms for the investment portfolio;

• CRR / SLR requirements; accounting and disclosure norms and supervisory reportingrequirements.

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• Current Status: Financial Linkages Between Banks and NBFC:

• 1. Banks and NBFCs compete for some similar kinds of business on the asset side.NBFCs offer products/services which include leasing and hire-purchase, corporateloans, investment in non-convertible debentures, IPO funding, margin funding, smallticket loans, venture capital, etc. However NBFCs do not provide operating account

facilities like savings and current deposits, cash credits, overdrafts etc.• 2. NBFCs avail of bank finance for their operations as advances or by way of banks‟

subscription to debentures and commercial paper issued by them.

• 3. Since both the banks and NBFCs are seen to be competing for increasingly similar types of some business, especially on the assets side, and since their regulatory andcost-incentive structures are not identical it is necessary to establish certain checksand balances to ensure that the banks‟ depositors are not indirectly exposed to therisks of a different cost-incentive structure. Hence, following restrictions have beenplaced on the activities of NBFCs which banks may finance:

• i) Bills discounted / rediscounted by NBFCs, except for rediscounting of billsdiscounted by NBFCs arising from the sale of –

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Current Status: Structural Linkages Between Banks and NBFCs

• 1. Banks and NBFCs operating in the country are owned and established by entities inthe private sector (both domestic and foreign), and the public sector

•

2. Investment by a bank in a financial services company should not exceed 10 per cent of the bank‟s paid-up share capital and reserves and the investments in all suchcompanies, financial institutions, stock and other exchanges put together should notexceed 20 per cent of the bank‟s paid-up share capital and reserves

• 3. Banks in India are required to obtain the prior approval of the concerned regulatorydepartment of the Reserve Bank before being granted Certificate of Registration for

establishing an NBFC and for making a strategic investment in an NBFC in India.However, foreign entities, including the head offices of foreign banks having branchesin India may, under the automatic route for FDI, commence the business of NBFI after obtaining a Certificate of Registration from the Reserve Bank.

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• Friends we all heard about the NBFC‟s. What it is ? What points

indicates their distinctness from bank. What is their current

status in India &

• Now we can conclude that NBFC‟s functions or for betterment

of general people & investor too have permanent important in

economy. NBFC‟s as the way of growth & expansion of various

sectors as it provides advances to them.

• Though they are not bank but they do never about everything

which bank does.

nbf's

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