rbi and nbfc

8/12/2019 Rbi and Nbfc

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RBI

Establishment

The Reserve Bank of India was established on April 1, 1935 inaccordance with the provisions of the Reserve Bank of India Act, 1934 .The entral !ffice of the Reserve Bank was initiall" establishedin alc#tta b#t was per$anentl" $oved to %#$bai in 193&. Theentral !ffice is where the 'overnor sits and where policies are

for$#lated.Tho#(h ori(inall" privatel" owned, since nationalisation in1949, the Reserve Bank is f#ll" owned b" the 'overn$ent of India.

Preamble

The )rea$ble of the Reserve Bank of India describes the basicf#nctions of the Reserve Bank as*+...to re(#late the iss#e of Bankotes and keepin( of reserves with a view to sec#rin( $onetar"

stabilit" in India and (enerall" to operate the c#rrenc" and credits"ste$ of the co#ntr" to its advanta(e.+

Central Board

The Reserve Bank-s affairs are (overned b" a central board ofdirectors. The board is appointed b" the 'overn$ent of India inkeepin( with the Reserve Bank of India Act.

Appointed no$inated for a period of fo#r "ears onstit#tion*

o !fficial /irectors0#ll ti$e * 'overnor and not $ore than fo#r /ep#t"'overnors

o

on !fficial /irectorso$inated b" 'overn$ent* ten /irectors fro$vario#s fields and one (overn$ent !fficial!thers* fo#r /irectors one each fro$ fo#r localboards
http://www.rbi.org.in/scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Acthttp://www.rbi.org.in/scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Acthttp://www.rbi.org.in/scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Acthttp://www.rbi.org.in/scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Act


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Financial Supervision

The Reserve Bank of India perfor$s this f#nction #nder the (#idanceof the Board for 0inancial 2#pervision B02 . The Board wasconstit#ted in ove$ber 1994 as a co$$ittee of the entral Board of/irectors of the Reserve Bank of India.

Objective

)ri$ar" ob ective of B02 is to #ndertake consolidated s#pervision ofthe financial sector co$prisin( co$$ercial banks, financialinstit#tions and non bankin( finance co$panies.

Constitution

The Board is constit#ted b" co optin( fo#r /irectors fro$ the entralBoard as $e$bers for a ter$ of two "ears and is chaired b" the'overnor. The /ep#t" 'overnors of the Reserve Bank are e6 officio$e$bers. !ne /ep#t" 'overnor, #s#all", the /ep#t" 'overnor inchar(e of bankin( re(#lation and s#pervision, is no$inated as the

7ice hair$an of the Board.B02 $eetin(s

The Board is re8#ired to $eet nor$all" once ever" $onth. Itconsiders inspection reports and other s#pervisor" iss#es placedbefore it b" the s#pervisor" depart$ents.

B02 thro#(h the A#dit 2#b o$$ittee also ai$s at #p(radin( the8#alit" of the stat#tor" a#dit and internal a#dit f#nctions in banks and

financial instit#tions. The a#dit s#b co$$ittee incl#des /ep#t"'overnor as the chair$an and two /irectors of the entral Board as$e$bers.

The B02 oversees the f#nctionin( of /epart$ent of Bankin(2#pervision /B2 , /epart$ent of on Bankin( 2#pervision / B2


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and 0inancial Instit#tions /ivision 0I/ and (ives directions on there(#lator" and s#pervisor" iss#es.

0#nctions

2o$e of the initiatives taken b" B02 incl#de*

i. restr#ct#rin( of the s"ste$ of bank inspectionsii. introd#ction of off site s#rveillance,iii. stren(thenin( of the role of stat#tor" a#ditors andiv. stren(thenin( of the internal defences of s#pervised instit#tions.

The A#dit 2#b co$$ittee of B02 has reviewed the c#rrent s"ste$ ofconc#rrent a#dit, nor$s of e$panel$ent and appoint$ent ofstat#tor" a#ditors, the 8#alit" and covera(e of stat#tor" a#dit reports,and the i$portant iss#e of (reater transparenc" and disclos#re in thep#blished acco#nts of s#pervised instit#tions.

#rrent 0oc#s

s#pervision of financial instit#tions consolidated acco#ntin( le(al iss#es in bank fra#ds diver(ence in assess$ents of non perfor$in( assets and s#pervisor" ratin( $odel for banks.

e(al 0ra$ework

:$brella Acts Reserve Bank of India Act, 1934 * (overns the Reserve Bank

f#nctions Bankin( Re(#lation Act, 1949* (overns the financial sector

Acts (overnin( specific f#nctions
http://www.rbi.org.in/scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Acthttp://www.rbi.org.in/scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Act


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)#blic /ebt Act, 1944 'overn$ent 2ec#rities Act )roposed *'overns (overn$ent debt $arket

2ec#rities ontract Re(#lation Act, 195;* Re(#lates(overn$ent sec#rities $arket

Indian oina(e Act, 19


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Re(#lator and s#pervisor of the financial s"ste$*

)rescribes broad para$eters of bankin( operations withinwhich the co#ntr"-s bankin( and financial s"ste$ f#nctions.

!b ective* $aintain p#blic confidence in the s"ste$, protectdepositors- interest and provide cost effective bankin( servicesto the p#blic.

%ana(er of 0orei(n =6chan(e

%ana(es the 0orei(n =6chan(e %ana(e$ent Act, 1999. !b ective* to facilitate e6ternal trade and pa"$ent and pro$ote

orderl" develop$ent and $aintenance of forei(n e6chan(e$arket in India.

Iss#er of c#rrenc"*

Iss#es and e6chan(es or destro"s c#rrenc" and coins not fit forcirc#lation.

!b ective* to (ive the p#blic ade8#ate 8#antit" of s#pplies ofc#rrenc" notes and coins and in (ood 8#alit".

/evelop$ental role )erfor$s a wide ran(e of pro$otional f#nctions to s#pport

national ob ectives.

Related 0#nctions

Banker to the 'overn$ent* perfor$s $erchant bankin( f#nctionfor the central and the state (overn$ents also acts as theirbanker.

Banker to banks* $aintains bankin( acco#nts of all sched#ledbanks.

!ffices

@as >> re(ional offices , $ost of the$ in state capitals.
http://www.rbi.org.in/scripts/RegionalOffices.aspxhttp://www.rbi.org.in/scripts/RegionalOffices.aspx


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Trainin( =stablish$ents

@as si6 trainin( establish$ents

Three, na$el", olle(e of A(ric#lt#ral Bankin(, BankersTrainin( olle(e and Reserve Bank of India 2taff olle(e arepart of the Reserve Bank

!thers are a#tono$o#s, s#ch as, ational Instit#te for Bank%ana(e$ent, Indira 'andhi Instit#te for /evelop$entResearch I'I/R , Instit#te for /evelop$ent and Research inBankin( Technolo(" I/RBT

2#bsidiaries

0#ll" owned* ational @o#sin( Bank @B , /eposit Ins#rance and redit '#arantee orporation of India /I ' , Bharati"a Reserve Bank ote %#dran )rivate i$ited BRB %)

%a orit" stake* ational Bank for A(ric#lt#re and R#ral /evelop$entABAR/

The Reserve Bank of India has recentl" divested its stake in 2tateBank of India to the 'overn$ent of India.
http://www.nhb.org.in/http://www.dicgc.org.in/http://www.dicgc.org.in/http://www.brbnmpl.co.in/http://www.brbnmpl.co.in/http://www.nabard.org/http://www.nabard.org/http://www.nhb.org.in/http://www.dicgc.org.in/http://www.dicgc.org.in/http://www.brbnmpl.co.in/http://www.brbnmpl.co.in/http://www.nabard.org/http://www.nabard.org/


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B0

A non bankin( financial co$pan" B0 is a co$pan" re(istered#nder the o$panies Act, 195; and is en(a(ed in the b#siness ofloans and advances, ac8#isition of shares stock bonds debent#ressec#rities iss#ed b" (overn$ent or local a#thorit" or other sec#ritiesof like $arketable nat#re, leasin(, hire p#rchase, ins#rance b#siness,chit b#siness, b#t does not incl#de an" instit#tion whose principalb#siness is that of a(ric#lt#re activit", ind#strial activit",sale p#rchase constr#ction of i$$ovable propert".

A non bankin( instit#tion which is a co$pan" and which has itsprincipal b#siness of receivin( deposits #nder an" sche$e orarran(e$ent or an" other $anner, or lendin( in an" $anner is also anon bankin( financial co$pan" resid#ar" non bankin( co$pan" .

B0 s are doin( f#nctions akin to that of banks, however there are afew differences*

(i) a B0 cannot accept de$and deposits de$and

deposits are f#nds deposited at a depositor" instit#tionthat are pa"able on de$and i$$ediatel" or within aver" short period like "o#r c#rrent or savin(sacco#nts.

(ii) It is not a part of the pa"$ent and settle$ent s"ste$and as s#ch cannot iss#e che8#es to its c#sto$ersand

(iii) /eposit ins#rance facilit" of /I ' is not available forB0 depositors #nlike in case of banks.


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R='I2TRATI! IT@ RBI

In ter$s of 2ection 45 IA of the RBI Act, 1934, it is $andator" thatever" B0 sho#ld be re(istered with RBI to co$$ence or carr" onan" b#siness of non bankin( financial instit#tion as defined in cla#sea of 2ection 45 I of the RBI Act, 1934.

@owever, to obviate d#al re(#lation, certain cate(or" of B0 s whichare re(#lated b" other re(#lators are e6e$pted fro$ the re8#ire$entof re(istration with RBI viC. vent#re capital f#nd $erchant bankin(co$panies stock brokin( co$panies re(istered with 2ebi, ins#ranceco$pan" holdin( a valid certificate of re(istration iss#ed b" IR/A,

idhi co$panies as notified #nder 2ection ;> of thehit 0#nds Act, 19?> or ho#sin( finance co$panies re(#lated b"ational @o#sin( Bank.

The B0 s that are re(istered with RBI are*

1 =8#ip$ent leasin( o$pan"

> @ire p#rchase o$pan"

3 oan o$$pan"

4 Invest$ent o$pan"

ith effect fro$ /ece$ber ;, >


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s#pportin( prod#ctive econo$ic activit", s#ch as a#to$obiles,tractors, lathe $achines, (enerator sets, earth $ovin( and $aterialhandlin( e8#ip$ents, $ovin( on own power and (eneral p#rposeind#strial $achines. )rincipal b#siness for this p#rpose is defined asa((re(ate of financin( real ph"sical assets s#pportin( econo$icactivit" and inco$e arisin( therefro$ is not less than ; $onths and $a6i$#$ period of ;< $onths.The" cannot accept deposits repa"able on de$and.

2o$e of the i$portant re(#lations relatin( to acceptance of depositsb" B0 s are as #nder*

i) The B0 s are allowed to accept renew p#blicdeposits for a $ini$#$ period of 1> $onths and$a6i$#$ period of ;< $onths. The" cannot acceptdeposits repa"able on de$and.ii B0 s cannot offer interest rates hi(her than theceilin( rate prescribed b" RBI fro$ ti$e to ti$e. Thepresent ceilin( is 11 per cent per ann#$. The interest$a" be paid or co$po#nded at rests not shorter than$onthl" rests.iii B0 s cannot offer (ifts incentives or an" otheradditional benefit to the depositors.

R! = !0 B0

on Bankin( 0inancial o$panies B0 s in India were havin((olden da"s d#rin( 199


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of so$e of the B0 s. %oreover, d#e to this $an" weak B0 sco#ld not pa" the heft" interest d#rin( the ind#strial slowdown d#rin(199& brin(in( to an end the (olden period or otherwise of B0 s.

The ratin( a(encies down(raded $an" co$panies which wasfollowed b" the RBI ti(htenin( the reso#rce raisin( and pr#dentialnor$s in Fan#ar" 199?. Below I will $ention the recent re(#lations towhich a B0 has to adher to*

%ini$#$ net owned f#nd of Rs.1


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The Indian econo$" is (oin( thro#(h a period of rapid Gfinancialisation-. Toda", the Ginter$ediation- is bein( cond#cted b" a wideran(e of financial instit#tion thro#(h plethora of c#sto$er friendl"financial prod#cts. The se($ent consistin( of on Bankin( 0inancialo$panies B0 s , s#ch as e8#ip$ent leasin( hire p#rchase

finance co$panies, have $ade (reat strides in recent "ears and are$eetin( the diverse financial needs of the econo$". In this process,the" have infl#enced the direction of savin(s and invest$ent. Theres#ltant capital for$ation is i$portant for o#r econo$ic (rowth anddevelop$ent. Th#s, fro$ both the $acro econo$ic perspective andthe str#ct#re of the Indian financial s"ste$, the role of B0 s hasbeco$e increasin( l" i$portant. It is interestin( to note that as at theend of %arch 199; the re(#lated deposits deposits which RBI

re(#lates of 1,995 crore. !ne of the$ost i$por tant co$ponent of these deposits borrowin(s is depositsfro$ p#blic in which RBI is $ore concerned. 2#ch deposits stood atRs.1&,??3 crore e6cl#din( @0 s which co$es o#t to 4.>5 per centof the total deposits of sched#led co$$ercial banks.

>. The $o$ent#$ of recent develop$ents in non bankin( financialsector has evinced considerable debate. hile there is a class in theind#str" stron(l" opposin( the stren(thenin( of re(#lator" fra$eworkand foc#sin( closer s#pervisor" attention, ostensibl" in s#pport ofprinciple of free $arket, the another #r(in( Reserve Bank tointervene and enhance the i$a(e 8#otient of the ind#str" so that a$oderate level of s#stainable (rowth is as s#red of. To appreciateand #nderstand the present predica$ent, it is better to look back tothe histor" of the re(#lation of B0 s.

3. To briefl" recapit#late, the sche$e of re(#lation of B0 sori(inated in $id si6ties when s#dden #ps#r(e in deposit $obilisationb" on Bankin( o$panies was noticed. @owever, the foc#s ofre(#lation was $ainl" intended to ens#re that it serves as an ad #nctto $onetar" and credit polic" and also provides an indirect protectionto the depositors. The foc#s contin#ed to be the sa$e till earl" 9


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hat is difference between banks E B0 s B0 s are doin( f#nctions akin to that of banks, however there are afew differences*

i a B0 cannot accept de$and deposits de$and depositsare f#nds deposited at a depositor" instit#tion that are pa"ableon de$and i$$ediatel" or within a ver" short period like"o#r c#rrent or savin(s acco#nts.

ii it is not a part of the pa"$ent and settle$ent s"ste$ and ass#ch cannot iss#e che8#es to its c#sto$ers and

iii deposit ins#rance facilit" of /I ' is not available forB0 depositors #nlike in case of banks.

hat are the different t"pes of B0 s re(istered with RBI

The B0 s that are re(istered with RBI are* i e8#ip$ent leasin( co$pan" ii hire p#rchase co$pan" iii loan co$pan" iv invest$ent co$pan".

ith effect fro$ /ece$ber ;, >


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)rincipal b#siness for this p#rpose is defined as a((re(ate of

financin( real ph"sical assets s#pportin( econo$ic activit" andinco$e arisin( therefro$ is not less than ;


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an all B0 s accept deposits and what are the re8#ire$ents for

acceptin( p#blic deposits All B0 s are not entitled to accept p#blic deposits. !nl" those

B0 s holdin( a valid certificate of re(istration with a#thorisation toaccept p#blic deposits can accept hold p#blic deposits. The B0 sacceptin( p#blic deposits sho#ld have $ini$#$ stip#lated net ownedf#nd and co$pl" with the directions iss#ed b" the bank.

Is there an" ceilin( on acceptance of p#blic deposits hat is the

rate of interest and period of deposit which B0 s can acceptMes, there is ceilin( on acceptance of p#blic deposits. An B0$aintainin( re8#ired !0 RAR and co$pl"in( with the pr#dentialnor$s can accept p#blic deposits as follows*

ate(or" of B0 eilin( on p#blic deposits A0 s $aintainin( RAR of 15D witho#t credit ratin( A0 s with RAR of 1>D and havin( $ini$#$ invest$ent

(rade credit ratin( 1.5 ti$es of !0 or Rs 1< crore whichever isless

4 ti$es of !0 I with RAR of 15D and havin( $ini$#$ invest$ent

(rade credit ratin( 1.5 ti$es of !0

)resentl", the $a6i$#$ rate of interest a B0 can offer is 11D.The interest $a" be paid or co$po#nded at rests not shorter than$onthl" rests.

The B0 s are allowed to accept renew p#blic deposits for a$ini$#$ period of 1> $onths and $a6i$#$ period of ;< $onths.The" cannot accept deposits repa"able on de$and.


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hat are the salient feat#res of B0 s re(#lations which thedepositor $a" note at the ti$es of invest$ent

2o$e of the i$portant re(#lations relatin( to acceptance of depositsb" B0 s are as #nder* i The B0 s are allowed to accept renew p#blic deposits for a

$ini$#$ period of 1> $onths and $a6i$#$ period of ;

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