Chapters :

Development  Banks – 03

Financial Intermediaries

Non-Banking Financial Company

Non-banking financial company is a company registered under the companies act 1956 engaged in the business of loans, advances, acquisition of shares, stocks, bonds, debentures.

NBFC lend and make investments and their activities are akin to that of banks. However there are few different of NBFC as given below.

  1. i) NBFC cannot accept demand deposits.
  2. ii) NBFC do not form of the payment and settlement system

iii)      Can’t issue cheques

  1. iv) Deposit insurance facility of deposits insurance and credit guarantee corporation is not available to depositors of NBFC, unlike in case of bank.

Overview Of Regulators Of Non-Banking Companies

RBI Regulated

  1. i) Equipment leasing company
  2. ii) Loan company

iii)      Investment company

SEBI Regulated Non-Banking Financial Company

1)Venture Capital Fund

The venture capital company provide capital to companies that produce new products based on new innovations.

2)Merchant bank (a) Investment Company

Merchant bankers manage and underwrite new issues and corporate advisory services

3) Stock broking companies

          Companies registered with SEBI to mediate or help investors in buying and selling of securities.

Department of company affairs regulated NBFC

Nidhi Companies

These are like mutual benefit societies notified by central government as Nidhi companies. They are created for cultivating the habit of thrift and savings amongst its members. Nidhi companies accept deposits and lend to its members. They have localized presence. Membership is limited to members of the society. Administrative matters regulated by DCA (Dept. of Company Affairs). Deposits and lending norms and regulated by RBI.

Financial Inclusion

There are two kinds of banking licences that are granted by the Reserve Bank of India – Universal Bank Licence and Differentiated Bank Licence.

Differentiated Banks (niche banks) are banks that serve the needs of a certain demographic segment of the population. Small Finance Banks and Payment Banks are examples of differentiated banks in India.

Differentiated banks are distinct from Universal Banks (Eg: Commercial Banks like SBI, HDFC, ICICI etc) as they are infused as niche segments. Niche banks typically target a specific market and tailor the bank’s operations to this target market’s preferences. The differentiation could be on account of capital requirement, the scope of activities or area of operations. As such, they offer a limited range of services/products or function under a different regulatory dispensation.

Small Finance Bank

These are niche banks that focus and serve the needs of a certain demographic segment of the population. SFB was recommended by the NachiketMor committee on financial inclusion. The objectives of setting up of small finance banks will be to further financial inclusion by

(1) The provision of savings vehicles

(2) Supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.

Criteria for setting up SFBs

  1. Individuals/professions with 10 years of experience in finance, Non-Banking Financial Companies (NBFCs), micro finance companies, local area banks are eligible to set up SFBs.
  2. The minimum paid-up equity capital for small finance banks shall be Rs. 100 crore.
  3. The promoter’s minimum initial contribution to the paid-up equity capital of such small finance bank shall at least be 40 per cent and gradually brought down to 26 per cent within 12 years from the date of commencement of business of the bank.
  4. The foreign shareholding in the small finance bank would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time.
  5. The small finance banks will be required to extend 75 per cent of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the Reserve Bank.
  6. SFBs have to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) as per RBI norms.
  7. At least 50 per cent of its loan portfolio should constitute loans and advances of up to Rs. 25 lakh.


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