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Non Banking Financial Intermediaries (NBFI)

Non Banking Financial Intermediaries (NBFI)

  • All India Financial Institutions (AIFI)
  • Exim
  • Nabard
  • Sidbi
  • NHB
  • Primary Dealers (PD)
  • Non banking financial companies

Non Banking Financial Intermediaries

All India Financial Institutions (AIFI)

EXIM Bank
  • Export-Import Bank of India – Established in 1982
  • Controlled by Government of India (100%)
  • Provides Loan/credit/finance to exporters and importers
  • Promotes cross border trade and investment
NABARD
  • National Bank for Agriculture and Rural Development – Established in 1982
  • Controlled by GoI (99.3%) + RBI (0.7%)
  • Regulatory authority of Cooperative banks + RRBs
  • Manage Rural infra. Development fund (RIFD)
  • Finances State cooperative banks (SCB), RRBs, MFIs, Cottage/handicraft (SHG) etc.
NHB
  • National Housing Bank – Established in 1988
  • Apex institution for housing finance in India
  • Controlled by RBI (100%)
  • Provides finance to banks and NBFCs for housing projects
  • Manages RESIDEX index (Housing sector-inflation index)
SIDBI
  • Small industries development bank of India – Established in 1990
  • Controlled by SBI, LIC, IDBI other public sector banks, insurance companies etc.
  • Manages SEDF (Small enterprises development fund – Funded by Foreign banks < 20 branches if PSL not met)
  • Provides finance to State Industrial Development Corporation (SIDC), State finance corporations, MSME sector and banks

 

Primary Dealers (PD)

  • Deal in “primary” market
  • Directly buy G-sec via “auction”.
  • Can Participate in OMO (Open Market Operations)
  • Must get license from RBI
  • Examples Morgan Stanley, Goldman Sachs, JP Morgan Chase, Standard Chartered Bank, HSBC + SBI, BoB, Kotak Mahindra etc.

 

Non banking financial companies (NBFC)

  • Financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license.
  • RBI is entrusted with the responsibility of regulating and supervising some of the NBFCs by virtue of powers vested under Reserve Bank of India Act, 1934.
  • Source of NBFC funding includes
  • From clients via insurance, mutual funds etc.
  • Can borrow from banks
  • Can be financed by NHB, NABARD, SIDBI etc.
  • Can raise money via issuing bonds
  • Very few permitted for External Commercial Borrowing (ECB)

 

Non banking financial companies

 

Difference between Banks and NBFCs

Banks NBFCs
License under Banking regulation Act license under Company Act
All supervised by RBI Depends

  • Insurance Co.     : IRDA
  • Merchant Banks  : SEBI
  • Microfinance Co. : State + RBI + NABARD
Deposit from public

  • Time deposit (FDRD)
  • Demand deposits (CASA)
  • They can accept Time deposit (such NBFC are called Deposit taking NBFC)
  • But They cannot accept demand deposits
  • Do not form part of the payment and settlement system Cannot issue cheques drawn on itself
PSL applies PSL doesn’t apply
Deposit insurance facility of DICGC applies Deposit insurance facility of DICGC does not applies
Loan rates linked with Base Rate system Depends

  • Gold Loans risk factor (15%, 25%)
  • Shares: dividend
  • Bonds: 8/12/16%
Loan recovery powers under SARFAESI
  • SARFAESI applicable only for Housing finance companies
  • Gold loan: auction
  • Bonds holders of NBFC: first to get paid
  • Shares holders of NBFC: last to get paid
Standard CRR & SLR Ratios apply
  • CRR does not apply
  • Approx. 15% SLR applies only to Deposit taking NBFC
Do provide finance to invest in share market Can lend money to finance companies for the same

 

NBFC Classification

Insurance company Regulated by IRDA
  • Take “premium” from you; invest in shares/bonds
  • Examples include LIC, Bajaj Allianz etc.
Housing Finance Companies Regulated by NHB
  • Arrange money from variety of sources; lend it to home-loan seekers.
  • Examples include DHFL, Muthoot Housing finance etc.

 

RBI Regulated

Asset Finance Co.s (AFC) Provides loan to buy economically productive assets e.g. truck, tractor, pumpset, bulldozer, earthmover, etc.
Infrastructure Finance Company Gives loans for infra. Projects viz. roads, electricity etc.
Infrastructure Debt Fund (IDF)
  • Gives loans for infra. Projects, but give very long term loans.
  • Can even raise money from abroad
Investment Co.s
  • Invest in securities
  • Examples include Muthoot finance, L & T finance etc.
Core Investment Co.s Long term investment in securities

  • Can accept public funds (NBFC-Deposit)
  • Cannot enter in insurance
  • E.g. Tata Capital, Birla Capital
Loan Co.s Muthoot gold loan, Mannapuram Gold loan
Factor Company Factoring business ex. HSBC
Misc. Chit Fund Managed by RBI + Registrar of Chit fund

 

SEBI Regulated

Stock Brokers, Mutual Funds
  • They help buying-selling of shares (of their clients)
  • Earn commission/brokerage) in between
  • Examples Indiabulls, Sherkhan, IIFL
Investment Bankers (US term)
  • Merger, acquisition, Underwriting, Wealth Management; Merchant Banker
  • They lend money to company via buying its “shares”
Merchant Banking Companies (UK term)
  • Underwriting, Corporate advising
  • They lend money to company via buying its “shares”
Venture Capital Fund They finance start-up companies via share in equity

 

Department of Company affairs Regulated

Nidhi companies 
  • Form a group Borrow money from members lend it among the members
  • Mutual benefit funds
  • Example South Madras Benefit Fund ltd.
Microfinance company 
  • Focus on poor people, women clients, SHG
  • Provide loan without collateral
  • Borrower given flexibility to decide EMI and repayment
  • Actual interest rate: 26%
  • Example SKS (Andhra), Cashpor (UP), Ujjivan (Karnataka)
India Yearbook English India Yearbook Hindi Economic Survey 2017

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