Economics-1 BALLB-207 Non - Banking Financial Institutions: Ms. Lavi Vats

Economics-1
BALLB-207
Non –Banking
Financial
Institutions
Ms. Lavi Vats

Introduction
Non- banking Financial Institutions are an
important part of the Indian finance system.
These consist of a heterogeneous group of
institutions that cater to a wide range of
financial requirements. Non banking Financial
Institutions such as insurance companies,
housing finance providers, pension funds and
investment funds, mobilize savings, provide
market based safety net, and fund long-term
investments to support growth and job
creation. The major intermediaries include
financial institution, non banking financial
companies and primary dealers.
Export and Import Bank
• Export and Import Bank of India was established in 1982 for providing
finance to the Export and Import trade of eligible goods and to facilitate
and promote foreign trade.
• The EXIM Bank is the principal financial institution in the country which
coordinates the working of other institutions tending finance for
export-import activities.
Functions of the EXIM Bank
i. Finances import and export of goods and services from India
ii. It also finances the import and export of goods and services from countries other
than India.
iii. It finances the import or export of machines and machinery on lease or hires
purchase basis as well.
iv. Provides refinancing services to banks and other financial institutes for their
financing of foreign trade
v. EXIM bank will also provide financial assistance to businesses joining a
joint venture in a foreign country.
vi. The bank also provides technical and other assistance to importers and exporters.
Depending n the country of origin there are a lot of processes and procedures
involved in the import-export of goods. The EXIM bank will provide guidance and
assistance in administrative matters as well.
vii. EXIM bank can also provide business advisory services and expert knowledge to
Indian exporters in respect of multi-funded projects in foreign countries.
Types of NBFI
2) NABARD (National Bank for Agriculture and Rural Development) :
•NABARD was set up by RBI on 12 July 1982.

•NABARD is an apex Development Bank authorised for providing and regulating credit
and other facilities for the promotion and development of agriculture, small-scale
industries, cottage and village industries, handicrafts and other rural crafts and other
allied economic activities in rural areas with a view to promote integrated rural
development and prosperity and for matters connected therewith.
• More than 50% of the rural credit is disbursed by the Co-operative Banks and Regional
Rural Banks.
• NABARD is responsible for regulating and supervising the functions of Co-operative
banks and RRBs.
• NABARD works towards providing a strong and efficient rural credit delivery system,
capable of taking care of the expanding and diverse credit needs of agriculture and
rural development.
Types of NBFI
3) SIDBI (Small Industries Development Bank of India) :
• The SIDBI was established on 2nd April 1999. The SIDBI is subsidiary of
IDBI (Industrial Development Bank of India).
• Objectives of SIDBI
 To promote marketing of products of small scale sector.
 To upgrade technology and also undertaking modernization of small
scale units.
 To provide more financial assistance to small scale ancillary and tiny
sector.
 To encourage employment oriented industries.
 To coordinate all the other institutions involved in the promotion of
small scale industries.
Types of NBFI
4) National Housing Bank (NHB)
• NHB, a wholly subsidiary of RBI,was set up by an act of Parliament in

1987.
• The objective is to operate as a principal agency to promote housing
finance institutions both as local as well as regional levels and to provide
financial as well as other support incidental to such institutions besides
matters connected therewith.
National Housing Bank -Functions
i. To promote and develop specialised housing finance institutions for
mobilising resources and extending credit for housing
ii. To provide refinance facilities to housing finance institutions and
scheduled banks
iii. To provide guarantee and underwriting facilities to housing finance
institutions
iv. To formulate schemes for mobilisation of resources and extension of
credit for housing, especially catering to the needs of economically
weaker sections of society
v. To provide guidelines to housing finance institutions to ensure their
healthy growth
vi. To co-ordinate the working of all agencies connected with housing
Non Banking Financial Companies
According to RBI-
A Non-Banking Financial Company (NBFC) is a company registered under
the Companies Act, 1956 engaged in the business of loans and advances,
acquisition of shares/stocks/bonds/debentures/securities issued by
Government or local authority or other marketable securities of a like
nature, leasing, hire-purchase, insurance business, chit business but does
not include any institution whose principal business is that of agriculture
activity, industrial activity, purchase or sale of any goods (other than
securities) or providing any services and sale/purchase/construction of
immovable property.
Non Banking Financial Companies
Different Types/Categories of NBFCs Registered with RBI
i. Asset Finance Company (AFC) : An AFC is a company which is a financial institution
carrying on as its principal business the financing of physical assets supporting
productive/economic activity, such as automobiles, tractors, lathe machines,
generator sets, earth moving and material handling equipments, moving on own
power and general purpose industrial machines. Principal business for this purpose
is defined as aggregate of financing real/physical assets supporting economic
activity and income arising therefrom is not less than 60% of its total assets and
total income respectively.
ii. Investment Company (IC) : IC means any company which is a financial institution
carrying on as its principal business the acquisition of securities,
iii. Loan Company (LC): LC means any company which is a financial institution carrying
on as its principal business the providing of finance whether by making loans or
advances or otherwise for any activity other than its own but does not include an
Asset Finance Company.
iv) Infrastructure Finance Company (IFC): IFC is a non-banking finance company a)
which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a
minimum Net Owned Funds of ₹ 300 crore, c) has a minimum credit rating of ‘A ‘or
equivalent d) and a CRAR of 15%
v) Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC) : IDF-NBFC is
a company registered as NBFC to facilitate the flow of long term debt into
infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar
denominated bonds of minimum 5 year maturity. Only Infrastructure Finance
Companies (IFC) can sponsor IDF-NBFCs.
vi) Non-Banking Financial Company – Factors (NBFC-Factors): NBFC-Factor is a non-
deposit taking NBFC engaged in the principal business of factoring. The financial assets
in the factoring business should constitute at least 50 percent of its total assets and its
income derived from factoring business should not be less than 50 percent of its gross
income.
vii) Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI): NBFC-
MFI is a non-deposit taking NBFC having not less than 85% of its assets in the nature of
qualifying assets which satisfy the following criteria:
a. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income
not exceeding ₹ 1,00,000 or urban and semi-urban household income not exceeding ₹
1,60,000;
b. loan amount does not exceed ₹ 50,000 in the first cycle and ₹ 1,00,000 in
subsequent cycles;
c. total indebtedness of the borrower does not exceed ₹ 1,00,000;
d. tenure of the loan not to be less than 24 months for loan amount in excess of ₹
15,000 with prepayment without penalty;
e. loan to be extended without collateral;
f. aggregate amount of loans, given for income generation, is not less than 50 per cent
of the total loans given by the MFIs;
g. loan is repayable on weekly, fortnightly or monthly instalments at the choice of the
Features of NBFCs Regulations
• The NBFCs are allowed to accept/renew public deposits for a minimum
period of 12 months and maximum period of 60 months. They cannot
accept deposits repayable on demand.
• NBFCs cannot offer interest rates higher than the ceiling rate prescribed
by RBI from time to time. The present ceiling is 12.5 per cent per annum.
The interest may be paid or compounded at rests not shorter than
monthly rests.
• NBFCs cannot offer gifts/incentives or any other additional benefit to the
depositors.
• NBFCs should have minimum investment grade credit rating.
• The deposits with NBFCs are not insured.
• The repayment of deposits by NBFCs is not guaranteed by RBI.
• Certain mandatory disclosures are to be made about the company in the
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Economics-1

Ms. Lavi Vats

•NABARD was set up by RBI on 12 July 1982.

3) SIDBI (Small Industries Development Bank of India) :

4) National Housing Bank (NHB)

• NHB, a wholly subsidiary of RBI,was set up by an act of Parliament in

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