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What is an NBFC?

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An NBFC broadly carries out lending functions and investment functions It can also accept deposits, though only for a fixed term (they cannot be withdrawn whenever the depositor wants). Hence, they are also less regulated than a bank Banks often establish NBFCs as a separate company, so that they can avail of the lesser regulation e.g. CitiFinancial, an NBFC, is a company wholly owned by Citigroup , which also holds a stake in Citibank. Such a wholly owned company is called a subsidiary. Today Mickey will teach Donald about the concept of an NBFC

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Thanks Mickey! Now I have understood the three basic traits of an NBFC. DISTINCTION BETWEEN A BANK & AN NBFC The three differences between a bank and an NBFC are as follows: NBFC Bank

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An NBFC cannot accept deposits repayable on demand. Any deposits accepted by NBFCs (these will be of fixed maturity as explained above) are not insured. An NBFC cannot participate in the payment system A bank can. Bank deposits are insured upto Rs. 1 lakh per depositor, by the Deposit Insurance Credit Guarantee Corporation of India (DICGCI).

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Banks can. Hence only banks can issue cheques drawn on themselves: i.e., can give their customers a cheque book to use. Now I have got to know the distinguishing features of an NBFC and a Bank

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Scheduled and Non-scheduled: All banks with a deposit base < or =Rs. 200 Cr are non-scheduled banks. Banks which have a deposits > Rs. 200 Cr are Scheduled Banks the technical definition of a Scheduled bank is those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934.

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Scheduled Banks are further divided into Commercial and Co-operative banks. The structure is given in the next slide: Scheduled Banks in India Scheduled Commercial Banks(217) Scheduled Co-operative Banks(70) Public Sector Banks(27) Private Sector Banks(30) Foreign Banks in India(40) Regional Rural Banks(196) Scheduled Urban Co-operative Banks(52) Scheduled State Co-operative Banks(16) Nationalized Banks(19) State Bank of India & its Associates(8) Old Private Sector Banks New Private Sector Banks Schedule Banking Structure in India (As on March 31, 2002)

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A. Commercial Banks : Public Sector Banks (PSBs) : PSBs are those where the Government holds a majority ownership. For example, if there are a 100 shares and the Central Government holds 51, LIC holds 25 and various members of the public hold 24, this will be a PSB. The State Bank of India (SBI) is a PSB and Indias largest bank. Punjab National Bank, Corporation Bank, Vijaya Bank, Central Bank of India are some more examples.

Regional Rural Banks (RRBs) : These are also banks with a Government ownership. The idea was to create banks which will focus on the rural areas and serve the underbanked sector. A scheduled commercial bank was to act as a sponsor of an RRB. The ownership pattern was set up as 50:15:35, with the Central government holding the majority share, the sponsor bank holding the second highest stake, and the rest by the respective state governments that housed the RRB.

Private Banks : Private banks, as the name suggests, are banks owned by private (i.e. non-government) Indian entities such as corporates and individuals. ICICI Bank is the second largest bank in India, and is a private bank. HDFC Bank, Axis Bank, Yes Bank are some other examples.

Foreign Banks : Foreign Banks are those owned by multi national/non-Indian entities. Citibank India for example, is owned by the US based Citi group. Deutsche Bank India is owned by Deustche Bank headquartered in Germany, and so on.

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B. Co-operative Banks: Urban Cooperative Banks (UCBs) : Co-operative banks are formed by a group of members, and traditionally the thrust of UCBs, has been to mobilise savings from the middle and low income urban groups and accord credit to their members many of which belonged to the weaker section.

State Co-operative banks : These are set up with state government partnership to help agricultural and rural development. For example, Andhra Pradesh State Cooperative Bank Limited (APCOB) is a Scheduled State Cooperative Bank for the State of Andhra Pradesh. The cooperative credit system in Andhra Pradesh with the APCOB at its apex level is a federal system consisting of a family of 22 affiliated District Cooperative Central Banks (DCCBs), which in turn, have 563 Branches and 2746 Primary Agricultural Cooperative Societies (PACS) through which, developmental agricultural credit is provided.