NON BANKING FINANCIAL

INSTITUTION
CONTENTS
Meaning
Difference between NBFI and banks
Importance
Role of NBFI
Functions
Regulations
Types
Guidelines
Current status
Top five NBFI
Conclusion
Financial institution
A financial institution is an institution
which collects funds from the public, and
places them in financial assets, such as
deposits, loans and bonds rather than
tangible property.
FINANCIAL
INSTITUTION

Banking Non banking

institution institution
NON BANKING FINANCIAL
INSTITUTION
A non-bank financial institution (NBFI) is
a financial institution that does not have a
full banking license or is not supervised by a
national or international banking regulatory
agency.
Non-banking financial institutions, are financial
institutions that provide banking services, but
do not hold a banking license. These institutions
are not allowed to take deposits from the
public.
NBFIs VERSUS BANKs
BANKS NBFIS

Definition Banking is acceptance of deposits NBFI cannot accept demand

withdraw able by cheque or demand; deposits
NBFI are companies carrying
financial business

Scope of business Scope of business of the bank is There is a various types of

limited. business regarding financial
activities.

Major limitation on No non banking activity are carried. Cannot provide checking
Business facilities.

Need for a license License norms are tightly controlled
and generally it is perceived to be
quite difficult to get a license for a
bank
Regulations BR Act and RBI Act lay down the
stringent control over the bank.
It is comparatively much
easier to get a registration as
an NBFI.
Much lesser control over
NBFI
IMPORTANCE
Non banking financial institutions have the
following importance in Indian economy.
Greater reach.
Flexibility in tapping resources.
Retail services to small and medium
business.
Important component of financial
market.
Role of NBFIs
Development of sectors like Transport &
Infrastructure
Substantial employment generation
Help & increase wealth creation
Broad base economic development
To finance economically weaker sections
FUNCTIONS
Brokers of loanable funds.
Mobilization of savings.
Channelization of funds into investment,
Stabilize the capital market,
Provide liquidity.
REGULATIONS
RBI Act, 1934, it is mandatory that
every NBFI should be registered
with RBI to commence or carry on
any business of non-banking
financial institution.
TYPES
Risk pooling
institutions

Financial Contractual
services saving
providers institutions

types

Specialized
Market
sectoral
makers
financiers
Cont.
Risk-pooling institutions:
Insurance companies underwrite economic risks associated
with illness, death, damage and other risks of loss.
There are two main types of insurance companies: (a)general
insurance (b)life insurance.
Contractual savings institutions:
Contractual savings institutions (also called institutional
investors) give individuals the opportunity to invest in
collective investment vehicles (CIV).
Collective investment vehicles pool resources from
individuals and firms into various financial instruments
including equity, debt and derivatives.
Eg- mutual funds, pension funds.
cont
Market makers
Market makers are broker-dealer institutions that
quote a buy and sell price and facilitate transactions
for financial assets. Such assets include equities,
government and corporate debt, derivatives, and
foreign currencies.
Specialized sectoral financiers:
They provide a limited range of financial services to a
targeted sector. For example, real estate
financiers channel capital to prospective
homeowners, leasing companies provide financing for
equipment and payday lending companies that provide
short term loans to individuals that are under
banked or have limited resources.
Cont.
Financial service providers
Financial service providers include brokers
management consultants, and financial
advisors, and they operate on a fee-for-
service basis.
Their services include: improving
informational efficiency for the investors and,
in the case of brokers, offering a transactions
service by which an investor can liquidate
existing assets.
COMPANYS UNDER NBFC
They are also categorized in a different format
among 8 categories
LOAN COMPANY
HIRE PURCHASE COMPANY
INVESTMENT COMPANY
MUTUAL BENEFIT COMPANY
HOUSING FINANCE COMPANY
EQUIPMENT LEASING COMPANY
GUIDELINES ON FAIR PRACTICES
Application for loans and their processing.
Loan appraisal and terms\conditions.
Disbursement of loan.
Customer acceptance policy.
Customer identification procedure.
Monitoring of transactions.
Risk management.
Kyc for existing accounts.
Appointment of principal officer
Current status
NBFI have improved their operations and
strategies. Industry experts opine that they are
much more mature today than they were during
the last decade.
In fact, aggressive strategies helped LIC housing
finance to grab new customers and increase its
market share in national mortgage market.
The segment which was hit hardest was vehicle
financing.
Fortunately, since vehicle finance is asset based
business, their asset quality did not suffer as
against other consumer financing business.
Top five NBFCs in India:
Housing Development Finance
Corporation Limited
Power Finance Corporation Limited
Rural Electrification Corporation
Limited
National Bank of Agricultural and Rural
Development
Infrastructure Development Finance
Company Limited
FUTURE PROSPECTS
Some of the future prospects of NBFI are-
FUTURE CAPITAL
ASHOK LEYLAND FINANCE.
RELIANCE CAPITAL.
FUTURE CAPITAL
Future Capital, the financial arm of Future
Group, will soon start rolling out Money
Bazaars across the country.
This one stop-shop would be providing
numerous services like-
o Housing loans
o Personal loans
o Insurance
o MFs
o Credit cards
ASHOK LEYLAND FIN.
Traditionally, ALF has depended on commercial
vehicle financing for a significant proportion of its
revenue.
The other segment they are concentrating
on is passenger cars.
The other segment they have is multi-
utility vehicles (MUVs).
The move of Ashok Leyland Finance to
launch a finance portal that would be
used to sell products of other financial
intermediaries.
RELIANCE CAPITAL
Reliance Capital, an arm of the Anil
Dhirubhai Ambani Group, will set up a
separate housing financial subsidiary and
non-banking financial company (NBFC) for
the consumer finance sector.
Ambani said his company is also planning to
selectively expand its-
o Asset management.
o Life insurance.
o Broking operations.
 CONCLUSION
Strengthening the professionalism of NBFC
sector through education and training, making
them more organised.
RBI needs to educate people about NBFC.
The credit delivery mechanism needs to be
more transparent and hassle free.
There should be more stringent norms for
the defaulters.