1 B1 Flashcards
What are financial intermediaries?
FI is an entity that acts as the middleman between two parties in a financial transaction- between lenders vs. borrowers, investors vs. entrepreneurs, households vs business firms.
- Such FI can be subdivided into (1)
Formal (2) Informal
Series of events starting from Registering of commercial banks to Banking Regulation Act
1913- commercial banks registered under companies act but no monitoring (CRR, SLR. Basel norms)
1926 - Royal commission on Indian currency, Hilton Young commission recommends a central bank - Reserve Bank of India
1929 - Great Depression in USA - collapse of 450+ Indian banks. British Indian govt becomes serious about setting up RBI
1934- RBI act enacted
1935, April - Rbi operational from April 1st - 1st Governor - Osborne Smith, India’s viceroy - Willingdon, govt ownership approx 4.4%
1935, July - Commercial banks fulfilling conditions under Sch. 2 of RBI Act granted “Schedule Bank” status and required to keep CRR with RBI
1943-49 - C.D Deshmukh 2nd FM of India, 1st INDIAN Governor of RBI. Participated in Bretton Woods Conference, USA.
1948-49 - Private investors’ shares transferred completely to Govt under RBI transfer of ownership act 1948. RBI gov answers to Parliament and pay dividend to govt from its profit.
1949 - Banking Regulation Act empowered RBI to
: Give license to companies to open banks, give permission banks to open new branches.
: Prescribe auditing and liquidity norms for Banks such as SLR.
: Protect interest of depositors. Force elimination / merger of weak banks.
RBI Central board Composition
Official directors- RBI Governor, 4 Dy. Governors
Non-official directors - 2 govt officials, 10 directors nominated by govt, 4 directors from RBI’s local boards- North, East, West, South
RBI Act provides for how many Deputy Governors
not more than 4
Term of Gov and Dy. Gov of RBI
Usually (not always) 3 years and can be re-appointed
Selection of Gov and dy. gov of rbi
They’re selected by Financial sector regulatory appointment search committee
(FSRASC) headed by the Cabinet Secretary (IAS) → successful candidates’ names sent to Appointments Committee of the Cabinet headed by the Prime Minister for final approval.
RBI offices regions
4 - North: Delhi
East: Kolkata
West: Mumbai
South: Chennai
Finance Ministry’s Enforcement Directorate looks after
Foreign Exchange Management Act, 1999 (FEMA) and Prevention of Money Laundering Act, 2002 (PMLA)
Functions of RBI are
1) Controller of Money Supply: Issues M0 under RBI Act, Makes Monetary Policy.
2) Controller of Foreign Exchange: through FEMA Act.
3) Banker to Governments & Public Debt Manager
4) Banker’s Bank: Lender of Last resort, Advises in monetary matters.
5) Regulator of all “BANKS”: through BR Act’49, Payment Systems’07
6) Regulator of AIFI, NBFC-D & others.
7) Promotional Roles: Customer protection through Ombudsman, Financial Inclusion through PSL norms, 25% rural branch requirements.
8) Data Publication & awareness e.g. annual Financial Stability Report
9) International Cooperation e.g. BASEL, IMF, G20’s Financial Stability Board etc.
What is a Schedule Bank?
When RBI is satisfied that a public sector or private sector bank has (Paid Up Capital + Reserves) = Min 5 Lakhs AND it is not conducting business in a manner harmful to its depositors, then such bank is listed in the 2nd Schedule of RBI Act, and known as a Scheduled Bank.
Difference between Schedule and Non Schedule Bank
SCHEDULE BANK
-Required to deposit CRR money to RBI’s office/vault
-Eligible to borrow / deposit funds in RBI’s window operations.
-are required to protect the interests of depositors and abide to RBI norms.
-Can be subdivided into two parts
1) Scheduled Commercial Banks (SCB) e.g.
SBI, Axis, ICICI
2) Schedule Cooperative Banks like
Haryana Rajya Sahakari Bank, Tamil Nadu State Apex Cooperative Bank
NON - SCHEDULE BANK
- Can maintain the CRR money with themselves in their own office/vault.
- Depends on RBI’s discretion.
- Of course, they also have to do it, else RBI can shut them down under BR Act.
- Hundreds of cooperative banks are non- Schedule.
Order of Commercial Banks Pre independence
1770 - Bank of Hindustan, Calcutta (Europeans owned)
1806-42
- Three Presidency Banks at Bengal then Bombay then Madras.
- 1861: all three were given the right to issue currency.
- 1921: They were combined into Imperial Bank of India => SBI Nationalisation (1955)
1865 Allahabad Bank (Europeans owned)
1894 PNB: Indian owned, Lala Lajpat Rai helped in foundation.
1908 Bank of Baroda by Maharaja Sayajirao Gaekwad III
1913-30s
State Bank of Mysore, State Bank of Patiala, the rise and collapse of Banking industry, then Birth of RBI (1935)
1940s- State bank of Bikaner, Jaipur, Hyderabad, Travancore by the respective princely states / Nawabs. Post-Independence: became ‘Associated Banks of SBI’, and ultimately, merged in SBI (2017).
What are the reasons for Nationalisation of banks after independence?
NEXUS between Banks and Industrialists: From 1950s to 1960, only 188 elite people controlled the economy by being in board of top 20 banks, 1452 companies, and numerous insurances, finance companies. This led to reckless lending to directors and their firms. So, Banks failed frequently, RBI had to close them.
Private Banks unwilling to open in rural areas- this did not help in financial inclusion of poor, farmers, MSME or achievement of Five year plan targets or reducing regional imbalance.
Nationalisation and Merger of banks after Independence
1948 - RBI transfer of ownership Act; Operation Polo, Hyd
1951: First FYP
53: Govt bought Air India from Tata
1955- Imperial bank nationalised to SBI
55-56- LIC Act took over private life insurance companies
57- 1st Communist Govt in Kerala
61- Operation Vijay, Goa
63- State Bank of Jaipur and Bikaner merged together
69- ‘Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969: 14 Private banks with equal to or more than ₹ 50 cr deposits were nationalized e.g. Bank of Baroda, PNB, Dena, Canara etc.
- Catholic Syrian Bank (1920, Kerala), Ratnakar Bank, Dhanlaxmi Bank etc., did not have such large deposits, so they were left out & called “Old Private Banks”.
1972-73- General insurance Cooperation Act took over Pvt non-life(i.e general) insurance companies.
Later GIC reorganised with 4 subsidiaries: National Insurance, New India Assurance, Oriental Insurance and United India Insurance.
1980- 6 banks with equal or more than 200cr deposits were nationalised. eg: Corporation Bank, Vijaya Bank, Oriental bank of Commerce etc.
Reforms in banking sector?
following Committees were made for reforms in banking sector
M Narasimham-I (1991), M Narasimham-I (1997), Dr. Raghuram Rajan Committee (2007) and P J Nayak Committee (2014)
In the economic survey 19-20 what were the changes observed in terms of nationalisation of banks
Economic Survey 2019-20 observed: 50 years Golden
anniversary of the bank nationalisation.
POSITIVES:
❖ After nationalisation, the number of Bank branches in India, the amount of loan given to farmers and villagers = increased.
❖ This greatly contributed to the agriculture production and poverty removal in the rural areas.
❖ PSBs account for 70% of the banking business in India.
NEGATIVES:
❖ From 1960s to 80s: The Government had launched 1) “green revolution” 2) focused on poverty removal through five year plans.
❖ RBI had initiated selective credit control tools & moral suasion to channelize more loans to farmers.
❖ So, those actions were responsible for boosting agriculture & reducing poverty.
❖ Bank nationalization itself has not helped in it much.
How are Private sector banks better than PSB according to ES20?
What are the reasons and remedies for inefficiency of PCBs and solutions?
refer to manual page 65 B1
Consolidation of Public Sector banks?
consists of 2 types of reforms- Merger and Privatisation
refer to manual B1 page 66-68
Vijaya and Dena banks merged into which bank and year?
When did they each get nationalised
Vijaya and Dena merged into Bank of Baroda by swapping shares in 2019
Bank of Baroda and Dena nationalisation 1969 - (50cr), Headquarter in Mumbai
Vijaya nationalisation 1980 (200cr) , HQ: Bengaluru
In 2019 Nirmala Sitaraman announced merger or 10 banks into 4 anchor banks.. name them
(AMALGAMATING BANK)
Oriental Bank of Commerce (1943, HQ: Gurugram, Haryana), United Bank of India (1950, Kolkata)
INTO
(ANCHOR BANK)
PNB. (1984, HQ: Delhi, It’ll become the 2nd largest bank after SBI, in terms of business size and branch network
(AMALGAMATING BANK) Syndicate Bank (1925, HQ: Manipal, Karnataka)
INTO
(ANCHOR BANK) Canara Bank (1906, HQ: Bengaluru, Karnataka)
(AMALGAMATING BANK) Andhra Bank (1923, Hyd); Corporation Bank (1906, Mangaluru)
INTO
(ANCHOR BANK)
Union Bank of India (1919, Mumbai)
(AMALGAMATING BANK) Allahabad Bank (1865, Kolkata)
INTO
(ANCHOR BANK) Indian Bank (1907, Chennai)
Benefits of merging amalgamation banks into anchor banks?
After this process is over, we’ll be left with only 12 PSBs (+1 India Post Payment Bank).
Geographical & technological synergies in ATM, Branches, Security Staff, Servers cost etc.
- resulting into reduced cost of business → better lending & deposit rates. Such bigger banks can even expand business at global level.
economic survey 50 years of nationalisation summary
2019: Global top-100 banks: India only 1 bank- SBI at rank 55
Even Sweden and Singapore have more global banks than India though they have smaller economy size.
So, given India’s size of economy (in terms of GDP), India should have 6-8 banks in the global top 100. → These large banks provide large loans → India can reach $5 trillion GDP by 31/3/2025.
Therefore, merger of public sector banks is necessary.
- It’ll increase the manpower, financial strength of the merged entities, then they can compete at global level.
What is Privatization under consolidation of Public sector banks?
It involves Government selling 51% or larger shareholding to private parties. Then such Public Sector Bank will convert into a private sector bank. For example, Axis Bank and IDBI Bank.
UTI privatisation into Axis, IDBI Purchased by LIC
Read handout page 67
Positives and negatives of LIC purchasing IDBI bank
After LIC purchased IDBI, it became a private sector bank.
Positives:
- Govt. need not waste tax-payers’ money in running such loss making banks.
- Govt. no longer worry about BASEL- recapitalization of IDBI. LIC can market its insurance policies to IDBI consumers (bancassurance).
Negatives:
- LIC policy holders’ money is going into a loss-making Bank. They’ll be deprived of better insurance-investment products (opposite to had LIC invested in a
profitable company) = “Financial Repression of Households”
Budget 2020 Govt’s decision about IDBI’s shares
Budget-2020: Government of India will sell its remaining shares from IDBI Bank to private investors through the stock exchange
Anti arguments against merger and privatisation of Public sector banks, PSBs
1- Employees worried seniority, promotion, increments
2- Financial burden of Voluntary Retirement Scheme (VRS)
3- Banks may lose regional identities & customer intelligence with transfer and VRS of employees.
4 - Big customers may shift to other banks for faster service and personalized privileges.
5- Private sector banks are no saints. There have been instances of private sector banks engaging in money laundering activities, taking bribes to pass loans to unworthy borrowers which ultimately harm depositors.
Commercial Bank types
Pvt Sector banks
Foreign Banks
Differential Banks
Indian Post Payment Bank
(Proposed) Wholesale & Long Term Finance Banks (WLTF)
Reason for the rise of Private sector banks
While the nationalization of banks was done with the lofty objectives, but politicization in Public Sector Banks (PSBs) created new set of problems:
- Government administered loan interest rates for populism= Low profitability for PSBs.
- Low recovery from NPA due to political interference, and legal loopholes.
- Employees unions hampering any innovation or customer responsiveness.
So in 1991: Balance of Payment crisis finally forced
Govt. to set up a committee for Banking Sector Reforms under the former RBI Governor M.Narasimham.
He suggested:
- Government should ↓ its shareholding in Public Sector Banks.
- RBI should ↓ CRR and SLR
- Govt should not dictate interest rates to Banks. Liberalize the branch expansion policy
- Allow entry of New Private Banks and New Foreign Banks.
3 rounds of Bank licensing in India
see table 6 in handout 1B1 - Page 69
The newly licensed banks which got license during the 3 rounds of licensing in India are called
new generation private banks
What is the on-tap system for private sector banks and conditions for getting license through it?
A private entity can open Bank only after getting license from RBI under Banking Regulation Act, 1949. Previously, one had to wait till RBI invited applications. But in the On-Tap system (WEF 2016), one can apply to RBI whenever they wish (like a driving license), provided that:
- It’s a Resident Indian individual, NBFC, or private company with min. 10 years of experience in Banking-Finance Sector, and Min. 500 crore capital.
- Proposed Bank will be controlled by Indians & willing to open 25% branches in
unbanked rural areas.
What are foreign banks in India?
They’re Incorporated abroad (i.e. registered under the Companies Act of a foreign nation) & opening branch / subsidiary in India
e. g. Citibank, Bank of America, HSBC.
- While CRR, SLR & other norms applicable, but PSL norms vary depending on number of branches. [ Ref: Prev. Handout: PSL]
details of foreign investment in Indian public sector banks
Foreigners can invest max. 20% in its shareholding. E.g. BoB (15%), SBI (14%), PNB (13%)
- Although Government thinking of raising it to 49% to help capital mobilization for BASEL-III norms.
details of foreign investment in India private sector banks?
Foreigners can invest upto 49% (automatic) and upto 74% by approval of Government.
- e.g. HDFC (73%), ICICI (59%) Axis Bank (52%)
Although Government thinking of raising it to 100% to help capital mobilization for BASEL-III norms
What are types of differential banks?
Regional rural Banks
Local area bank
Small finance bank
Payment bank
What are differences between universal and differential banks?
UNIVERSAL
OPEN BRANCHES - Anywhere: example SBI, ICICI
[*After opening 25% of branches in unbanked rural areas]
ACCEPT- Both Time & Demand Deposits of any amount
GIVE LOANS TO- Anyone [After 40% PSL]
DIFFERENTIAL
OPEN BRANCHES - Geographical Restrictions on branch
opening for Local Area Bank (LAB), Regional Rural Banks (RRB)
ACCEPT-Payment Bank – Accept Max. 1 lakh only.
GIVE LOANS TO - SFB, RRB: 75% to PSL
- Payment Bank can’t give loans
Chronology of Differential Banks
RRB 1976 => Local area bank 1996 => Small finance bank & payment bank => 2015
Proposed - Wholesale banks
difference between Regional rural bank and local area bank?
REGIONAL RURAL BANKS
- Based on M.Narasimham’s Committee on Financial Inclusion in 1970s
- Setup under the provisions of RRB act 1976 & its amendment in 2015. Voting power: (Union + State + Sponsor bank) = 51%
- e.g. Uttar Bihar Gramin Bank (Sponsor bank- Central Bank of India)
- Subjected to CRR, SLR norms but RBI could prescribe separate norms.
- PSL: 75%.
- Their loan interest rates can’t be more than prevailing lending rates of Cooperative Banks in the area.
- Restricted to few districts. E.g. Baroda Gramin Bank branches confined to Gujarat’s southern districts.
- Ultimate regulator: RBI but immediate regulator NABARD.
LOCAL AREA BANKS
-Based on Budget-1996 by Finance Minister Manmohan Singh
- Unlike RRBs, they’re not setup by Union or State govts or by any special act or parliament but by pvt entities simply applying to RBI under Banking Regulation Act.
- Present in Max. 3 geographically contiguous districts. only 1 urban centre per district.
- They’re Non-Sch. Banks so while CRR, SLR, PSL etc very apply but every norm with caveats.
- Initially 4:
(1) Coastal Bank Andhra Pradesh (first to setup in 99)
(2) Subhadhra Local Area Bank, Kolhapur;
(3) Krishna Bhima Samruddhi (Andhra & Karnataka) and (4) Capital Local Area Bank: Punjab (Largest).
But later Capital LAB converted into Small Finance Bank (2016), so now only 3 left.
- Only RBI regulates them.
Small finance banks based on which committee recommendations
On Nachiket Mor Committee’s recommendations (2013-14), Governor Raghuram Rajan approved these new types of banks for (1) financial inclusion (2) competition & innovation among players.
Difference between SFB and Payment banks
refer 1B1 page 71
On tap license for SFBs
RBI reviewed & found SFBs have achieved their priority sector targets and helped in financial inclusion. Hence, more competition and new players will help.
- so 2019-June, RBI announced it’ll allow ‘On-Tap’ license for SFB soon.
Eligibility for on tap license for small finance banks
- Minimum 200 crore capital.
- resident individuals/professionals with ten years of experience in banking and finance;
- 5 year/> old companies owned by Indian residents
- Existing NBFCs, MFIs, local area banks and payments banks.
- Urban cooperative banks (UCB) allowed to convert into SFB but capital norms slightly different.
- 2019-Dec: Even Payment banks can convert into SFB, after 5 years of operation.
Indian Post Payment bank (IPPB) registered under and owned by
Registered as a Public Limited Company under Companies Act,
100% owned by Department of Posts (Ministry of Communication and Information Technology.) → Obtained RBI’s License under Banking Regulation Act to start working as a Payment Bank.
First Payment Bank to launch operations
Airtel Payments Bank in 2017 Jan
Later, IPPB launched pilot branches at Raipur (Chhattisgarh) and Ranchi (Jharkhand).
Then IPPB launched full-fledged operations in 2018.
In between, Paytm, Fino, Birla Idea and Jio launched their Ops.
In short IPPB not the first to launch full fledged Ops.
Motto of IPPB
customer base?
Aapka Bank Aapke Dwaar (Your bank at your door)
Largest customer reach with 1.55 lakh Post offices across India. Doorstep banking through Postmen (but fees applicable).
Bank acc types in IPPB
Safal, Sugam and Saral
Eligibility for opening account in IPPB
Account can be opened with zero balance, no minimum balance requirement. Max.
Balance 1 lakh per person. Minimum Customer Age: 10 years / >
What’s the (Proposed) Wholesale & Long Term Finance Banks (WLTF)?
2017: RBI proposed. Entry capital 1000 crores, can’t accept deposits less than 10 crores, can give loans only to large corporates & infrastructure projects. Other banks may use it for PSLC-certificate trading.
Banking regulation act applicable for commercial and cooperative banks from which year
commercial 1949
cooperative 1966
Who regulated commercial and cooperative banks?
commercial - RBI Cooperative - Under RBI’s supervision: - Multistate Cooperative Banks - Urban Cooperative Banks
Under Dual supervision
- Other types of cooperative banks are under dual supervision of RBI + respective State govt’s registrar for cooperative society.
Are CRR, SLR, BASEL- III norms applicable for commercial and cooperative banks?
commercial - yes
cooperative - Yes, but, RBI could keep different slabs/ norms.
Repo, MSF borrow eligibility for commercial and cooperative banks?
commercial - eligible
cooperative - Yes, but only selected category of Cooperative Banks
PSL Lending for commercial and cooperative banks?
commercial - Yes 40-75%
cooperative - only urban cooperative banks
who can borrow from commercial and cooperative banks?
commercial - anyone
cooperative - 1st preference to members
vote power in commercial and cooperative banks?
commercial - Based on Shareholding, like a Commercial Company
cooperative- According to Cooperative Society norms, members have vote power. So, 1 member = 1 vote irrespective of how much capital contributed.
what’s profit motive for commercial and cooperative banks?
commercial - Yes, purely profit motive, so lending rates may be higher than Coop.
cooperative - Desire to help community. So, lending rates little lower than commercial bank
Presence of commercial and cooperative banks?
commercial - All India & overseas branches.
cooperative - Mainly in Guj,MH,Andhra,TN
Classification of cooperative banks?
- Urban Cooperative banks - Further subcategories depending on
- Scheduled / Non-Scheduled;
- Single State / Multi State.
From 2018, RBI allowed them to voluntarily upgrade to Small Finance Banks, with certain conditions. - Rural Cooperative banks -
1) Long term: LandBanks, Cooperative Agriculture & Rural Development Banks
2) Short term: State Cooperative Bank →
District Central Cooperative Bank (DCCB) → Primary Agricultural Credit Societies (PACS)
**PACS are not ‘banks’. They can’t issue chequebooks. RBI doesn’t regulate them. Only State registrar regulates them.
Discuss about “Kerala Bank” and how it formed
2019-Oct: RBI permitted Kerala’s all 13 district co-operative banks (DCBs) to be merged with Kerala State Co-operative Bank.
- The combined entity will be called “Kerala Bank”. It’ll be a ‘State Cooperative Bank’
Challenges of cooperative banks?
- Challenges: Politicization, casteism, poor recovery of loans, scams, money laundering.
- Budget-2017: provided funds to NABARD for implementing Core Banking Solution (CBS)
within PACS & DCCB- this will help in targeted delivery of farm loans and subsidies & prevent malpractices and siphoning of funds.
What is the banking regulation (amendment) ordinance, 2020?
check the negative news and before/after table page 74-75
Name All India Financial Institutions (AIFI)
Were set up by respective acts of parliament.
- EXIM - Export Import Bank of India 1982
- NABARD - National Bank for Agricultural and Rural development 1982
- NHB - National Housing Bank 1988
- SIDBI - Small Industries Development Bank of India
read about them in the table pg 76 B1
Are AIFIs banks?
AIFIs are not banks because they cannot accept direct deposits from public at large
2019 Budget shifted NHB’s budget from who to whom?
(Full) Budget-2019: shifted NHB’s regulatory powers to RBI.
- NABARD Amendment Act 2017: 1) increased capital 2) facilitated transfer of RBI shares
to Govt 3) MSME definitions updated.
AIFIs are not ‘banks’ because can’t accept direct deposits from the public at large.
- RBI is the regulator over AIFI, BASEL norms applicable but RBI can prescribe different /
slabs norms / deadlines.
- Atmanirbhar Bharat 2020→ RBI Governor announcements (Mar2May) → Special
refinance facility for AIFI → they can borrow more ₹₹ from RBI → circulate loan
towards to agriculture, housing, MSME, foreign trade.
What are Primary dealers (PD)
They deal in “primary” market, directly buy G-sec from RBI’s E-Kuber platform and sell it in the secondary market. Total 21 PD licensed by RBI: 14 of them are Banks. E.g. Standard Chartered Bank, HSBC (HongKong), SBI, Kotak etc.
NBFCs are registered under?
Companies Act, 1956
Supervision of NBFCs done by
Varies: Mutual funds-SEBI, Insurance Company: IRDAI etc.
Number of commercial banks and NBFCs
commercial - 13 Public Sector (incl. Post Payment Bank), 56 RRBs, 39 private sectors (including SFB, PB), 44 Foreign Banks.
NBFCs- Total 10,190. Out of them 108 deposit Taking, remaining are non-deposit-taking (ND).
Can NBFCs accept deposits?
Only NBFC-Deposit-Taking (NBFC-D) & even they can accept only Time Deposits. E.g. Bajaj Finance.
- Can’t issue their own chequebook, debit/credit card.
- Deposits are not insured under DICGCI
Act unlike the commercial banks, which are.
Are prudential norms as in CRR SLR applicable on NBFCs?
NBFC-D: SLR required but RBI can prescribe different slabs / norms.
- CRR not applicable on any type of NBFC.
BASEL Capital Adequacy Norms, LCR- HQLA norms for NBFCs
Applicable on 108 NBFC-D and
- Applicable on 276 NBFCs – ND – SI (non-deposit
taking Systematically Important with assets over ₹ 500 crores) e.g. L&T Finance, Cholamandalam etc.
But RBI can prescribe different slabs / norms /deadlines.
Investment of customer’s money by NBFCs
Can invest clients’ money in share market. E.g. Mutual Funds, Insurance Companies.
NBFC classification
based on regulation - RBI, SEBI, IRDAI, PFRDA, Min. of Corp. Affairs
based on deposit taking ability- NBFC -D, NBFC - ND
NBFC - ND => NBFC- ND - SI
Learn tables from handout pg- 79-81
What is NBFC Shadow Banking?
ES20 Vo1 Chapter 08 on ‘NBFC’s Financial Fragility’ observed
Shadow banking is a set of activities and institutions. They operate partially (or fully) outside the traditional commercial banking sector. They are not fully regulated by the
RBI.
A shadow banking system can be composed of a single institution or multiple entities forming a chain. They mobilize funds by borrowing from banks, issuing Commercial Papers (CP) and Bonds (=Non-convertible debentures)
3 important segments of shadow banking system in India?
HFCs -
Housing Finance Companies. E.g. Dewan Housing Finance Limited (DHFL)
LDMFs
- Liquid Debt Mutual Funds invest clients money into short term debt instruments such as T-bill (of Govt) and Commercial Papers (of companies).
- e.g. certain schemes by UTI, Kotak, L&T, Tata mutual funds
Retail NBFCs- Retail Non-Banking Financial Companies such As Gold Loan Companies, Asset Finance Companies etc.
Shadow banking system’s assets are risky. Sometimes they can’t honour their obligations/bond repayments. It results into severe crisis, as seen in the ILFS crisis (2019).
What NBFCs are not allowed in India?
Islam Banking
Whta is Islam Banking? Pros and Anti arguments for the same
Interest (Riba) is prohibited (Haram) in Islam. So, Islamic Banking operates through Ijara, Murbaha, Musharaka mechanisms- in which depositors’ money is invested in borrower’s property / business and returns are shared in form of rent / profit but not in the form of Interest.
- While previous committees said give permission to Islamic Banks in India, but RBI is opposed (2017).
Pro-Arguments? Financial inclusion of Muslims. Mobilization of deposits from Islamic countries for Indian Economy.
Anti-Arguments?Specialized Man power required. Secular India’s PM- Jan-Dhan Yojana & Post Office Payment bank efforts will dissipate. USA authorities claim it’s used for terror finance & money laundering.
