NBFC Flashcards
NBFC
- NBFCs are largely referred to as shadow banking system or shadow financial institutions
- Do not accept demand deposits
- Hence, subjected to lesser regulations which in turn increases risk of failure
NBFC vs CB
Meaning:
NBFCs provide banking services to people without holding Bank license.
Banks is a government authorized financial intermediary which aims at providing banking services to the public
Regulated Under:
NBFC- Companies Act 2013
CB- Banking Regulation Act 1949
Regulated by:
NBFC- Multiple Agencies (SEBI IRDA, NHB etc)
CB- RBI
Demand Deposit:
NO NBFC Can accept DD (Non NBFC-D can accept time deposits.)
CB- Can be accepted
Foreign Investment:
NBFC- Allowed up to 100
CB- Allowed upto 74% for private sector banks
PSS:
NBFC- Not a part of the system, so cannot issue cheques
CB- An integral part so can issue cheques
Reserve Ratio:
NBFC- No CRR. SLR tyoe norms can be applied in different forms
CB-Mandatory
Deposit Insurance:
Not available
Insured under DICGC
Credit Creation:
NBFC does not create credit
Banks create credit
Transaction Services:
Cannot be provided by NBFC
Provided by Banks
Primary dealers
primary dealers are registered entities with the RBI who have the license to purchase and sell government securities.
They are entities who buys government securities directly from the RBI (the RBI issues government securities on behalf of the government), aiming to resell them to other buyers.
The Primary Dealers create a market for government securities.
Financial Benchmark India Private Ltd (FBIL)
Jointly promoted by FIMMDA, FEDAI and IBA
Recognised by RBI as an independent Benchmark administrator
Fully owned subsidiaries of RBI
DICGC, BRBNMPL
RBI hoods no shares in NHB and NABARD. Sold it to goVErnment in 2019
Investment and Credit Comapny
New Category formed in 2019.
After Merging categories like Asset Finance Companies, Investment Companies
Regulated by RBI
Core Investment Companies (CIC)
For Long Term investment in companies
> = 90% of its net assets in form of investments in EQUITY share
Tapan Ray Panel to review regulatory framework of CIC → Setup by RBI in 2019
Eg IL&FS (Infra Leasing & Financial Services Ltd)→ Owned by SBI + LIC + Corporates from Japan
Regulated by RBI
Housing Finance Companies (HFCs)
Earlier regulated by NHB → Regulatory powers to RBI via Finance Bill 2019
Eg. DHFL, Muthoot Housing Finance etc
Regulated by RBI
Infra Finance Companies (IFC)
Infra Debt Fund (IDF)
Give loans for Infra Projects
Eg. REC (Rural Electrification Company) → PSU u/MoP (Power)
- L&T IDF, Kotak IDF, IDFC IDF
Regulated by RBI
Asset Reconstruction Company (ARC)
Regulated by RBI
Buy bad loans/NPAs from Banks/ other NBFCs → Obtain value from underlying assets
E.g. Anil Ambani’s Reliance ARC
Micro Finance Institutions (MFI)
Regulated by RBI
RBI + MoCA (Corporate Affairs)
Give loan to poor without collateral + Flexible EMIs + NO loan >50k
NBFC- P2P
Regulated by RBI
NO deposits + Can’t lend own funds. Acts as facilitator connecting borrowers & lenders
E.g. Cashkumar.com, Faircent.com
Mutual Fund
Pool money from public & MF-Manager invests in shares/ bonds using own expertise
E.g. SB Small Cap MF
Regulated by SEBI
Investment Banks
Underwriting + Merger + Acquisition + Wealth Management of rich people
Regulated by SEBI
Venture Capital Fund
Help startups in their nascent stages via equity finance
Eg IFCI
Regulated by SEBI
