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Kerala PSC Indian Economy Book Study Materials Page 327
Book's First Pagean in in ndia 12.3 offered by a financial sector. Gradually, they are IntroductIon being recognised as complementary to the banking The sense in which we today use the term sector due to their— banking has its origin in the western world. It was (i) customer-oriented services; introduced in India by the British rulers, way back (ii) simplified procedures; in the 17th century. Since then, enough water (iii) attractive rates of return on deposits; and has flown and today Indian banks are considered (iv) flexibility and timeliness in meeting the among the best banks in the developing world and credit needs of specified sectors. its attempts to emerge among the best in the world is going on. RBI, the regulator of the NBFCs, has gives a very wide definition of such companies (a kind of ‘umbrella’ definition)—“a financial institution nBFcs formed as a company involved in receiving deposits Bank is a financial institution engaged primarily or lending in any manner.” Based on their liability in mobilising deposits and forwarding loans The structure, they have been classified into two broad deposits and loans are highly differentiated in categories: nature. Banks are regulated by the Central bank (i) deposit-taking NBFCs (NBFC-D), and of the country—in case of India, the RBI (Reserve (ii) non-deposit taking NBFCs (NBFC- Bank of India). The another category of financial ND). institution—the non-bank— is almost similar It is mandatory for a NBFC to get itself in its functions but main difference (though, registered with the RBI as a deposit taking highly simplified) being that it does not allow company. For registration they need to be a its depositors to withdraw money from their company (incorporated under the Companies Act, accounts. 1956) and should have a minimum NOF (net NBFCs (Non-Banking Financial Companies)1 owned fund)2 Rs. 2 crore. are fast emerging as an important segment of To obviate dual regulation, certain category of Indian financial system. It is an heterogeneous the NBFCs which are regulated by other financial group of institutions (other than commercial regulators are exempted from the regulatory and co-operative banks) performing financial control of the RBI: intermediation in a variety of ways, like accepting deposits, making loans and advances, leasing, hire (i) venture capital fund, merchant bank, purchase, etc. They can not have certain activities stock broking firms (SEBI registers and as their principal business—agricultural, industrial regulates them); and sale-purchase or construction of immovable (ii) insurance company (registered and property. regulated by the IRDA); They raise funds from the public, directly or 2. The term ‘NOF’ means, owned funds (paid-up capital indirectly, and lend them to ultimate spenders. and free reserves minus accumulated losses, deferred They advance loans to the various wholesale revenue expenditure and other intangible assets) less, and retail traders, small-scale industries and self- (i) investments in shares of subsidiaries/companies in the same group and all other NBFCs; and (ii) the book employed persons. Thus, they have broadened value of debentures, bonds, outstanding loans and and diversified the range of products and services advances, including hire purchase and lease finance made to, and deposits with, subsidiaries/companies in 1. RBI update, 11 March, 2016 and the Business.gov.in, the same group, in excess of 10 per cent of the owned Government of India, April 2016. funds.