an 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.