12.36 ndian onom
mid-2013) to set up such ATMs – its given control of the operating company in the form
brand name is ‘Indicash’. of executive management responsibility, but have
The main objectives of the Brown/White no ownership rights. All major decisions that may
Label ATMs are cutting operation cost of running affect profitability or involve large expenditures
them and financial inclusion. must first be approved by the holding company.
Although operating company’s profitability
non-oPerAtive finAnciAl holDing comPAny should make sense for the holding company, this
(nofhc)57 is not always the case. Especially for larger holding
The difference between an operating company companies with heavy tax burdens, owning one
and a holding company lies in the fundamental or more operating companies that lose money
structures of the two, in their management and can benefit the parent company in the form of
their interactions with one another. Business a business loss when tax time rolls around. This
goals are often different, and both business types does not benefit the operating company, as it
are after profits, but holding companies can still is responsible for operating income to run the
benefit from operating company losses under business. If the losses become too great, operating
certain conditions. companies can go out of business, but the holding
The primary function of a holding company company can still benefit because the operating
is to invest in other companies, commonly known company can help to balance overall profits and
as subsidiaries. Holding companies are usually not stock prices.
involved in day-to-day operations of the operating There are three basic types of holding
company, but lend initial or ongoing financial companies:
support via cash reserves or stock sales, and may (i) A pure holding company that is non-
assist in restructuring the operational model to operating and exists solely to invest in and
ensure profits. Holding companies are normally hold the voting shares of its subsidiaries.
structured as corporations (limited liability firms This type of holding company derives
i.e., known as a Ltd. company in India) to protect its income from the dividends earned
assets and absorb financial losses. from its ownership of the shares of its
Operating companies are owned by the subsidiaries and from any gains realised
holding company, but are responsible for all from other investments.
day-to-day operations of the company. When a (ii) A general or operating holding company
holding company creates or purchases an operating that earns its income from selling goods
company, they are sometimes allowed to conduct and services in addition to the income
business as usual, especially, if they are profitable. derived from its ownership of subsidiaries.
Net profits after expenses are then handed over to (iii) A pyramid holding company that owns
the holding company. controlling interest in its subsidiaries
Ownership of operating companies, even with less invested capital than the two
when purchased, revert to the holding company. other categories.
Former owners who are kept on-board are often
57. Though this sub-topic originally belongs to the Chapter nIdhI
14: Security Market in India, it has been discussed
here to make the new guidelines of setting-up banks Nidhi in the Indian context means ‘treasure’.
an ‘easy-to-understand’ thing for the readers. However, in the Indian financial sector it refers to