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