Detailed content about Financial System, Formal and Informal Financial System and NBFC

1. Non-Banking Financial Companies
(NBFCs) and Micro Finance.
Prepared By:
Mr.Mohammed Jasir PV
Asst. Professor
Dept. of Management Studies
ICET, Mulavoor
Contact: 9605 69 32 66

2. Topics
• Evolution of Financial Services
• Indian Financial System
• Formal Financial System And Informal Financial
System
• Financial Institutions
• Banking Companies
• Difference Between Banks And NBFCs

3. Meaning of Financial Services
• In general, all types of activities which are of
financial nature may be regarded as financial
services.
• In a broad sense, the term financial services means
mobilisation and allocation of savings.
• Thus, it includes all activities involved in the
transformation of savings into investment.

4. Meaning Contd..
• Financial services refer to services provided by the
finance industry.
• The finance industry consists of a broad range of
organizations that deal with the management of
money.
• These organizations include banks, credit card
companies, insurance companies, consumer
finance companies, stock brokers, investment funds
and some government sponsored enterprises.

5. Financial services; Definition
• Financial services may be defined as the products and
services offered by financial institutions for the
facilitation of various financial transactions and other
related activities.

6. Definition
• Financial services can also be called financial
intermediation. Financial intermediation is a process by
which funds are mobilized from a large number of
savers and make them available to all those who are in
need of it and particularly to corporate customers

7. Functions of financial services
1.Facilitating transactions (exchange of goods and
services) in the economy.
2. Mobilizing savings (for which the outlets would otherwise
be much more limited).
3. Allocating capital funds (notably to finance productive
investment).
4. Monitoring managers (so that the funds allocated will be
spent as envisaged).
5. Transforming risk (reducing it through aggregation and
enabling it to be carried by those more willing to bear it).

9. Meaning of Financial System
• A financial system functions as an intermediary between savers
and investors. It facilitates the flow of funds from the areas of
surplus to the areas of deficit. It is concerned about the money,
credit and finance. These three parts are very closely interrelated
with each other and depend on each other.

10. Definition
• In the worlds of Van Horne, “financial system allocates
savings efficiently in an economy to ultimate users
either for investment in real assets or for consumption”.
• According to Prasanna Chandra, “financial system
consists of a variety of institutions, markets and
instruments related in a systematic manner and provide
the principal means by which savings are transformed
into investments”.

11. Functions of Financial System
1. Saving function
2. Liquidity function
3. Payment function
4. Risk function
5. Information function
6. Transfer function
7. Reformatory functions
8. Other functions

12. The Indian Financial System

13. Meaning of the Financial System
A set of sub systems of financial institutions,
markets, instruments and services
Intermediates with the flow of funds between
savers and borrowers.
Facilitates transfer and allocation of scarce
resources efficiently and effectively

14. 3
Indian Financial System
Formal or Organised Informal or
Unorganized
Regulators
RBI
MoF
SEBI
IRDA
Financial
institutions or
Intermediaries
Financial
Markets
Financial
Instruments
Financial
Services
• Money lenders
• Local bankers
• Traders
• Landlords
• Chit Funds

15. Formal and Informal Financial System
• The financial systems of most developing countries are
characterized by co-existence and co-operation between the
formal and informal financial sectors.
• The formal financial sector is characterized by the presence of
an organized, institutional and regulated system which caters to
the financial needs of the modern spheres of economy.
• The informal financial sector is an unorganized, non-
institutional and non-regulated system dealing with traditional
and rural spheres of the economy.
4

16. Organised and un-organised
Non- OrganizedOrganized
• Money lenders
• Local bankers
• Traders
• Landlords
• Chit Funds
• Regulators
• Financial Institutions
• Financial Markets
• Financial services

17. Organized Indian Financial System
Money Market
Instrument
Capital Market
Instrument
Forex
Market
Capital
Market
Money
Market
Credit
Market
Financial
Instruments
Financial
Markets
Financial
Intermediaries
Primary Market
Secondary Market
Regulators
• RBI
• MoF
• SEBI
• IRD

18.  Regulators
Financial Institutions
 Financial Markets
 Financial Instruments
 Financial Services
Components of the Financial System

19. Regulators
• The formal financial system comes under the
regulations of the ministry of finance (MOF), reserve
Bank of India (RBI), Securities and Exchange board of
India (SEBI) and other regulatory bodies.
8

20. Financial Institutions
9
Financial
Institutions
(Intermediaries)
Banking
Institutions
Non-Banking
Institutions
Mutual Funds
Public sector Private Sector
Insurance
and Housing
Finance companies

21. Types of Financial Institutions
Banking: creators and purveyors of credit.
Types
Commercial Banks
Cooperative Banks
Non-banking: purveyors of credit
Types
Developmental financial institutions
Mutual funds
Insurance companies
NBFCs

22. Functions of Financial Institutions
Provide three transformation services
Liability, asset and size transformation
Maturity transformation
Risk transformation

23. Financial Markets
Types
Money Market – A market for short-term debt
instruments
Capital Market – A market for long-term equity and debt
instruments
Segments
 Primary Market – A market for new issues
Secondary Market – A market for trading outstanding issues

24. Link Between Primary and Secondary Capital
Market
A buoyant secondary market is indispensable for the presence
of a vibrant primary market.
The secondary market provides a basis for the determination of prices of new
issues.
 Depth of the secondary market depends on the primary market.
 Bunching of new issues affects prices in the secondary market.

25. Why Capital Markets Exist
• Capital markets facilitate the transfer of capital (i.e.
financial) assets from one owner to another.
• They provide liquidity.
– Liquidity refers to how easily an asset can be
transferred without loss of value.
• A side benefit of capital markets is that the
transaction price provides a measure of the value of
the asset.

26. Role of Capital Markets
• Mobilization of Savings & acceleration of Capital
Formation
• Promotion of Industrial Growth
• Raising of long term Capital
• Ready & Continuous Markets
• Proper Channelisation of Funds
• Provision of a variety of Services

27. Financial Instruments
16
Financial
Instruments
Primary
Securities
Equity,
Preference
shares, Debt
Secondary
Securities
Time deposits, MF
units
Insurance policies

28. Financial Services
Major Categories
Funds intermediation
Payments mechanism
Provision of liquidity
Risk management
Financial engineering

29. Key Elements of a Well-functioning Financial
System
A strong legal and regulatory environment
Stable money
Sound public finances and public debt management
A central bank
Sound banking system
Information system
Well-functioning securities market

30. Indian Financial System – An Overview
PHASES
* Upto 1951 Pvt. Sector
*1951 to 1990 Public Sector
*Early Nineties Privatisation
*Present Status Globalisation
19

31. Pre 1951
1. Control of Money Lenders
2. No Laws / Total Private Sector
3. No Regulatory Bodies
4. Hardly any industrialization
5. Banks– Traditional lenders for Trade and that too short term
6. Main concentration on Traditional Agriculture
7. Narrow industrial securities market (i.e. old/Bullion/Metal but
largely linked to London Market)
8. Absence of intermediatary institutions in long-term financing of
industry
9. Industry had limited access to outside saving/resources
20

32. 1951 to 1990
Moneylenders ruled till 1951. No worth-while Banks at that time.
Industries depended upon their own money. 1951 onwards 5 years
PLAN commenced.
PVT. SECTORS TO PUBLIC SECTOR – MIXED ECONOMY
1st 5 year PLAN in 1951 – Planned Economic Process. As
part of Alignment of Financial Systems – Priorities laid down by
Govt. – Policies.
MAIN Elements of Fin. Organisations
i. Public ownership of Financial Institution
ii. Strengthening of Institutional Structure
iii. Protection to Investors
iv. Participation in Corporate Management
v. Organisational Deficiencies.
21

33. 1951-1990
Nationalization
RBI
SBI
LIC
Banks
1948
1956 (take-over of Imperial Bank of India)
1956 (Merges of over 250 Life Insurance Companies) 1969 (14
major banks with Deposits of over Rs. 50
Crs.nationalised)
1980 (6 more Banks)
Insurance 1972 (General Insurance Corp. GIC by New India, Oriental,
united and National.
22

34. POST 1990s
IMPORTANT DEVELOPMENTS
Development Financial Institutions : (DFIs)
• Started providing Working Capital also
• Set up CREDIT RATING AGENCIES
CRISIL(IPO IN 1993-94; standard & poor acquires 9.68%in 1996-97S & P acquires shares /
holding up to 58.46%)
ICRA Set up in 1991 by leading FIs/Banks/Fin. Ser. Cos. And Moody’s CARE Set-up
by IFCI/Banks.
FITCH a 100% subsidiary of FITCH Group.
• Privatisation of DFI
Reduction in Govt. holding & Public Participation e.g. IFCI Ltd., IDBI Ltd., ICICI Ltd.
• Conversion into Banking / Merger into Banking Companies IDBI Bank & ICICI Bank
• Issuance of Bond by DFIs without Govt.’s Guarantees to mobilize resources.
• Reduction in holding of Govt. in Banks, i.e. Public Participation / Listing
23

35. POST 1990
INDUSTRIES
• Rise & Growth of Service Sector industries.
• Reliance & Dependence on technology.
• E-mail & mobile made sea-change in communication, data collection etc.
• Computerization – a catch phrase and inevitable need of an hour.
• Dependent on Capital Market rather than only Debts dependency.
• Scalability of operations through globally competitive size.
• Broad basing of Board.
• Professional Management.
NBFC
• NBFC under RBI governance to finance retail assets and mobilize small/medium sized
savings.
• Very large NBFCs are emerging (Shri Ram Transport Finance, Birla, Tata Finance,
Sundaram Finance, Reliance Finance, DLF, Religare etc.
24

36. Indian Financial System
• The Indian financial system can be broadly classified into
formal (organised) financial system and the informal
(unorganised) financial system.
• The formal financial system comprises financial institutions,
financial markets, financial instruments and financial
services.

37. INTRODUCTION
Access to finance is the ability of individuals or enterprises to obtain
financial services, including credit, deposit, payment, insurance,
and other risk management services.
Accumulated evidence has shown that financial access promotes
growth for enterprises through the provision of credit to both new
and existing businesses.
It benefits the economy in general by accelerating economic growth,
intensifying competition, as well as boosting demand for labour.
Financial services may be provided by a variety of financial
intermediaries that are part of the financial system. A distinction is
made between formal and informal providers of financial services,
which is based primarily on whether there is a legal infrastructure
that provides recourse to lenders and protection to depositors.

39. FORMAL FINANCIAL SECTOR
. Formal financial institutions often ignore small farmers, lower income households,
and small-scale enterprises in favour of large scale, well-off, literate clientele who
can satisfy their stringent loan conditions.
Complex administrative services procedures are beyond the knowledge and
understanding of the rural masses and small savers.
Formal financial institutions do not mobilize rural savings or small scale deposits.
Formal sector of institutions are selective regarding their clients, so as to avoid
clients who make only small deposits.
Loan application procedures are very complex and needs reading and writing skills
so that a file on the borrower maybe established.
The transaction costs are high and the repayment costs are low.
The formal sector regularly has loanable funds available.
The formal sector keeps written records on the activities of the clients.

42. The formal financial system comprises of Ministry of
Finance, RBI, SEBI and other regulatory bodies.
The formal financial system comprises financial institutions,
financial markets, financial instruments and financial
services.
The informal financial system consists of individual money
lenders, groups of persons operating as funds or
associations, partnership firms consisting of local brokers,
pawn brokers, and non-banking financial intermediaries
such as finance, investment and chit fund companies.

43. a) UNORGANISED MARKETS
In these markets there are a number of money lenders, indigenous bankers,
traders etc., who lend money to the public.
Indigenous bankers also collect deposits from the public. There are also
private finance companies, chit funds etc., whose activities are not
controlled by the RBI.
Recently the RBI has taken steps to bring private finance companies and chit
funds under its strict control by issuing non-banking financial companies
(Reserve Bank) Directions, 1998.
The RBI has already taken some steps to bring the unorganized sector under
the organized fold. They have not been successful. The regulations
concerning their financial dealings are still inadequate and their financial
instruments have not been standardized.

44. b) ORGANISED MARKETS
In the organized markets, there are standardized rules and
regulations governing their financial dealings. There is also
a high degree of institutionalization and instrumentalisation.
These markets are subject to strict supervision and control
by the RBI or other regulatory bodies.
These organized markets can be further classified into two.
They are :
ORGANISED MARKETS
CAPITAL MARKET
MONEY MARKET

45. Growth and Development of Indian Financial System
1. Nationalisation of financial institutions
2. Establishment of Development Banks
3. Establishment of Institution for Agricultural Development
4. Establishment of institution for housing finance
5. Establishment of Stock Holding Corporation of India (SHCIL)
6. Establishment of mutual funds and venture capital institutions
7. New Economic Policy of 1991

46. Weaknesses of Indian Financial System
• Lack of co-ordination among financial institutions
• Dominance of development banks in industrial finance
• Inactive and erratic capital market
• Unhealthy financial practices
• Monopolistic market structures
• Other factors
– Banks and Financial Institutions have high level of NPA.
– Government burdened with high level of domestic debt.
– Cooperative banks are labelled with scams.
– Investors confidence reduced in the public sector undertaking etc.,
– Financial illiteracy.

47. Structure of Indian Financial System
• Financial structure refers to shape, components and their order in
the financial system.
• The Indian financial system can be broadly classified into formal
(organised) financial system and the informal (unorganised) financial
system.
• The formal financial system comprises of Ministry of Finance, RBI,
SEBI and other regulatory bodies.
• The informal financial system consists of individual money lenders,
groups of persons operating as funds or associations, partnership
firms consisting of local brokers, pawn brokers, and non-banking
financial intermediaries such as finance, investment and chit fund
companies.

49. Components/ Constituents of Indian Financial
system:
The following are the four main components of Indian
Financial system.
1. Financial institutions
2. Financial Markets
3. Financial Instruments/Assets/Securities
4. Financial Services.

50. Financial institutions:
• Financial institutions are the intermediaries who facilitate
smooth functioning of the financial system by making
investors and borrowers meet.
• They mobilize savings of the surplus units and allocate
them in productive activities promising a better rate of
return.
• Financial institutions also provide services to entities
seeking advice on various issues ranging from
restructuring to diversification plans.
• They provide whole range of services to the entities who
want to raise funds from the markets elsewhere.

51. Financial Institutions
• Financial Institutions are an important component of
financial system.
• Financial institutions are also known as financial
intermediaries.
• This is because they collect the savings from the savers
and pass on the same to desired channels.
• They provide finance for the development of various
sectors of the economy such as industry, agriculture,
service etc. Thus financial institutions play an important
role in the financial system or economy.

52. MAJOR FUNCTIONS OF FINANCIAL INSTITUTIONS
• The major functions of financial institutions, whether short-term
of long-term, are to provide the maximum financial convenience
to the public.
This may be done in three ways:
a) Promoting the overall savings of the economy by deepening and
widening the financial structure
b) Distributing the existing savings in amore efficient manner so that
those in greater need; from the social and economic point of
view, get priority in allotment;
c) Creating credit and deposit money and facilitating the
transactions of trade, production and distribution in furtherance
of the economy.

53. FUNCTIONS OF FINANCIAL
INSTITUTIONS

54. Specialized financial investment and banking intuitions are established
on an ongoing process in India, as integral parts of a the capital
market on account of the following reasons;
A) Need for promotion services
B) Need for higher capital formation
C) Need for replacement finance;
D) Need for organized capital market;
E) Need for long-term finance;
F) Planned economic development
G) Finance for small business and
H) Finance for priority sectors.

55. Role of Financial Institution in the Financial
System
• Financial institutions are financial intermediaries.
• They provide the means and mechanism of transferring the resources
from those whose income is more than expenditure to those who need
these resources for productive purposes.
• The savings of the savers will reach the borrowers through the financial
intermediaries in the form of financial instruments such as shares,
stocks, debentures, deposits, loans etc. Thus, they play the role of
intermediate between the savings and investments.

56. Conti…
• They provide safety, liquidity and ensure return for
savings.
• Financial institutions develop the saving habit among the
people.
• They mobilise huge amount of savings for the industrial
development as a productive capital. The financial
institutions supply capital to the small, medium and large
scale industries in India in the form of capital, venture
capital, and services to promote the industrial growth in
India.
• These contribute for the growth and development of
industries, agriculture etc.

57. Classification of Financial Institutions
All financial institutions in India may be broadly
clarified into two
1. Banking Financial Institutions And
2. Non-banking Financial Institutions.

58. I. Banking Financial Institutions
• Banking financial institutions are those financial
institutions which carry on banking activities.
• Banking business is carried on by these institutions
after obtaining an approval under Banking Regulation
Act, 1949 and RBI.
• It accepts deposits from the public. It lends money to
people engaged in commerce, industry and agriculture.
• It finances foreign trade and deals in foreign exchange.

59. Conti…
• It provides short, medium and long term credit.
• It acts as an agent of RBI.
• It deals in stocks and shares, trusteeship, executorships
etc.
• In short, the bank can be aptly described, as
‘department store of finance’ because it engages itself in
every form of banking business.

60. Banking financial institutions mainly comprise of
commercial banks.
Commercial banks
A Bank is a financial Institution whose main business
is accepting deposits and lending loans. A Banker is a
dealer of money and credit. Banking is an evolutionary
concept i.e. expanding its network of operations.
According to Banking revolutions Act 1949, the word
BANKING has been defined as “Accepting for the
purpose of lending and investment of deposits of money
from the public repayable on demand or otherwise”.

61. Functions of Commercial Banks
Globalisation transformed commercial banks into super
markets of financial services.
The important functions of commercial banks are explained
below:
A. Primary Functions
i. Accepting Deposit
ii. Lending Loans
B. Secondary Functions
i) Agency functions
ii) General Utility Services
iii) Credit Creation

62. I. Primary Functions
These are further classified into 2 categories
i) Accepting Deposits: -
ii) Lending Loans
Accepting Deposits:
Deposits are the capital of banker. Therefore, it is first
Primary function of the banker.
He accepts deposits from those who can save and lend it
to the needy borrowers. The size of operation of every
bank is determined by size and nature of Deposits. To
attract the saving from all sort (categories) of
individuals,

63. Commercial banks accepts various types of deposits
account they are:
a) Fixed Deposits
b) Current Deposits
c) Saving Bank account
d) Recurring Deposits

64. ii) Lending Loans:-
The 2nd important function of the commercial bank
is advancing loans.
Bank accepts deposits to lend it at higher rate of
interest.
Every Commercial Bank keep the rate of interest on
its deposit at lower level or less that what he
charges on its loans which is as NIM (Net Interest
Margin).

65. The banker advances different types of loans to the
individual and firms. They are: -
a) Overdraft
b) Cash Credit
c) Term Loan
d) Discounting Bill

66. II) Secondary Functions
i) Agency functions:-
ii) General Utility Services: -
iii) Credit Creation: -

67. i) Agency functions:
Bankers act as an agent to the customers it means he
performs certain functions on behalf of the customers
such services are called Agency Services.
Example:
a) Bank pay electricity bill, water bill, Insurance
Premium etc.
b) They guide the customer in Task Planning.
c) Bank provides safety locker facility.
d) Pay salaries of customer’s employees.

68. ii) General Utility Services: -
Bankers are the past of society. They offer: several
services to general public
Example.
a) It provides cheap remittance (transfer) facilities.
b) The banks issue traveller cheque for safe travelling to
its customers.
c) Banks accepts and collects foreign Bills of
Exchanges.
d)Other than these services the bankers also provide
ATM services, Internet Banking, Electronic fund
transfer (EFT), E-Banking to provide quick and proper
services to its customers.

69. iii) Credit Creation: -
• It is a unique function of Commercial Banks.
• When a bank advances loan to its customer if doesn’t lend
cash but opens an account in the borrowers name and
credits the amount of loan to that account.
• Thus, whenever a bank grants loan, it creates an equal
amount of bank deposits.
• Creation of deposits is called Credit Creation.
• In simple words we can define Credit creation as multiple
expansions of deposits.
• Creation of such deposits will results an increase in the stock

70. II. Non-Banking Financial Institutions
These are the financial institutions which are not
permitted to carry on the banking activities as
per Banking Regulation Act, 1949 and RBI
regulations.
These institutions have been established by
special legislations to provide finance to
specified categories of industries or persons.

71. Classification of Non-Banking Financial
Institutions
Non-banking financial institutions can be classified to
three. They are :
1. All-India Financial Institutions or All-India Development
Banks or Specialised Financial Institutions
2. State Level Financial Institutions
3. Investment Institutions

72. a. All-India Financial Institutions
• Government of India has nationalised 20 commercial banks
(excluding subsidiaries of SBI) so far. A number of financial
institutions have also been set up to supply finance to industry
and agriculture.
• Unfortunately, these commercial banks and financial institutions
fail to provide long term finance to industries. With the objective
of giving term loans, Govt. has set up some specialised financial
institutions. These specialised financial institutions are called
development banks.
• The development banks have to sacrifice business principles of
conventional financial institutions and pay due regard to public
interest so as to act as an instrument of economic development in
conformity with national objectives, plans and priorities.

73. •Development banks are expected to act as catalysts in performing
developmental and promotional functions. As regards banking
obligations, it is supposed to undertake the primary task of
providing financial assistance in different forms.
•These are something more than pure financial institutions.
Development banks are viewed as financial intermediary supplying
medium and long term funds to bankable economic development
projects and providing related services.
•They are expected to mobilise large capital from other sources.
Accordingly, the task of economic transformation and rapid
industrialisation can best be handled only through development
banks rather than through the normal process of governmental
machinery.

74. Important development or specialised
financial institutions may be
discussed as follows:
• IFCI
• ICICI
• SFCs
• IDBI
• KFC

75. Difference Between Banks And NBFCs

76. Continuation..

77. Difference between NBFCs & Banks
• NBFCs perform functions similar to that of banks but there are a few
differences-
• Provides Banking services to People without holding a Bank license,
• An NBFC cannot accept Demand Deposits,
• An NBFC is not a part of the payment and settlement system and as
such,
• An NBFC cannot issue Cheques drawn on itself, and
• Deposit insurance facility of the Deposit Insurance and Credit
Guarantee Corporation is not available for NBFC depositors, unlike
banks,
• An NBFC is not required to maintain Reserve Ratios (CRR, SLR etc.)
• An NBFC cannot indulge Primarily in Agricultural, Industrial Activity,
Sale-Purchase, Construction of Immovable Property
• Foreign Investment allowed up to 100%.

78. What is difference between banks & NBFCs?
Banks and NBFCs are basically financial intermediaries. Banks are
regulated under the Banking Regulation Act though most of the laws
of Companies Act are also applicable to banks. NBFCs are registered
under the Companies Act. Both are regulated by the RBI.
Main differences between banks and NBFCs are:
i. NBFC cannot accept demand deposits;
ii. NBFCs do not form part of the payment and settlement system and
cannot issue cheques drawn on itself;
iii. Deposit insurance facility of Deposit Insurance and Credit Guarantee
Corporation is not available to depositors of NBFCs, unlike in case of
banks.

79. IV. Bank is a financial institution whose
liabilities (i.e., deposits) are widely accepted as a means of
payment in the settlement of debt. Non-bank financial
intermediaries, on the other hand, are those institutions
whose liabilities are not accepted as means of payment for
the settlement of debt.
V. Banks are termed as creators of credit through money
multiplier activity whereas NBFCs are not.

80. Banking Company:
Meaning, Licensing and Other Details
Meaning:
• According to Sec. 5 of the Banking Regulation Act, 1949, a
banking company means the accepting, for the purpose of
lending or investment, of deposits of money from the
public, repayable on demand or otherwise and withdrawn
by Cheque, Draft, Order, or otherwise.
• In short, a banking company means and includes any
company which carries on the business or which transacts
the business of banking in India. Therefore, any company
which is engaged in trade or manufacture, which accepts
deposits of money from the public for the purpose of
financing its business only, shall not be deemed to carry on
the business of banking.

81. Conti…..
• No company can use as part of its name any of the
words bank, banker or banking other than a banking
company and, at the same time, no company can
carry on business of banking in India unless and until
it uses at least one of such words as part of its name.

82. Licensing of Banking Companies:
• According to Sec. 22, no company shall carry on banking business in
India unless it holds a license issued by the Reserve Bank of India.
If the following conditions are satisfied, the Reserve Bank of India may
grant a license:
(i) “That the company is or will be in a position to pay its present and
future depositors in full as their claims accrue;
(ii) That the affairs of the company are not being or are not likely to be
conducted in a manner detrimental to the interests of its present or
future depositor;
(iii) That, in the case of a foreign banking company, the carrying on of a
banking business by such company in India will be in the public interest,
that the Government or law of the country of its origin does not
discriminate against Indian banking companies carrying on business in
that country, and that it complies with all the requirements of law
applicable to it”.

83. Cancellation of License:
The Reserve Bank of India may cancel a license if:
(i) The company ceases to carry on banking business in India;
(ii) The company at any time fails to comply with any of the
conditions on which the license was granted; or
(iii) At any time, any of the conditions, on the satisfaction of
which the Reserve Bank of India granted the license, has not
been fulfilled.

84. Area of Business of Banking Companies:
Sec. 6 of the Banking Regulation Act, 1949, lays down that the
following business may also be carried on by a banking
company, in addition to the usual banking business:
(a) Acting as agents for any government or local authority or any
other person or persons; the carrying on of agency business of
any description including the clearing and forwarding of goods,
giving of receipts and discharges and otherwise acting as an
attorney on behalf of customers, but excluding the business of a
managing agent of a company;

85. (b) Contracting for public and private loans and negotiating and
issuing the same;
(c) Selecting, insuring, guaranteeing, underwriting, participating,
in managing and carrying out of any issue, public or private, of
state, municipal or other loans or of shares, stock, debentures
or debenture stock of any company, corporation or association
and of lending of money for the purpose of any such issue;
(d) Carrying on and transacting every kind of guarantee and
indemnity business;
(e) Managing, selling and realizing any property which may come
into the possession of the company in satisfaction or part
satisfaction of any of its claims;

86. (f) Acquiring or holding and generally dealing with any
property, or title or interest in any such property which
may form the security or part of the security for any
loans or advances or which may be connected with any
such security;
(g) Undertaking and executing trusts;
(h) Undertaking the administration of estates as executor,
trustee or otherwise;
(i) Establishing and supporting associations, institutions,
funds, trusts, and convenience for the benefit of
employees, ex-employees, their dependents and the
general public;

87. (j) Acquiring, constructing, maintaining and altering any
building or works necessary for the purpose of the
banking company;
(k) Selling, improving, managing, developing, exchanging,
leasing, mortgaging, disposing-off or turning into
account or otherwise dealing with all or any part of the
property and rights of the company;
(l) Acquiring and undertaking the whole or any part of the
business of any person or company when such business
is of a nature enumerated or described in Sec. 6.

88. (m) Doing such other things as are necessary for the
efficient conduct of the above-named business, such
as acquisition, construction, alteration etc. of any
building or works necessary or convenient for the
purpose of the company; and
(n) Any other form’ of business which the Central
Government may notify in the Official Gazette.

89. Key Elements of a Well-functioning
Financial System
 A strong legal and regulatory environment
 Stable money
 Sound public finances and public debt management
 A central bank
 Sound banking system
 Information system
 Well-functioning securities market