2. What is a Bank?????
Bank is a financial institution acting as an intermediary in a
financial transactions and providing financial service to its
customers.
RBI (Central Bank
of India)
Scheduled Banks
Public Sector
Banks
Nationalized
banks
State bank and
its associates
Private Sector
Banks
Foreign Banks
Financial
institutions/Develo
pment Banks
Specialized
Banks
Regional Rural
Banks
Cooperative
banks
Rural Banks Urban
cooperative
State
cooperative
Non Scheduled
Banks
Payment
Banks
Structure of
Banks in India
Source: Google 2
3. Can you open a bank that simply???
The answer is NOOOO.
The following are some excerpts from the guidelines released
by RBI to open a new private bank:
Eligibility: Entities/groups in the private sector, entities in public sector and
Non-Banking Financial Companies (NBFCs) shall be eligible to set up a bank.
Capital requirements: The minimum paid-up capital for setting up a bank has
been pegged at Rs.500 crore.
Foreign shareholding in the bank: Up to 74% is allowed.
Mandatory: New banks should open at least 25 per cent of branches in
unbanked rural centers.
Appropriateness: From other regulators, enforcement, investigative agencies
like I-T Department, CBI, ED, as deemed appropriate.
NBFC: NBFC’s are eligible to convert themselves into banks or promote as a
new entity.
Source: https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=28191
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4. What is an NBFC?
• NBFC is acronym for Non Banking Finance CompanY
• NBFC are a part of finance sector.
Major Difference between NBFC and a Bank
Bank NBFC
Banks can issue cheques books, Demand drafts
and cheques drawn from the institution.
NBFC’s are neither permitted to issue cheques
nor demand drafts.
It is registered under the banking companies act,
which provides a banking license.
It is incorporated under company act of 1956.
Banks can give demand deposits E.g. Checking
account where you can withdraw amount
immediately
NBFC’s can not give demand deposits e.g.
accounts, they can only transfer the benefits.
Source: http://www.india-financing.com/what-is-a-non-banking-financial-
company.html
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5. MAJOR CATEGORIES OF NBFC in India
1. Asset Finance Company (AFC)
2. Investment Company (IC)
3. Loan Company (LC)
4. Infrastructure Finance Company (IFC) [principal business is
acquisition of securities]
5. Gold Loan NBFCs in India
6. Residuary Non-Banking Companies (RNBCs)
Source Wikipedia 5
principal business the receiving of deposits, under
any scheme or arrangement or in any other
manner and not being Investment, Asset
Financing, Loan Company
Companies may fall in one or more categories
E.g. Sundaram Finance
6. Can All NBFC’s accept deposits???
The answer is Nay but under guidelines…
• Non-bank finance companies, which have
been issued Certificate of Registration by
RBI with a specific licence to accept
deposits. [Certificate of Registration CoR]
• NBFCs can be classified into two broad
categories,
(i) NBFCs accepting public deposit (NBFCs-D)
and
(ii) NBFCs not accepting/holding public
deposit (NBFCs-ND).
Note: Residuary Non-Banking
Companies(RNBCs) are another category of
NBFCs whose principal business is acceptance
of deposits and investing in approved
securities.
Source RBI 6
7. Some of the Stipulations for the Company
• Certification : NBFC must display the Certificate of Registration or a
certified copy thereof at the Registered office and other
offices/branches.
• Ceiling Rate: Offer a rate of interest on deposits more than that
approved by RBI from time to time (at present 12.5%).
• Deposit Period: can only be Between 12 (Min) and 60 Months (Max).
RNBFC up to 84 months.
• Ceiling on accepting deposits: 1.5 times of Net Owned Funds or Rs.10
crore whichever is less. Minimum Net owned fund should be Rs.200
Crore. So ceiling is Rs.3000 Crore.
Source: https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=28191
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Scheduled Banks: By definition, any bank which is listed in the 2nd schedule of the Reserve Bank of India Act, 1934 is considered a scheduled bank. To qualify as a scheduled bank, the paid up capital and collected funds of the bank must not be less than Rs5 lakh. Scheduled banks are eligible for loans from the Reserve Bank of India at bank rate, and are given membership to clearing houses.
Non-scheduled Banks Non-scheduled banks by definition are those which are not listed in the 2nd schedule of the RBI act, 1934. Banks with a reserve capital of less than 5 lakh rupees qualify as non-scheduled banks. Unlike scheduled banks, they are not entitled to borrow from the RBI for normal banking purposes, except, in emergency or “abnormal circumstances.” Jammu & Kashmir Bank is an example of a non-scheduled commercial bank.
For further rules check
https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=28191
Nationalization is done for
To raise public confidence in Banking system
Expansion of banking facilities in a uniform manner
Provide banking facility in rural and sub-urban areas
Sought to end the monopoly control of big industrialists upon the banking system
Aimed at giving more credit to priority sectors
To reduce regional economic inequality
I have left the following categories since it is beyond my scope of understanding.
Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)
IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.
Non-Banking Financial Company – Factors (NBFC-Factors)
NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The financial assets in the factoring business should constitute at least 50 percent of its total assets and its income derived from factoring business should not be less than 50 percent of its gross income
Indepth information of deposits is available In this link: https://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=9079
