NBFCs and BANK

SERVICE OPERATIONS MANAGEMENT

What are NBFCs

A company registered Company Act -1956

NBFCs are financial intermediaries engaged primarily

in the business of
1. 2.

3. 4. 5. 6.

Loans and advances acquisition of shares/stock/bonds/debentures/securities issued by government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business

Different Types Of NBFCs

NBFC
TRADITIONAL APPROACH OF CLASSIFICATIO N MODERN APPROACH OF CLASSIFICATIO N RESIDUARY NBFC

Equipment Leasing Co.

Hire Purchase Company

Asset Finance Company

Loan Company

Loan Company

Investment Company

Investment Company

Features of NBFCs
Registration with RBI is mandatory

All the NBFC are not entitled to accept public deposits

NBFC can accept public deposit for a minimum period

of 12 months and maximum of 60 months They cannot accept deposits repayable on demand NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors

CONTD.
NBFCs (except certain AFCs) should have minimum

investment grade credit rating.

The deposits with NBFCs are not insured The repayment of deposits by NBFCs is not guaranteed by

RBI
There are certain mandatory disclosures about the

company in the Application Form issued by the company soliciting deposits

If a NBFC defaults in repayment of deposit, the depositor

can approach
A. Company Law Board or B. Consumer Forum or

All About Indian Banks:

The basic function of a bank is to accept deposits from

public for the purpose of lending.

Directed under the RBI guidelines. Around 26 nationalized bank in India.

13 old private sector banks.

7 new age private sector banks. Around 30 foreign banks.

Functions

Primary Functions
Accepting Deposits

The bank collects deposits from the public. These deposits can be of different types, such as :Saving Deposits 2. Fixed Deposits 3. Current Deposits 4. Recurring Deposits
1.

CONTD.
Granting of Loans and Advances

The bank advances loans to the business community and other members of the public. The rate charged is higher than what it pays on deposits. The difference in the interest rates (lending rate and the deposit rate) is its profit. The types of bank loans and advances are :1. 2. 3. 4.

Overdraft Cash Credits Loans Discounting of Bill of Exchange

Secondary functions
Agency Functions

The bank acts as an agent of its customers. The bank performs a number of agency functions which includes :Transfer of Funds
1. 2. 3.

4.
5.

Collection of Cheque Periodic Payments Portfolio Management Periodic Collections Other Agency Function

CONTD.
General Utility Functions

The bank also performs general utility functions, such as :Issue of Drafts, Letter of Credits, etc.
1. 2. 3.

4.
5. 6.

Locker Facility Underwriting of Shares Dealing in Foreign Exchange Project Reports Social Welfare Programs Other Utility Functions

Why NBFCs?
Only 34% of Indian individuals have access to banks. Banks have a lot of constraints in lending. Conditions for getting a loan. Proximity of financial services. Size of loans.

Higher risk taking ability.

Innovative business model. Expert skills.

Relationship with customers.

Single product and dedicated business.

Some examples
In infrastructure financing credit risk evaluation is the

main job. For collecting the dues they use human resources and pay them lower than what banks pay. Banks lack here. In truck financing majority of the truck drivers dont have proper papers to get the loans. Many SMEs in India are like truck drivers. In home finance, housing finance companies (HFC) flourish with higher focus and better customer service. NBFCs are the top priority in the above sectors.

BANKS Vs. NBFCs

NBFC cannot collect deposits in the manner of a bank Interest rates for NBFCs are different compared NBFC is not a part of the payment and settlement system

and as such an NBFC cannot issue cheque drawn on itself NBFC cannot issue Demand Drafts like banks While banks are incorporated under banking companies act, NBFC is incorporated under company act of 1956. Deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks. NBFC cannot engage into 1. 2. 3.

agriculture activity, industrial activity, sale/purchase/construction of immovable property

THANK YOU
RAHUL H - 73 GANAPATHY S - 85