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A non-banking finance company may be defined as an institution which mobilizes the

savings of the community and diverts them for financing different activities. A bank also
performs similar type of activities. Then what is the differesnce between bank and non-
banking finance company? The difference can be seen from two points of views.

Firstly, from the legal point of view, bank may be defined as an institution which is
governed by the Banking Regulation Act, 1949.

Secondly, a more practical definition of a bank may be that it is an institution which

accepts, short and long-term deposits up to an unlimited extent, and money can be
withdrawn by drawing a cheque on any accounts maintained with it.

A non-banking financial intermediary does not fulfill any of these two criteria. The
activities of non-banking companies are similar to those of banks and they are often
referred to as Para banking institutions. Such intermediaries cover a wide range of
institution differing in their main activities and the services they offer, the one essential
feature being the same, viz., mobilization of the savings of the public and their utilization
for financing various types of economic activities.

Non-banking financial companies (NBFCs) are fast emerging as an important segment

of Indian financial system. It is an heterogeneous group of institutions (other than
commercial and co-operative banks) performing financial intermediation in a variety of
ways, like accepting deposits, making loans and advances, leasing, hire purchase, etc.
They raise funds from the public, directly or indirectly, and lend them to ultimate
spenders. They advance loans to the various wholesale and retail traders, small-scale
industries and self-employed persons. Thus, they have broadened and diversified the
range of products and services offered by a financial sector. Gradually, they are being
recognized as complementary to the banking sector due to their customer-oriented
services; simplified procedures; attractive rates of return on deposits; flexibility and
timeliness in meeting the credit needs of specified sectors; etc.

The working and operations of NBFCs are regulated by the Reserve Bank of India (RBI)
within the framework of the Reserve Bank of India Act, 1934 (Chapter III B) and the
directions issued by it under the Act. As per the RBI Act, a 'non-banking financial
company' is defined as:- (i) a financial institution which is a company; (ii) a non banking
institution which is a company and which has as its principal business the receiving of
deposits, under any scheme of arrangement or in any other manner, or lending in any
manner; (iii) such other non-banking institution or class of such institutions, as the bank
may, with the previous approval of the Central Government and by notification in the
Official Gazette, specify.

Under the Act, it is mandatory for a NBFC to get itself registered with the RBI as a
deposit taking company. This registration authorises it to conduct its business as an
NBFC. For the registration with the RBI, a company incorporated under the Companies
Act, 1956 and desirous of commencing business of non-banking financial institution,
should have a minimum net owned fund (NOF) of Rs 25 lakh (raised to Rs 200 lakh
w.e.f April 21, 1999). The term 'NOF' means, owned funds (paid-up capital and free
reserves, minus accumulated losses, deferred revenue expenditure and other intangible
assets) less, (i) investments in shares of subsidiaries/companies in the same group/ all
other NBFCs; and (ii) the book value of debentures/bonds/ outstanding loans and
advances, including hire-purchase and lease finance made to, and deposits with,
subsidiaries/ companies in the same group, in excess of 10% of the owned funds.

The registration process involves submission of an application by the company in the

prescribed format along with the necessary documents for RBI's consideration. If the
bank is satisfied that the conditions enumerated in the RBI Act, 1934 are fulfilled, it
issues a 'Certificate of Registration' to the company. Only those NBFCs holding a valid
Certificate of Registration can accept/hold public deposits. The NBFCs accepting public
deposits should comply with the Non-Banking Financial Companies Acceptance of
Public Deposits (Reserve Bank) Directions, 1998, as issued by the bank. Some of the
important regulations relating to acceptance of deposits by the NBFCs are:-

y They are allowed to accept/renew public deposits for a minimum period of 12

months and maximum period of 60 months.

y They cannot accept deposits repayable on demand.

y They cannot offer interest rates higher than the ceiling rate prescribed by RBI
from time to time.

y They cannot offer gifts/incentives or any other additional benefit to the


y They should have minimum investment grade credit rating.

y Their deposits are not insured.

y The repayment of deposits by NBFCs is not guaranteed by RBI.

In recent times, the non-banking financial companies have emerged as substantial

contributors to the Indian economic growth by having access to certain deposit
segments and catering to the specialized credit requirements of certain classes of
borrowers. In the structure of Indian financial systems, they play a key role in the
direction of savings and investment. They help to bridge the credit gaps in several
sectors which the traditional institutions like commercial banks are unable to fulfill.

Depending on the nature of their major activity, the non-banking financial intermediaries
may be classified into the following four categories:

1. Hire-purchase finance companies.

2. Investment companies.
3. Chit fund companies.
4. Nidhis or Mutual benefit finance companies.

In Indian economy today, the financial intermediation is being conducted by a wide

range of financial institutions including the banks. That segment of the institutions
which consists of financial companies other than bank is called non-banking sector.

But, the Reserve Bank of India has classified them in several categories for the
purpose of exercising control over them. This classification does not include the
public sector non-banking financial institutions like LIC, SFCs, ICICI, etc.
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Hire Purchase Finance Company means company is carrying on as its business the
hire purchase transactions or the financing or the financing of such transactions.

Hire-purchase or installment credit is needed by transport operators, farmers and

professionals needing equipment who find it difficult to offer security to the lending
institutions. In this form of credit, the goods themselves serve a security because they
remain the property of the lender until the loan has been repaid. It is a less risky
business since the goods purchased on hire purchase basis themselves serve as
securities till the last installment of the loan is paid. In fact, a major share of the hire
purchase goes to the automobile industry.

The recovery problem does not arise in most cases, since, the borrower is able to repay
out of future earnings, viz., the regular inflow of funds out of the assets purchased.

A Hire Purchase Act, 1972, was enacted to control and regulate this type of finances.
This Act puts limitation on hire-purchase charges and also imposes restrictions on
owner's right to recover possession of goods otherwise than through court. The Hire-
purchase companies charge a flat rate which is calculated on the entire amount of
advance and not on the diminishing balance basis. The true rate of interest is therefore,
far in excess of the flat rate indicated. According to Section 7 of the Hire Purchase Act,
1972, the statutory charges shall be calculated at the rate of 30% per annum or on such
lower rate as may be fixed by the Central Government in consultation with the Reserve
Bank, but not less than 10% per annum.

There are a large number of individuals and partnership doing this business. Some of
them are well organised and some of them are very small and financially weak. With a
view to organize them effectively, the Banking Commission has made the following
1) Licensing procedure should be extended to hire purchase finance companies
and small companies and all companies doing this business must be compelled
to obtain a license from the controlling authority.
2) The equity debt ratio and the liquidity ratio, which are applicable to banking
companies, must be made applicable to hire purchase finance companies also,
through a different rate.
3) Further, they must be classified into two viz., approved and non-approved
categories and those which come under the approved category must be made
eligible to get refinance facilities from the banking systems and the credit
guarantee scheme may be extended to their lending operations.

In recent years, there has been a rapid growth in the number of such companies. They
also accept deposits from public by offering attractive rates of interest, besides granting
hire purchase finances. Still, there is a considerable demand for hire purchase credit
and hence, there is much scope for these companies to expand further.

Hire-Purchase credit in India is given by institution in the organized sector like

commercial banks, hire-purchase companies and State Finance Corporations as well as
in the non-organised sector consisting of a large number of firms and individual.

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Investment Company means any company, which is carrying on as its principal

business the acquisition of securities. An investment company may also be called as an
investment trust. The principle aim of an investment company is to protect the small
investors by collecting their small savings and investing them on diversified securities so
that risk may be spread. As individual, they cannot do this. But, the investment company
has formed for the collective investment of money subscribed by many investor
particularly small investors. Besides, it gives its investors the investment company,
there is also investment counsel. An investment counsel company engages itself purely
in the giving investment advice alone. It helps the investors to select a sound and liquid
security. Again, there is a holding company which essentially buys shares and stocks
mainly for the purpose of exercising control over another institution. It generally
purchases the shares of the same company in order to have a control over it rather than
purchasing shares of different companies.

In India, investment trust companies are popular. They channelize the savings of the
productive ventures. Small investors are protected by providing the much needed
diversification of investments. They render expert investment advice and manage the
investment portfolio of their clients. Some of them undertake underwriting, promoting
and holding company business besides financing. These investments trusts promote
business stability in the economy by keeping the capital market active and busy. They
have a healthy influence on the stock market by discouraging speculative dealings.

Investments Companies are of two types of investment companies in India:

1] Management Investment Companies and

2] Unit Trusts.

_ ?? 
 Management investment companies are
discretionary trusts who enjoy wide discreationary powers on the choice of the
composition of their investment portfolios. The management companies are divided into
two groups such as Closed-ended companies and Open-ended companies. Close
ended investment companies are those who have fixed capital and they are not
committed to a continuous offering of new issues. Shareholders of those companies do
not have right to redeem their securities. However, the securities of such companies
can be bought and sold in the open market as and when they are issued by operating
companies. Open-ended investment companies are those who continuously and
regularly offer shares and securities to the public. There is no limit to their capital. These
types of companies also give their security holders the right to redeem if they so desire.

? ??

 Unit Trust is an investment company which is designed to pool the
savings of small investors by selling their units and employ the savings in corporate
securities as well as other securities in order to earn safe and fair returns on such
investments. The purpose of these companies is to enable the small investors to have
an interest in a large spread of investments coupled with experienced selection and
supervision with safety and security. The unit holders are the owners and they have real
interest in shares and securities of the trusts. Unit holders are issued certificates which
represent their interest in the property of the trusts. The Unit Trusts also buyback their
units at a price which is closely related to the market price of the securities. These trusts
calculate and declare the Net Asset Values (NAV) from time to time for the knowledge
of the investors.

There are two categories of Unit Trusts- Fixed and Flexible. The trusts whose
investment portfolio remains fixed are called Fixed Unit Trusts. The management of the
trusts does not have any power to substitute securities from time to time. The securities
selected remain in the portfolio for a long time. Therefore, these trusts are not much
popular in India. Flexible Unit Trusts permit their management to change the portfolio as
well as securities in the portfolio to suit the changing conditions. The constitutions of the
Trust Fund is flexible and changes due to addition or sale of unit from time to time

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A chit fund is a financing agency which collects subscriptions from a group of persons
and distributes the same to each member of the find.

One of the oldest forms of indigenous financial institution in India is chit fund also known
as kuries. Such institutions have their origin and are more popular in South India. The
word chit means a written note on a small piece of paper. Chit funds may be broadly
classified into the following three categories:

1. a ? Total subscription of all members goes in turn to one member who
is determined by lot. There are no deductions from the total subscription funds
and each member gets his/her chance.
2. à? Prize chit is just like a lottery. The amount collected through
subscription of member is distributed to members whose number is selected by
taking out a lottery after specified period of time.

? All the members subscribe a fixed amount every month to the
common pool. The number of members of a group and the number of draws are
equal. The draws are held after regular intervals. At the time of draw the total
monthly subscription is either:
a) Allotted by drawing lots, or
b) Auctioned to the lowest bidder.

In case the amount is distributed by allotment of lots, a fixed amount of discount is

deducted for meeting the expenses of conducting the chit. In case of auction to the
lowest bidder, the difference between the total subscription and the amount of the bid is
distributed to all the members after deducting the necessary expenses. A member who
gets the chit once is not entitled to getting it again but has to go on paying his periodical
subscriptions. Thus, each member in turn gets a chance to claim the chit.

The Central Bureau of Investigation in its report on the working of chit funds had
observed that a substantial portion of the contributions made by subscribers to chit
funds were diverted or misused. In this report submitted by CBI to the Govt. in 1967, the
CBI suggested enactment of uniform legislation throughout the country. The same types
of view were expressed by the Banking Commission.

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Nidhis or Mutual Benefit Finance Companies are one of the oldest forms of non-
financial companies. Some of the important objectives of Nidhis are to enable the
members to save money, to invest their savings and to secure loans at favorable rates
of interest. Nidhis help in encouraging people to save more. They work on the principles
of complete mutuality of interest and are generally well-managed. Because, the Nidhis
inculcate the idea of thrift and savings among the middle and lower class people, the
Government has granted certain concessions under Section 620A of the Companies

Mutual Benefit Financial Company means any company which is notified by the Central
Government under Sec.620A of the Companies Act 1956. Generally it is registered with
only nominal shares (value often being Re.1 only). It receives deposits from its member
and lends only to members against tangible securities. Loans are given for marriages,
redemption of old debts, for the construction and repairs of houses etc., which do not
come within the purview of commercial bank's lending.

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_ ? ? ?

 The primary function of non-banking financial institution is to
receive deposits from the public in various ways such as issue of debentures, unit
certificates, savings certificates, subscription etc. Hence, deposits of non-banking
companies comprise of money received from the public by way of deposits or a loan or
in any other form.

 ?? ?  Another equally important function is lending of money. Non-
banking companies provide financial assistance in various forms-hire purchase finance,
leasing finance, consumption finance, and finance for social activities and so on. Easy
and timely finance is available and generally those customers who have been denied of
bank finance approach these companies and enjoy the credit facilities extended by

? ?  These companies also invest their surplus money on various
outlets. In the case of investment companies, their main function is to invest on principle
securities and pass on the benefits to small investors.

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_ ? !
 ? ?
?The NBFCs play a positive role in accessing certain
deposits segments. These companies encourage savings and promote thrift among
public. They offer attractive schemes to suit the needs of different classes of customers
and attract the idle money by offering attractive rates of interest too. It is found that
nearly 98 percent of the deposits received by them are at the rate of 13 percent and

 ? ?
 ??#? NBFCs offer and timely credit to
those who are in need of it. They do not follow much formalities and procedures.
Moreover, they provide loans even for meeting unusual expenses like marriage and
other religious functions. The NBFCs are accessible to all.

 %?NBFCs provide a financial supermarket to
customers by offering a variety of services. They are very keen in scanning for
diversification activities. A variety of services like mutual funds, specialist forex
operations, counseling, merchant banking etc. are being provided by them apart from
their traditional services. Most of these companies reduce risk through this
diversification process.

& ? 
? ?   ? 

 NBFCs mobilize the small savings
of the public and direct them to productive ventures. Industrialists are able to carry on
their production with lesser capital since the capital intensive equipment are supplied to
them by leasing companies.

' ?( ???  ?

?! NBFCs encourage thrift and
develop savings habit among people by receiving deposits from the public in various
forms convenient to them. Generally, they mobilize the savings the savings of the
people through the issue of debentures, unit certificates, savings certificates, chits,
subscriptions, etc.

& ?à ? 

? When commercial banks are generally reluctant to
enter into the field of housing finance, NBFCs, particularly Housing Finance Companies
provide housing finance on convenient terms and thereby they play a significant role in
fulfilling one of the basic requirements of the mankind.

' ?
? ?  People with limited means are not able to enjoy
the consumer durable goods. By providing consumer goods on easy installments basis,
these NBFCs increases the standard of living of the people. Above all, an impetus has
been given to the transport operators. Increased transport facilities facilitates the
movement of goods from one place to another and this availability of all kinds of goods,
in turn, increases the standard of living of the people.

& ?à  ?  ?  ?NBFCs play an expanded role so as

accelerate the pace of growth of the financial market and to provide a wider choice to
investors. Most of them work on the principle of providing a good return on savings
while reducing the risk through diversification. Thus, they promote business stability in
the economy by keeping the capital market active and busy. They also promote the
growth of enterprises only. Moreover, they do not indulge in speculative activities. They
are interested in price stability and thus, they have a healthy influence on the stock
market. Thus, they contribute positively to the economic development of any country.

) ?? 
?  These companies, particularly investment
companies provide expert advice in investment of funds as well as for supervising
investment. They provide protection to small investors by providing the much needed
diversification of investment. They render invaluable services to investors particularly to
small ones by choosing the right type of securities which will give the maximum yield.

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Commercial banks and non-banking companies are both financial intermediaries

receiving deposits from public and lending them or investing them as the case may be
according to circumstances. Hence, NBFCs are called Para banks. But there are some
vital differences between them. They are:

1] Cheque can be issued against bank deposit whereas no such facility is available in
the case of NBFCs.
2] The commercial banks can manufacture credit out of the raw material of deposits by
creating claims against themselves. But, NBFCs cannot create credit as commercial
banks do. They can lend only out the resources on hand. So, they have limited capacity
to create credit.

3] Commercial banks are able to enjoy certain facilities like rediscounting facilities,
deposit insurance coverage facilities, refinancing facilities, etc. These facilities are not
extended to NBFCs.

4] Generally, the commercial banks offer lesser rate of interest and also charge lesser
rate of interest than that of the NBFCs.

5] Commercial banks are subjected to strict supervision and control of the RBI where as
the NBFCs are more or less completely free from the RBI's control.

6] A variety of assets in the form of loans of various types, cash credits, overdrafts, bills
discounting etc. are held by commercial banks whereas the asset of NBFCs are more or
less specialized in nature. For instance, hire purchase companies specialize in
consumer loans and housing finance companies specialize in housing finance alone.

Though the NBFCs are competing with the commercial banks in tapping the savings of
the public in the form of deposits, most of the deposits of these companies find their
way ultimately to the commercial banks. In one way or other, they are re-deposited with
banks. Besides, some NBFCs do keep a certain percentage of their deposits with the
nationalized banks. Hence, it is vital that these two sectors must work hand in hand with
each other in the Indian financial system. When compared to banks, the volume of
business done by these NBFCs is small.

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E-banking is defined as the automated delivery of new and traditional banking products
and services directly to customers through electronic, interactive communication
channels. E-banking includes the systems that enable financial institution customers,
individuals or businesses, to access accounts, transact business, or obtain information
on financial products and services through a public or private network, including the

E-banking services include Automated Teller Machines (ATMs), shared ATM networks,
Electronic Funds Transfer at point of sale (EFTPoS), smart cards, stored value cards,
phone banking, home banking, internet banking. Thus, the practice of banking has
undergone a significant transformation due to the adoption of E-banking.

E-banking implies performing basic banking transaction by customers round the clock
globally through Electronic Media. Modern banking is more information based, speedy
and boundary less due to the impact of E-Revolution. Modern banks have to be well-
versed in Information Technology its users and applications. Banking divisions have to
be IT based, with the spread of digital economy. E-banking is more of a science than
art. E-banking is knowledge based and mostly scientific in using electronic devices of
the computer revolution. When most business and commercial enterprises tend to
become internetworking organizations, banking has to be E-banking in the new century.
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The following are the advantages of the E-banking:

_ ? ?? %?!% E-Banking facilities performing of basic banking

transactions by customers round the clock globally. World-wide 24 hours and 7 days a
week banking services are made possible. In fact, there are no restricted office hours
for E-banking.

 ?  ?%?E-banking increases the customers convenience. No personal

visit to the branch is required. Customers can perform basic banking transactions by
simply sitting at their office or at home through PC or LAPTOP. Customers can get
drafts at their door steps through e-mail call. Thus, E-banking facilitates home banking.

? *?
?!% The operational costs have come down to technology adoption.
The cost of transactions through internet banking is much less than any other traditional

' ?à !?!%?The increased speed of response to customers requirement

under E-banking vis-à-vis branch banking can enhance customer satisfaction and,
consequently can lead to higher profits via handling a larger number of customers
accounts. Banks can also offer many cash management products for existing customers
without any additional cost.

& ? *?
?!%?Brick and Mortar structure of banking gets converted into Click
and Portal banking. Banks can have access to a greater number of potential customers
without the commitment costs of physically opening branches. Hence, there is much
saving on the cost of infrastructure. Moreover, requirements of staff at the banks get
reduced to a great extent.

) ?+?% E-banking opens a new vista for providing efficient, economic and
quality service to the customers. E-banking allows the possibility of improved quality
and an enlarge range of services being made available to customers.
„ ?a ?!% The increased speed of response to customers requirements under
E-banking will lead to greater customer satisfaction and handling a larger number of
transactions at a lesser time. Thus, it increases the customers convenience to a greater
extent and facilitates better customer retention.

, ?a ?% E-banking creates strong basic infrastructure for the banks to
embark upon many cash management products and to venture in the new fields like E-
commerce, EDI etc. instant credit, immediate payment of utility bills, instant transfer of
funds etc. would be made possible under E-banking. In brief, it adds conveniences to
the entire banking services apart from widening the range of services.

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The following are the disadvantages of E-banking:

_ ?%? ?
 The biggest disadvantage of e-commerce is the issue of security.
Even with the improvements with data encryption, there are still the dangers of
someone getting a hold of your personal and financial information. Also, some sites
don't have the capabilities to prove authentic transactions. If someone gets your credit
card, they can go to one of these sites and purchase items without proving who they
are. All they need is your name and credit card number which is already printed on the

??!? ?  ?Electronic commerce is also characterized by
some technological and inherent limitations which has restricted the number of people
using this revolutionary system. One important disadvantage of e-commerce is that the
Internet has still not touched the lives of a great number of people, either due to the lack
of knowledge or trust. A large number of people do not use the Internet for any kind of
financial transaction. Some people simply refuse to trust the authenticity of completely
impersonal business transactions, as in the case of e-commerce. Many people have
reservations regarding the requirement to disclose personal and private information for
security concerns.

?- ?
!? ? 
 Another limitation of e-commerce is that
it is not suitable for perishable commodities like food items. People prefer to shop in the
conventional way than to use e-commerce for purchasing food products. So e-
commerce is not suitable for such business sectors. The time period required for
delivering physical products can also be quite significant in case of e-commerce. A lot of
phone calls and e-mails may be required till you get your desired products. However,
returning the product and getting a refund can be even more troublesome and time
consuming than purchasing, in case if you are not satisfied with a particular product.

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Investment banking or I-banking is the term used to describe of raising capital for
companies and advising them on financing and mergers alternatives. Capital essentially
means money. Companies need cash in order to grow and expand their businesses;
investment banks sell securities to public investors in order to raise this cash. These
securities can come in the form of stocks or bonds.

?!% is a financial institution that raises capital, trades in securities and
manages corporate mergers and acquisitions. Investment banks profit from companies
and governments by raising money through issuing and selling securities in capital
markets (both equity, debt) and insuring bonds (e.g. selling credit default swaps), as
well as providing advice on transactions such as mergers and acquisitions. A majority of
investment banks offer strategic advisory services for mergers, acquisitions, divestiture
or other financial services for clients, such as the trading of derivatives, fixed income,
foreign exchange, commodity, and equity securities.

?!%?is a particular form of banking which finances capital requirements
of an enterprise. Investment banking assists as it performs IPOs, private placement and
bond offerings, acts as broker and carries through mergers and acquisitions.

The biggest investment banks include Goldman Sachs, Merrill Lynch, Morgan Stanley,
Credit Suisse First Boston, Citigroup's Global Corporate Investment Bank, JPMorgan
Chase and Lehman Brothers, among others. Ofcource, the complete list of I-banks is
more extensive, but the firms listed above compete for the biggest deals both in the
U.S. and worldwide.

Brokers from these firms cover every major city in the U.S., the headquarters of every
one of these firms is in New Work City, the epicenter of the I-banking universe. It is
important to realize that investment banking and brokerage go hand-in-hand, but that
brokers are one small cog in the investment banking wheel. Brokers sell securities and
manage the portfolios of "retail" (or individual) investors.

The breakdown of an investment bank includes the following areas:

 Corporate Finance (equity)

 Corporate Finance (debt)
 Mergers and Acquisitions (M&A)
 Equity sales
 Fixed Income Sales
 Syndicate (equity)
 Syndicate (debt)
 Equity Trading
 Fixed Income Trading
 Equity Research
 Fixed Income Research

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Investment banks have multilateral functions to perform. Some of the most important
functions of investment banking can be jot down as follows:

1] Investment banking help public and private corporations in issuing securities in the
primary market, guarantee by standby underwriting or best efforts selling and foreign
exchange management . Other services include acting as intermediaries in trading for
2] Investment banking provides financial advice to investors and serves them by
assisting in purchasing securities, managing financial assets and trading securities.

3] Investment banking differs from commercial banking in the sense that they don't
accept deposits and grant retail loans. However the dividing lines between the two
fraternal twins have become flimsy with loans and securities becoming almost
substitutable ways of raising funds.

4] Small firms providing services of investment banking are called boutiques. These
mainly specialize in bond trading, advising for mergers and acquisitions, providing
technical analysis or program trading.


Fund-based this term is used to describe financial assistance that involves

disbursement of funds. Examples include the CASH CREDIT facility, bill
DISCOUNTING, equipment leasing, HIRE-PURCHASE and FACTORING. In contrast,
non-fund based services involve the issuance of LETTERS OF CREDIT, BANK
GUARANTEES, ACCEPTANCE and fee-based services such as security issues
management, LOAN SYNDICATION and advisory assistance.

The following are the fund based services:

_ ?. %? ? A firm's working capital is the money available to meet

current obligations (those due in less than a year) and to acquire earning assets.
Commercial Bank offers corporations Working Capital Finance to meet their operating
expenses, purchasing inventory, receivables financing, either by direct funding or by
issuing letter of credit.

 a ?? The bank can structure low cost credit Programmes and
cash flow financing to meet your specific short-term cash requirements. The loans are
structured to enhance your profitability by scheduling the repayment to match the cash
flow available to repay the debt.

  Bill discounting is a short tenure financing instrument for
companies willing to discount their purchase / sales bills to get funds for the short run
and as for the investors in them, it is a good instrument to park their spare funds for a
very short duration. These are customized to suit your requirement for short-term
finance, from the date of sale to the date of receipt of payment there on.
We consider two types of bills facility viz. where documents are delivered on payment,
i.e. D.P.Bills and where the documents are delivered on acceptance i.e. D.A.Bills.

' ?(/ ? Banks offer short-term working capital finance both at the pre-
shipment and post-shipment stages
Pre-shipment finance facility provides liquidity for procuring raw materials, processing,
packing, transporting, and warehousing of goods meant for export. Post-shipment
finance is a credit facility extended from the date of shipment of goods till the realisation
of the export proceeds.

& ?a? Structured Finance?describes any "non-standard" way of raising

money. These tailor-made securities go beyond "standard" securities like conventional
loans, debentures, debt, and equity. The reason to structure a more advanced security
may be that conventional securities may be unattractive, unavailable or too expensive.
These products are structured for both long and short tenor with exit options at intervals
for both parties.

) ?? In the last few years, Indian banks have started giving medium and
long-term loans advances, popularly known as term loans. So far, the only source of
term loans to business and industry were the specialised financial institutions set up for
this purpose. But it was thought necessary that commercial banks should also start term
lending because of their close association with customers and as well-organised
network of branches throughout the country. Term lending, which is also known as
development banking is gradually developing in India, and a significant change is
noticeable in the whole pattern of industrial financing.
„ ?
 ?01 Lease rental discounting offers immediate liquidity,
against commercial property, to lessors/ property owners who have leased out their
The product is aimed at providing Term Loan to owners of commercial / residential
properties who have let them out to reputed companies (Commercial, Industrial,
Software, Multinational Companies), Banks, Financial Institutions, Insurance
Companies etc. on lease basis thus having fixed rent receivables.
These receivables can be clubbed and discounted at attractive rates. The property
owners can then utilize these funds for any purpose including meeting business and
personal needs for generating further assets, which can yield higher returns for
themselves. Further, the funds could also be deployed for expansion of their business
activities. This will give a source to accelerate the rotation of their funds. The actual
discounted amount will be determined after taking into account factors like rent
receivables during the unexpired period of tenancy, tax deducted at source and other.


_ ?
? ? A banker issues personal as well as commercial letters of credit.
These enable the customers to profit by the superior credit of the bank. Thus, money
can be promptly paid out to a customer or to his agent, and bill drawn by his creditor
can be accepted by the bank or any of its branches, agencies or correspondents.

 ?2 ?(/ The banks also deal in foreign exchange transactions. The

commercial community receives facilities for its dealing with foreign nationals- a fact
which is also a profitable business for a banker. In assisting foreign trade by discounting
foreign bills of exchange, a bank has sometimes to arrange for the transport, insurance
and warehousing of goods. A freight and insurance department, therefore, is a common
feature of many commercial banks. In most foreign countries, the business in foreign
exchange is handled by ordinary commercial banks. In, India, however, there is a group
of specialised institution known as exchange banks, which handle the business in
foreign exchange.

??% Indian banks have started new line of activity in recent years
and this is known as merchant banking. Merchant banking comprises many non-
banking type of services rendered by banks to the industrial and business houses.
Some of these services provided by the Merchant banking departments of banks
include counseling about new projects relating to location, foreign collaboration, tax
benefit, etc. Preparation of feasibility reports, help in the procurement of letters of intent
and other statutory permissions, appraisal of working capital requirements, arrangement
of foreign currency loans, help in negotiating joint ventures abroad and advice about
Government regulations etc., State Bank of India was the first in the country to start
merchant banking services. Now some of the other banks also provide this service.

' ? ?
 Besides lending and depositing money, banks also carry money
from one corner of the globe to another. This act of banks is known as transfer of
money. This activity is termed as remittance business. Banks generally issue Demand
Drafts, Banker's Cheque, Money Orders or other such instruments for transferring the
money. This is a type of Telegraphic Transfer or Tele Cash Orders.

& ??

 Banks provide the facility of sending money through mail transfer to
any place where the bank has a branch and the person has a account in any other
branch of the same bank. For this purposes the sender shall have to furnish details like
the name of the beneficiary, his/her account number, the amount to be transferred and
the name of the branch where the account is maintained.


1] Non-Banking Financial Companies.

2] E-Banking.

3] Investment Banking.

4] Fund Based Services and Fee Based Services.


Vijay Dave 6

Ashish Gamlot 7

Amar Gowda 9

Varsha Parab 35

Jyoti Patil 38

Kaustabh Jaitapkar 47

Sr no. Particulars

1 Introduction ± Non-Banking Financial Companies

2 Types- 1. Hire Purchase Finance Companies

3 2. Investment Companies

4 3. Chit Fund Companies

5 4. Nidhis or Mutual Benefits Finance Companies

6 Commercial Banks v/s NBFCs

7 Functions of NBFCs

8 Services Rendered by NBFCs

9 . E-Banking: Introduction

10 Advantages of E-banking

11 Disadvantages of E-banking

12 Investment Banking- Introduction

13 Functions of Investment Banking

14 Fund Based Services

15 Fee Based Services

16 Bibliography

!  ?



1] Banking Theory and Practice: Dr.P.K.Srivastava.

2] Banking Theory, Law and Practice: Gorgon-Natarajan

3] Investment Banking: Vauslt