Indian Financial

System – Financial
Services & NBFC
Samarsinh Ghorpade

28 / April / 2019
Jain University
Financial Services - Introduction
• Banking Services – Commercial / Investment
• Insurance Services
• Non Banking Financial Services
• Other Financial Services
Financial Services Role and Impact
• Very important for nations economy
• They provide
– Credit Provision
– Liquidity Provision
– Risk Management Services

• They Provide infrastructure and growth

• Development of trade
• Creates employment in the country
Non Banking Financial
Intermediaries - Introduction
• Indirect growth of the economy
• NBFC focuses on small term business transactions
• NBFC sector has grown considerably
• However, Recently NBFC going through crisis
• NBFC are generally more profitable than banking
sector
• E.g. – ILFS, Bajaj Finance, Muthoot Finance etc.
Types of NBFC
Regulatory Framework of NBFC
• Regulated under Companies Act 2013
• Regulated by RBI in India
• NBFC must be registered as a public limited or private
limited company in India
• Minimum net owned fund of RS 2 crore
• Cannot offer interest rates higher than the ceiling
rates prescribed by the RBI
• Furnishing mandatory information to RBI
Regulatory Framework of NBFC
cont’d
• Audited financial statements to be submitted to
RBI regularly
• Should formulate fair practice code as per RBI
guidelines
• Procedural compliances with directors and board
appointments
NBFC vs Banks
• NBFC cannot accept demand deposits
• NBFC cannot issue Demand Drafts like banks
• Foreign Investment:
– NBFC = 100% Allowed
– Bank = 74% for private sector banks

• Reserve Ratios:
– NBFC not required
– Compulsory for banks
NBFC vs Banks cont’d
• NBFC cannot create credit
• Incorporation
– NBFC = Companies act 1956
– Banks = Banking companies act

• The deposits with NBFC is not insured

• NBFC cannot issue cheques drawn on itself
• NBFC is more risk taking than banks
Growth of NBFC
• Deep understanding of the customers segment
• Customized product offerings by NBFCs
• Leveraging technology for improved efficiency
and enhanced experience
• Wider and effective reach
• Co Lending arrangements
• Robust Risk Management
Conclusion
• NBFCs in Indian Economy is on the rise
• Over last 5 years, NBFC lending is grown by 18%
• New compliance measures due to its large size today
• Critical for underserved retail and MSME market
• Distribution Reach is higher than banks
• NBFC is generating substantial employment in semi
urban and rural areas
Thank You