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 Today Mickey
will teach
Donald about
What is an NBFC?
the concept of
an NBFC

-An NBFC broadly carries out lending functions and

investment functions

-It can also accept deposits, though only for a fixed

term (they cannot be withdrawn whenever the
depositor wants). Hence, they are also less
regulated than a bank

-Banks often establish NBFCs as a separate

company, so that they can avail of the lesser
regulation
e.g. CitiFinancial, an NBFC, is a company wholly
owned by Citigroup , which also holds a stake in
Citibank. Such a wholly owned company is called a
subsidiary.
 Thanks Mickey!

Now I have
understood the three
basic traits of an
NBFC.
DISTINCTION
BETWEEN
A BANK & AN
NBFC
 The three differences between a bank and an NBFC
are as follows:

NBFC Bank

1. A bank can.
1. An NBFC cannot accept
deposits repayable on 2. Bank deposits are insured
demand. upto Rs. 1 lakh per
2. Any deposits accepted by depositor, by the Deposit
NBFCs (these will be of Insurance Credit
fixed maturity as Guarantee Corporation of
explained above) are not India (DICGCI).
insured. 3. Banks can. Hence only
3. An NBFC cannot banks can issue cheques
participate in the drawn on themselves: i.e.,
payment system can give their customers a
cheque book to use.
Now I have got to know
the distinguishing
features of
an NBFC and a Bank
CATEGORIES OF BANKS IN INDIA

-Scheduled and Non-scheduled: All banks with

a deposit base < or =Rs. 200 Cr are ¶non-
scheduled· banks.

-Banks which have a deposits > Rs. 200 Cr are

¶Scheduled Banks· ² the technical definition of
a Scheduled bank is ¶those banks which have
been included in the Second Schedule of
Reserve Bank of India(RBI) Act, 1934·.

-Scheduled Banks are further divided into

Commercial and Co-operative banks. The
structure is given in the next slide:
 ‰

 ‰   
 

‰

  

Scheduled Commercial Scheduled Co-operative

Banks(217) Banks(70)

Public Private Regional

Foreign Banks
Sector Sector Rural
in India(40)
Banks(27) Banks(30) Banks(196)

Scheduled Urban Co- Scheduled State Co-

operative Banks(52) operative Banks(16)

Nationalized State Bank of India Old Private New Private

Banks(19) & its Associates(8) Sector Banks Sector Banks
^

º 
:

-   ‰ 

 ‰: PSBs are those where the Government holds a
majority ownership. For example, if there are a 100 shares and the Central
Government holds 51, LIC holds 25 and various members of the public hold
24, this will be a PSB. The State Bank of India (SBI) is a PSB and India·s
largest bank. Punjab National Bank, Corporation Bank, Vijaya Bank, Central
Bank of India are some more examples.

- | |
||: These are also banks with a Government
ownership. The idea was to create banks which will focus on the rural areas
and serve the underbanked sector. A scheduled commercial bank was to act
as a sponsor of an RRB. The ownership pattern was set up as 50:15:35, with
the Central government holding the majority share, the sponsor bank
holding the second highest stake, and the rest by the respective state
governments that housed the RRB.

-  
: Private banks, as the name suggests, are banks owned by
private (i.e. non-government)  entities such as corporates and
individuals. ICICI Bank is the second largest bank in India, and is a private
bank. HDFC Bank, Axis Bank, Yes Bank are some other examples.

- £ 
: Foreign Banks are those owned by multi national/non-Indian
entities. Citibank India for example, is owned by the US based Citi group.
Deutsche Bank India is owned by Deustche Bank headquartered in Germany,
and so on.
º 
!
- " º 
"º: Co-operative banks are formed by
a group of members, and traditionally the thrust of UCBs, has been to
mobilise savings from the middle and low income urban groups and
accord credit to their members - many of which belonged to the
weaker section.
- ‰º 
!These are set up with state government
partnership to help agricultural and rural development. For example,
Andhra Pradesh State Cooperative Bank Limited (APCOB) is a
Scheduled State Cooperative Bank for the State of Andhra Pradesh.
The cooperative credit system in Andhra Pradesh with the APCOB at
its apex level is a federal system consisting of a family of 22
affiliated District Cooperative Central Banks (DCCBs), which in turn,
have 563 Branches and 2746 Primary Agricultural Cooperative
Societies (PACS) through which, developmental agricultural credit is
provided.
 That·s enough for this session. Now I
will conduct a small quiz to test whether
you are ready to move ahead or not.
 1. Which is the organisation which provides insurance cover for bank
deposits?
a) LIC
b) SBI Life
c) GIC
d) DICGCI

 2. An NBFC can accept deposits repayable on demand.

State True or False.

3. Which is India·s second largest bank?

a) Canara Bank
b) Bank of Baroda
c) ICICI Bank
d) PNB

4. An NBFC cannot participate in the payment system.

State True or False.

5. In Public Sector Banks (PSBs) majority stake is held by

a) GOI
b) LIC
c) Respective State Governments
d) Others
6. The objectives behind setting up Urban Co-operative Banks were to
a) To mobilise savings from the middle & low income groups
b) To provide credit to their members
c) To help the weaker section of the society
d) All of the above

7. A Scheduled Commercial Bank act as a sponsor of an Regional Rural

Bank (RRB). State True or False.

8. How many Scheduled Commercial Banks are prevailing in India, as

per the March 31, 2002 data?

9. Which category of Scheduled Banks were formed with various

State Governments partnership to promote agricultural and rural
development in the country?

10. What is the most primary reason behind the setting up of NBFCs
as a separate entity by the banks?
a) To give their NBFC operations more autonomy
b) For more profitability
c) To avoid the stringent regulations of RBI
d) None of the above
  11. All banks with a deposit base >Rs. 200 Cr are ¶non-scheduled·
banks. State True or False.

12. At present how many Regional Rural Banks are working in India?
a) 70
b) 196
c) 52
d) None of these
Hope I
am
#‰$%|‰ through!

1. d) 11. False

2. False 12. b)
3. c)
4. True
5. a)
6. d)
7. True
8. 217
9. State Co-operative Banks
10. c) (To be contd. if s««)
Best Regards,
Saurabh