Professional Documents
Culture Documents
Fim Module 5
Fim Module 5
Fim Module 5
Banking refers to the business activity of accepting and safeguarding money owned by
individuals and entities, as well as providing various financial services to its customers.
Banks are financial institutions that play a central role in the economy by facilitating the flow
of money and capital. They offer a wide range of services, including deposit accounts, loans,
credit, investment products, and payment services.
Banks play a crucial role in the economy by providing a range of financial services to
individuals, businesses, and governments. Their functions are diverse and contribute to the
overall economic development and stability. Here are the key roles and functions of banks:
1. Accepting Deposits:
- Banks provide a safe and secure place for individuals and businesses to deposit their
money. Customers can open various types of deposit accounts, such as savings accounts,
current accounts, and fixed deposits.
- One of the primary functions of banks is to lend money to individuals, businesses, and
governments. This includes various types of loans such as personal loans, home loans,
business loans, and agricultural loans.
3. Credit Creation:
- Banks have the ability to create credit through the process of lending. When a bank issues
a loan, it effectively creates new money by crediting the borrower's account. This process
contributes to the expansion of the money supply in the economy.
4. Payment Services:
- Banks facilitate the transfer of money and provide payment services. This includes issuing
checks, providing electronic funds transfers (EFT), offering debit and credit cards, and
supporting online and mobile banking.
- Banks offer a secure place for individuals and businesses to store their valuables,
including money, jewelry, and important documents, through safe deposit boxes and
custodial services.
6. Foreign Exchange Services:
- Banks provide foreign exchange services, allowing customers to buy and sell foreign
currencies. This is crucial for international trade and travel, enabling businesses and
individuals to engage in transactions involving different currencies.
- With technological advancements, banks offer electronic banking services such as online
banking, mobile banking, and ATMs. These services provide customers with convenient
access to their accounts and enable various transactions.
- Banks assist individuals and businesses in managing financial risks. This includes
providing insurance products, derivatives, and other risk management tools to mitigate
exposure to uncertainties.
There are various types of banks which operate in our country to meet the financial
requirements of different categories of people engaged in agriculture, business, profession,
etc. On the basis of functions, the banking institutions in India may be divided into the
following types:
Central Bank
A bank which is entrusted with the functions of guiding and regulating the banking system of
a country is known as its Central bank. Such a bank does not deal with the general public. It
acts essentially as Government’s banker, maintain deposit accounts of all other banks and
advances money to other banks when needed.The Central Bank provides guidance to other
banks whenever they face any problem. It is therefore known as the banker’s bank. The
Reserve Bank of India is the central bank of our country. Another important function of the
Central Bank is the issuance of currency notes, regulating their circulation in the country by
different methods. No other bank than the Central Bank can issue currency.
Commercial Banks
Commercial Banks are banking institutions that accept deposits and grant short-term loans
and advances to their customers. In addition to giving short-term loans, commercial banks
also give a medium-term and long-term loan to business enterprises. Nowadays some of the
commercial banks are also providing housing loan on a long-term basis to individuals. There
are also many other functions of commercial banks, which are discussed later in this lesson.
Commercial banks are of three types i.e., Public sector banks, Private sector banks and
Foreign banks.
These are banks where majority stake is held by the Government of India or Reserve Bank of
India. Examples of public sector banks are State Bank of India, Corporation Bank, Bank of
Baroda and Dena Bank, etc.
In case of private sector banks majority of the share capital of the bank is held by private
individuals. These banks are registered as companies with limited liability. For example The
Jammu and Kashmir Bank Ltd., Bank of Rajasthan Ltd., Development Credit Bank Ltd, Lord
Krishna Bank Ltd., Bharat Overseas Bank Ltd., Global Trust Bank, Vysya Bank, etc.
Foreign Banks:
These banks are registered and have their headquarters in a foreign country but operate their
branches in our country. Some of the foreign banks operating in our country are Hong Kong
and Shanghai Banking Corporation (HSBC), Citibank, American Express Bank, Standard &
Chartered Bank, Grindlay’s Bank, etc. The number of foreign banks operating in our country
has increased since the financial sector reforms of 1991.
Development Banks
Business often requires medium and long-term capital for the purchase of machinery and
equipment, for using the latest technology, or for expansion and modernization. Such
financial assistance is provided by Development Banks. They also undertake other
development measures like subscribing to the shares and debentures issued by companies, in
case of under subscription of the issue by the public. Industrial Finance Corporation of India
(IFCI) and State Financial Corporations (SFCs) are examples of development banks in India.
Co-operative Banks
People who come together to jointly serve their common interest often form a co-operative
society under the Cooperative Societies Act. When a co-operative society engages itself in
banking business it is called a Co-operative Bank. The society has to obtain a licence from
the Reserve Bank of India before starting banking business. Any cooperative bank as a
society is to function under the overall supervision of the Registrar, Co-operative Societies of
the State. As regards banking business, the society must follow the guidelines set and issued
by the Reserve
Bank of India.
Here are three types of co-operative banks operating in our country. They are primary credit
societies, central cooperative banks and state co-operative banks. These banks are organized
at three levels, village or town level, district level and state level.
These are formed at the village or town level with the borrower and non-borrower members
residing in one locality. The operations of each society are restricted to a small area so that
the members know each other and are able to watch over the activities of all members to
prevent frauds.
These banks operate at the district level having some of the primary credit societies belonging
to the same district as their members. These banks provide loans to their members (i.e.,
primary credit societies) and function as a link between the primary credit societies and state
co-operative banks.
These are the apex (highest level) co-operative banks in all the states of the country. They
mobilise funds and help in its proper channelisation among various sectors. The money
reaches the individual borrowers from the state cooperative banks through the central co-
operative banks and the primary credit societies.
Specialised Banks
There are some banks, which cater to the requirements and provide overall support for setting
up business in specific areas of activity. EXIM Bank, SIDBI and NABARD are examples of
such banks. They engage themselves in some specific area or activity and thus, are called
specialised banks. Let us know about them.
If you want to set up a business for exporting products abroad or importing products from
foreign countries for sale in our country, EXIM bank can provide you with the required
support and assistance. The bank grants loans to exporters and importers and also provides
information about the international market. It gives guidance about the opportunities for
export or import, the risks involved in it and the competition to be faced, etc.
If you want to establish a small-scale business unit or industry, loan on easy terms can be
available through SIDBI. It also finances the modernisation of small-scale industrial units,
use of new technology and market activities. The aim and focus of SIDBI are to promote,
finance and develop small-scale industries.
It is a central or apex institution for financing agricultural and rural sectors. If a person is
engaged in agriculture or other activities like handloom weaving, fishing, etc. NABARD can
provide credit, both short-term and long-term, through regional rural banks. It provides
financial assistance, especially, to co-operative credit, in the field of agriculture, small-scale
industries, cottage and village industries handicrafts and allied economic activities in rural
areas.
EXIM Bank
"Exim Bank" is a common abbreviation for Export-Import Bank, a type of financial
institution that operates at the national level and is designed to promote and facilitate
international trade. The primary purpose of an Exim Bank is to support a country's
exports and imports by providing financial services, such as loans, guarantees, and
insurance, to businesses engaged in cross-border trade.
1. Export Financing:
- Exim Banks offer financial assistance to domestic businesses involved in
exporting goods and services. This support can include pre-shipment and post-
shipment financing to help companies fulfill international orders.
2. Import Financing:
- These banks may also provide financing to companies importing goods into the
country, helping them manage cash flow and operational expenses.
7. Trade Promotion:
- Beyond financial services, Exim Banks may be involved in trade promotion
activities. This can include providing information and assistance to businesses looking
to expand their international presence.
8. Policy Advocacy:
- Exim Banks often work closely with government agencies to shape policies that
promote international trade. They may advocate for measures that support exporters
and help create a conducive environment for global business.
2. Management Team:
- The day-to-day operations of EXIM Bank are managed by a team of executives
led by a Managing Director or Chief Executive Officer.
3. Departments/Divisions:
- EXIM Bank typically has various departments or divisions that handle specific
functions such as credit, finance, risk management, and international trade.
4. Credit Department:
- Responsible for assessing and approving loans and credit facilities to support
Indian businesses involved in international trade.
5. Finance Department:
- Manages the overall financial operations of the bank, including budgeting,
accounting, and financial reporting.
8. Treasury Department:
- Manages the bank's investments, liquidity, and foreign exchange operations.
NABARD
NABARD, or the National Bank for Agriculture and Rural Development, is an apex
development financial institution in India. It was established on July 12, 1982, by a
special act of the Parliament of India with the main objective of promoting sustainable
and equitable agriculture and rural development.
1. Mission:
- NABARD's primary mission is to promote sustainable and equitable agriculture
and rural development through various financial and developmental initiatives.
2. Ownership:
- NABARD is owned by the Government of India, the Reserve Bank of India (RBI),
and the government of the states in India. It operates as an apex institution in the field
of agriculture and rural development.
3. Capital Structure:
- The authorized capital of NABARD is subscribed by the central government and
the RBI. The central government holds the majority stake.
4. Functions:
- Credit Functions: NABARD extends credit facilities to institutions involved in
rural development, such as regional rural banks (RRBs), cooperative banks, and other
financial institutions.
- Refinancing:
- NABARD refinances rural credit institutions to help them in extending credit to
farmers and rural non-farm sector.
5. Financial Support:
- NABARD provides financial support to various agencies involved in rural
development, including farmers, cooperatives, and rural banks.
1. Board of Directors:
- NABARD is governed by a Board of Directors, which includes a Chairman and
other Directors. The Chairman is appointed by the Government of India, and the
board is responsible for overseeing the overall functioning of NABARD.
2. Management Team:
- The day-to-day operations of NABARD are managed by a team of executives led
by a Chairman and Managing Director (CMD).
3. Departments/Divisions:
- NABARD typically has various departments or divisions that handle specific
functions, such as credit, finance, risk management, and developmental initiatives.
4. Credit Department:
- Responsible for formulating and implementing credit policies and programs to
support rural and agricultural development.
5. Finance Department:
- Manages the financial aspects of NABARD, including budgeting, accounting, and
financial reporting.
6. Development Initiatives:
- NABARD is actively involved in various developmental initiatives, and there are
specific divisions or departments dedicated to areas such as rural infrastructure,
watershed development, and sustainable agriculture.
SIDBI
SIDBI, or the Small Industries Development Bank of India, is a financial institution in
India that primarily focuses on the development and financing of the micro, small,
and medium enterprise (MSME) sector. It was established on April 2, 1990, through
an Act of Parliament as a wholly-owned subsidiary of the Industrial Development
Bank of India (IDBI). Over the years, SIDBI has played a vital role in the growth and
development of the MSME sector in India.
Key features and functions of SIDBI:
1. Financial Assistance:
- SIDBI provides financial assistance to MSMEs in the form of term loans, working
capital, and project finance to help them establish, expand, and modernize their
operations.
2. Refinancing:
- SIDBI refinances loans extended by banks and financial institutions to MSMEs,
thus augmenting the credit flow to this sector.
4. Venture Capital:
- SIDBI operates a venture capital arm known as SIDBI Venture Capital Limited
(SVCL), which provides venture capital and private equity support to MSMEs.
5. Credit Guarantee:
- SIDBI provides credit guarantees to facilitate collateral-free loans for MSMEs
through the Credit Guarantee Fund Trust for Micro and Small Enterprises
(CGTMSE).
6. Sustainable Finance:
- SIDBI promotes sustainable and environmentally responsible practices among
MSMEs by encouraging projects that focus on energy efficiency, renewable energy,
and eco-friendly technologies.
7. Technology Upgradation:
- SIDBI supports MSMEs in adopting modern technologies and upgrading their
infrastructure to enhance their competitiveness.
Structure of SIDBI:
1. Board of Directors:
- SIDBI is governed by a Board of Directors, which includes a Chairman and other
Directors. The Chairman is typically appointed by the Government of India, and the
board is responsible for overseeing the overall functioning of SIDBI.
2. Management Team:
- The day-to-day operations of SIDBI are managed by a team of executives led by a
Chairman and Managing Director (CMD).
3. Departments/Divisions:
- SIDBI has various departments or divisions that handle specific functions, such as
credit, risk management, finance, and developmental initiatives.
4. Credit Department:
- Responsible for formulating and implementing credit policies and programs to
support MSMEs.
5. Finance Department:
- Manages the financial aspects of SIDBI, including budgeting, accounting, and
financial reporting.
6. Development Initiatives:
- SIDBI is actively involved in various developmental initiatives, and there are
specific divisions or departments dedicated to areas such as technology upgradation,
capacity building, and entrepreneurship development.
1. Financial Support:
- MUDRA provides financial assistance to micro-enterprises in the form of loans to
help them start, expand, or upgrade their businesses.
3. Refinancing:
- MUDRA refinances microfinance institutions, non-banking financial companies
(NBFCs), and banks that extend loans to micro-enterprises. This helps in increasing
the credit flow to the micro-business sector.
4. Promotion of Micro-Entrepreneurship:
- MUDRA aims to promote entrepreneurship and self-employment among
individuals, especially those belonging to marginalized sections of society.
5. Financial Inclusion:
- MUDRA plays a crucial role in promoting financial inclusion by providing access
to formal credit channels for micro-entrepreneurs who may not have access to
traditional banking services.
7. Technology Integration:
- MUDRA encourages the use of technology in the disbursement and repayment of
loans to enhance efficiency and accessibility
8. Collaboration:
- MUDRA collaborates with various financial institutions, banks, and other
stakeholders to facilitate the flow of credit to micro-businesses.
Structure of MUDRA:
1. Board of Directors:
- MUDRA is governed by a Board of Directors, including a Chairman and other
Directors. The board is typically appointed by the Government of India and plays a
crucial role in overseeing the overall functioning of MUDRA.
3. Departments/Divisions:
- MUDRA may have various departments or divisions that handle specific
functions, such as credit operations, refinancing, finance, risk management, and
developmental initiatives.
4. Credit Operations:
- Responsible for formulating and implementing credit policies and programs to
support micro-enterprises. This includes the categorization of loans into Shishu,
Kishore, and Tarun categories.
5. Refinancing Division:
- Manages the process of refinancing microfinance institutions, non-banking
financial companies (NBFCs), and banks that extend loans to micro-enterprises.
6. Development Initiatives:
- MUDRA may have specific departments or divisions dedicated to developmental
initiatives, including awareness programs, educational outreach, and the promotion of
responsible financial practices.
7. Technology Integration:
- Departments responsible for integrating technology into the disbursement and
repayment processes to enhance efficiency and accessibility.
9. Credit Guarantee:
- Units or divisions related to the implementation of credit guarantee schemes,
providing coverage for loans extended to micro-enterprises.
NHB
The National Housing Bank (NHB) is an apex financial institution in India that
operates as the principal agency to promote and regulate housing finance institutions
in the country. It was established in 1988 under the National Housing Bank Act, 1987.
The primary objective of the National Housing Bank is to provide financial and other
support to institutions that are engaged in housing finance activities.
2. Promotion: NHB works towards the development and promotion of a sound, viable,
and inclusive housing finance system in the country. It collaborates with various
stakeholders to enhance the availability of affordable housing finance.
Structure of NHB:
3. Departments and Divisions: NHB has various departments and divisions that focus
on specific functions such as regulation, supervision, refinance, research, and
development. These departments work together to fulfill the objectives of the
institution.
4. Regional Offices: NHB may have regional offices across different parts of the
country. These regional offices facilitate coordination, implementation, and
monitoring of NHB's activities at the regional level.
1. Nature of Business:
- Insurance Services:LIC is one of the largest life insurance companies in India. It
provides a variety of life insurance products to individuals and groups.
- Investments: LIC also manages substantial investments, including government
securities and other market instruments.
2. Ownership:
- LIC is a state-owned enterprise. The Government of India is the sole owner of
LIC.
3. Establishment:
- LIC was established in 1956 by the merger of more than 200 insurance companies
and provident societies.
5. Network:
- LIC has an extensive network of offices and agents across India, making its
services widely accessible.
6. Regulation:
- LIC is regulated by the Insurance Regulatory and Development Authority of India
(IRDAI), which oversees the insurance industry in the country.
7. Social Initiatives:
- LIC has been involved in various social initiatives and programs, contributing to
the welfare of society.
2. Risk Coverage:
- LIC provides risk coverage against the uncertainties of life. In the event of the
policyholder's demise during the policy term, the designated beneficiaries receive the
death benefit, helping them cope with financial challenges.
6. Social Initiatives: - LIC is involved in various social initiatives and activities that
contribute to the welfare of society. This may include participation in community
development projects and support for charitable causes.
7. Investment Management:
- LIC manages substantial investments in various financial instruments, including
government securities, bonds, and equities. The income generated from these
investments contributes to the overall financial health of the corporation.
8. Policyholder Services:
- LIC provides a range of services to policyholders, including assistance with
policy-related queries, premium payment facilities, and support during claims
settlement.
9. Regulatory Compliance:
- LIC operates within the regulatory framework set by the Insurance Regulatory and
Development Authority of India (IRDAI). It ensures compliance with regulations and
guidelines issued by the regulatory authority.
Structure of LIC:
1. Chairman:
- At the top of the hierarchy is the Chairman of LIC, who is the chief executive
officer and head of the corporation. The Chairman is responsible for the overall
management and strategic direction of LIC.
2. Board of Directors
- LIC is governed by a Board of Directors, which includes the Chairman and several
other directors. The board members are appointed by the Government of India and
represent various areas of expertise, including finance, insurance, and administration.
3. Zonal Offices:
- LIC is divided into different zones, each headed by a Zonal Manager. The zonal
structure helps in the effective administration and coordination of activities across
various regions of the country.
4. Divisional Offices:
- Each zone is further divided into divisional offices, each headed by a Divisional
Manager. Divisional offices oversee the operations within their respective divisions.
5. Branch Offices:
- The divisional structure is further broken down into branch offices, each headed
by a Branch Manager. Branch offices are the frontline units responsible for interacting
with customers, selling insurance policies, and providing customer service.
6. Functional Departments:
- LIC has various functional departments that handle specific aspects of the
corporation's operations, such as finance, investments, marketing, underwriting,
claims, and human resources.
8. Customer Zones:
- LIC may have customer zones or customer service centers to address the needs
and queries of policyholders. These centers play a crucial role in providing customer
support.
9. Investment Department:
- Given LIC's significant investment portfolio, there is a dedicated department
responsible for managing investments. This department is crucial for ensuring the
financial stability and growth of LIC.
GIC
The General Insurance Corporation of India (GIC Re) is a state-owned
reinsurance company in India. Established in 1972, GIC Re is the largest
reinsurer in the country, playing a crucial role in the Indian insurance and
reinsurance market.
1. Nature of Business:
- GIC Re operates in the field of reinsurance. Reinsurance involves the
transfer of risk from primary insurance companies to a reinsurer. GIC Re
provides reinsurance support to insurance companies in India and various
countries.
2. Ownership:
- GIC Re is a wholly-owned government company, with the Government of
India as its sole owner.
4. International Operations:
- While GIC Re primarily operates in India, it also engages in reinsurance
activities internationally. It collaborates with insurance and reinsurance
companies globally.
5. Product Offerings:
- GIC Re offers a wide range of reinsurance products across various lines of
business, including property, casualty, marine, aviation, life, and others.
6. Financial Strength:
- GIC Re's financial strength and stability are crucial for maintaining
confidence in the insurance market. It manages a substantial investment
portfolio to support its reinsurance activities.
7. Regulation:
- GIC Re is regulated by the Insurance Regulatory and Development
Authority of India (IRDAI), which oversees the insurance and reinsurance
sector in India.
1. Reinsurance Services:
- GIC Re is primarily a reinsurance company, providing reinsurance services
to insurance companies in India and globally. Reinsurance involves the
transfer of risk from primary insurers to reinsurers, helping insurers manage
their exposure to large losses.
4. International Operations:
- GIC Re engages in reinsurance activities not only in India but also
internationally. It collaborates with insurance and reinsurance companies
worldwide, contributing to global risk management.
5. Product Development:
- GIC Re is involved in the development of new reinsurance products to
meet the evolving needs of the insurance industry. This may include creating
innovative solutions for emerging risks and challenges.
6. Investment Management:
- Like other insurance and reinsurance companies, GIC Re manages a
significant investment portfolio. It invests its funds in various financial
instruments to generate returns that can support its reinsurance activities and
ensure financial stability.
9. Industry Collaboration:
- GIC Re collaborates with other entities in the insurance and financial
sector to address industry-wide challenges and contribute to the development
of best practices.
2. Board of Directors:
- GIC Re is governed by a Board of Directors, which includes the CMD and
other directors representing various areas of expertise, such as finance,
insurance, and administration. The board members are typically appointed by
the Government of India.
4. Departments:
- GIC Re has various departments that handle specific functions essential to
its operations. Common departments may include underwriting, risk
assessment, finance, investments, legal, and human resources.
6. *Business Units:
- GIC Re may organize its operations into business units or divisions based
on the types of reinsurance services offered. This could include divisions for
property and casualty, life and health, and other specialty lines.
8. Investment Department
- GIC Re typically has a dedicated department responsible for managing its
investment portfolio. This department handles the investment of funds to
generate returns that support the company's reinsurance activities.
9.Support Functions:
- Support functions such as human resources, legal, information technology,
and marketing contribute to the overall functioning of the organization.
UTI
The Unit Trust of India (UTI) was historically a financial institution in India that
played a pioneering role in the development of the mutual fund industry in the
country. Established in 1964, UTI was one of the first mutual fund organizations in
India and operated as a trust.
The functions of UTI are:
1. Mobilizing Savings
- UTI aimed to mobilize savings from the public by offering a platform for
individuals to invest in various mutual fund schemes. The funds collected were then
invested in a diversified portfolio of securities.
3. Diversification of Investments
- UTI managed the pooled funds from investors and diversified these investments
across various asset classes, including stocks, bonds, and other securities. This
diversification aimed to reduce risk and enhance returns.
9. Financial Inclusion:
- UTI contributed to financial inclusion by providing an avenue for a wide range of
investors, including those with smaller amounts to invest, to participate in the capital
market.
SFC
A State Financial Corporation (SFC) is a financial institution in India that plays a
crucial role in providing financial assistance and support to small and medium-sized
enterprises (SMEs). The primary objective of State Financial Corporations is to
promote industrial development at the state level by extending financial and technical
assistance to businesses.
1. Financial Assistance:
- SFCs provide financial assistance to SMEs in the form of term loans, working
capital loans, and other financial instruments. This funding helps these enterprises
establish, expand, and modernize their operations.
3. Project Financing:
- State Financial Corporations finance various types of projects, including
manufacturing, service, and industrial projects. The funding is typically provided for
the acquisition of machinery, equipment, and working capital requirements.
4. Technical Assistance:
- In addition to financial assistance, SFCs may provide technical assistance and
guidance to entrepreneurs. This support helps in the successful implementation of
projects and improves the overall performance of SMEs.
5. Entrepreneurial Development:
- SFCs often engage in entrepreneurial development activities. This may include
conducting training programs, workshops, and seminars to enhance the skills and
knowledge of entrepreneurs.
6. Risk Financing:
- SFCs play a role in risk financing by providing financial support to enterprises,
especially during challenging economic conditions. They aim to stabilize and
strengthen the financial position of SMEs.
7. Market Development:
- SFCs contribute to market development by supporting businesses in reaching new
markets and expanding their customer base. This, in turn, can lead to increased
competitiveness and sustainability for SMEs.
9. Guarantee Schemes:
- SFCs may operate guarantee schemes to enhance the creditworthiness of small
enterprises. These schemes provide guarantees to banks and financial institutions that
extend credit to SMEs.
2. Chairman/Managing Director
- The Chairman or Managing Director is the top executive responsible for the day-
to-day operations and management of the SFC. They implement policies and
strategies set by the Board of Directors.
3. Management Team:
- The management team comprises executives holding key positions such as Chief
Financial Officer (CFO), Chief Risk Officer (CRO), Chief Operating Officer (COO),
and heads of various business units. These individuals contribute to the formulation
and execution of the SFC's strategy.
4. Credit and Operations Department:
- This department handles credit-related functions, including loan origination,
underwriting, disbursement, and monitoring. It ensures compliance with credit
policies and risk management practices.
5. Investment Department
- The investment department manages the SFC's investment portfolio, which may
include securities, shares, and debentures. It makes investment decisions aligned with
the organization's objectives and market conditions.
NBFC
NBFC stands for "Non-Banking Financial Company." NBFCs are financial
institutions that provide banking services, similar to traditional banks, but they do not
hold a banking license and are not regulated by the banking laws and supervisory
authorities that oversee traditional banks. NBFCs play a crucial role in the financial
system by offering a variety of financial services and products.
2. Deposit-Taking:
- Unlike traditional banks, most NBFCs are not allowed to accept demand deposits
like savings accounts or current accounts. However, some specific types of NBFCs,
such as NBFCs accepting public deposits (NBFC-D), may be authorized to accept
deposits from the public.
3. Credit Facilities:
- NBFCs often specialize in providing credit facilities, such as loans and advances,
to individuals and businesses. They may focus on specific sectors, such as consumer
finance, infrastructure financing, or microfinance.
4. Investment Activities:
- NBFCs can engage in investment activities, including the acquisition of securities,
shares, and debentures. They may also provide financial advisory services.
5. Regulation:
- NBFCs are regulated by the Reserve Bank of India (RBI) in India. The regulatory
framework is designed to ensure the stability and integrity of the financial system
while allowing NBFCs the flexibility to cater to the diverse needs of the economy.
6. Risk Management:
- NBFCs, like banks, are exposed to various financial risks, including credit risk,
market risk, and liquidity risk. They implement risk management practices to assess
and manage these risks effectively.
7. Financial Inclusion:
- NBFCs contribute to financial inclusion by providing financial services to
segments of the population that may have limited access to traditional banking
services. This includes rural and underserved areas.
8. Innovation:
- NBFCs often play a role in financial innovation, introducing new products and
services to meet evolving consumer needs. This includes the development of
specialized financial products and digital financial services.
1. Board of Directors
- The Board of Directors is the highest decision-making authority in an NBFC. It is
responsible for setting strategic goals, policies, and overseeing the overall
management of the company. The board comprises individuals with diverse expertise,
including finance, law, and business.
4. Business Units/Departments
- NBFCs typically have different business units or departments, each focusing on
specific financial services or products. Common departments include:
- **Credit and Lending Department:** Handles loan origination, underwriting,
and credit risk management.
- **Investment Department:** Manages investments in securities, stocks, and
other financial instruments.
- **Risk Management Department:** Assesses and manages various types of
risks, including credit risk, market risk, and operational risk.
- **Compliance and Legal Department:** Ensures that the NBFC complies with
regulatory requirements and legal obligations.
5. Operations Unit:
- The operations unit is responsible for the day-to-day administrative and
operational functions, including customer service, transaction processing, and back-
office activities.