MERCHANT

UTI
Unit Trust of India (UTI) is a statutory private sector investment body. It was
set up on February 1, 1964 as per the Unit Trust of India Act of 1963. The
primary objective of setting up this institution was to channel corporate
investments through encouraging productive community savings.
Therefore, it allows small-time savers to invest in risk-diverse fields.
People who hold units under this can sell them to UTI at a given rate as well.
A very particular reason why this is an attractive investment option is
because the investment in UTI has a certain rebate on income tax.
Moreover, the income from UTI is also exempted from income tax as per
certain conditions.

Meaning of Unit Trust of India

Unit Trust is an investment plan where the funds are pooled together and
then the investment. The fund that has been pooled is later unitized. The
investor is known as a unitholder. He or she holds a certain number of units.
On the other hand, the second party which is the manager is responsible
for the daily running of the trust and for investing the funds.

The trustee, governed by the Trust Companies act in the year 1967, is the
third party. The role of the third party is to monitor the manager’s
performance against the trust’s deed. The purpose of the deed is to outline
the objectives and the vital information about the trust. Also, the assets of
the trust are held in the name of the trustee. Then they are held “in trust”
for unitholders.

What are the Objectives of the UTI?

This body was set up with a number of plans in mind. The most striking one
is guaranteeing a safe return of investment in case the investor is in need
of funds. It targets middle and low income groups and encourages them to
practice productive investment.

Unit Trust of India (UTI) provides the investor with a safe return of the
investment whenever there is a requirement of funds. The Unit Trust of
India provides a daily price record and also advertises it in the newspapers.
Therefore, two prices are always quoted on a daily basis. The two prices are
the purchase price and the sale price of the units.
This price may fluctuate on a daily basis but the fluctuations are very
nominal on a monthly basis. The price usually varies between July and June.
In July, the purchase price is the lowest of the various units. The investor
who desires to make an investment can purchase his or her units at this
time of the year because this will get him the lowest offer price for the units.

The main and the basic objective of the Unit Trust of India are to offer both
small as well as large investors. The means of acquiring shares in the
properties results from the steady industrial growth of the country.

Therefore, the main objectives of the UTI can be summarized as:

• Promotion of savings from lower and middle income groups of the

country who may not have the means to directly access the stock
exchange market.

• Provide to these groups the beneficial results of investment returns

and promote industrialisation in all parts of the nation.

What is the Management Structure of UTI?

When this body was organized, it began operating with an opening capital
of 5 crore rupees. This was contributed by various other institutions such
as the Reserve Bank of India (RBI), State Bank of India (SBI), Life Insurance
Corporation of India (LIC) and so on. The UTI can borrow from the RBI in
case it needs more financial resources, as long as it can repay the amount
within a period of 18 months.

The management of the UTI is overseen by a board of Trustees. This board

consists of a chairman and four nominees appointed by the RBI, one by the
SBI, one by LIC and two nominees appointed by the constituent
institutions.
The Unit Trust of India Schemes
1. The unit scheme was introduced in 1964.

2. In 1917, the Unit Linked Insurance Plan was introduced.

3. In 1986, the Children Gift Growth Fund Unit Scheme was brought.

4. Rajlakshmi Unit Scheme was introduced in 1992.

5. The Senior Citizens Unit Plan was introduced in 1993, for the senior
citizens of our country.

6. Monthly Income Unit Scheme.

7. The Master Equity Plan was brought in the year 1995.

8. The Money Market Mutual Fund Scheme was introduced in 1997.

9. Unit Trust of India (UTI) Growth Sector Fund was established in 1999.

10. Growth and Income Unit Schemes.

The Unit Trust of India Act

The Unit Trust of India act was introduced in the year 1963 to provide for
the establishment of a co-operation. It was established with a view to
encouraging saving and investment and the participation in the income,
profits, and the gains accruing to Co-operation from the holding,
management, and disposal of the securities.

Functions of UTI

• Mobilize the saving of the relatively small investors.

• Channelize these small savings into productive investments.
• Distribute the large scale economies among small income groups.

• Encourage savings of lower and middle-class people.

• Sell nits to investors in different parts of the country.
• Convert the small savings into industrial finance.
 • To give investors an opportunity to share the benefits and fruits of
industrialization in the country.
• Provide liquidity to units.

• Accept discount, purchase or sell bills of exchange, warehouse receipt,

documents of title to goods etc.,
• To grant loans and advances to investors.
• To provide merchant banking and investment advisory service to
investors.
• Provide leasing and hire purchase business.
• To extend portfolio management service to persons residing in other
countries.
• To buy or sell or deal in foreign currency.
• Formulate a unit scheme or insurance plan in association with GIC.
• Invest in any security floated by the RBI or foreign bank.

Features of Unit Trust of India Act:

• The Act provides UTI with a legal identity, defining its roles,
responsibilities, and operational guidelines.
• It stipulates the rules and regulations regarding the type of investments
UTI can undertake, ensuring a balanced and diversified portfolio.
• The Act allows the pooling of funds from investors, which are then
divided into units, giving investors proportional ownership in the fund.
• The Act establishes the regulatory framework under which UTI
operates, ensuring compliance with legal standards and safeguarding
investor interests.
• The Act may contain provisions related to tax benefits for investors,
encouraging investments and promoting savings.
History of Mutual Funds and Unit Trust of India
The Mutual Fund industry in India started with the Government of India and Reserve
Bank of India setting the pace for the Unit Trust of India (UTI) in 1963. The history of
mutual funds in India can be categorized into four significant phases:

First Phase (1964-1987):

UTI was started as a statutory body under the Parliament Act in the year 1963 and
came under the watch of the Reserve Bank of India. In 1978, it became independent
of the RBI, and the Industrial Development Bank of India (IDBI) took control. The first
step involved the initiation of Unit Scheme 1964. However, by December of 1988, UTI
managed assets valued at Rs. 6,700 crores.

Second Phase (1987-1993):

This period marked the entry of non-UTI, public sector mutual funds established by
public sector banks and insurance companies like LIC and GIC. SBI Mutual Fund was
the first such fund in June 1987, followed by others. By the end of 1993, the mutual
fund industry’s assets under management had grown to Rs. 47,004 crores.

Third Phase (1993-2003):

The entry of private sector funds in 1993 brought a new era to the Indian mutual fund
industry, offering investors a broader range of fund options. In 1993, the first Mutual
Fund Regulations were introduced, requiring registration and governance of all mutual
funds (except UTI). Kothari Pioneer, now part of Franklin Templeton, was the first
private sector mutual fund to register in July 1993. The industry now operates under
the SEBI (Mutual Fund) Regulations 1996.

This period also witnessed an increase in the number of mutual fund houses, along
with mergers and acquisitions. By the end of January 2003, there were 33 mutual
funds with total assets of Rs. 1,21,805 crores, with UTI leading the pack.

Fourth Phase (since February 2003):

In February 2003, following the repeal of the Unit Trust of India Act 1963, UTI was split
into two separate entities. One was the Specified Undertaking of the Unit Trust of India,
managing assets representing the US 64 scheme and certain other schemes,
functioning under government rules and not under Mutual Fund Regulations. The
second entity, UTI Mutual Fund, was sponsored by SBI, PNB, BOB, and LIC, and
registered with SEBI, following Mutual Fund Regulations. This phase brought
consolidation and growth to the mutual fund industry, with various private sector funds
merging and expanding.

FDI(Foreign direct investment)

• Foreign direct investment (FDI) is an investment made by a company or an
Generally, FDI is when a foreign entity acquires ownership or controlling stake in
the shares of a company in one country, or establishes businesses there.
• It is different from foreign portfolio investment where the foreign entity merely
buys equity shares of a company.
• In FDI, the foreign entity has a say in the day-to-day operations of the company.
 • FDI is not just the inflow of money, but also the inflow of technology, knowledge,
skills and expertise/know-how.
• It is a major source of non-debt financial resources for the economic
development of a country.
• FDI generally takes place in an economy which has the prospect of growth and
also a skilled workforce.
• FDI has developed radically as a major form of international capital transfer
since the last many years.
• The advantages of FDI are not evenly distributed. It depends on the host
country’s systems and infrastructure.
• The determinants of FDI in host countries are:
• Policy framework
• Rules with respect to entry and operations/functioning
(mergers/acquisitions and competition)
• Political, economic and social stability
• Treatment standards of foreign affiliates
• International agreements
• Trade policy (tariff and non-tariff barriers)
• Privatisation policy

Foreign Direct Investment (FDI) in India – Latest update

1. From April to August 2020, total Foreign Direct Investment inflow of USD 35.73
billion was received. It is the highest ever for the first 5 months of a financial
year. FDI inflow has increased despite Gross Domestic Product (GDP) growth
contracted 23.9% in the first quarter (April-June 2020).
2. FDI received in the first 5 months of 2020-21 (USD 35.73 billion) is 13% higher as
compared to the first five months of 2019-20 (USD 31.60 billion).

FDI in India
The investment climate in India has improved tremendously since 1991 when
the government opened up the economy and initiated the LPG strategies.

• The improvement in this regard is commonly attributed to the easing of FDI

norms.
• Many sectors have opened up for foreign investment partially or wholly since
the economic liberalization of the country.
• Currently, India ranks in the list of the top 100 countries in ease of doing business.
 • In 2019, India was among the top ten receivers of FDI, totalling $49 billion inflows,
as per a UN report. This is a 16% increase from 2018.
• In February 2020, the DPIIT notifies policy to allow 100% FDI in insurance
intermediaries.
• In April 2020, the DPIIT came out with a new rule, which stated that the entity of
nay company that shares a land border with India or where the beneficial owner
of investment into India is situated in or is a citizen of such a country can invest
only under the Government route. In other words, such entities can only invest
following the approval of the Government of India
• In early 2020, the government decided to sell a 100% stake in the national airline’s
Air India. Find more about this in the video below:

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FDI Routes in India

There are three routes through which FDI flows into India. They are described
in the following table:

Category 1 Category 2 Category 3

100% FDI permitted Up to 100% FDI permitted Up to 100% FDI permitted

through Automatic Route through Government Route through Automatic +
Government Route

Automatic Route FDI

In the automatic route, the foreign entity does not require the prior approval
of the government or the RBI.

Examples:

• Medical devices: up to 100%

• Thermal power: up to 100%
• Services under Civil Aviation Services such as Maintenance & Repair
Organizations
• Insurance: up to 49%
• Infrastructure company in the securities market: up to 49%
• Ports and shipping
 • Railway infrastructure
• Pension: up to 49%
• Power exchanges: up to 49%
• Petroleum Refining (By PSUs): up to 49%

Government Route FDI

Under the government route, the foreign entity should compulsorily take the
approval of the government. It should file an application through the Foreign
Investment Facilitation Portal, which facilitates single-window clearance.
This application is then forwarded to the respective ministry or department,
which then approves or rejects the application after consultation with
the DPIIT.

Examples:

• Broadcasting Content Services: 49%

• Banking & Public sector: 20%
• Food Products Retail Trading: 100%
• Core Investment Company: 100%
• Multi-Brand Retail Trading: 51%
• Mining & Minerals separations of titanium bearing minerals and ores: 100%
• Print Media (publications/printing of scientific and technical
magazines/speciality journals/periodicals and a facsimile edition of foreign
newspapers): 100%
• Satellite (Establishment and operations): 100%
• Print Media (publishing of newspaper, periodicals and Indian editions of foreign
magazines dealing with news & current affairs): 26%

Sectors where FDI is prohibited

There are some sectors where any FDI is completely prohibited. They are:

• Agricultural or Plantation Activities (although there are many exceptions like

horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc.)
• Atomic Energy Generation
• Nidhi Company
• Lotteries (online, private, government, etc.)
• Investment in Chit Funds
• Trading in TDR’s
• Any Gambling or Betting businesses
 • Cigars, Cigarettes, or any related tobacco industry
• Housing and Real Estate (except townships, commercial projects, etc.)

New FDI Policy

According to the new FDI policy, an entity of a country, which shares a land
border with India or where the beneficial owner of investment into India is
situated in or is a citizen of any such country, can invest only under the
Government route.

A transfer of ownership in an FDI deal that benefits any country that shares
a border with India will also need government approval.

Investors from countries not covered by the new policy only have to inform
the RBI after a transaction rather than asking for prior permission from the
relevant government department.

The earlier FDI policy was limited to allowing only Bangladesh and Pakistan
via the government route in all sectors. The revised rule has now brought
companies from China under the government route filter.

Benefits of FDI
FDI brings in many advantages to the country. Some of them are discussed
below.

1. Brings in financial resources for economic development.

2. Brings in new technologies, skills, knowledge, etc.
3. Generates more employment opportunities for the people.
4. Brings in a more competitive business environment in the country.
5. Improves the quality of products and services in sectors.

Disadvantages of FDI
However, there are also some disadvantages associated with foreign direct
investment. Some of them are:

1. It can affect domestic investment, and domestic companies adversely.

 2. Small companies in a country may not be able to withstand the onslaught of
MNCs in their sector. There is the risk of many domestic firms shutting shop as a
result of increased FDI.
3. FDI may also adversely affect the exchange rates of a country.

Government Measures to increase FDI in India

1. Government schemes like production-linked incentive (PLI) scheme in 2020 for

electronics manufacturing, have been notified to attract foreign investments.
2. In 2019, the amendment of FDI Policy 2017 by the government, to permit 100%
FDI under automatic route in coal mining activities enhanced FDI inflow.
3. FDI in manufacturing was already under the 100% automatic route, however, in
2019, the government clarified that investments in Indian entities engaged in
contract manufacturing is also permitted under the 100% automatic route
provided it is undertaken through a legitimate contract.
4. Further, the government permitted 26% FDI in digital sectors. The sector has
particularly high return capabilities in India as favourable demographics,
substantial mobile and internet penetration, massive consumption along
technology uptake provides great market opportunity for a foreign investor.
5. Foreign Investment Facilitation Portal (FIFP) is the online single point interface
of the Government of India with investors to facilitate FDI. It is administered by
the Department for Promotion of Industry and Internal Trade, Ministry of
Commerce and Industry.
6. FDI inflow is further expected to increase –
• as foreign investors have shown interest in the government’s moves to
allow private train operations and bid out airports.
• Valuable sectors such as defence manufacturing where the
government enhanced the FDI limit under the automatic route from 49%
to 74% in May 2020, is also expected to attract large investments going
forward.

Regulatory Framework for FDI in India

In India, there are several laws regulating FDI inflows. They are:

• Companies Act
• Securities and Exchange Board of India Act, 1992 and SEBI Regulations
• Foreign Exchange Management Act (FEMA)
• Foreign Trade (Development and Regulation) Act, 1992
• Civil Procedure Code, 1908
• Indian Contract Act, 1872
 • Arbitration and Conciliation Act, 1996
• Competition Act, 2002
• Income Tax Act, 1961
• Foreign Direct Investment Policy (FDI Policy)

Important Government Authorities in India concerning FDI

• Foreign Investment Promotion Board (FIPB)

• Department for Promotion of Industry and Internal Trade (DPIIT)
• Reserve Bank of India (RBI)
• Directorate General of Foreign Trade (DGFT)
• Ministry of Corporate Affairs, Government of India
• Securities and Exchange Board of India (SEBI)
• Income Tax Department
• Several Ministries of the GOI such as Power, Information & Communication,
Energy, etc.

Way Forward with FDI

1. FDI is a major driver of economic growth and an important source of non-debt

finance for the economic development of India. A robust and easily accessible
FDI regime, thus, should be ensured.
2. Economic growth in the post-pandemic period and India’s large market shall
continue to attract market-seeking investments to the country.

Current status of FDI flow(Net FDI in India down 38.4%

in April-January: RBI's March 2024 bulletin)

The net foreign direct investment (FDI) in India, inflows minus outflows,
declined 38.4 per cent year-on-year to $15.41 billion in the first 10 months
of this financial year due to an increase in the repatriation of capital.

According to the Reserve Bank of India’s data in the March 2024 bulletin,
FDI in India was $25.53 billion and outflows were $10.11 billion in April
2023-January 2024.
In the same period last year, FDI inflows stood at $36.75 billion, while
outflows reached $11.75 billion.

Repatriation and divestment by those who made direct investments in India

rose to $34 billion in the 10 months of the financial year from $24.99 billion
in the year-ago period, according to RBI data.
FDI into India is expected to receive a boost from the trade and economic
partnership agreement (TEPA) signed with the European Free Trade
Association (EFTA) on March 10. The TEPA aims to attract FDI of $100
billion in India from EFTA over the next 15 years and generate one million
direct employment opportunities, it added.
FUNCTION AND ROLE OF SIDBI
Small Industries Development Bank of India (SIDBI): SIDBI was
established as a statutory body in 1988 under a special Act of the Indian
Parliament, which came into force on April 2, 1990. SIDBI full form is
Small Industries Development Bank of India. SIDBI headquarter is in
Lucknow, Uttar Pradesh. It is one of the four All-India Institutions,
the others being NABARD, EXIM, and NHB.
Initially, SIDBI was fully involved in industrial development activities in
the country by managing SIDF (Small Industries Development Fund)
and NEF (National Equity Fund) and was the financial base for funding
the MSME (Micro, Small, and Medium enterprises) sector. SIDBI was
owned by a consortium of SBI as a share with 15.65 %, LIC as a share
with 13.33 %, the Government of India as a share with 20.85 %,
NABARD as a share with 9.36 %, and other public financial institutions
as share with 40.81 %.
SIDBI assists around Rs 5.45 lakh crore to the MSME sector in the
country to expand the market and develop its innovative thoughts and
technologies to help to produce profitable products. SIDBI aims to work
with and reinforce the flow of credit to MSMEs and address monetary,
formative, and developmental gaps in the MSMEs industry zones across
the country
SIDBI is mainly focusing on establishing more than 55% of MSMEs
located in the rural areas of the country. In 2013, the Government of
India set up a committee called R.S. Gujaral’s committee of financial
exports to boost the MSME sector. To minimize human interaction in the
MOU process Government of India has implemented a module called
“E-biz” under the National E-governance plan by the DIPP (Department
of Industrial Policy and Promotion).
Functions of SIDBI
Here’s a detailed look at the functions of SIDBI:
1. Financing
SIDBI provides direct and indirect financial assistance to MSMEs. Direct
finance includes term loans for setting up new industrial units and for
the expansion, modernization, or diversification of existing units. Indirect
finance is provided through the refinance of loans given by primary
lending institutions like commercial banks and state finance
corporations.
2. Microfinance
SIDBI is instrumental in promoting microfinance through various
schemes. It extends support to Micro Finance Institutions (MFIs) and
also directly participates in micro-lending activities, aiming to reach the
underserved and financially excluded segments of society.
3. Promotion and Development
Beyond financing, SIDBI also engages in the promotion and
development of MSMEs by supporting technology upgradation,
modernization, skill development, and infrastructure development.
4. Market Development
It helps in expanding marketing capabilities of MSMEs, including
facilitating their participation in trade fairs, exhibitions, and providing
assistance in product marketing both domestically and internationally.
5. Venture Capital
SIDBI provides venture capital support to startups and businesses
operating in emerging sectors. It aids innovation-driven enterprises,
particularly in their early stages of growth.
6. Rehabilitation of Sick Units
SIDBI takes measures for the revival and rehabilitation of sick industrial
units that have potential for recovery.
7. Credit Guarantee
Through the Credit Guarantee Fund Trust for Micro and Small
Enterprises (CGTMSE), SIDBI provides credit guarantees to financial
institutions for loans extended to MSMEs, thereby enhancing their
creditworthiness.
8. Cluster Development
SIDBI promotes cluster development to enhance the productivity and
competitiveness of MSMEs. This involves creating common facilities,
improving technology, and strengthening market linkages.
9. Energy Efficiency
It also undertakes initiatives to promote energy efficiency and
sustainable development among MSMEs, providing financial assistance
for adopting greener technologies.
10. Capacity Building
SIDBI conducts various training and development programs for
entrepreneurs to enhance their managerial and technical skills.
11. Policy Advocacy
The bank actively engages in policy advocacy by providing feedback and
suggestions to the government for shaping policies that benefit the
MSME sector.
12. Information Dissemination
It serves as a repository of information related to the MSME sector,
providing data, research findings, and industry trends to stakeholders.
13. International Cooperation
SIDBI collaborates with international agencies for financial and
technical cooperation, aiming to bring best practices and global
standards to the Indian MSME sector.
14. Credit Flow Enhancement
SIDBI works to enhance the flow of credit to MSMEs by developing
credit products, supporting non-banking financial companies, and
fostering partnerships between various stakeholders.
Through these functions, SIDBI plays a pivotal role in empowering the
MSME sector, which is a significant contributor to India’s economic
growth, employment generation, and export earnings.
Finance Facilities Offered by SIDBI
SIDBI’s finance facilities are tailored to support the diverse and evolving
needs of the small industries sector in India.
Here is a brief overview of the finance facilities offered by SIDBI:
1. Term Loans
Export credit is a type of loan that is specifically designed to support
small industries in exporting their products and services. It can be used
to finance the production of goods for export, the marketing and
promotion of goods abroad, and the shipment of goods to overseas
buyers. Export credit typically has a repayment period of 6 to 12
months.
2. Working Capital Loans
Working capital loans are short-term loans that are used to finance day-
to-day operating expenses such as inventory, accounts receivable, and
accounts payable. They can be used to meet seasonal fluctuations in
demand or to finance growth. Working capital loans typically have a
repayment period of 6 to 12 months.
3. Export Credit
Export credit is a type of loan that is specifically designed to support
small industries in exporting their products and services. It can be used
to finance the production of goods for export, the marketing and
promotion of goods abroad, and the shipment of goods to overseas
buyers. Export credit typically has a repayment period of 6 to 12
months.
4. Technology Upgradation Loans
Technology upgradation loans are provided to help small industries
adopt new technologies to improve their productivity and
competitiveness. These loans can be used to finance the purchase of
new 5. Infrastructure Development Loans
Infrastructure development loans are provided to small industries to
help them develop essential infrastructure such as roads, power, water,
and sanitation. These loans can also be used to finance the construction
of factory buildings, warehouses, and other facilities. Infrastructure
development loans typically have a repayment period of 5 to 10 years.
6. Skill Development and Training Loans
5. Infrastructure Development Loans
Infrastructure development loans are provided to small industries to
help them develop essential infrastructure such as roads, power, water,
and sanitation. These loans can also be used to finance the construction
of factory buildings, warehouses, and other facilities. Infrastructure
development loans typically have a repayment period of 5 to 10 years.
6. Skill Development and Training Loans
Skill development and training loans are provided to help small
industries improve the skills and competencies of their employees.
These loans can be used to finance the training of employees in new
technologies, management practices, and other areas. Skill
development and training loans typically have a repayment period of 2
to 3 years.

Skill development and training loans are provided to help small

industries improve the skills and competencies of their employees.
These loans can be used to finance the training of employees in new
technologies, management practices, and other areas. Skill
development and training loans typically have a repayment period of 2
to 3 years.
machinery, equipment, and software. Technology upgradation loans
typically have a repayment period of 3 to 5 years.

7. Energy Efficiency and Environmental Protection Loans

Energy efficiency and environmental protection loans are provided to
help small industries adopt energy-efficient technologies and practices
to protect the environment. These loans can be used to finance the
purchase of energy-efficient equipment, the installation of renewable
energy systems, and the implementation of waste management
systems. Energy efficiency and environmental protection loans typically
have a repayment period of 3 to 5 years.
8. Cluster Development Loans
Cluster development loans are provided to help small industries form
and develop industry clusters. These loans can be used to finance the
construction of common infrastructure facilities, the development of
marketing and branding strategies, and the promotion of exports.
Cluster development loans typically have a repayment period of 5 to 10
years.
9. Women Entrepreneurs Loans
Women entrepreneurs loans are specifically designed to empower
women entrepreneurs by providing them with access to finance. These
loans can be used to finance any business activity that is undertaken by
a woman entrepreneur. Women entrepreneurs loans typically have a
repayment period of 3 to 5 years.
10. Backward and Forward Linkages Loans
Backward and forward linkages loans are provided to small industries
to help them establish linkages with other industries. These loans can
be used to finance the purchase of inputs from other industries, the sale
of products to other industries, and the joint development of new
products and services. Backward and forward linkages loans typically
have a repayment period of 3 to 5 years.
11. Micro and Small Enterprises Loans
Micro and small enterprises loans are specifically designed to help
micro and small enterprises grow. These loans can be used to finance
any business activity that is undertaken by a micro or small enterprise.
Micro and small enterprises loans typically have a repayment period of
2 to 3 years.
In addition to these finance facilities, SIDBI also offers a number of other
products and services to support the MSME sector, such as equity
investment, venture capital financing, and credit guarantee schemes.
Benefits of SIBDI
Here’s a detailed look at the benefits you’ve outlined:
1. Reasonably Priced Interest Rates
SIDBI’s collaborations with various domestic and international banks
enable it to offer loans at competitive interest rates. This is critical for
MSMEs as lower interest rates can significantly reduce the cost of
borrowing and help businesses invest more in growth and expansion.
2. Loans without Collateral
One of the significant barriers for MSMEs in accessing finance is the
lack of collateral. SIDBI addresses this by offering collateral-free loans
of up to Rs. 1 crore under certain schemes. This encourages more
MSMEs to avail of financial services without the fear of risking their
assets.
3. Sustainable and Innovative
By promoting the adoption of new technologies and modern practices,
SIDBI helps MSMEs increase their productivity and stay competitive.
This approach not only aids in business growth but also ensures that
businesses are sustainable and prepared for future challenges.
4. Encourages Business Ownership
SIDBI provides financing without taking equity stakes in the company.
This means that entrepreneurs can retain full ownership of their
businesses while still having access to the necessary funds for growth.
5. Transparent Loan Procedure
Transparency is crucial in financial dealings. SIDBI’s clear and
straightforward loan procedures, free of hidden charges, build trust
and reliability among MSMEs.
6. Risk Sharing
Through various risk-sharing mechanisms and credit guarantee
schemes, SIDBI reduces the financial risk associated with lending to
MSMEs. This encourages banks and other financial institutions to
extend credit to smaller businesses that they might otherwise consider
too risky.
SIDBI’s impact on the MSME sector in India has been significant. It has
helped to create millions of jobs, boost exports, and promote inclusive
growth. SIDBI is a true partner to MSMEs and is committed to helping
them achieve their full potential.
CREDIT
CREDIT RATING
FACTORING
FACTORING
FCATORING
 LEASING

LEASING
LEASING…..
LEASING…..

ROLE AND FUNCTION OF RBI

RBI (Reserve Bank of India) is the central bank of India and a
statutory body responsible for multiple tasks like printing the currency
notes, controlling monetary policy and acting as a custodian to other
primary banks of the nation. The RBI was established on April 1, 1935
under the Reserve Bank of India Act, 1934 on the recommendation of
the Hilton-Yong-Commission or commonly referred to as Royal
Commission on Indian currency and finance. It is headquartered in
Mumbai. The main motive behind setting up RBI was to separate the
currency control from the government and provide other banking
facilities. The Reserve Bank of India was nationalized with effect from
1st January, 1949 on the basis of the Reserve Bank of India (Transfer
to Public Ownership) Act, 1948. The working of RBI is regulated by
the RBI governor appointed by the central government of India and the
Governor acts as the main decision-maker in RBI.

What are the Main Functions of RBI?

Issue Currency Notes
The issue and printing of currency notes are one of the primary functions
of the RBI functions. The Reserve Bank of India prints notes of all
denominations except 1 rupee and that’s because the one rupee note is
issued by the Indian Ministry of Finance. The issue and printing of
currency notes in India are regulated under the Minimum Reserve
System (MRS). As per the MRS, the Reserve Bank of India keeps a
reserve asset of Rs 200 crore out of which INR 120 crore would be in
form of Gold and the rest in the form of foreign currency. Also, the
addition of any new denomination or discontinuation of any existing
denomination is being done by RBI. For example, during demonetization
in November 2016, RBI discontinued old 500 and 1000 rupee notes and
added new 2000 and 500 rupee notes.
Central Bank for other Banks (Lender of the Last Resort)
The Reserve Bank of India acts as a parent bank to all the primary banks
operating in India. However hereby RBI functions plays a role as lender
(acting as the lender of the last resort for all banks when they are in
financial crisis situation) that lends money to the primary banks of India
on certain interests. Also, it keeps an eye on the financial transactions
of the banks so that amount of account holders remain secured in the
banks.
Keeping a Track of Foreign Exchange Reserve
Buying and selling foreign currencies and thus making sure a stable
foreign exchange in India comes into RBI’s account. Reserve Bank of
India holds the right to buy and sell foreign currencies in the
international foreign exchange market. Also, RBI functions makes sure
that turbulence in the foreign exchange market does not affect the
economy of the nation.
Acting as a Banker to the Government
The RBI functions acts as a banker to the central and the state
governments of India and fulfills all the banking necessities of the
government. Also, RBI plays a crucial role as an advisor to the central
government of India and assists the government in framing economic
policies for the nation.
Controlling Credit Flow
The credit made by the primary commercial banks of India is being
controlled by the RBI functions. Also, RBI is responsible for regulating
the flow of money in the market. RBI adopts both quantitative and
qualitative methods to regulate the cash flow in the market. RBI
increases or decreases the repo rate to control inflation and regulate the
cash flow in the market.
Other Important Functions
The RBI acts as a representative of India in the IMF (International
Monetary Fund) or RBI monetary policy, and also in many other major
international financial organizations. The Reserve Bank of India is also
responsible for looking after government treasures, available securities,
foreign reserves, etc. The RBI also plays a major role in the
development program run by the central government of India and
finances some of these programs. Also, other activities like presenting
the economic data of the nation, GDP growth, and the inflation rate is
also done by the RBI functions.
RBI and the Economy of India
After the Central Government of India and the Ministry of Finance, its
Reserve Bank of India plays the most crucial role in driving the economy
of Indian banking system. RBI extends its services to the other
commercial banks of India and thus these banks provide banking
services to the netizens. Also, RBI functions provides a safe and secure
banking infrastructure to people living in India. The RBI tries to keep the
repo rate as low as possible to ensure the proper cash flow in the
market so that people invest more money in the development works.
RBI jointly with the central government of India provides ease in foreign
trade so that it attracts more FDI (Foreign Direct Investment).
How does RBI complement the SEBI in
regulating financial market in India.
In India, the financial market is regulated by various authorities to
ensure its stability, efficiency, and integrity. Two of the key regulators
are the Reserve Bank of India (RBI) and the Securities and Exchange
Board of India (SEBI). Each of these institutions has distinct roles and
responsibilities, and they complement each other in several ways to
regulate the financial market comprehensively. Here’s an overview of
how the RBI and SEBI complement each other:

Reserve Bank of India (RBI)

**Mandate and Functions:**

1. **Monetary Authority:** The RBI formulates and implements

monetary policy to control inflation, manage interest rates, and ensure
adequate flow of credit to productive sectors.

2. **Regulator of Financial Institutions:** It regulates and supervises

banks and non-banking financial companies (NBFCs) to ensure their
soundness and stability.

3. **Foreign Exchange Management:** The RBI manages the Foreign

Exchange Management Act (FEMA), oversees foreign exchange
reserves, and facilitates external trade and payments.

4. **Payment and Settlement Systems:** It ensures the smooth

functioning of payment and settlement systems, promoting safe and
efficient financial transactions.

5. **Currency Issuance:** The RBI is responsible for the issuance and

management of the Indian currency.
Securities and Exchange Board of India (SEBI)

**Mandate and Functions:**

1. **Securities Market Regulation:** SEBI regulates the securities

market, including stock exchanges, brokers, and other intermediaries,
to protect investor interests.

2. **Market Development:** It promotes the development of the

securities market by introducing new products and ensuring fair
trading practices.

3. **Investor Protection:** SEBI educates investors, ensures

transparency in market dealings, and enforces regulations to prevent
malpractices.

4. **Corporate Governance:** It enforces corporate governance

standards in listed companies, ensuring they comply with disclosure
norms and protect shareholder interests.

Complementary Roles

1. **Regulatory Coordination:**

- **Systemic Risk Management:** The RBI and SEBI work together to

manage systemic risks. For instance, the RBI monitors and manages
the health of banks, which can significantly impact the securities
markets regulated by SEBI.

- **Joint Committees:** They participate in joint committees such as

the Financial Stability and Development Council (FSDC), which
addresses issues affecting the financial sector's stability and
development.
2. **Policy Implementation:**

- **Monetary and Financial Policies:** While the RBI’s monetary

policies influence interest rates and liquidity in the market, SEBI’s
regulations ensure that these policies are implemented within the
securities markets, affecting investment and trading activities.

- **Financial Market Infrastructures:** Both regulators ensure the

robustness of financial market infrastructures. The RBI oversees
payment and settlement systems, while SEBI ensures the efficiency of
securities trading and clearing systems.

3. **Market Surveillance and Enforcement:**

- **Information Sharing:** The RBI and SEBI share information

regarding suspicious activities and collaborate on enforcement actions
to tackle financial crimes such as insider trading and fraud.

- **Compliance and Audits:** Banks and financial institutions under

RBI’s regulation often participate in securities markets. SEBI ensures
that these entities comply with market regulations, complementing
RBI’s oversight on their financial health.

4. **Development Initiatives:**

- **Innovative Financial Products:** SEBI promotes new financial

products such as derivatives, which can have monetary implications
overseen by the RBI.

- **Financial Inclusion:** Both institutions work on financial inclusion

initiatives, with the RBI focusing on banking services and SEBI on
market access for retail investors.
5. **Crisis Management:**

- **Coordination During Crises:** In times of financial crises, the RBI

and SEBI coordinate their actions to ensure liquidity, market integrity,
and investor confidence. The RBI might provide liquidity support, while
SEBI could impose measures like trading halts to curb panic selling.

Conclusion

The RBI and SEBI play distinct yet complementary roles in regulating
India’s financial market. Their collaboration ensures a stable, efficient,
and transparent financial environment, fostering economic growth and
protecting stakeholders' interests. Through coordinated policy
implementation, joint regulatory efforts, and shared developmental
goals, these regulators work together to enhance the resilience and
dynamism of India’s financial system.
Discuss the promotional role of development bank in
india.
The pace of development cannot be accelerated by providing financial assistance alone.
There are factors which inhibit industrialization of an underdeveloped country. It is essential
to make a correct diagnosis of those factors and plan things accordingly. The growth
potential of different areas, the availability of natural resources, demand conditions,
infrastructure facilities, etc. should be taken into account before deciding the pattern of
industrialization of various places. The task of identification of growth potentialities and
preparation of feasibility studies is not an easy task. It requires huge finances and technical
expertise which is beyond the competence of entrepreneurs of under-developed countries. It
is in this area where development banks can play crucial role. In addition to providing the
traditional role of providing financial assistance, development banks in India are undertaking
promotional role also. Some of the areas where these banks are participating are:

(1) Surveys of Backward Areas

Under the Industrial Development Bank of India, development institutions conducted

industrial potential surveys in June, 1970 with a view to identify specific project ideas
for implementation in those areas. These surveys studied the availability of resources,
demand potential and availability of infrastructures facilities. In 1982, Government of
India identified 83 districts in the country where no medium or large scale industrial
units existed. IOBI jointly with IFCI and ICICI launched a programme for identifying
industrial opportunities and needs for. These project ideas were further screened and
developed for arriving at some firm decision about their implementation. IDBI
conducted feasibility studies and cleared projects for implementation.

(2) Inter-Institutional Groups (IIG’s)

With a view to provide a forum to the national and state financial institutions, IDBI
constituted 23 IIG’s in various states and union territories These groups aimed to help
accelerate the process of industrial development in a state with particular emphasis on
less developed areas, An attempt was also made to evolve suitable strategies for
industrial development within the framework of national and state policies and local
requirements. IDBI has been constantly reviewing the functioning of these groups so
as to evolve suitable measures for malting them effective.

(3) Establishing Technical Consultancy Organizations (TCO’s)

There is a need for technical consultancy at the time of selling up a new unit and at
the time of making change like modernization, expansion, diversification, etc. The small
and medium scale units cannot pay high fees of consultancy agencies. With a view to
help these entrepreneurs, financial institutions set up 17 consultancy organization for
providing consultancy at nominal rates. These organizations provide consultancy
services to small and medium entrepreneurs, commercial banks, state-level financial
institutions and other agencies engaged in industrial promotion and development. The
consultancy services covered so far include market surveys, preparation of feasibility
and project reports, entrepreneur ship development programmes, diagnostic studies
and rehabilitation schemes for sick units, services for implementing projects on turn-
key basis. TCO’s have been giving thrust to modernization small and medium scale
sectors also. In this respect they have undertaken in depth studies of specific sub-
sectors of small scale industry so as to identify their modernization needs and prepare
modernization programmes.

(4) Entrepreneurial Development Programmes (EPP’s)

Industrial development of a country is directly influenced by the quality of

entrepreneurs it has produced, with a view to impart requisite training to
entrepreneurs. IDBI has been encouraging entrepreneurial development programmes.
It has mainly used the agency of TCO’s for drawing up and conducting these
programmes to cater to the needs of entrepreneurs from small and medium scale
sectors. IDBI meets up to 50 per cent of the cost of such programmes and the balance
cost is met by state governments or other sponsoring institutions.
Development banks have also been trying to strengthen the infrastructure for
conducting entrepreneurial development programmes. The main thrust has been to
institutionalize entrepreneurship activities, generating, sharpening and sharing
knowledge through research documentation and publication, developing a cadre of
professionals. A major step in this area was the setting up of Entrepreneurship
Development Institute of India, Ahmedabad in 1983. The objective of this institution
was to train EPP trainers, providing resource inputs running model development
programmes, conducting.

(5) Technological Improvements

Development banks, especially IDBI have been helping small and medium sectors in
developing and upgrading of their technology so that they arc able to match the pace
of development. These banks also encourage entrepreneurs to adopt sophisticated
technology with the help of academic and research institutes and also to encourage
entrepreneurship among science and technology graduates. Development banks have
done a good job in promoting industrial activities in various parts of the country. The
development of backward areas is a gigantic task in India. Private entrepreneurs
cannot measure to this task of their own. So development banks are expected to play
an important role in this regard. These banks should help in setting up new projects
by associating private entrepreneurs so that their management is left to them. After a
particular stage of a project the development institutions should transfer the
responsibility to private sector and same resource should be used to develop more
units. Development banks, in co-operation with private sector, can certainly help in
accelerating the pace of industrial development.

Discuss the organisation, financial resources and

working of IFCI.
At the same time raw industrial units were to be set up for industrializing the country.
Government of India came forward to set up the Industrial Finance Corporation of India (IFCI)
in July 1948 under a Special Act. The Industrial Development Bank of India, scheduled
banks, insurance companies, investment trusts and co-operative banks are the shareholders
of IFCI. The Government of India has guaranteed the repayment of capital and the payment
of a minimum annual dividend. Since July I, 1993, the corporation has been converted into a
company and it has been given the status of a Ltd. Company with the name Industrial
Finance Corporations of India Ltd. IFCI has got itself registered with Companies Act, 1956.
Before July I, 1993, general public was not permitted to hold shares of IFCI, only Government
of India, RBI, Scheduled Banks, Insurance Companies and Co-operative Societies were
holding the shares of IFCI.

Management of IFCI
The corporation has 13 members Board of Directors, including Chairman. The
Chairman is appointed by Government of India after consulting Industrial
Development Bank of India. He works on a whole time basis and has tenure of 3 years.
Out of the 12 directors, four are nominated by the IDBI, two by scheduled banks, two
by co-operative banks and two by other financial institutions
like insurance companies, investment trusts, etc. IDBI normally nominates three
outside persons as directors who are experts in the fields of industry, labour and
economics, the fourth nominee is the Central Manager of IDBI. The Board meets once
in a month. It frames policies by keeping in view the interests of industry, commerce
and general public. The Board acts as per the instructions received from the
government and IDBI. The Central Government reserves the power up to the Board
and appoints a new one in its place.
The Board is assisted by the Central Committee which consists of the chairman, two
directors elected by nominated directors and the Board of directors elected by the
elected directors. This committee assists the Board in discharge of its functions. It .can
act on all matters under the competence of the Board, So this committee practically
transacts the entire business of the corporation. IFCI also has Standing Advisory
Committees one each for textile, sugar, jute, hotels, engineering and chemical
processes and allied industries. The experts in different fields appointed on Advisory
Committees. The chairman is the ex-officio member of all Advisory Committees. All
applications for assistance are first discussed by Advisory Committees before they go
to Central Committees.

Financial Resources of IFCI

The financial resources of the corporation consist of share capital bonds and
debentures and borrowings.

a) Share Capital:

The IFCI was set up with an authorized capital of Rs. 10crores consisting of 20,000
shares of Rs. 5,000 each. This capital was later on increased at different times and by
March, 2003 it was Rs. 1068 crores. The capital was subscribed by Central Government,
Reserve Bank of India, scheduled banks, Life Insurance Corporation, investment trusts,
co-operative banks are other financial institutions. In 1964, the share capital held by
the central government and RBI was transferred to the Industrial Development Bank.
The corporation thus became a subsidiary of IDBI. The central government had
guaranteed the shares of the corporation both for repayment of the principal and for
the payment of a dividend at 2.5 per cent on the original issue and 4 per cent on the
additional issues. However, since July , 1993 IFCI has been converted into a limited
company.
b) Bonds and Debentures:
The corporation is authorized to issue bonds and debentures to supplement its
resources but these should not exceed ten times of paid-up capital and reserve fund.
The bonds and debentures stood at a figure of Rs. 57.69 crores 1971 and rose to Rs.
15366.5 crores as on 31st March 2003. The bonds and debentures are also guaranteed
by the central government for both payment of interest at such rates as may be fixed
at the time the bonds and debentures are issued.

c) Borrowings:

The corporation is authorized to borrow from government IDBI and financial

institutions. Its borrowings from IDBI and Govt. of India were Rs. 975.6 crore on March
31, 2003. Total assets of IFCI as on March 31, 2003 aggregated Rs. 22866 crore
including investments of Rs. 3820.3 crore and loans and advances of Rs. 13212.8crore.

Functions of IFCI
IFCI is authorized to render financial assistance in one or more of the following forms:

1. Granting loans or advances to or subscribing to debentures of industrial

concerns repayable within 25 years. Also it can convert part of such loans or
debentures into equity share capital at its option.
2. Underwriting the issue of industrial securities i.e. shares, stock, bonds, 0r
debentures to be disposed off within 7 years.
3. Subscribing directly to the shares and debentures of public limited companies.
4. Guaranteeing of deferred payments for the purchase of capital goods from
abroad or within India.
5. Guaranteeing of loans raised by industrial concerns from scheduled balls or
state co-operative banks.
6. Acting as an agent of the Central Government or the World Bank in respect of
loans sanctioned to the industrial concerns.

IFCI provides financial assistance to eligible industrial concerns regardless of their size.
However, now-a-days, it entertains applications from those industrial concerns whose
project cost is about Rs. 2 crores because upto project cost of Rs. 2 crores various state
level institutions (such as Financial Corporations, SIDCs and banks) are expected to
meet the financial requirements of viable concerns. While approving a loan application,
IFCI gives due consideration to the feasibility of the project, its importance to the
nation, development of the backward areas, social and economic viability, etc. The
most of the assistance sanctioned by IFCI has gone to industries of national priority
such as fertilizers, cement, power generation, paper, industrial machinery etc. The
corporation is giving a special consideration to the less developed areas and assistance
to them has been stepped up. It has sanctioned nearly 49 per cent of its assistance for
projects in backward districts. The corporation has recently been participating in soft
loan schemes under which loans on confessional rates are given to units in selected
industries. Such assistance is given for modernization, replacement and renovation of
plant and equipment.

IFCI introduced a scheme for sick units also. The scheme was for the revival of sick
units in the tiny and small scale sectors. Another scheme was framed for the self-
employment of unemployed young persons. The corporation has diversified not
merchant banking also. Financing of leasing and hire purchase companies, hospitals,
equipment leasing etc. were the other new activities of the corporation in the last few
years.

What do you mean by financial services? Discuss

characterstics and types.
The financial services sector focuses on a segment of the economy
dedicated to offering financial services to individuals and corporations.
This sector includes various financial entities, including banks,
investment houses, lenders, finance companies, real estate brokers, and
insurance companies. Its significance lies in facilitating the free flow of
capital and liquidity in the marketplace, managing risk, and serving as a
key driver of a nation’s economy. It plays a pivotal role in a nation’s
critical infrastructure, featuring thousands of depository institutions,
investment product providers, insurance companies, and credit and
financing organizations. The financial services sector, with its diverse
composition of both large conglomerates and smaller companies,
extends credit, manages liquidity, invests funds for different periods,
and facilitates the transfer of financial risks among customers.

Geeky Takeaways:
• The financial services sector encompasses entities offering
financial services to individuals and corporations.
• It includes banks, investment houses, lenders, finance
companies, real estate brokers, and insurance firms.
• It facilitates capital flow and liquidity, manages risk, and
drives national economies.
• It extends credit, manages liquidity, invests funds for different
periods, and facilitates risk sharing.
Characterstistics of the Financial Services
Sector
1. Economic Growth and Development: The financial services sector
actively promotes economic growth and development through its dual
focus on investment and savings. By offering diverse financial
instruments and services, it encourages individuals and firms to make
strategic investments while fostering a culture of savings, providing a
solid foundation for sustained economic progress. Additionally, the
sector plays a pivotal role in limiting risks and boosting returns,
creating a dynamic economic environment.
2. Risk Management and Capital Flow: Integral to its function is the
management of risks and facilitation of capital flow. The financial
services sector boosts confidence in navigating the financial landscape
by avoiding risks and maximizing returns, promoting stability and
growth. This approach also results in greater yield, benefiting both
investors and the expansion of financial institutions’ activities.
• 3. Government and Tax Revenue: The financial services sector
significantly benefits the government by contributing to the
overall economic health and generating tax revenue. As a key
driver of economic growth, the sector’s activities result in
increased tax contributions, providing crucial resources to
support essential public services.
• 4. Market Functionality: The sector’s essential role in the
functionality of the capital market is noteworthy. By providing
the necessary financial infrastructure for trading and investment
activities, it ensures the efficient operation of the capital market,
enables the flow of funds, and creates opportunities for domestic
and foreign trade.
5. Business Support and Infrastructure: The financial services sector
plays a pivotal role in supporting business growth. Through the
provision of financial tools, resources, and investment opportunities, it
empowers businesses to expand their operations, contributing to
overall economic prosperity. Additionally, the sector provides essential
financial infrastructure, ensuring the smooth functioning of financial
transactionsand facilitating the broader economic ecosystem.
6. Regional Development and Access: A vital aspect of the sector is
its contribution to balanced regional development. Providing access to
financial resources and investment opportunities across different
regions helps distribute economic benefits more equitably,
encouraging inclusive growth. This commitment to regional
development enhances access to financial services, constructing
opportunities for individuals and firms in diverse geographical areas to
participate in and benefit from the broader economic landscape.
India’s diverse and comprehensive financial services industry is growing
rapidly, owing to demand drivers (higher disposable incomes, customized
financial solutions, etc.) and supply drivers (new service providers in existing
markets, new financial solutions and products, etc.). The Indian financial
services industry comprises several key subsegments. These include, but
are not limited to- mutual funds, pension funds, insurance companies, stock-
brokers, wealth managers, financial advisory companies, and commercial
banks- ranging from small domestic players to large multinational
companies. The services are provided to a diverse client base- including
individuals, private businesses and public organizations.
10 Types of Financial Services:
1. Banking
2. Professional Advisory
3. Wealth Management
4. Mutual Funds
5. Insurance
6. Stock Market
7. Treasury/Debt Instruments
8. Tax/Audit Consulting
9. Capital Restructuring
10.Portfolio Management
These financial services are explained below:
1. Banking
The banking industry is the backbone of India’s financial services industry.
The country has several public sector (27), private sector (21), foreign (49),
regional rural (56) and urban/rural cooperative (95,000+) banks. The
financial services offered in this segment include:
• Individual Banking (checking accounts, savings accounts, debit/credit
cards, etc.)
• Business Banking (merchant services, checking accounts and savings
accounts for businesses, treasury services, etc.)
• Loans (business loans, personal loans, home loans, automobile loans,
working-capital loans, etc.)
The banking sector is regulated by the Reserve Bank of India (RBI), which
monitors and maintains the segment’s liquidity, capitalization, and financial
health.
2. Professional Advisory
India has a strong presence of professional financial advisory service
providers, which offer individuals and businesses a wide portfolio of
services, including investment due diligence, M&A advisory, valuation, real-
estate consulting, risk consulting, taxation consulting. These offerings are
made by a range of providers, including individual domestic consultants to
large multi-national organizations.
3. Wealth Management
Financial services offered within this segment include managing and
investing customers’ wealth across various financial instruments- including
debt, equity, mutual funds, insurance products, derivatives, structured
products, commodities, and real estate, based on the clients’ financial goals,
risk profile and time horizons.
4. Mutual Funds
Mutual fund service providers offer professional investment services across
funds that are composed of different asset classes, primarily debt and
equity-linked assets. The buy-in for mutual fund solutions is generally lower
compared to the stock market and debt products. These products are very
popular in India as they generally have lower risks, tax benefits, stable
returns and properties of diversification. The mutual funds segment has
witnessed double-digit growth in assets under management over the last
five years, owing to its popularity as a low-risk wealth multiplier.
5. Insurance
Financial services offerings in this segment are primarily offered across two
categories:
• General Insurance (automotive, home, medical, fire, travel, etc.)
• Life Insurance (term-life, money-back, unit-linked, pension plans, etc.)

Insurance solutions enable individuals and organizations to safeguard

against unforeseen circumstances and accidents. Payouts for these
products vary across the nature of the product, time horizons, customer risk
assessment, premiums, and several other key qualitative and quantitative
aspects. In India, there is a strong presence of insurance providers across
life insurance (24) and general insurance (39) categories. The insurance
market is regulated by the Insurance Regulatory and Development Authority
of India (IRDAI).
6. Stock Market
The stock market segment includes investment solutions for customers in
Indian stock markets (National Stock Exchange and Bombay Stock
Exchange), across various equity-linked products. The returns for customers
are based on capital appreciation – growth in the value of the equity solution
and/or dividends – and payouts made by companies to its investors.
7. Treasury/Debt Instruments
Services offered in this segment include investments into government and
private organization bonds (debt). The issuer of the bonds (borrower) offers
fixed payments (interest) and principal repayment to the investor at the end
of the investment period. The types of instruments in this segment include
listed bonds, non-convertible debentures, capital-gain bonds, GoI savings
bonds, tax-free bonds, etc.
8. Tax/Audit Consulting
This segment includes a large portfolio of financial services within the tax
and auditing domain. This services domain can be segmented based on
individual and business clients. They include:
• Tax – Individual (determining tax liability, filing tax-returns, tax-savings
advisory, etc.)
• Tax – Business (determining tax liability, transfer pricing analysis and
structuring, GST registrations, tax compliance advisory, etc.)
In the auditing segment, service providers offer solutions including statutory
audits, internal audits, service tax audits, tax audits, process/transaction
audits, risk audits, stock audits, etc. These services are essential to ensure
the smooth operation of business entities from a qualitative and quantitative
perspective, as well as to mitigate risk. You can read more about taxation in
India.
9. Capital Restructuring
These services are offered primarily to organizations and involve the
restructuring of capital structure (debt and equity) to bolster profitability or
respond to crises such as bankruptcy, volatile markets, liquidity crunch or
hostile takeovers. The types of financial solutions in this segment typically
include structured transactions, lender negotiations, accelerated M&A and
capital raising.
10. Portfolio Management
This segment includes a highly specialized and customized range of
solutions that enables clients to reach their financial goals through portfolio
managers who analyze and optimize investments for clients across a wide
range of assets (debt, equity, insurance, real estate, etc.). These services are
broadly targeted at HNIs and are discretionary (investment only at the
discretion of fund manager with no client intervention) and non-discretionary
(decisions made with client intervention).
Distinguish between banking and non- banking financial institutions. What
are the regulatory measures taken by RBI to the control the working of
NBFCs

A bank and a non-banking financial company (NBFC) are two distinct types of
financial organizations that operate under very different regulations and have
very different business strategies. A non- bank financial company, or NBFC, is a
business that conducts comparable banking activities without a banking licence.
A bank is an approved government financial institution.

Banks accept deposits and lend money to parties through loans. Unlike banks,
which take deposits from clients and provide loans and other types of credit,
nonbank financial institutions (NBFCs) offer business loans and credit lines to
small businesses and individuals.

Another financial organisation must exist as a non-banking financial firm since so

many different groups of society need different kinds of financial help. Thus, by
highlighting the distinctions between banking and non-banking financial
organizations, we will go into the specifics of what these two institutions are and
how they operate in this blog post.

What Is a Bank?
Financial entities known as banks take deposits from depositors and lend the
money to borrowers at interest. The most prevalent form of bank in the world is
the commercial bank, which provides check-writing services, savings and current
account services, and lending options to individuals seeking to borrow money for
small business loans or mortgages. The government regulates banks extensively,
and they have to follow tight guidelines when it comes to lending.

Banking is defined as taking deposits of public funds for lending and investment
purposes that are otherwise repayable upon demand and withdrawable by check
or draught, as per the Banking Companies (Regulations) Act of India, 1949.

Put otherwise, a bank is an organisation that handles a variety of financial tasks,

such as taking deposits and extending loans. It is a government-approved body
that has been granted permission to handle the financial demands of the whole
economy and society. Among the essential tasks that
banks carry out are the following:
 • Receiving time deposits or demands
• Neglecting the notes
• Interest payment
• Giving out loans
• Putting money into securities
• Receiving draughts, notes, and checks
• releasing draughts

Because banks are seen as heavily regulated, their role in the economy is vital
because they uphold the nation's financial stability.

What is a Non-banking Financial Corporation?

Non-Banking Financial Companies, or NBFCs, provide the general public with
financial services. According to the Companies Act of 1956, they are subject to
Reserve Bank of India (RBI) regulation and are required to register with the RBI.
NBFCs are granted licences by the RBI to operate in a particular way.

NBFCs are often limited to accepting fixed deposit and recurring deposit types
and are not allowed to open public bank accounts. Furthermore, they are
prohibited from lending to the general public, with the exception of loans secured
by gold or used to fund specific types of equipment or automobiles. They must
also pay interest on public deposits, in addition to other obligations.

Difference Between Banks and NBFCs

In terms of their roles as financial institutions, let's examine the distinctions
between banking and non-banking financial companies.

1. The Reserve Bank of India Act of 1934 and the Banking Regulation Act of 1949
control banks in India as licenced financial organizations. Non-Banking Financial
Companies, or NBFCs, are governed by the Reserve Bank of India Act of 1934 and
are established in accordance with the rules of the
Companies Act of 1956 or the Companies Act of 2013.

2. A variety of services are offered by banks to its clientele. These services include
credit card facilities, loan advances, guarantees, money remittances, check
payments and more. On the other hand, NBFCs offer services related to mutual
funds, equities, insurance, savings and investment programmes, and more.
3. NBFCs, as opposed to banks, obtain deposits through the securitization
process, whereas banks's main operations are receiving deposits and making
loans.

4. Repayable deposits are accepted by banks, however NBFCs are not allowed to
engage in the business of taking such deposits.

5. While banks can accept up to 74% of their foreign investments, NBFCs can
accept up to 100% of their foreign investments.

6. The main duty of banks is to participate in the cycle of payments and

settlements. Non-Banking Financial Companies, on the other hand, are not a part
of any cycle of payments and settlement.

7. Statutory Liquidity measures (SLR) and Cash Reserve Ratios (CRR) are two
measures that banks are required to keep up to date. In contrast, NBFCs are
exempt from maintaining these ratios.

8. The Deposit protection and Credit Guarantee Corporation (DICGC) offers

deposit protection, however NBFCs are not eligible to use this service.

9. Banks have the ability to participate in credit creation. However, NBFCs are
unable to establish credit.

10. Non-Banking Financial Companies do not offer the transactional services that
banks do, such as deposits, cash withdrawals, checks, debit card payments, and
even internet payments.

Comparison Table Between Banks and NBFCs

Parameters Banks NBFCs

Although they have authorized financial

The Reserve Bank of India Act of
institutions, NBFCs are not authorized. They
1.Licensing and 1934 and the Banking Regulation
are governed by the Reserve Bank of India
Regulation Act of 1949 both control banks as
Act of 1934 and are established in
licenced financial entities.
accordance with the Companies Act.

Banks offer services like loan

Services offered by NBFCs include mutual
2. Types of advances, credit card facilities,
funds, stocks, insurance, savings and
Services guarantees, money transfers, and
investment programmes, and more.
check payment.
 The primary function of banks’
3. Deposit NBFCs deal in deposits for the process of
business is accepting deposits and
Function securitisation.
offering loans.

4. Acceptance of
Banks taks money deposits NBFCs are not allowed to take demand
Demand
repayable as per the need. deposits.
Deposits

5. Extend
Banks are meant for foreign NBFCs are allowed for foreign investments
Foreign
investments up to 74% up to a maximum of 100%.
Investment

6. Payment and Banks are part of the payment and NBFCs do not form part of any such payme
Settlement Cycle settlement cycle. and settlement cycle.

Banks are obliged to maintain

7. Maintenance ratios like Cash Reserve Ratios CRR and SLR are not allowed in the case of
of CRR and SLR (CRR) and Statutory Liquidity Ratios NBFCs.
(SLR).

Banks come with deposit insurance

8. Facility of facility of Deposit Insurance and
NBFCs don't have this facility.
DICGC Credit Guarantee Corporation
(DICGC).

9. Creation of Banks get engaged in creating

Credit creation is not feasible for NBFCs.
Credit credits.

Banks generally offer transactional

10. Option of services like deposits, cash
NBFCs do not provide such types of
Transactional withdrawals, checks, debit card
transactional services.
Services payments, or even online
payments.

The Conclusion

In summary, while both banks and non-banking financial companies (NBFCs) offer
financial services, their methods of operation differ. NBFCs are generally focused
on providing lending operations to businesses, while banks typically accept and
issue loans. Individual consumer financial demands have also been met by NBFCs
in recent years. In addition, banks mostly deal in stocks and shares while offering
their customers financial guidance. NBFCs, on the other hand, offer a wide range
of financial services, including securities, insurance, and investing. The numerous
laws and regulations that the government has in place also heavily control banks.
NBFCs adhere to the guidelines established by the Reserve Bank of India. We hope
the post on the distinctions between banks and NBFCs was enjoyable.

Regulatory measure taken by RBI for the control of

NBFCs

The
Reserve Bank of India (RBI) has announced a new scale-based regulatory
framework for non-banking financial firms (NBFCs) that will take effect on
October 1, 2022. The scale-based approach covers a variety of aspects of NBFC
regulation, including capital requirements, governance standards, prudential
regulation, and more. Based on their size, activity, and perceived riskiness, the
regulatory framework for NBFCs will be divided into four levels.

NBFCs in the lowest tier will be referred to as NBFC – Base Layer (NBFC-BL), while
those in the middle and upper layers will be referred to as NBFC – Middle Layer
(NBFC-ML) and NBFC – Upper Layer (NBFC-UL). Regardless of other factors, the top
10 qualifying NBFCs in terms of asset size will always be in the upper stratum.
The RBI has changed the non-performing asset (NPA) categorization for all types of
NBFCs to more than 90 days under the new framework. When it comes to the
Board’s experience, at least one of the directors must have relevant experience
working in a bank or NBFC, given the requirement for professional competence in
managing the affairs of NBFCs.

There will also be a limit of one crore per borrower for financing Initial Public
Offering subscriptions (IPO). The Central Bank noted in a statement that NBFCs might
set more cautious limitations.

What is the regulatory framework for NBFCs?

According to RBI, the supervisory and regulatory framework for NBFCs is built on a
four-layered structure:

1. NBFC Base Layer – The non-systemically NBFC at the base layer is categorised as
an NBFC-Non Deposit Taking, Non-operative Financial Holding, NBFC Non-
Aggregator License, Peer to Peer Lending, and NBFC for asset size of Rs. 1000
Crores.

• NBFCs now categorised as NBFC-ND (including Type I NBFCs), Peer to Peer

Lending Platforms (“NBFC P2P”), Non-Operative Financial Holding Company
(NOFHC), and Account Aggregators (“NBFC-AA”) will be included in NBFC-BL.
• According to the Discussion Paper, they are NBFCs with low risk perceptions
due to their activities, and hence should be subject to lax regulatory scrutiny.

Though the regulations governing the base layer have not changed much, there
have been some noticeable changes, such as the raising in

• the INR 500 crore threshold for systemic importance to INR 1,000 crore,
allowing more NBFCs to enter the NBFC-BL fold.
• Stricter admission conditions have been set to meet growing capitalisation
demands for tackling cyber security and anti-money laundering risks, with the
minimum net-owned fund being raised from INR 2 crore to INR 20 crore.
• The time period for categorising non-performing assets has been reduced
from 180 to 90 days.
• The Central Bank has changed the NBFC –BL criteria from Rs 2 crore to Rs
20 crore, and the NPA balancing period has been reduced from 180 days to
90 days.
2. NBCF Middle Layer – It covers non-deposit-taking systemically important NBFCs
(NBFC-ND-SI), stand-alone primary dealers, deposit-taking NBFCs, infrastructure
debt funds, housing finance, and core investment companies.

• The exposure limitations are now linked to the Tier Capital rather than the
Owned Funds. The cap for IPO fundraising has been set at Rs 1 crore.
• This category includes all non-deposit taking NBFCs that are currently classed
as systemically significant, as well as all deposit taking NBFCs that do not fit
the Upper Layer’s regulatory requirements.
• This layer is also expected to include NBFC-HFCs, IFCs, infrastructure debt
funds (“NBFC-IDF”), freestanding primary dealers (“SPD”), and CICs, regardless
of asset size.

The concentration and financing rules of the NBFC-ML will alter in the
following ways:

(i) The lending and investment limitations are proposed to be combined into a single
exposure limit of 25% and a group exposure limit of 40%, calculated using Tier 1
capital rather than net owned funds;

(ii) With the introduction of an INR 1 crore ceiling per individual per NBFC,
restrictions on share buy-backs, restrictions on loans to directors/their family, and
other regulations, finance regulation will become more harsh;

(iii) a requirement to have a Board-approved policy on Internal Capital Adequacy

Assessment Process, similar to banks, and

(iv) the introduction of governance norms such as the formation of a remuneration

committee, additional disclosures, and rotation of statutory auditors, and

(v) a requirement to have a Board-approved policy on Internal Capital Adequacy

Assessment Process, similar to banks.

3. NBFC Upper Layer – At least 25 to 30 NBFCs are encapsulated in the upper layer.
This layer’s NBFC will function similarly to a bank. It’s known as CET, and it’s possible
that Common Equity Tier (CET) I Capital would be used to boost NBFC-UL regulatory
capital. CET has been available at a 9% interest rate on Tier I capital.

• The NBFCs in the Upper Layer will be selected based on both quantitative and
qualitative criteria –
(a) qualitative factors such as size (35%), interconnectedness (25%), and complexity
(10%); and

(b) qualitative parameters such as supervisory inputs (5%). (30 percent , which
includes type of liabilities, group structure and segment penetration). The top 10
NBFCs (by asset size) will automatically fall into this group, according to the
Discussion Paper.

The Discussion Paper envisions NBFC – UL regulatory control along the same
lines as banks, including:

(i) maintaining a 9 percent minimum common equity tier 1 (“CET 1”) capital
(equivalent to the Basel III mandatory CET 1 for banks);

(ii) a leverage requirement that would serve as a brake on an NBFC-unrestrained UL’s

expansion;

(iii) subjecting NBFC-ULs to the differential standard asset provisioning rules applied
to banks (rather than the present 0.4 percent for systemically significant NBFCs); and

(iv) imposing an obligatory listing requirement, similar to that imposed on private

banks.

4. NBFC Top Layer –In the structure, the NBFC at the top layer is left empty.
Essentially, the top tier of the pyramid structure should be left unfilled unless the
supervisors are interested in certain NBFCs. According to supervisory judgments, if
some NBFCs in the upper layer are exposed to significant risks, they will be subjected
to significantly increased regulatory or supervisory requirements.

• According to the Discussion Paper, the top layer should be left unfilled. If a
company in the NBFC-UL category is judged to pose an unsustainable
systemic risk, it may be transferred to this tier and subjected to specialised
examination.

NBFCs have been a critical cog in the financial markets’ wheel since the introduction
of Chapter IIIB in the RBI Act, 1934 in 1963, and any move to overhaul the regulatory
framework applicable to them will have far-reaching consequences. The approach of
classifying NBFCs based on size and systemic risk/importance retains the essence of
previous regulatory review – however, the proposal to stratify all NBFCs into a three-
layered pyramid (with the top layer left empty) and focus on using qualitative and
quantitative parameters to classify NBFCs is a welcome change.
If the Discussion Papers ideas are accepted, NBFC – ML and NBFC – UL will need to
significantly revise their governance and compliance structures, affecting
approximately 500 NBFCs in India. It would also be interesting to examine how the
Discussion Paper relates to the RBI’s Internal Working Group Report for Banks, which
was released on November 20, 2020, and suggests additional banks and the
conversion of NBFCs (with assets above INR 50,000) into banks.

What is the guideline for the revised regulatory framework for

NBFCs?
The following is the guideline for the revised regulatory framework for NBFCs:

• A Layered Approach-

It has been updated into the four-layered structure described above under this
framework. The framework comprises the following elements:

1. A Pyramid Structure – This pyramid-shaped structure requires the least amount of

regulatory intervention. It has been further classified as non-systemically important
NBFCs such as NBFC P2P, NBFC-ND, and leading Platforms such as NOFHC, NBFCAA,
and Type I NBFCs, as well as systematically significant NBFCs such as Deposit-taking
NBFCs (NBFC-D), NBFC-ND-SI, IDFs, HFCs, SPDs, CICs, and IFCs in the third layer.
2. Adverse Regulatory Arbitrage- The banks would be contacted to discuss covering
NBFCs under this layer in order to mitigate the systemic risk in the event of a
spillover. The regulatory arbitrage is split into two sections:
a) Structural arbitrage
b) Prudential arbitrage.

• The banks maintain the SLR and CRR against time demand liabilities in the structural
arbitrage instance.

• The NBFC benefits from the flexibility in asset categorization, capital adequacy, and
provisioning standards in the Prudential arbitrage case.
• Existing Regulatory Framework- The framework will apply to NBFC-NDs that have
regulatory frameworks that are still in place. It will be applied to the NBFCs’
foundation layer. The NDSI will be used in the intermediate layer of NBFCs.
• Changes to the lower layer- NBFCs will also apply to the top layer NBFCs unless
there is a dispute noted.
• The systemic significance level is now 500 crores, however, it has been raised to Rs
1000 crores.
• NPA Classification Days – The NPA classification days have been lowered from 180
to 90 days.
Changes in the foreign capital policy since 1991
Since 1991, India has been increasingly open to foreign direct investment (FDI),
bringing about relaxations in several key economic sectors.

FDI into India is primarily governed by the 1999 Foreign Exchange Management Act
(FEMA) and rules and regulations issued by the Reserve Bank of India (RBI), along
with the Consolidated Policy on FDI and press notes and circulars (FDI Policy)
issued by Department for Promotion of Industry and Internal Trade under the
Ministry of Commerce & Industry (DPIIT). The most significant RBI rules include the
2019 Foreign Exchange Management (Non-Debt Instruments) Rules and the 2019
Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt
Instruments) Regulations (together, the NDI Rules).

The FDI Policy sets out the entry routes for different sectors (i.e. automatic or
government approval), investment limits for the different sectors, conditions for
investment, and eligible instruments, among other matters. These policy conditions
are then enacted into law through the NDI Rules.

Basic principles of FDI into India

India’s business sectors may be divided into three for the purposes of FDI inflow:

• prohibited sectors – prohibited from receiving FDI. Includes atomic energy, real
estate business, lottery business, manufacturing tobacco products, gambling and
betting;
• automatic route – no prior approval required from the government for receiving FDI.
Includes airports, construction, industrial parks, mining, manufacturing and IT; and
• government approval route – prior approval required from the government for
receiving FDI. Includes air transport services, satellites, print media and public sector
banks.

The FDI Policy further imposes sector-specific FDI thresholds based on the
sensitivity of the sector, regardless of whether the sector falls under the automatic
route or the government approval route. These are, generally:

• up to 100% FDI allowed (includes manufacturing, construction and IT);

• up to 74% FDI allowed (includes pharmaceuticals and defence);
• up to 49% FDI allowed (includes air transport services and private sector banking);
and
• up to 26% FDI allowed (print media).
If the NDI Rules and FDI Policy do not specifically prescribe any conditions for any
sector, 100% FDI under the automatic route is allowed for that sector.
Kosturi Ghosh

Partner, Trilegal
Even as recently as 2021, and going against the tide of the prevailing protectionist trends,
India has brought about relaxations [in FDI controls] in several key sectors

Where an Indian entity is neither 'owned' nor 'controlled' by resident Indian citizens,
any investment made by that entity in another Indian entity will be considered
downstream foreign investment, and governed by the NDI Rules and FDI Policy. For
the purposes of the NDI Rules, ‘owned’ refers to a beneficial holding of more than
50% of the equity instruments of a company, and ‘controlled’ refers to the right to
appoint a majority of directors or to control the company’s management or policy
decisions.

Under the NDI Rules, FDI includes any investments made by a person resident
outside India in equity instruments of Indian companies. For listed entities,
investments of at least 10% or more of the post issue paid-up capital is treated as
FDI.

The NDI Rules permit investment into:

• equity shares (including partly paid equity shares, provided that at least 25% of the
consideration is received upfront and they are fully called-up within 12 months of
issuance);
• convertible debentures which are fully and mandatorily convertible, and fully paid;
• preference shares which are fully and mandatorily convertible, and fully paid; and
• share warrants, for which at least 25% of the consideration is to be received upfront
and the balance is to be received within 18 months of issuance.

While FDI is only permitted in these equity instruments, a recent exception applies to
start-ups, as discussed below.

Recent amendments to India’s FDI regime

On 17 April 2020, the Indian government amended the FDI Policy making it
mandatory to obtain government approval for FDI received from countries that “share
a land border” with India, which include China, Bangladesh, Pakistan, Bhutan, Nepal,
Myanmar and Afghanistan. While the move was ostensibly intended to “curb
opportunistic takeovers / acquisitions”, the intention has been widely held to have
stemmed from the need to limit the inflow of Chinese investments since FDI from
Pakistan and Bangladesh was already subject to similar restrictions. As a result of
this amendment, FDI inflow from these countries has been restricted, with only 80 of
388 proposals received as of July 2022 granted approval, according to a Right to
Information Act request (RTI) submitted by The Hindu.

However, other than this protective limitation, India has been on the path of
liberalisation since 1991. Even as recently as 2021, and going against the tide of the
prevailing protectionist trends, India has brought about relaxations in several key
sectors, including:

• insurance – the FDI limit in the insurance sector was raised from 49% to 74% under
the automatic route.
 • defence – the FDI limit in the defence sector was significantly liberalised by raising
the FDI limit for investment under the automatic route from 49% to 74%.
• telecoms – as a much-needed boost to the telecoms sector in India, the government
increased the FDI limit into the sector from 49% to 100% under the automatic route.
• oil and gas – while the overall cap for FDI into the oil and gas sector continues to
remain at 49% under the automatic route, a window has been created for 100% FDI
in oil and gas public sector undertakings (PSU) that have obtained 'in-principle
approval' from the government for strategic disinvestment.

Further, and in line with government policy to create an ever-burgeoning start-up

ecosystem in India, the ‘Start-up India Initiative’ has introduced two further changes
targeted at start-up investment.

While FDI is generally permitted only through equity instruments, eligible start-ups
have the benefit of issuing convertible notes (CN): instruments evidencing receipt of
money initially as a debt, and which are either repayable at the option of the holder
or convertible into such number of equity shares of the company upon occurrence of
specified events and as per the other terms and conditions agreed to and indicated
in the instrument. For start-ups to be eligible to issue CNs, the minimum amount of
investment required from a single investor is INR 25 lakhs (roughly US$ 30,000) in a
single tranche. The maximum tenor of conversion or repayment of a CN is 10 years.

Eligible start-ups can also benefit from the ‘angel tax’ exemption under Income Tax
Act if their aggregate paid-up share capital and share premium after the issue or
proposed issue of shares do not exceed INR 25 crores (roughly US$3 million). The
angel tax exemption comes with end use restrictions of investments on specified
assets. If the investment consists of a capital contribution made to any other entity,
shares and securities, bullion, archaeological collections, or any work of art, the
angel tax exemption will not apply.

Legal consequences

Punishment for contravention of the NDI Rules and other FDI laws is covered under
the penal provisions of FEMA, the enforcement of which is tasked upon the
Directorate of Enforcement (ED). Every contravention is punishable with a penalty of
up to three times the amount involved in the contravention, if such amount is
quantifiable; or up to INR 200,000 (roughly US$2,400) where the amount is not
quantifiable. Where the contravention is continuing, the ED can impose a further
penalty of up to INR 5,000 (roughly US$60) for every day that such contravention
continues after the date of its occurrence.

Further initiatives

A number of government initiatives are expected to boost FDI inflows into India in the
coming years.
PM GATI SHAKTI SCHEME

The Prime Minister Gati Shakti scheme, launched in October 2021, has been billed
as a transformative plan for achieving economic development by focusing on
different modes of transportation and a logistics infrastructure which is complimented
by clean energy transmission, IT communications and social infrastructure.

The scheme envisages a three-fold approach under which 16 government ministries

are brought under a single platform to ensure transparency and synchronicity,
combined with the establishment of a multimodal transportation grid in order to cut
logistics cost and a joint committee between the ministries to ensure the effective
implementation of the scheme. The three-fold approach seeks to eliminate the
wastage of time and costs by government departments, simplify the existing
ministerial framework in India by phasing out excessive departmentalisation and
synergising efforts between different government ministries.

SINGLE WINDOW CLEARANCE PROCESS

India's National Single Window System (NSWS) is a digital platform designed to

facilitate and ease the process of applying for approvals across different businesses,
covering 32 central government departments and 31 state government departments
across India. The NSWS includes a database where all approvals are found in a
single portal without requiring the end-user to visit individual ministries and
departments along with implementation of a secure document repository; a ‘know
your approvals’ module containing government guidance; real-time status tracking of
approval applications; fast query management to enable speedy resolution of
procedural questions or ambiguities; and a system of easy renewal of approvals.

DISINVESTMENT

In its 2021-22 budget, the government introduced a new disinvestment regime,

which distinguishes between ‘strategic’ and ‘non-strategic’ sectors. The
government’s intention is to entirely privatise the non-strategic sectors, while
retaining a minimal presence of PSUs in the strategic sectors.

Notably, in recent times, the government has successfully divested from two major
PSUs:

• Air India, through a 100% stake sale to the Tata Group (along with a 100% stake sale
of low-cost carrier Air India Express and a 50% stake sale in the ground handling
services provider Air India SATS); and
• Life Insurance Corporation of India, through an initial public offering whereby the
government offloaded 3.5% of its 100% stake in the insurer.

The budgeted disinvestment target for the financial year 2022-23 was set at INR
65,000 crore (roughly US$7.8 billion). As of December 2022, the government had
already raised over INR 28,000 crore through stake sales, according to local media
reports.

PRODUCTION LINKED INCENTIVE (PLI) SCHEME

The PLI scheme is another recent initiative introduced by the Indian government, in
line with its goal of creating a self-reliant economy. Under the scheme, financial
incentives are provided to eligible companies on sales of goods manufactured in
India. The scheme has been extended to manufacturing-focused sectors including
automobiles, textiles and pharmaceuticals, with a total budgeted outlay of close to
INR 200,000 crore (roughly US$24bn).

Future prospects

FDI equity inflow to India for the first half of financial year 2022-23 was
approximately US$27bn, according to DPIIT figures – notably, a higher figure than
the inflow for the first half of financial year 2018-19.

The figures indicate that India's standing as a favoured investment hub has
withstood the Covid-19 pandemic as well as the geopolitical and macroeconomic
uncertainty that has followed it. The government's proactiveness in liberalising the
investment framework during this time has also improved the country's favourability.
According to the OECD FDI restrictiveness index, India's FDI restriction level has
been halved from 0.42 in the year 2003 to 0.21 as of its last update in
2020, signifying a quantifiable measure of the liberalisation made to India's FDI
framework over the Covid-19 pandemic period.

With the World Bank revising the real GDP estimate for India to 6.9% from 6.5% for
the financial year 2022-23 on account of higher resilience of the Indian economy to
global shocks and better-than-expected second quarter numbers, it remains to be
seen how India performs in the coming years in the face of the continuing global
headwinds.

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Difference and lease and hir purchase?

Hire Purchasing and Leasing are both methods of acquiring assets
without the need for an upfront purchase. However, they differ in
terms of ownership, payment structure, and the transfer of risk. Hire
Purchasing involves acquiring an asset through a series of installment
payments over a specified period; whereas, Leasing involves renting
an asset from the owner (lessor) for a specified period in exchange for
periodic payments.
What is Hire Purchasing?
Hire Purchasing is a financing arrangement where an individual or
business acquires an asset, such as machinery or equipment, without
having to pay the full purchase price upfront. Instead, they make
regular installment payments over a specified period, typically ranging
from months to years. While the asset is in use, it remains the property
of the financing company or the seller. Ownership is only transferred
to the purchaser once all the installment payments, including any
interest charges, have been completed. This structure allows
businesses to obtain essential assets immediately, without having to
make a significant initial investment.
The working of Hire Purchasing is as follows:
• Selection of Asset: The hirer chooses the asset they wish to
acquire and negotiates the terms of the hire purchase
agreement with the seller.
• Initial Payment: The hirer pays an initial deposit or down
payment, which is usually a percentage of the total purchase
price.
• Installment Payments: The remaining purchase price is
divided into equal installments to be paid over a specified
period, typically monthly or quarterly.
• Use of the Asset: While the hirer makes installment
payments, they have the right to use the asset for their
business or personal use.
• Ownership Transfer: Ownership of the asset remains with
the seller until the final installment is paid. Once all
installments, including any interest charges, are completed,
ownership of the asset transfers to the hirer.
• Legal Obligations: Throughout the hire purchase agreement,
the hirer is legally obligated to make timely payments according
to the terms of the agreement. Failure to make payments can
result in repossession of the asset by the seller.
What is Leasing?
Leasing is a financial arrangement where an individual or business rents an
asset, such as equipment or machinery, from a lessor for a specified period
in exchange for regular payments. Unlike hire purchasing, where
ownership transfers to the purchaser at the end of the payment term, in
leasing, the lessor retains ownership throughout the lease period. However,
the lessee benefits from the use of the asset without bearing the full cost of
ownership. At the end of the lease term, the lessee typically has options,
including purchasing the asset at its residual value, returning it to the
lessor, or renewing the lease. Leasing offers flexibility, allowing businesses
to access necessary assets without a significant upfront investment, and it
may include services such as maintenance and insurance, depending on the
terms of the lease agreement.
The working of Leasing is as follows:
• Selection of Asset: The lessee selects the asset they wish to use
from the lessor. This could include equipment, machinery,
vehicles, real estate, or other tangible assets.
• Negotiation of Lease Terms: The lessor and lessee negotiate the
terms of the lease agreement, including the lease duration, rental
payments, and any additional terms or conditions.
• Periodic Rental Payments: The lessee makes periodic rental
payments to the lessor for the use of the asset. These payments
are typically made monthly or quarterly and are determined
based on factors, such as the value of the asset, the lease duration,
and any associated costs or fees.
• Use of the Asset: The lessee has the right to use the asset for the
duration of the lease term, subject to the terms and conditions
outlined in the lease agreement.
• Maintenance and Insurance: Depending on the terms of the
lease agreement, the lessee may be responsible for maintaining and
insuring the leased asset during the lease term.
• End of Lease Options: At the end of the lease term, the lessee
typically has three options:
• Renew the Lease: The lessee may have the option to
renew the lease for an additional period, subject to
negotiation with the lessor.
• Return the Asset: The lessee can return the asset to the
lessor at the end of the lease term.
• Purchase the Asset: In some lease agreements, the
lessee may have the option to purchase the asset from
the lessor at a predetermined price, often referred to as
the residual value.
Difference between Hire Purchasing and Leasing
Basis Hire Purchasing Leasing

Hire Purchasing involves Leasing involves renting an asset

acquiring an asset through a from the owner (lessor) for a
Meaning
series of installment payments specified period in exchange for
over a specified period. periodic payments.

In hire purchasing, the buyer

Ownership In leasing, the owner remains the
gets ownership of the asset after
Transfer same throughout the lease period.
completing paying installments.

With hire purchasing, the buyer In leasing, the lessee makes

Payment
pays installments until they own regular payments to use the asset
Structure
the asset. for a set time.

Maintenance In hire purchasing, the buyer is

In leasing, the owner usually
and responsible for maintenance and
handles maintenance and upkeep.
Insurance insurance.

Hire purchasing terms are often Leasing is more flexible; lessees

Flexibility fixed once agreed upon, offering can often change terms or
less flexibility. upgrade assets.

Interest portion of hire purchase

Lease payments may be treated
Tax payments may be eligible for tax
as operating expenses and
Treatment deductions as a business
deducted from taxable income.
expense.

With hire purchasing, ownership Leasing allows options like

End of Term
is gained, and no more payments buying, returning, or renewing
Options
are needed. the lease at the end.

In hire purchasing, the buyer

Risk In leasing, the owner retains
takes on the risk of asset
Exposure ownership and risk.
depreciation or damage.

Function of LIC
Life Insurance Corporation of India :
 • LIC is a Government Insurance and Investment Company
incorporated under the Indian Life Insurance Act.

• It’s a statutory body.

• It was founded in 1956.

• Its headquarters is in Mumbai

• It aims to provide its citizens, through its services and products,

with greater economic security than most other investment
players in the market, thereby building an exceptional quality
of life and enabling economic development.

• LIC is 100% owned by the government.

• Motto of LIC is ‘Yogakshemam Vahamyaham’, which means

‘Your welfare is our responsibility.

• The Chairman of Indian Life Insurance is M. R. Kumar.

Role :
• LIC is known as India’s largest national life insurance and
investment company. LIC’s main mission is to raise funds from
people through various life insurance policies and then invest
in the global financial markets and various government
securities. At least 75% of these proceeds must be invested in
central and state government securities under one of the LIC
regulations.

• To make investments in the finances of the Corporation in such

way because the Corporation might imagine in shape and to
take all such steps as can be important or expedient for the
safety or realization of any funding; along with the taking up of
and administering any belongings supplied as protection for
 the funding till an appropriate possibility arises for its disposal.

• To acquire, preserve and put off any belongings for the motive
of its commercial enterprise.

• To switch the entire or any a part of the lifestyles coverage

commercial enterprise carried on out of doors India to every
other individual or persons, if withinside the hobby of the
Corporation it’s far expedient so that you could do.

• To increase or lend cash upon the safety of any movable or

immovable belongings or otherwise.

• To keep on both through itself or via any subsidiary every other

commercial enterprise anyhow in which such different
commercial enterprise changed into being carried on through a
subsidiary of an insurer whose managed commercial enterprise
has been transferred to and vested withinside the Corporation
through this act.

• To keep on every other commercial enterprise which can also

additionally appear to the Corporation to be able to be simply
carried on about its commercial enterprise and calculated at
once or in a roundabout way to render worthwhile the
commercial enterprise of the Corporation.

• To do all things can be incidental or conducive to the right

workout of any of the powers of the Corporation.
In the release of any of its features, the Corporation shall act
up to now as can be on commercial enterprise principles.
Goals :
• LIC aims to promote the importance of life insurance to people
living in rural areas and those who are socially and
economically disadvantaged.
 • It aims to meet the diverse life insurance needs of residents
who face changes in the social and economic environment.

• It aims to operate economically while considering that the

money belongs to the policyholder.

• It aims to maximize the liquidity of people’s savings through

attractive insurance-linked savings.

• Its purpose is to provide the highest level of job satisfaction to

all company representatives and employees and to promote
the establishment of a supportive working environment to
provide courteous and efficient service to the insured. That’s
it. Its purpose is to use funds in the best interest of investors
and the community.

Recent Development :
• Recently, the Union Cabinet passed an amendment to the FDI
policy allowing up to 20% foreign direct investment (FDI)
through the “automatic route” of the Life Insurance Corporation
(LIC) ahead of its planned initial public offering (IPO).

• Currently, the FDI Policy does not impose any specific

provisions regarding foreign investment in the LIC.

• It allows FDI to insurance companies and insurance industry

intermediaries or insurance intermediaries.

• The FDI cap for public sector banks is 20% and is in the process
of getting government approval.

• The government last year raised the FDI cap in the insurance
sector from 49% to 74%, but not the LIC, which is subject to a
special law. The government allows up to 20% foreign
investment in LIC and other entities as LIC does not fall into any
of these categories and no restrictions are imposed on foreign
 investment in LIC under LIC law.

• Reforms in FDI policy will facilitate foreign investment in his

LIC and other entities that the government may require for
divestment purposes.

• Amendments to LIC’s FDI policy will ensure that foreign

investors do not face obstacles in participating in public
offerings.

• This reform will also facilitate operations and lead to increased

FDI inflows while ensuring consistency with the overall intent
or objectives of the FDI policy.

• Increased FDI inflows will complement domestic capital,

technology transfer, and skills development for accelerated
economic growth and cross-industry development to support
the implementation of Atmanirbhar Bharat. Allowing foreign
direct investment allows foreign portfolio investors to purchase
shares on the secondary market. It also sends a positive signal
to investors.
 All rights reserved by Chandni

Vishwakarma ……….