Non Banking Financial Institutions

–2/”>a >DOCTYPE html PUBLIC “-//W3C//DTD XHTML 1.0 Transitional//EN” “http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd”>

<br />

Non-Banking financial institutions and their reforms in them since 1990s

A Non Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 of India, engaged in the business of loans and advances, acquisition of Shares, stock, Bonds hire-purchase insurance business or chit business but does not include any institution whose principal business includes agriculture, industrial activity or the sale, purchase or construction of immovable property. The working and operations of NBFCs are regulated by the Reserve Bank of India (RBI) within the framework of the [Reserve Bank of India Act, 1934] (Chapter III-B) and the directions issued by it. On November 9, 2017, Reserve Bank of India (RBI) issued a notification outlining norms for Outsourcing of functions/Services by Non-Bank Financial Institution (NBFCs) As per the new norms, NBFCs cannot outsource core management functions like internal audit, management of Investment portfolio, strategic and compliance functions for know your customer (KYC) norms and sanction of loans. Staff of service providers should have access to customer information only up to an extent which is required to perform the outsourced function. Boards of NBFCs should approve a Code Of Conduct for direct sales and recovery agents. For debt collection, NBFCs and their outsourced agents should not resort to intimidation or harassment of any kind. All NBFCs’ have been directed to set up a grievance redressal machinery, which will also deal with the issues relating to services provided by the outsourced agency.

The experience worldwide shows that the important factor contributing towards the operations and functions of NBFCs are changes in the international Financial Markets% thedegree of integration of domestic and international markets and the rapid development of technology in the financial sector like introduction of new Communication and transmissionsystem which reduce transaction costs and speed up information flows To an extent all these factors have contributed to the Growth of NBFCs in India% especially during the later part of eighties.

The Narasimham committee in 1991 outlined a framework for streamlining the functioning of the NBFCs and observed that prudential norms. in respect of conduct of business should also be laid down. It is this committee which made RBI to focus more on hire purchase and leasing companies which were playing greater role in the intermediation process. The committee suggested that well managed hire purchase and leasing companies be permitted to operated in the Money-market/”>Money Market. For all other recommendations of this committee were referred to shah Committee in 1992. The shah committee in 1992 felt the need for changing the focus of regulation and adopting steps for regulation and supervision more effective and important objective of these measures was to align these entities with the overrall financial system subject to their adherence to the prudential norms.

Exemptions granted to NBFCs engaged in microfinance activities

The Task Force on Supportive Policy and Regulatory Framework for Microfinance set up by NABARD in 1999 provided various recommendations. Accordingly, it was decided to exempt NBFCs which are engaged in micro financing activities, licensed under Section 8 of the Companies Act, 2013, and which do not accept public deposits, from the purview of Sections 45-IA (registration), 45-IB (maintenance of liquid assets) and 45-IC (transfer of profits to the Reserve Fund) of the RBI Act, 1934.

MFIs & SHG-Bank linkage programme

In a joint fact-finding study on microfinance conducted by the Reserve Bank of India and a few major banks, the following observations were made:

Some of the microfinance institutions (MFIs) financed by banks or acting as their intermediaries or partners appear to be focusing on relatively better banked areas, including areas covered by the SHG-Bank linkage programme. Competing MFIs were operating in the same area, and trying to reach out to the same set of poor, resulting in multiple lending and overburdening of rural households.
Many MFIs supported by banks were not engaging themselves in capacity building and Empowerment of the groups to the desired extent. The MFIs were disbursing loans to the newly formed groups within 10–15 days of their formation, in contrast to the practice.

obtaining in the SHG Bank linkage programme, which takes about six to seven months for group formation and nurturing. As a result, cohesiveness and a sense of purpose were not being built up in the groups formed by these MFIs.

Banks, as principal financiers of MFIs, do not appear to be engaging them with regard to their systems, practices and lending policies with a view to ensuring better transparency and adherence to best practices. many cases, no review of MFI operations were undertaken after sanctioning the credit facility.

Non-banking financial institutions (NBFIs) are financial institutions that do not take deposits from the public. They provide a variety of financial services, including investment banking, asset management, and insurance.

NBFIs play an important role in the financial system. They provide liquidity to the market and help to finance businesses and other economic activity. They also help to manage risk and provide investment opportunities for individuals and institutions.

There are many different types of NBFIs, each with its own unique role in the financial system. Some of the most common types of NBFIs include:

Asset management companies: These companies manage investment portfolios for individuals and institutions. They invest in a variety of assets, including stocks, bonds, and real estate.
Brokerage firms: These firms help investors buy and sell securities. They also provide research and advice on investment opportunities.
Commodity trading companies: These companies trade in commodities, such as oil, gold, and wheat. They help to facilitate the flow of commodities between buyers and sellers.
Credit rating agencies: These agencies assess the creditworthiness of borrowers. They assign ratings to borrowers, which are used by lenders to determine the interest rates and other terms of loans.
Factoring companies: These companies provide short-term financing to businesses. They purchase the accounts receivable of businesses, which allows businesses to get paid more quickly.
Financial leasing companies: These companies lease equipment to businesses. They purchase equipment and lease it to businesses for a period of time. This allows businesses to acquire equipment without having to make a large upfront purchase.
Insurance companies: These companies provide insurance to individuals and businesses. They protect against a variety of risks, such as death, illness, and property damage.
Investment Banks: These banks help companies raise capital by issuing stocks and bonds. They also provide advice on mergers and acquisitions.
Mutual fund companies: These companies pool money from investors and invest it in a variety of assets. Mutual Funds offer investors a way to diversify their investments and reduce risk.
Pension funds: These funds provide retirement income to employees. They are funded by contributions from employers and employees.
Equity/”>Private Equity firms: These firms invest in private companies. They typically provide capital to companies that are not yet ready to go public.
Real estate investment trusts (REITs): These companies own and operate income-producing real estate. They are traded on Stock Exchanges and offer investors a way to invest in real estate without having to purchase property directly.
Venture Capital firms: These firms invest in early-stage companies. They provide capital and expertise to help companies grow and succeed.

NBFIs are regulated by the government to ensure that they are safe and Sound. The Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Trading Commission are some of the government agencies that regulate NBFIs.

NBFIs play an important role in the financial system. They provide liquidity to the market, finance businesses, and manage risk. They are regulated by the government to ensure that they are safe and sound.

What is a Non-Banking Financial Institution (NBFI)?

A non-banking financial institution (NBFI) is a financial institution that does not have a banking license. NBFIs offer a variety of financial services, such as loans, mortgages, and investments.

What are the different types of NBFIs?

There are many different types of NBFIs, including:

Credit unions
Mortgage lenders
Investment banks
Insurance companies
Pension funds

What are the benefits of using an NBFI?

There are several benefits of using an NBFI, including:

NBFIs often offer lower interest rates than banks.
NBFIs may be more flexible than banks in terms of the types of loans and other financial products they offer.
NBFIs may be more customer-focused than banks.

What are the risks of using an NBFI?

There are also some risks associated with using an NBFI, including:

NBFIs are not as regulated as banks, which means that they may be more likely to fail.
NBFIs may not be as liquid as banks, which means that it may be more difficult to get your money out if you need to.
NBFIs may not be as well-known as banks, which means that it may be more difficult to find information about them.

How do I choose an NBFI?

When choosing an NBFI, it is important to consider the following factors:

The type of financial product you need
The interest rate offered
The fees charged
The reputation of the NBFI
The regulation of the NBFI

What should I do if I have a problem with an NBFI?

If you have a problem with an NBFI, you should first try to resolve the issue directly with the NBFI. If you are unable to resolve the issue, you can file a complaint with the Financial Conduct Authority (FCA).

Which of the following is not a type of non-banking financial institution?
(A) Insurance company
(B) Pension fund
(C) Mutual fund
(D) Commercial bank
Which of the following is the main function of a non-banking financial institution?
(A) To provide loans to businesses and individuals
(B) To accept deposits from businesses and individuals
(C) To invest in securities
(D) To provide insurance products
Which of the following is the most common type of non-banking financial institution?
(A) Insurance company
(B) Pension fund
(C) Mutual fund
(D) Commercial bank
Which of the following is the largest non-banking financial institution in the world?
(A) Allianz
(B) AXA
(C) Prudential Financial
(D) State Street Corporation
Which of the following is the most common type of non-banking financial institution in the United States?
(A) Insurance company
(B) Pension fund
(C) Mutual fund
(D) Commercial bank
Which of the following is the largest non-banking financial institution in the United States?
(A) Vanguard Group
(B) BlackRock
(C) State Street Corporation
(D) JPMorgan Chase
Which of the following is the main difference between a non-banking financial institution and a commercial bank?
(A) A non-banking financial institution is not allowed to accept deposits from businesses and individuals
(B) A non-banking financial institution is not allowed to invest in securities
(C) A non-banking financial institution is not allowed to provide insurance products
(D) A non-banking financial institution is not allowed to make loans to businesses and individuals
Which of the following is the main advantage of using a non-banking financial institution?
(A) Non-banking financial institutions are often more flexible than Commercial Banks
(B) Non-banking financial institutions often offer higher interest rates on deposits
(C) Non-banking financial institutions often offer lower interest rates on loans
(D) Non-banking financial institutions often have lower fees than commercial banks
Which of the following is the main disadvantage of using a non-banking financial institution?
(A) Non-banking financial institutions are often less regulated than commercial banks
(B) Non-banking financial institutions are often more risky than commercial banks
(C) Non-banking financial institutions are often less convenient than commercial banks
(D) Non-banking financial institutions are often less transparent than commercial banks
Which of the following is the main risk of using a non-banking financial institution?
(A) The institution may go bankrupt
(B) The institution may be unable to repay its debts
(C) The institution may be involved in fraud
(D) The institution may be involved in money laundering