Fund-Based Services – Concept & Scope

Introduction

As discussed, Fund-Based Services involve the service provider taking a position in the asset or liability. Their primary income is Interest or Lease Rentals.

1. Key Characteristics

1. Capital Intensive: Requires huge capital to start operations (e.g., NBFCs).
2. Risk: High Credit Risk (Borrower may default).
3. Regulation: Tightly regulated by RBI (Capital Adequacy norms).

2. Scope of Activities

• Consumer Credit: Loans to individuals for TV, Fridge, Cars.
• Commercial Credit: Loans to businesses (Factoring, Bill Discounting).
• Asset Financing: Leasing and Hire Purchase of machinery.

3. Players

• Commercial Banks.
• NBFCs (Non-Banking Financial Companies).
• Housing Finance Companies.

Summary

• Income: Interest/Rent.
• Risk: Default.
• Key Players: Banks & NBFCs.

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