Non-Banking Financial Institutions (NBFIs) – Structure & Types

Introduction

NBFIs are the "Shadow Banking" system. They perform functions similar to banks (lending, investing) but are legally distinct.

1. Broad Classification of NBFIs

A. All India Financial Institutions (AIFIs)

The "Big 4" Regulated by RBI:

1. NABARD: Agriculture & Rural Development.
2. SIDBI: Small Industries.
3. EXIM Bank: Export-Import finance.
4. NHB: National Housing Bank.

B. Non-Banking Financial Companies (NBFCs)

Registered under Companies Act.

1. Asset Finance Companies: Finance machinery/vehicles (e.g., Shriram Transport).
2. Loan Companies: General loans.
3. Investment Companies: Invest in securities.
4. Infrastructure Finance Companies (IFC).
5. Micro Finance Institutions (MFI).

C. Primary Dealers (PDs)

• Deal in Government Securities.

2. NBFC vs Bank

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3. Importance of NBFCs

• Last Mile Connectivity: They reach customers banks reject (Unorganized sector, Truck drivers).
• Specialization: They specialize in specific assets (Gold Loans - Muthoot, Vehicle Loans - Sundaram).

Summary

• AIFIs: NABARD, SIDBI, EXIM, NHB.
• NBFCs: Cannot accept demand deposits.
• Role: Complement banks, specialize in niche lending.

Quiz Time! 🎯

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