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:
- NABARD: Agriculture & Rural Development.
- SIDBI: Small Industries.
- EXIM Bank: Export-Import finance.
- NHB: National Housing Bank.
B. Non-Banking Financial Companies (NBFCs)
Registered under Companies Act.
- Asset Finance Companies: Finance machinery/vehicles (e.g., Shriram Transport).
- Loan Companies: General loans.
- Investment Companies: Invest in securities.
- Infrastructure Finance Companies (IFC).
- Micro Finance Institutions (MFI).
C. Primary Dealers (PDs)
- Deal in Government Securities.
2. NBFC vs Bank
Bank vs NBFC
Commercial Bank
- Can accept Demand Deposits (Current/Savings)
- Can issue Cheques
- Part of Payment Systems
- Deposit Insurance (DICGC) Available
VS
NBFC
- Cannot accept Demand Deposits (Only Term)
- Cannot issue Cheques
- Not part of Payment Systems
- No Deposit Insurance
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! 🎯
Test Your Knowledge
Question 1 of 4
1. Which of the following is an All India Financial Institution (AIFI)?