COOPERATIVE BANK &

NON-BANKING FINANCIAL COMPANY

(NBFCs)

NON-BANKING FINANCIAL COMPANY

(NBFCs)

A NBFC is a company registered under the Companies Act, 1956 and is

engaged in the business of loans and advances, acquisition of

shares/stock/bonds/debentures/ securities issued by Government or local

authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business.

NBFCs, are financial institutions that provide banking services, but do not

hold a banking license.

These institutions are not allowed to take deposits from the public.

All operations of these institutions are still covered under banking

regulations.

Registration of NBFCs

In terms of Section 45-IA of the RBI Act, 1934, it

is mandatory that every NBFC should be

registered with RBI to commence or carry on

any business of non-banking financial

institution as defined in clause (a) of Section 45

I of the RBI Act, 1934.

The NBFCs that are registered with RBI are

(I) Equipment leasing company

(II) Hire-purchase company

(III)Loan company

(IV)Investment company.

With effect from December 6, 2006(I) Asset Finance Company (AFC)

(II) Investment Company (IC)

(III) Loan Company (LC)

Asset Finance Company (AFC)

AFCs are financial institutions

whose principal business is of

financing physical assets

such as automobiles

,tractors, construction

equipment material handling

equipment and other

machines. Ex: Bajaj Auto

Finance corp.

Investment Company (IC)

ICs generally are involved in the business of shares, stocks, bonds, debentures issued by government or local authority that are marketable in nature.As such they provide finance mainly to companies associated with these business houses.

Loan Company

Loan Company is a

company which carries on

as its principle business, the

providing of finance whether

by making loans or

advances or otherwise for

any activity other than its

own. These can be housing

loans, gold loans etc.

Significance of NBFCs in India

According to the Economic Survey 2010-11, it has been reported that NBFCs as a whole account for 11.2 per cent of assets of the total financial system.

NBFCs have turned out to be engines of growth and are integral part of the Indian financial system, enhancing competition and diversification in the financial sector, spreading risks specifically at times of financial distress and have been increasingly recognized as complementary of banking system at competitive prices.

COOPERATIVE BANK

A co-operative bank is a financial entity which belongs to its

members, who are at the same time the owners and the

customers of their bank.

They are often created by persons belonging to the same

local or professional community or sharing a common interest.

Co-operative banks generally provide their members with a

wide range of banking and financial services (loans, deposits,

banking accounts)

Features of Co-operative Banks:

These Banks are organized and managed on the principal of co-operation,

self-help, and mutual help. They function with the rule of one member, one

vote.

Function on "no profit, no loss" basis. Co-operative banks, as a principle, do not pursue the goal of profit maximization.

Co-operative bank performs all the main banking functions of deposit

mobilization, supply of credit and provision of remittance facilities. Co-

operative Banks provide limited banking products and are functionally

specialists in agriculture related products. However, co-operative banks

now provide housing loans also.

FUNCTIONS OF CO-OPERATIVE BANK

Co-operative Banks are organised and managed on

the principal of co-operation, self-help, and mutual

help. They work on the basis of “no profit no loss”.

Profit maximization is not their goal.

Co-operative bank do banking business mainly in

the agriculture and rural sector. However, UCBs,

SCBs, and CCBs operate in semi urban, urban,

and metropolitan areas also.

Finance Function:

1. Cooperative banks in India finance rural areas under:

• Farming Cattle

• Milk

• Personal finance

2. Cooperative banks in India finance urban areas under:

• Self-employment

• Industries

• Small scale units

• Home finance

• Consumer finance

• Personal finance

Types of Cooperative Banks

1.Primary Co-operative Credit Society

The primary co-operative credit society is an association of borrowers and non-borrowers residing in a particular locality.

The funds of the society are derived from the share capital and deposits of members and loans from central co-operative banks.

The borrowing powers of the members as well as of the society are fixed.

The loans are given to members for the purchase of cattle, fodder, fertilizers, pesticides, etc.

2.Central co-operative banks These are the federations of primary credit societies in a district

and are of two types- those having a membership of primary

societies only and those having a membership of societies as

well as individuals.

The funds of the bank consist of share capital, deposits, loans

and overdrafts from state co-operative banks and joint stocks.

These banks provide finance to member societies within the

limits of the borrowing capacity of societies.

They also conduct all the business of a joint stock bank.

3.State co-operative banks

The state co-operative bank is a federation of central

co-operative bank and acts as a watchdog of the

co-operative banking structure in the state.

Its funds are obtained from share capital, deposits,

loans and overdrafts from the Reserve Bank of India.

The state cooperative banks lend money to central

co-operative banks and primary societies and not

directly to the farmers.

4.Urban Co-operative Banks

The term Urban Co-operative Banks (UCBs), though not

formally defined, refers to primary co-operative banks

located in urban and semi-urban areas.

These banks, till 1996, were allowed to lend money only for

non-agricultural purposes. This distinction does not hold today.

These banks were traditionally centered on communities,

localities, work place groups.

They essentially lend to small borrowers and businesses.

Today, their scope of operations has widened considerably.