Commercial banks are financial institutions that accept deposits from the public and provide loans to earn a profit. Their main functions are accepting deposits, lending funds through various loans and credit facilities, and acting as an agent for other financial services. Commercial banks aim to earn profit by charging higher interest rates on loans than what they pay depositors. The key features of commercial banks are borrowing from depositors and lending funds to earn interest. In India, most commercial banks are joint stock banks like Punjab National Bank and Bank of Baroda.

1. Commercial Banks
A commercial bank is a financial institution which performs the functions of
accepting deposits from the general public and giving loans for investment with
the aim of earning profit.
In fact, commercial banks, as their name suggests, axe profit-seeking institutions,
In fact, commercial banks, as their name suggests, axe profit-seeking institutions,
i.e., they do banking business to earn profit.
They generally finance trade and commerce with short-term loans. They charge
high rate of interest from the borrowers but pay much less rate of Interest to
their depositors with the result that the difference between the two rates of
interest becomes the main source of profit of the banks. Most of the Indian joint
stock Banks are Commercial Banks such as Punjab National Bank, Allahabad
Bank, Canara Bank, Andhra Bank, Bank of Baroda, etc.

2. The two most distinctive features of a commercial bank are borrowing and lending,
i.e., acceptance of deposits and lending of money to projects to earn Interest (profit).
In short, banks borrow to lend. The rate of interest offered by the banks to depositors
is called the borrowing rate while the rate at which banks lend out is called lending
rate.
The difference between the rates is called ‘spread’ which is appropriated by the
banks.
banks.
Functions
Primary Functions of Commercial Banks
The primary functions of a commercial bank are as follows:
1. Accepting Deposits
Commercial banks accept deposits from people, businesses, and other entities in the
form of:
• Savings deposits – The commercial bank accepts small deposits, from households
or persons, in order to encourage savings in the economy.

3. • Time deposits – The bank accepts deposits for a fixed time and carries a
higher rate of interest as compared to savings deposits.
• Current deposits – These accounts do not offer any interest. Further, most
current accounts offer overdrafts up to a pre-specified limit. The bank,
therefore, undertakes the obligation of paying all Cheque against deposits
subject to the availability of sufficient funds in the account.
subject to the availability of sufficient funds in the account.
2. Lending of Funds
• Another important activity is lending funds to customers in the form of loans
and advances, cash credit, overdraft and discounting of bills, etc.
• Loans are advances that a bank extends to his customers with or without
security for a specified time and at an agreed rate of interest. Further, the
bank credits the loan amount in the customers’ account which he withdraws
as per his needs.

4. Under the cash credit facility, the bank offers its customers a facility to borrow
cash up to a certain limit against the security of goods. Further, an overdraft is an
arrangement that a bank offers to customers wherein a temporary facility is
offered to overdraw from the current account without any security.
Secondary Functions of Commercial Banks
• The secondary functions of a commercial bank are as follows:
Bank as an Agent
• A bank acts as an agent to its customers for various services like:
• Collecting bills, draft, Cheque, etc.
• Paying the insurance premium, rent, loan installments, etc.
• Working as a representative of a customer for purchasing or redeeming
securities, etc. in the stock exchange.

5. • Acting as an executor, administrator, or trustee of the estate of a customer
• Also, preparing income tax returns, claiming tax refunds, etc.
General Utility Services
• There are several general utility services that commercial banks offer like:
• Issuing traveler cheques
• Offering locker facilities for keeping valuables in safe custody
• Also, issuing debit cards and credit cards, etc.

6. Development in Commercial Banking sector since 1991s
Since nationalization of banks in 1969, the banking sector
had been dominated by the public sector. There was financial repression, role of
technology was limited, no risk management etc. This resulted in low profitability
and poor asset quality. The country was caught in deep economic crises. The
Government decided to introduce comprehensive economic reforms. Banking sector
reforms were part of this package. In august 1991, the Government appointed a
Government decided to introduce comprehensive economic reforms. Banking sector
reforms were part of this package. In august 1991, the Government appointed a
committee on financial system under the chairmanship of M. Narasimhan.
First Phase of Banking sector reforms
To promote healthy development of financial sector, the Narasimhan committee
made recommendations.
I) RECOMMENDATIONS OFNARASIMHAN COMMITTEE:
• Establishment of 4 tier hierarchy for banking structure with 3 to 4 large banks
(including SBI) at top and at bottom rural banks engaged in agricultural activities.

7. • The supervisory functions over banks and financial institutions can be assigned to a quasi-
autonomous body sponsored by RBI.
• Phased reduction in statutory liquidity ratio.
• Phased achievement of 8% capital adequacy ratio.
• Abolition of branch licensing policy.
II) Banking Reform Measures of Government: On the recommendations of Narasimhan
Committee, following measures were undertaken by government since 1991:
Committee, following measures were undertaken by government since 1991:
1. Lowering SLR and CRR:
• The high SLR and CRR reduced the profits of the banks. The SLR has been reduced from
38.5% in 1991 to 25% in 1997. This has left more funds with banks for allocation to
agriculture, industry, trade etc.
• The Cash Reserve Ratio (CRR) is the cash ratio of a bank’s total deposits to be maintained
with RBI. The CRR has been brought down from 15% in 1991 to 4.1% in June 2003. The
purpose is to release the funds locked up with RBI.

8. 2. Prudential Norms:
• Prudential norms have been started by RBI in order to impart professionalism
in commercial banks. The purpose of prudential norms include proper
disclosure of income, classification of assets and provision for Bad debts so as
to ensure that the books of commercial banks reflect the accurate and correct
picture of financial position.
picture of financial position.
• Prudential norms required banks to make 100% provision for all Non-
performing Assets (NPAs). Funding for this purpose was placed at Rs. 10,000
crores phased over 2 years.
3. Capital Adequacy Norms (CAN):
• Capital Adequacy ratio is the ratio of minimum capital to risk asset ratio. In
April 1992 RBI fixed CAN at 8%. By March 1996, all public sector banks had
attained the ratio of 8%. It was also attained by foreign banks.

9. 4. Deregulation of Interest Rates:
The Narasimhan Committee advocated that interest rates should be allowed to
be determined by
market forces. Since 1992, interest rate has become much simpler and freer.
• Scheduled Commercial banks have now the freedom to set interest rates on
• Scheduled Commercial banks have now the freedom to set interest rates on
their deposits subject to minimum floor rates and maximum ceiling rates.
• Interest rate on domestic term deposits has been decontrolled.
• The prime lending rate of SBI and other banks on general advances of over Rs.
2 lakhs has been reduced.
• Rate of Interest on bank loans above Rs. 2 lakhs has been fully decontrolled.
• The interest rates on deposits and advances of all Co-operative banks have
been deregulated subject to a minimum lending rate of 13%.

10. 5. Recovery of Debts:
• The Government of India passed the “Recovery of debts due to Banks and
Financial Institutions Act 1993” in order to facilitate and speed up the recovery
of debts due to banks and financial institutions. Six Special Recovery Tribunals
have been set up. An Appellate Tribunal has also been set up in Mumbai.
6. Competition from New Private Sector Banks:
• Now banking is open to private sector. New private sector banks have already
started functioning. These new private sector banks are allowed to raise
capital contribution from foreign institutional investors up to 20% and from
NRIs up to 40%. This has led to increased competition.

11. 7. Phasing Out Of Directed Credit:
• The committee suggested phasing out of the directed credit programme. It
suggested that credit target for priority sector should be reduced to 10% from
40%. It would not be easy for government as farmers, small industrialists and
transporters have powerful lobbies.
8. Access to Capital Market:
• The Banking Companies (Acquisition and Transfer of Undertakings) Act was
amended to enable the banks to raise capital through public issues. This is
subject to provision that the holding of Central Government would not fall
below 51% of paid-up-capital. SBI has already raised substantial amount of
funds through equity and bonds.
9. Freedom of Operation:
• Scheduled Commercial Banks are given freedom to open new branches and
upgrade extension counters, after attaining capital adequacy ratio and
prudential accounting norms. The banks are also permitted to close non-viable
branches other than in rural areas.

12. 10. Local Area banks (LABs):
• In 1996, RBI issued guidelines for setting up of Local Area Banks and it gave its
approval for setting up of 7 LABs in private sector. LABs will help in mobilizing
rural savings and in channeling them in to investment in local areas.
11. Supervision of Commercial Banks:
11. Supervision of Commercial Banks:
• The RBI has set up a Board of financial Supervision with an advisory Council to
strengthen the supervision of banks and financial institutions. In 1993, RBI
established a new department known as Department of Supervision as an
independent unit for supervision of commercial banks.

13. Management of Non-Performing Assets
• Interest and/ or instalment of principal remain overdue for a period of more than
90 days in respect of a term loan,
• The account remains ‘out of order’ for a period of more than 90 days, in respect of
an Overdraft/Cash Credit (OD/CC),
• The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,
• Interest and/or instalment of principal remains overdue for two harvest seasons
• Interest and/or instalment of principal remains overdue for two harvest seasons
but for a period not exceeding two half years in the case of an advance granted for
agricultural purposes, and w.e.f 30.09.2004 following further amendments were
issued by the Apex Bank:
• A loan granted for short duration crops will be treated as NPA if the instalment of
principal or interest thereon remains overdue for two crop seasons.
• A loan granted for long duration crops will be treated as NPA if the instalment of
principal or interest thereon remains overdue for one crop season.
• Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.

14. CATEGORIES OF NPA
• Substandard Assets – Which has remained NPA for a period less than or equal to
12 months.
• Doubtful Assets – Which has remained in the sub-standard category for a period
of 12 months
• Loss Assets – where loss has been identified by the bank or internal or external
• Loss Assets – where loss has been identified by the bank or internal or external
auditors or the RBI inspection but the amount has not been written off wholly.
PROVISIONING NORMS
The minimum amount of provision required to be made against a loan asset is
different for different types of assets:
– 10 percent on total outstanding should be made without making any allowance for
ECGC guarantee cover and securities available
– NPAs under Sub standard Assets category :The ‘unsecured exposures’ which are
identified as ‘sub standard’ would attract additional provision of 10 percent, i.e. a
total of 20 percent on the outstanding balance.
– The provisioning requirement for unsecured doubtful assets is 100 percent

15. NPA MANAGEMENT – PREVENTIVE MEASURES
• Formation of the Credit Information Bureau (India) Limited (CIBIL)
• Compromise settlement schemes
• Measures for faster legal process – Lok Adalats – Debt Recovery Tribunals
• Circulation of information on defaulters
• Circulation of information on defaulters
• Recovery action against large NPAs
• Asset Reconstruction Company
• Legal Reforms
• Corporate Debt Restructuring (CDR)
• Proposed guidelines on wilful defaults/diversion of funds
• Special Mention Accounts - Additional Precaution at the Operating Level

16. Latest Measures by RBI
The main proposals are:
– Early formation of a lenders’ committee with timelines to agree to a plan for
resolution.
– Incentives for lenders to agree collectively and quickly to a plan
– better regulatory treatment of stressed assets if a resolution plan is underway,
accelerated provisioning if no agreement can be reached.
– Improvement in current restructuring process: Independent evaluation of large
value restructurings mandated, with a focus on viable plans and a fair sharing of
losses (and future possible upside) between promoters and creditors.
– More expensive future borrowing for borrowers who do not co-operate with
lenders in resolution.
– More liberal regulatory treatment of asset sales.
– Lenders can spread loss on sale over two years provided loss is fully disclosed.
– Takeout financing/refinancing possible over a longer period and will not be
construed as restructuring.

17. Formation of Joint Lenders’ Forum:
As soon as an account is reported to CRILC as SMA-2, all lenders, including NBFC-
SIs, should form a lenders’ committee to be called Joint Lenders’ Forum (JLF)
under a convener and formulate a joint corrective action plan (CAP) for early
resolution of the stress in the account.
Corrective Action Plan (CAP) by JLF:
Corrective Action Plan (CAP) by JLF:
The options under Corrective Action Plan (CAP) by the JLF would generally
include: Rectification; Restructuring; Recovery
Compromise Settlement Schemes
• Banks are free to design and implement their own policies for recovery and
write off incorporation compromise and negotiated settlements with board
approval
• Specific guidelines were issued in May 1999 for one time settlement of small
enterprise sector.
• Guidelines were modified in July 2000 for recovery of NPAs of Rs.5 crore and
less as on 31st March 2007.

18. Lok Adalats
• Small NPAs up to Rs.20 Lakhs
• Speedy Recovery
• Veil of Authority
• Soft Defaulters
• Less expensive
• Easier way to resolve

19. SALE OF NPA TO OTHER BANKS
• A NPA is eligible for sale to other banks only if it has remained a NPA for at
least two years in the books of the selling bank
• The NPA must be held by the purchasing bank at least for a period of 15
months before it is sold to other banks but not to bank, which originally sold the
months before it is sold to other banks but not to bank, which originally sold the
NPA.
• The NPA may be classified as standard in the books of the purchasing bank for
a period of 90 days from date of purchase and thereafter it would depend on the
record of recovery with reference to cash flows estimated while purchasing
• The bank may purchase/ sell NPA only on without recourse basis
• If the sale is conducted below the net book value, the short fall should be
debited to P&L account and if it is higher, the excess provision will be utilized to
meet the loss on account of sale of other NPA.

20. SARFESI Act 2002
• SARFESI provides for enforcement of security interests in movable (tangible or
intangible assets including accounts receivable) and immovable property without
the intervention of the court
• The bank and FI may call upon the borrower by way of a written legal notice to
• The bank and FI may call upon the borrower by way of a written legal notice to
discharge in full his liabilities within 60 days from the date of notice, failing which
the bank would be entitled to exercise all or any of the rights set out under the
Act.
• Another option available under the Act is to takeover the management of the
secured assets
• Any person aggrieved by the measures taken by the bank can proffer an appeal
to DRT within 45 days after depositing 75% of the amount claimed in the notice.

21. Second Amendment & SARFESI
• The second amendment and SARFESI are a leap forward but requirement exists
to make the laws predictable, transparent and affordable enforcement by
efficient mechanisms outside of insolvency
• No definite time frame has been provided for various stages during the
• No definite time frame has been provided for various stages during the
liquidation proceedings
• Need is felt for more creative and commercial approach to corporate entities in
financial distress and attempts to revive rather than applying conservative
approach of liquidation.
Capital Adequacy Norms
Introduction to Capital Adequacy Norms
Along with profitability and safety, banks also give importance to
Solvency. Solvency refers to the situation where assets are equal to or more than
liabilities. A bank should select its assets in such a way that the shareholders and
depositors' interest are protected.

22. 1. Prudential Norms
The norms which are to be followed while investing funds are called "Prudential
Norms." They are formulated to protect the interests of the shareholders and
depositors. Prudential Norms are generally prescribed and implemented by the
central bank of the country. Commercial Banks have to follow these norms to
protect the interests of the customers.
protect the interests of the customers.
For international banks, prudential norms were prescribed by the Bank for
International Settlements popularly known as BIS. The BIS appointed a Basle
Committee on Banking Supervision in 1988.
2. Basel Committee
Basel committee appointed by BIS formulated rules and regulation for effective
supervision of the central banks. For this it, also prescribed international norms
to be followed by the central banks. This committee prescribed Capital Adequacy
Norms in order to protect the interests of the customers.

23. 3. Definition of Capital Adequacy Ratio
Capital Adequacy Ratio (CAR) is defined as the ratio of bank's capital to its risk
assets. Capital Adequacy Ratio (CAR) is also known as Capital to Risk (Weighted)
Assets Ratio (CRAR).
India and Capital Adequacy Norms
India and Capital Adequacy Norms
The Government of India (GOI) appointed the Narasimham Committee in 1991
to suggest reforms in the financial sector. In the year 1992-93 the Narasimhan
Committee submitted its first report and recommended that all the banks are
required to have a minimum capital of 8% to the risk weighted assets of the
banks. The ratio is known as Capital to Risk Assets Ratio (CRAR). All the 27 Public
Sector Banks in India (except UCO and Indian Bank) had achieved the Capital
Adequacy Norm of 8% by March 1997.
The Second Report of Narasimham Committee was submitted in the year 1998-
99. It recommended that the CRAR to be raised to 10% in a phased manner. It
recommended an intermediate minimum target of 9% to be achieved by the
year 2000 and 10% by 2002.

24. Concepts of Capital Adequacy Norms
Capital Adequacy Norms included different Concepts, explained as follows :-

25. 1. Tier-I Capital
Capital which is first readily available to protect the unexpected losses is called
as Tier-I Capital. It is also termed as Core Capital.
Tier-I Capital consists of :-
• Paid-Up Capital.
• Paid-Up Capital.
• Statutory Reserves.
Other Disclosed Free Reserves : Reserves which are not kept side for meeting
any specific liability.
Capital Reserves : Surplus generated from sale of Capital Assets.

26. 2. Tier-II Capital
Capital which is second readily available to protect the unexpected losses is
called as Tier-II Capital.
Tier-II Capital consists of :-
• Undisclosed Reserves and Paid-Up Capital Perpetual Preference Shares.
• Undisclosed Reserves and Paid-Up Capital Perpetual Preference Shares.
• Revaluation Reserves (at discount of 55%).
• Hybrid (Debt / Equity) Capital.
• Subordinated Debt.
• General Provisions and Loss Reserves.
• There is an important condition that Tier II Capital cannot exceed 50% of Tier-I
Capital for arriving at the prescribed Capital Adequacy Ratio.

27. 3. Risk Weighted Assets
Capital Adequacy Ratio is calculated based on the assets of the bank. The values of bank's
assets are not taken according to the book value but according to the risk factor involved.
The value of each asset is assigned with a risk factor in percentage terms.
4. Subordinated Debt
These are bonds issued by banks for raising Tier II Capital.
These are bonds issued by banks for raising Tier II Capital.
• They are as follows :-
• They should be fully paid up instruments.
• They should be unsecured debt.
• They should be subordinated to the claims of other creditors. This means that the bank's
holder's claims for their money will be paid at last in order of preference as compared
with the claims of other creditors of the bank.
• The bonds should not be redeemable at the option of the holders. This means the
repayment of bond value will be decided only by the issuing bank.

28. Overview of Development Banking in India
An outstanding financial development of the post-independence period has
been the rapid growth of development banks in the country. These banks are
specialized financial institutions which perform the twin functions of providing
medium and long-term finance to private entrepreneurs and of performing
various promo-tional roles conducive to economic development.
various promo-tional roles conducive to economic development.
As the name clearly suggests, they are development-oriented banks. As banks,
they provide finance. But they are unlike ordinary commercial banks in three
ways.
First, they do not seek or accept deposits from the public as ordinary banks do.
Second, they specialize in providing medium-and long- term finance, whereas
commercial banks have specialized in the provision of short-term finance.
Third and most important, they are not mere purveyors of long-term finance like
any ordinary term- lending institution.

29. As development banks (with emphasis on the word ‘development’) their chief
distinguishing role is the promotion-of economic development by way of
promoting investment and enter-prise (the two most scarce inputs in LDCs) in
their chosen (or allotted) spheres, whether manufacturing, agriculture, or some
other.
This promotional role may take a variety of forms, like provision of risk capital,
This promotional role may take a variety of forms, like provision of risk capital,
underwriting of new issues, arranging for foreign (exchange) loans, identification
of investment projects, preparation and evalua-tion of project reports, provision
of technical advice, market informa-tion about both domestic and export
markets, and management services.
How much of these services a development bank is in a position to render
depends upon the technical expertise it has been able to build up, the
competence of its staff and their experience. The Indian development banks
have as yet not developed so much as to be able to provide a whole gamut of
development services. But their contribution in the channeling of finance has
been sizeable and large-scale industry in the private sector has been the main
beneficiary.

30. The financial assistance to industry is given in the following four main forms:
(i) Term loans and advances,
(ii) Subscription to shares and debentures,
(iii) Underwriting of new issues, and
(iv) Guarantees for term loans and deferred payments.
(iv) Guarantees for term loans and deferred payments.
The first two forms place funds directly in the hands of companies as
subscriptions to shares and debentures are subscriptions to new issues. The last
two forms facilitate the raising of funds from other sources. For attracting risk
capital into the industry, such underwriting of shares by development banks is at
least as important as the direct subscription to these shares.
Guarantees from develop-ment banks assure creditors (banks and others) that
their credit to industry whether in the form of loans or deferred payments is
secured. For development banks, it only involves ‘contingent liabilities,’ that is
liabilities which become payable only when the underlying agree-ments are not
fulfilled. Therefore, such liabilities do not lock up funds of development banks,
but are instrumental in attracting funds from other sources.

31. The development banks in India are a post-independence phenomenon (except
the land development banks). Their structure is indicated in Figure 8.1. Some of
them are for promoting industrial development; some for the development of
agriculture; and one for foreign trade. Some are all-India institutions; others are
state or lower level institutions.
At present, at the all-India level, there are five industrial development banks,
At present, at the all-India level, there are five industrial development banks,
one agricultural development bank and one export-import bank. The
development banks for the industry are the Industrial Development Bank of
India (IDBI), the Industrial Finance Corporation of India (IFCI), the Industrial
Credit and Invest-ment Corporation of India (ICICI), and the Industrial
Reconstruction Corporation of India (IRCI) for large industries and the National
Small Industries Development Bank of India (SIDBI) for small-scale industries. For
agriculture, it is the National Bank for Agriculture and Rural Development
(NABARD).
The National Industrial Development Corporation (NIDC), which was set up by
the Government of India in 1954 for the promotion and development of
industries, had also provided some finance till 1963. But since then it has been
acting as only a consulting agency.

32. The “state level industrial development banks are the State Financial
Corporation’s (SFCs), the State Industrial Development Corporation (SIDCs) and
the State Industrial Investment Corpora-tions (SIICs). For promoting agricultural
development, there are main district-level banks, called land development
banks. The pre-sent article is devoted to a discussion of these several
development banks.
development banks.

33. Overview of NBFCs in India
• Non-Banking financial companies(NBFCs) means only those non- banking institutions
which are registered under the Companies Act, 2013 and is working in the section of
loans business and advances, acquisition of shares/bonds/debentures/securities/stock
issued by the government or non-government authorities. It is of marketable nature,
leasing, hire-purchase, insurance business, chit business but doesn’t relate to such
institutions that are engaging in the business activity of agriculture, industry or
institutions that are engaging in the business activity of agriculture, industry or
sale/purchase/construction of immovable property. This article focuses on the
classification of NBFCs in India.
• The principal business of Non- Banking financial company(NBFCs) is to receive deposits
under any scheme or arrangement or any other way, or lending in any way. Under section
45-1A, it has been written that without obtaining a certificate of Registration issued as
per the chapter- III B and not having a Net Owned Fund of rupees two hundred lakhs
(200,00,000), no NBFC is entitled to commence or carry on the business of Non- Banking
Financial Institution.

34. Types of Non- Banking Financial Company
The Non- Banking financial institutions (NBFCs) are mainly classified under the
following categories:
• LOAN COMPANY: it includes a company which is not an asset finance company
but a financial institution principally engaged in the business of lending funds
but a financial institution principally engaged in the business of lending funds
(other than its own) by loans or advances, or otherwise for any activity.
• INVESTMENT COMPANY: it consists of those companies or institutions whose
main business is to acquire and manage securities for investment purposes.
• ASSET FINANCE COMPANY: asset finance company are the financial
institutions carrying on its business mainly in the financing of physical assets
that correspond to productive/ economic activity for example- automobile,
lathe machines, tractors, generator system, earth moving and material
handling equipment moving on the power and general purpose
industrial machines.

35. • INFRASTRUCTURE FINANCE COMPANY: it is the kind of financial institution
principally engaged in providing infrastructure loans.
• MUTUAL BENEFITS FINANCIAL COMPANY: mutual benefit financial
company refers to the financial institution which is notified by the central
government under the companies act, 2013 whose primary aim is to enable its
members to pool their money with a precalculated investment objectives. Its
source of fund is share capital, deposits from its members and the general
members to pool their money with a precalculated investment objectives. Its
source of fund is share capital, deposits from its members and the general
public.
Classification of NBFCs
When it comes to a question of whether the company is a financial institution or
not, then the RBI (Reserve Bank of India) shall decide such questions in
consultation with the Central Government and its decision shall be final and be
binding on all the parties concerned.
When it comes to a question of whether a particular financial company is a loan
Company or an asset finance company, such question’s declaration shall be
announced by the Reserve Bank of India (RBI) on the basis of principal business
of a specific company and other relevant factors also. The decision of RBI shall be
final and be binding on all the parties concerned.

36. Sub-Classification of NBFCs
• Deposit-taking Non- Banking Financial Company [NBFC- D]
• Non- Deposit taking Non- Banking Financial Company[ NBFC_ND]
• Systematically important Non- Banking Financial Company should have assets
size of Rs. 100 Crore or more [NBFC-ND-S1]
size of Rs. 100 Crore or more [NBFC-ND-S1]
• These are Core investment Non-Deposit companies and systematically
important who has already redistributed its 90% assets as an investment in
shares or debts instruments or loan in group companies and out of 90%, 60%
should be invested in equity shares or those instruments which can be
compulsorily converted into equity shares. It accepts public funds also [CIC-
ND-SI]

37. Registration of Non- Banking Financial Company:
No NBFC is entitled to carry forward its business until it satisfies the various
conditions laid down under the chapter 45-1A of the RBI Act, 1934.
There are following steps that need to be followed:
• FORMATION OF A COMPANY: the first and foremost step is to register a new
• FORMATION OF A COMPANY: the first and foremost step is to register a new
company name under the Companies Act, 2013 reflecting the characters of
NBFC which should contain words such as Investment, Finance etc. as a part of
the name.
• MINIMUM NET OWNED FUND: the minimum paid-up capital on equity shares
should be 2 crore.
• OPENING OF A BANK ACCOUNT: while considering the application for the
grant of Certificate of registration, the RBI verifies that the company must have
its own separate account free from all liens. Generally, funds are kept in Fixed
Deposit Account.