Saturday, 18 February 2017

Financial Organisation in India Part 2 | Banking

Financial Organisation in India

National Automated Clearing House (NACH)

The Reserve Bank of India offers the Electronic Clearing System (ECS) for faster payments and collections. ECS is an electronic mode of payment / receipt for transactions that are repetitive and periodic in nature. By repetitive and periodic, it is meant that the transactions occur repetitively and after a fixed time interval.
But ECS lacks certain things like it takes around 30 days for its activation after submitting the required documents, it is regional based, etc.
To overcome the problems faced by ECS, National Payments Corporation of India (NPCI) came with another system called National Automated Clearing House (NACH). NACH is a centralised system, launched with an aim to consolidate multiple ECS systems running across the country and provides a framework for the harmonization of standard & practices and removes local barriers/inhibitors. It intends to provide a single set of rules (operating and business), open standards and best industry practices for electronic transactions which are common across all the Participants, Service Providers and Users etc.

Like ECS, NACH also is an electronic mode of payment / receipt for transactions that are repetitive and periodic in nature. NACH system is used by institutions for making bulk payment of amounts or for bulk collection of amounts.
  • Examples for bulk payment of amounts include automatic paying of interest, salary, pension, etc. by the organizations.
  • Examples for bulk collection of amounts includes automatic paying of telephone / electricity / water bills, cess / tax collections, loan installment repayments, periodic investments in mutual funds, insurance premium, etc. by the citizens of the country.

Like ECS, NACH has both Debit and Credit variants

  1. Direct Credit, which involves distribution of salary, pensions, dividends, interest, etc to the relevant stakeholders at set frequency and periods and
  2. Direct Debit, which making regular fixed payments towards insurance premiums, loan repayments, recurring deposits, etc.

How NACH is different from its predecessor ECS?

  • NACH consolidates all regional ECS systems into one national payment system.
  • A reduction in turnaround time to 10 days is expected via NACH white it was around 30 days in ECS system.
  • ECS is controlled by the Reserve Bank of India or by the designated commercial banks, while NACH will be managed by NPCI.
  • IN ECS, during any discretion the management of dispute is left to the Destination Bank and Sponsor Bank while in case of NACH, there is a well-defined Dispute Management System; electronic platform to raise and resolve issues.
  • ECS had local barriers, while NACH will not have any.

Some facts about NACH:

  • From 1st May, 2016 NACH replaced ECS.
  • Those who are using ECS already can use ECS till their validity expires. After this, one will have to fill NACH forms instead of ECS forms.
  • NACH forms can be availed from AMC (Asset Management Company) offices or their websites.
  • The structure of NACH allows member banks to design their own products to ensure the needs of their retain customers, corporate clients and Government.

Some of the benefits of NACH scheme:

  • NACH Credit and Debit schemes can be initiated by institutions/individuals who apply for it.
  • There is no need to go to bank branches/ collection centres after all formalities are completed while applying.
  • Freedom from paper handling such as cheques as all credits and debits are done electronically.
  • So it avoids the loss and fraudulent of papers in transit.
  • NACH is very cost effective.
  • This system eliminates the local barriers and facilitates same day transactions anywhere in India.
  • Customers need not keep track of due date for payments. 

Non-Banking Financial Company (NBFC)

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/ securities issued by Government or local authority or other marketable securities.
A NBFC does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
NBFCs lend and make investments and hence their activities are similar to that of banks; however there are a few differences as given below:
  • NBFC cannot accept demand deposits;
  • NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
  • deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

Every NBFC should be registered with RBI under the RBI Act, 1934. The requirements for a company to be registered as NBFC with RBI are:
  • It should be a company registered under Section 3 of the companies Act, 1956 and
  • It should have a minimum net owned fund of Rs 200 lakh.

Some facts related to NBFC:

  • The list of registered NBFCs with RBI can be find on RBI site.
  • The interest rates charged to the borrowers by NBFCs are not regulated by RBI. NBFC has the right to choose its own interest rates. However, NBFC should provide complete transparency to its customer about the rate of interest charged in the application form.
  • All NBFCs are not entitled to accept public deposits. Only those NBFCs to which the Bank had given a specific authorization can accept public deposits.
  • The RBI does not guarantee repayment of deposits by NBFCs even though they may be authorized to collect deposits.
  • If an NBFC defaults in repayment of deposit, the depositor can approach Company Law Board or Consumer Forum or file a civil suit in a court of law to recover the deposits.
  • There is no Ombudsman for hearing complaints against NBFCs.
  • However, in respect of credit card operations of an NBFC, which is a subsidiary of a bank, if a complainant does not get satisfactory response from the NBFC within a maximum period of 30 days from the date of lodging the complaint, the customer will have the option to approach the Office of the concerned Banking Ombudsman for redressal of his grievance/s.

Residuary Non-Banking Company (RNBC)

A RNBC is a non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner. It is also a non-banking financial company. The functioning of these companies is different from those of NBFCs in terms of method of deposits.

The following chart gives the overview of regulators of different types of Non-Banking Companies:


 Securities and Exchange Board of India (SEBI)

The Securities and Exchange Board of India (SEBI) was established in the year 1988 and given statutory powers on 12 April 1992 through the SEBI Act, 1992. SEBI was set up to regulate the functions of securities market. Its headquarters is in Mumbai, and has Northern,
Eastern, Southern and Western Regional Offices in New Delhi, Kolkata, Chennai and Ahmedabad respectively. There are local offices also.
Earlier SEBI was set up to only observe the activities of the market but in May 1992 it was granted legal status. It is known as the market watchdog.

The Board consists of the following members, namely:

  • a Chairman;
  • two members from amongst the officials of the ministry of the Central Government dealing with Finance
  • one member from amongst the officials of the Reserve Bank;
  • five other members of whom at least three shall be the whole-time members
to be appointed by the central Government.


SEBI has to be responsive to the needs of three groups, which constitute the market:

  • the issuers of securities: SEBI provides a place to issuers where they can raise their finance fairly and easily.
  • the investors:  SEBI provides investors from any fraudulent activities and provide them with the accurate information.
  • the market intermediaries: SEBI provides the market intermediaries a competitive professional market.

Some facts about SEBI:

  • It regulates the business in stock exchanges and any other securities markets;
  • It promotes and regulating self-regulatory organizations;
  • It prohibits fraudulent and unfair trade practices relating to securities markets;
  • It prohibits insider trading in securities;
  • It approves the appointments of chairman in the Exchanges in the country like NSE, BSE, etc.
  • A company should register with SEBI when it wants to go for an IPO (Initial Public Offering).

Securities Appellate Tribunal

Securities Appellate Tribunal is a statutory body established under the provisions of Section 15K of the Securities and Exchange Board of India Act, 1992 to hear and dispose of appeals against orders passed by the Securities and Exchange Board of India.
Complaints against companies registered with SEBI
If one has any complaint against a listed company/ intermediary registered with SEBI, he should first approach the concerned company/ intermediary against whom he has a complaint. If one is not satisfied with the response, he can turn to  SCORES (Sebi COmplaints REdress System). SCORES facilitates you to lodge your complaint online with SEBI and subsequently view its status.

Security Printing and Minting Corporation of India Limited (SPMCIL)

Security Printing and Minting Corporation of India Limited (SPMCIL) was incorporated on 13 January 2006 under the Companies Act, 1956 with its headquarters in New Delhi. It is a Miniratna Company and is wholly owned by the Government of India.
The work of SPMCIL includes manufacturing of security paper, minting of coins, printing of currency and bank notes, non-judicial stamp papers, postage stamps, travel documents, etc.
The vision of SPMCIL is “To be leader in manufacturing of currency, coins and security products through process excellence and innovation”.
It has nine units including four mints, four presses and one paper mill.


Printing Presses:

There are 4 printing presses in the country which are
  • Currency Note Press, Nashik Road
  • Bank Note Press, Dewas
  • India Security Press, Nashik
  • Security Printing Press, Hyderabad
The first two are currency printing presses which are engaged in production of Bank Notes for our country as well as for foreign countries using state of the art technology. These units are equipped with designing, engraving, complete Pre-printing and Offset facilities, Intaglio Printing machines, Numbering & Finishing machines etc. The Bank Note Press Dewas also manufactures different types of security ink for various security organizations.
The last two are security printing presses which have specialized technology and multiple printing processes to produce security products under secure operating procedures and manufacturing protocols. These presses have the latest technological facilities for Designing, Pre-printing and Post-Printing.
India Security Press, Nashik prints and supplies judicial/non-judicial stamp papers, all types of postal & non postal stamps & stationery, passports, visa & other travel documents, MICR & Non-MICR Cheques in continuous Stationery form, Identity Cards, Railway Warrants, Income Tax Return Order Forms, Saving Instruments, commemorative stamps etc. It has printed tickets for Commonwealth Games 2010.
Security Printing Press, Hyderabad was established in the year 1982 to cater to the needs of the Central and various State Governments by printing and supplying security documents such as Postal Stationery items, Central Excise Stamps, Non-Judicial Stamps, Court Fee Stamps, Indian Postal Orders and Saving Instruments etc.


The Mints are situated at Mumbai, Hyderabad, Kolkata and Noida.
Mints at Mumbai, Hyderabad and Kolkata were established before independence.
Click here to read about minting of coins and the four mints.

Paper Mill

The Security Paper Mill (SPM), Hoshangabad was established in 1968 which is responsible for manufacturing of different types of Security Papers. It provides the numerous security features in paper via Fluorescence Fibres, Multi-tonal three Dimensional Watermark, Electrotype Watermark, various types of Security Threads, Tangents, etc.

Small Industries Development Bank of India (SIDBI)

Small Industries Development Bank of India (SIDBI) was set up on April 2, 1990 under an Act of Indian Parliament. It has its head office in Lucknow, Uttar Pradesh. It was set up to promote, finance and develop the Micro, Small and Medium Enterprise (MSME) sector and for coordinating the functions of the institutions engaged in similar activities.

Mission of SIDBI:

“To facilitate and strengthen credit flow to MSMEs and address both financial and developmental gaps in the MSME eco-system”.

The four basic objectives of SIDBI are:

  • Financing
  • Promotion
  • Development
  • Co-ordination
for orderly growth of industry in the small scale sector.


Associates of SIDBI:

    • Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
Government of India and SIDBI set up the CGTMSE in July 2000 to provide credit guarantee support of loans up to Rs. 100 lakh to MSMEs under its Credit Guarantee Scheme (CGS).
    • SME Rating Agency of India Ltd. (SMERA)
SIDBI along with some leading banks set up SMERA in September 2005 to provide comprehensive, transparent and reliable ratings and risk profiling.
    • India SME Technology Services Ltd. (ISTSL)
ISTSL was set up in November 2005 which provides a platform for MSMEs to tap opportunities at the global level for acquisition of modern technologies.
    • India SME Asset Reconstruction Company Ltd. (ISARC)
ISARC is the country’s first MSME focused Asset Reconstruction Company set up for the resolution of non-performing assets (NPA) which would facilitate greater and easier flow of credit from the banking sector to the MSMEs.
    • Delhi Financial Corporation (DFC)
DFC has been set under ‘The State Financial Corporation Act, 1951 with objectives to promote, finance and develop industries / service activities in the small and medium scale sectors including commercial transport in the NCT, Delhi and UT, Chandigarh.

Facts about SIDBI:

  • The business domain of SIDBI consists of Micro, Small and Medium Enterprises (MSMEs).
  • It was set up as a wholly owned subsidiary of Industrial Development Bank of India, but now is an independent financial institution.
  • Its branches are available in all major clusters of the country.
  • SIDBI is in the top 30 Development Banks of the World according to the ranking of The Banker, London.
  • SIDBI also provides financial support to National Small Industrial Corporation (NSIC) for providing leasing, hire-purchase, and marketing support to the industrial units in the small-sector.