BFI Sample Commerce

Banking and Financial Institutions
Banking
&
Financial Institutions
HUMAN PERITUS
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Contents
1. Reserve Bank of India....................................................................................................................................... 5
1.1 Governance Structure ................................................................................................................................. 5
1.2 Functions of RBI......................................................................................................................................... 7
1.3 Monetary Policy Management .................................................................................................................. 11
2. Indian Financial System.................................................................................................................................. 15
2.1 Types of Banks ......................................................................................................................................... 15
2.2 Commercial Banks .................................................................................................................................... 16
2.3 Foreign Banks ........................................................................................................................................... 18
2.4 Payment & Small Finance Banks ............................................................................................................. 19
2.5 Regional Rural Banks ............................................................................................................................... 21
2.6 Local Area Banks...................................................................................................................................... 22
2.7 Co-operative Banks................................................................................................................................... 22
3. Banking Sector Reforms in India .................................................................................................................... 25
3.1 NPA Management..................................................................................................................................... 26
3.2 BASEL Norms .......................................................................................................................................... 28
3.3 Risk Management ..................................................................................................................................... 30
4. Financial Inclusion .......................................................................................................................................... 34
4.1 FI Journey in India .................................................................................................................................... 34
5. Financial Market ............................................................................................................................................. 38
5.1 Money Market........................................................................................................................................... 38
5.2 Capital Market .......................................................................................................................................... 43
Primary Market ........................................................................................................................................... 44
Secondary market ....................................................................................................................................... 45
Instruments of Capital Market .................................................................................................................... 46
5.3 Financial Intermediaries............................................................................................................................ 48
5.4 Government Securities Market ................................................................................................................. 50
6. Financial Institutions....................................................................................................................................... 54
6.1 Development Finance Institutions ............................................................................................................ 54
6.2 Private Equity ........................................................................................................................................... 59
6.3 Mutual Funds ............................................................................................................................................ 60
6.4 Pension Funds ........................................................................................................................................... 62
6.5 NBFC ........................................................................................................................................................ 68
6.6 Credit Rating Agencies in India ................................................................................................................ 71
7. Financial Regulators in India (other than RBI, IRDA) ................................................................................... 72

7.1 Securities and Exchange Board of India ................................................................................................... 72
7.2 Pension Fund Regulatory and Development Authority ............................................................................ 72
7.3 Forward Markets Commission (FMC)...................................................................................................... 73
7.4 Insolvency and Bankruptcy Board of India (IBBI) ................................................................................... 73
8. Insurance ......................................................................................................................................................... 74
8.1 Insurance Structure in India ...................................................................................................................... 74
8.2 Life Insurance ........................................................................................................................................... 78
8.3 Non-Life Insurance ................................................................................................................................... 79
8.4 Regulatory Framework of Insurance......................................................................................................... 80
8.5 Life Insurance Council and General Insurance Council ........................................................................... 82
8.6 Insurance Ombudsmen Rules 2017 .......................................................................................................... 83
8.7 Risk Management ..................................................................................................................................... 84
8.8 Factors limiting the insurability of risk ..................................................................................................... 87
8.9 Reinsurance............................................................................................................................................... 88
9. Digitization of Banking & Payment Systems ................................................................................................. 90
9.1 Types of Digital Payments ........................................................................................................................ 90
1. Reserve Bank of India

Pursuant to the recommendation of the Royal Commission on Indian Currency and Finance, a Bill was
introduced in the Legislative Assembly in 1927 to create a central bank for India, which was later withdrawn
due to lack of agreement among various sections of people. Subsequently, a White Paper on Indian
Constitutional Reforms (1933) recommended the establishment of the Reserve Bank in India.
The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve
Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was
permanently moved to Mumbai in 1937.
Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the
Government of India.
The Preamble of the Reserve Bank of India describes itsbasic functions:

 It regulates the issue of Bank notes,
 Maintains reserves with a view to securing monetary stability in India,
 operate the currency and credit system of the country to its advantage,
 have a modern monetary policy framework to meet the challenge of an increasingly complex
economy,
 maintain price stability while keeping in mind the objective of growth.
The RBI has 5 training establishments:

 Two, namely, College of Agricultural Banking and Reserve Bank of India Staff College are part of the
Reserve Bank
 Others are autonomous, such as, National Institute for Bank Management, Indira Gandhi Institute for
Development Research (IGIDR), Institute for Development and Research in Banking Technology
(IDRBT)
The RBI has following Subsidiaries:

 Deposit Insurance and Credit Guarantee Corporation of India (DICGC) (set up in 1978),
 Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) (set up in 1995),
 National Housing Bank (NHB) (set up in 1987),
 Reserve Bank Information Technology Private Limited (ReBIT)
1.1 Governance Structure

The RBI has following Governance structure from the top to the bottom (in this order):
 Governor
 Deputy Governor
 Executive Governor
 Principal Chief General Managers
 Chief General Managers
 General Managers
 Deputy General Managers
 Assistant General Managers
 Managers
 Assistant Managers
 Support Staff
The Reserve Bank's affairs are governed by a central Board of Directors. The board is appointed by the
Government of India in accordance with the Reserve Bank of India Act. The board is appointed for a period of
4 years.
Official Directors: There are provisions for a Governor and not more than 4 Deputy Governors, are appointed
Full time. Shri Shaktikanta Das is the current Governor of the RBI.
Non-official Directors: The Government also appoints 10 Directors from various fields and 2 government
Officials.
The Central Board is assisted by 3 committees:

 the Committee of the Central Board (CCB)
 the Board for Financial Supervision (BFS)
 the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS)
These committees are chaired by the Governor.
In addition, the Central Board has 4 subcommittees:

 Audit and Risk Management Sub-Committee (ARMS)
 Human Resource Management Sub-Committee (HRM-SC)
 Building Sub- Committee (BSC)
 Information Technology Sub-Committee (IT-SC)
These sub-committees are headed by an external director.
There are also provisions for 4 Local Boards, one each for 4 regions of the country in Mumbai, Calcutta,
Chennai and New Delhi. Each Local Board consists of 5 members, which are appointed by the Central
Government for a term of 4 years.
The functions of Local Board is to advise the Central Board on local matters and to represent territorial and
economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by
Central Board from time to time.
Board for Financial Supervision

The Reserve Bank of India performs the supervisory function under the guidance of the Board for Financial
Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of
Directors of the Reserve Bank of India under the Reserve Bank of India (Board for Financial Supervision)
Regulations, 1994.
The primary objective of BFS is to undertake consolidated supervision of the financial sector comprising
Scheduled Commercial and Co-operative Banks, All India Financial Institutions, Local Area Banks, Small
Finance Banks, Payments Banks, Credit Information Companies, Non-Banking Finance Companies and
Primary Dealers.
The Board is constituted by co-opting four Directors from the Central Board as Members and is chaired by the
Governor. The Deputy Governors of the Reserve Bank are ex-officio members. One Deputy Governor,
traditionally, the Deputy Governor in charge of supervision, is nominated as the Vice-Chairman of the Board.
The Board is required to meet normally once every month. It deliberates on inspection reports, periodic
reviews related to banking and non-banking sectors and policy matters arising out of or having relevance to the
supervisory functions of the Reserve Bank.
The BFS oversees the functioning of Department of Banking Supervision (DBS), Department of Non-Banking
Supervision (DNBS) and Department of Co-operative Bank Supervision (DCBS) and gives directions on
regulatory and supervisory issues.
Some of the initiatives taken by the BFS include:

 Fine-tuning the supervisory processes adopted by the Bank for regulated entities;
 Introduction of off-site surveillance system to complement the on-site supervision of regulated
entities;
 Strengthening the statutory audit processes of banks and enlarging the role of auditors in the
supervisory process;
 Strengthening the internal defences within supervised institutions such as corporate governance,
internal control and audit functions, management information and risk control systems, review of
housekeeping in banks;
 Introduction of supervisory rating system for banks and financial institutions;
 Supervision of overseas operations of Indian banks, consolidated supervision of banks;
 Technical assistance programme for cooperative banks;
 Introduction of scheme of Prompt Corrective Action Framework for weak banks;
 Guidance regarding fraud risk management framework in banks;
 Introduction of risk based supervision of banks;
 Introduction of an enforcement framework in respect of banks;
 Establishment of a credit registry in respect of large borrowers of supervised institutions; and
 Setting up a subsidiary of RBI to take care of the IT requirements, including the cyber security needs
of the Reserve Bank and its regulated entities, etc.
Board for Regulation and Supervision of Payment and Settlement Systems (BPSS)
The Board for Regulation and Supervision of Payment and Settlement Systems, BPSS provides oversight on
payment and settlement systems as well as direction for policy initiatives. The Governor is the Chairman of the
BPSS, while two Deputy Governors, three Directors of the Central Board and some permanent invitees with
domain expertise are its members. The BPSS lays down policies for regulation and supervision of payment and
settlement systems, sets standards for existing and future systems, authorizes such systems, and lays down
criteria for their membership.
1.2 Functions of RBI

The functions of RBI are not confined only within the provisions of the RBI Act, but extend to various areas,
such as, regulation and supervision of banks, consumer protection, management of foreign exchange,
management of government securities, regulation and supervision of payment systems, etc., for which powers
are drawn from various other laws, namely, the Banking Regulation Act, 1949, Foreign Exchange
Management Act, 1999, Government Securities Act, 2006, Payment and Settlement Systems Act, 2007, etc.
The key functions of RBI are:
Monetary Authority
The RBI formulates implements and monitors the monetary policy. The objective is maintaining price stability
while keeping in mind the objective of growth.
Chapter III-F of the RBI Act provides for a statutory basis for the Monetary Policy Framework and the
Monetary Policy Committee. The Central Government, in consultation with the RBI shall determine the
inflation target in terms of the Consumer Price Index, once in every five years, which needs to be notified in
the Official Gazette.
Regulator and Supervisor of the financial system

The RBI prescribes broad parameters of banking operations within which the country's banking and financial
system functions. The objective is to maintain public confidence in the system, protect depositors' interest and
provide cost-effective banking services to the public.
The power to regulate and supervise banks has been provided under the provisions of the Banking Regulation
Act, 1949 (BR Act, 1949) to the RBI.
Firstly, Section 5(ca) of the BR Act, 1949, states that banking policy means any policy, which is specified
from time to time by the RBI, in the interest of the banking system or in the interest of monetary stability or
sound economic growth, having due regard to the interests of the depositors.
Secondly, as a part of RBI's regulatory power, it has been empowered under Section 10BB of the BR Act,
1949, to appoint a Chairman or Managing Director of a banking company for the reasons stated therein.
Similarly, as a part of control over management, Section 36-AB of BR Act, 1949, provides for power to
appoint additional directors on the boards of banking companies. Not only the powers to appoint managerial
persons but also the power to remove them are vested with the RBI under Section 36-AA of the BR Act,
1949. Moreover, the RBI has been empowered under BR Act, 1949, to supersede the board of banking
companies.
Though the business of banking is within the domain of a banking company, the power to control advances
by banking companies is also provided to the RBI under Section 21 of the BR Act, 1949. Similarly, Section
22 of the BR Act, 1949 confers on the RBI the power to issue license and also to cancel licenses of banking
companies.
Another important regulatory power that has been vested with the RBI is its power to issue directions to
banking companies. Under Section 35-A of the BR Act, 1949, RBI has the power to issue directions to
banking companies in the public interest or in the interest of banking policy or to prevent the affairs of any
banking company being conducted in a manner detrimental to the interests of the depositors.
The provisions of the Banking Regulation (Amendment) Act, 2017, provides for handling cases relating to
stressed assets. Stressed assets are loans where the borrower has defaulted in repayment or where the loan has
been restructured, etc. In terms of Sections 35-AA and 35-AB of the BR Act, 1949, the RBI has been
specifically authorized to issue directions to banking companies for resolution of stressed assets.
As a part of the supervisory power, the RBI has been empowered to inspect banking companies on its own or
at the instance of Central Government under the provisions of the BR Act, 1949.
Manager of Foreign Exchange

The RBI is responsible for managing the Foreign Exchange Management Act, 1999. The objective is to
facilitate external trade and payment and promote orderly development and maintenance of foreign exchange
market in India.
The powers and responsibilities with respect to external trades and payments, development and maintenance of
foreign exchange market in India are conferred on the RBI under the provisions of the Foreign Exchange
Management Act, 1999 (FEMA). Section 10 of the FEMA empowers the RBI to authorize any person to be
known as authorized person to deal in foreign exchange or in foreign securities, as an authorized dealer, money
changer or off-shore banking unit or in any other manner as it deems fit.
Issuer of Currency
The RBI issues and exchanges or destroys currency and coins not fit for circulation. The objective is to give
the public adequate quantity of supplies of currency notes and coins and in good quality.
As per the RBI Act, the RBI has the sole right to issue bank notes in India. The issue of bank notes shall be
conducted by a department called the Issue Department, which shall be separated and kept wholly distinct from
the Banking Department. The RBI Act enables the RBI to recommend the Central Government regarding the
denomination of bank notes.
The design, form and material of bank notes shall be as approved by the Central Government on the
recommendations of Central Board of the RBI.
Every bank note shall be a legal tender at any place in India, however, on recommendation of the Central
Board, the Central Government may declare any series of bank notes of any denomination to be not a legal
tender. Another important function is exchange of mutilated or torn notes, which under the RBI Act is not a
matter of right, but a matter of grace. The bank notes that are being issued by the RBI are exempt from
payment of stamp duty.
Banking Functions
The RBI is Banker to the Government. It performs merchant banking function for the central and the state
governments and thus acts as their banker. The RBI is also Banker to banks and thus maintains banking
accounts of all scheduled banks.
Section 17 of the RBI Act enables RBI to do banking business, such as accepting deposits, without interest,
from any person. The other businesses, which the RBI may transact, are also mentioned in the said provision.
It states that the RBI may transact various businesses such as acceptance of deposits without interest from
Central Government and State Governments, purchase, sale and rediscount of Bills of Exchange, short term
Loans and Advances to banks, annual Contributions to National Rural Credit Funds, dealing in Derivatives,
purchase and sale of Government Securities, purchase and sale of shares of State Bank of India, National
Housing Bank, Deposit Insurance and Credit Guarantee Corporation, etc., keeping of deposits with SBI for
specific purposes, making and issue of Banknotes, etc.
Similarly, Section 18 facilitates the RBI to act as 'Lender of Last Resort' whereas Section 19 states the list of
businesses in which the RBI may not transact. Apart from this, the provisions of the RBI Act enables the RBI
to act as banker to Central Government and State Governments. Under Sections 20 and 21 of the RBI Act,
the RBI shall have an obligation and right respectively to accept monies for account of the Central Government
and to make payments up to the amount standing to the credit of its account, and to carry out its exchange,
remittance and other banking operations, including the management of the public debt of the Union. In the case
of State Governments, the said banking functions may be undertaken by way of an agreement between the RBI
and the State Government concerned as provided in Section 21-A of the RBI Act. These agreements made
between the RBI and the State Governments are statutory as they are required to be laid before the Parliament
as soon as they are made.
Public Debt Functions

The Parliament of India enacted the Government Securities Act, 2006 ('GS Act') with an objective to
consolidate and amend the law relating to Government securities and its management by the Reserve Bank of
India. The GS Act applies to Government securities created and issued by the Central Government or a State
Government. The GS Act prescribes the procedure and modalities to be followed by the RBI in the
management of the public debt and also confers various powers on the RBI including the power to determine
the title to a Government security if there exists any doubt in the opinion of the RBI.
Regulation and Supervision of NBFC

Section 45-IA of the RBI Act mandates every non-banking financial company to obtain a certificate of
registration from the RBI and to maintain net owned fund as may be specified by the RBI in the Official
Gazette, before commencing such non-banking financial business. Further, as a part of regulation and
supervision of non-banks, the RBI has been conferred with the statutory powers to regulate or prohibit issue of
prospectus or advertisements soliciting deposits of money by non-banking financial companies, power to
determine policy and issue directions to the 35 non-banking financial companies, etc.
Thus, it may be noted that, the power of the RBI to regulate and supervise banking companies emanates from
the provisions of the BR Act whereas the powers to regulate and supervise non-banks has the source from the
RBI Act.
Regulation & Supervision of Co-operative banks

The entry relating to Cooperative Societies fall in State List (Article 246 of the Constitution of India) whereas
the entry relating to Banking fall in the Union List. This results in the duality of jurisdiction over cooperative
banks both by the Reserve Bank of India, in terms of the Banking Regulation Act, 1949, and the Registrar of
Cooperative Societies (of the State concerned).
As a part of the regulatory and supervisory regime over co-operative banks, the RBI has been entrusted with
the powers to issue licenses and cancel licenses of co-operative banks, supersede their boards, inspect them
and also issue directions to them in the public interest, interest of banking policy, control over loans and
advances, etc.
The Co-operative banks have been discussed in detail, later in this booklet.
Regulation of Derivatives and Money Market Instruments

Chapter III-D was inserted in the RBI Act with effect from 9th Jan 2007 by way of an amendment to the RBI
Act, 1934. In the said chapter, the Parliament of India thought it was appropriate to introduce provisions
relating to regulation of transactions relating to derivatives, money market instruments, securities, etc. by
the RBI.
Payment and Settlement Functions

The Parliament of India enacted the Payment and Settlement Systems Act, 2007 (PSS Act, 2007) with an
objective to provide for the regulation and supervision of payment systems in India and to designate the
Reserve Bank of India as the authority for that purpose.
Consumer Protection Functions

The protection of the interests of the Consumers has been one of the vital mandates of the RBI. The various
provisions in the RBI Act, 1934, BR Act, 1949, etc., are replete with the phrases like in the interests of
depositors wherever it entrusts power to the RBI.
Financial Inclusion and Development Functions

The mushrooming of unauthorized and unregulated money lenders in the financial system of the country
necessitated the RBI to do something more than what has been provided in the RBI Act, 1934, or the BR Act,
1949. Thus RBI takes various initiatives on Financial Inclusion and Financial Literacy.
Acts administration
The list of Acts administrated by the RBI are:
 Reserve Bank of India Act, 1934
 Public Debt Act, 1944/Government Securities Act, 2006
 Government Securities Regulations, 2007
 Banking Regulation Act, 1949

 Foreign Exchange Management Act, 1999
 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
(Chapter II)
 Credit Information Companies (Regulation) Act, 2005
 Payment and Settlement Systems Act, 2007
 Factoring Regulation Act, 2011
1.3 Monetary Policy Management

The Monetary Policy refers to the policy of the central bank with regard to the use of monetary instruments
under its control to achieve the goals specified in the Act. The Reserve Bank of India (RBI) is vested with the
responsibility of conducting monetary policy. This responsibility is explicitly mandated under the Reserve
Bank of India Act, 1934.
In order to attain the objectives of monetary policy, it is necessary to have a consistent policy framework.
Broadly, monetary policy framework consists of objectives, operating procedure and governance
arrangements.
 The Objectives are the aims of the monetary policy, which are goal variables or nominal anchors and
long-term in scope but are not directly under the control of the central bank.
 The Operating procedure essentially deals with how the central bank intends to influence the
operating targets and thereby the intermediate target with the use of monetary policy instruments at its
disposal and attain the end objectives of monetary policy. Therefore, the operating procedure is
essentially the day-to-day management of monetary conditions consistent with the overall stance of
the monetary policy. In other words, operating procedure is also called the nuts and bolts of monetary
policy.
 The Governance arrangements primarily deal with the process of decision making and focus on
responsibilities, powers and accountability of the monetary authority.
Before 2016, the objectives of monetary policy was to maintain price stability and ensuring adequate flow of
credit to the productive sectors of the economy. However, pursuant to the amendment to RBI Act, 1934, in
May 2016, the primary objective of monetary policy is to maintain price stability while keeping in mind the
objective of growth.
Further, in 2016 amendment, it was added that, it is essential to have a modern monetary policy framework
to meet the challenges of an increasing complex economy.
Background
The Committee to Review the Working of the Monetary System (Chairman: Dr. Sukhamoy Chakravarty)
recommended in 1985 a new monetary policy framework based on monetary targeting with feedback, drawing
on empirical evidence of a stable demand function for money.
Monetary Targeting Framework

Under this framework, broad money became the intermediate target while reserve money was one of the main
operating instruments for achieving control on broad money growth. Accordingly, monetary (M3) projection
was made consistent with the expected real GDP growth and a tolerable level of inflation.
Technically, in a simple form, if expected real GDP growth was 6 per cent, the income elasticity of demand for
money was 1.5 and a tolerable inflation was 5 per cent, the M3 expansion target was set at 14 per cent (M3
growth = 1.5(6) +5 =14 percent). This framework was in operation during mid-1980s to 1997-98.
4. Financial Inclusion
Financial Inclusion, FI is the process of ensuring access to appropriate financial products and services needed
by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and
transparent manner by mainstream Institutional players. The FI is a multidimensional concept, which includes:
(i) Banking inclusion – allowing access to and being able to make effective use of bank accounts.
(ii) Savings inclusion – allowing access to and being able to actively use savings products.
(iii) Credit inclusion – allowing access to and being able to make effective use of (mainstream) credit.
(iv) Financial Service Inclusion – allowing access to appropriate insurance and pension products.
(v) Information Inclusion - allowing access to timely and appropriate information and being able to take
informed decisions.
4.1 FI Journey in India

Earlier, in India, the financial services have been used by a very limited group of people. To enlarge the area
and service sector, certain policy measures have been taken by the Governments. The historical journey of FI
in India, has been described below.
Before 1990, several initiatives were undertaken for enhancing the use of the banking system for sustainable
and equitable growth. These included:
 Nationalization of banks (1969–1980)
 Priority sector lending requirements
 Lead bank scheme (1969)
 Establishment of regional rural banks (1975–1976)
 Service area approach (1989)
 Self-help group - bank linkage program (1989–1990)
The Lead Bank Scheme, introduced towards the end of 1969, envisages assignment of lead roles to individual
banks (both in public sector and private sector) for the districts allotted to them. A bank having a relatively
large network of branches in the rural areas of a given district and endowed with adequate financial and
manpower resources has generally been entrusted with the lead responsibility for that district.
Under Self-help group - bank linkage program, banks were allowed to open savings accounts for Self-Help
Groups (SHGs). SHGs are registered/unregistered entities which usually has a membership of 15 to 20
members from very low income families, usually women. They mobilize savings from members and uses the
pooled funds to give loans to the needy members. Under this program, banks provide loans to the SHGs
against group guarantee and the quantum of loan could be several times the deposits placed by such SHGs with
the banks. Banks should consider entire credit requirements of SHG members, namely, (a) income generation
activities, (b) social needs like housing, education, marriage, etc. and (c) debt swapping. The programme was
started at the initiative of NABARD in 1992 to link the unorganised sector with the formal banking sector.
The Service Area Approach (SAA) was a scheme launched by the RBI in 1989 for an orderly development of
the rural areas of the country. Under the SAA, all rural and semi-urban branches of banks were allocated
specific villages, generally in geographical difficult areas, the overall development and the credit needs of
which were to be taken care of by the respective branches. The concerned bank should meet the banking needs
of the service area by creating link between bank credit- production and productivity and income expansion.
The State Level Bankers Committee (SLBC) were constituted in 1970s, as an apex inter-institutional forum
to create adequate coordination machinery for Financial Inclusion and other developmental issues. It comprises
representatives of Commercial Bank, RRBs, State Co-operative Banks, RBI, NABARD, heads of Government
Departments, representatives of Financial Institutions etc. operating in a State. There is one sponsor bank for
each SLBC. Similarly there are District Level Committees with district level Lead District Manager, LDM.
The Reserve bank of India setup a commission (Khan Commission) in 2004 to look into Financial Inclusion
and the recommendations of the commission were incorporated into the Midterm review of the policy (2005-
06).
Some of the steps taken by RBI include the directive to banks to offer No-frills account, easier KYC norms,
offering GCC cards to the poor, better customer services, promoting the use of IT and intermediaries and
asking SLBCs and UTLBCs to start a campaign to promote FI on a pilot basis.
No-Frill Accounts is a basic saving fund account having all the features of a normal saving fund account
which it differs in the following aspects. (i). The holder is not required to maintain any minimum balance
requirement and also nothing is charged for opening this type of account (ii). KYC norms have been simplified
so that everyone can have this account (iii). Transactions are limited to 5-10 free transactions per month (iv).
ATM facility is provided free of cost (v). There is no account maintenance cost.
Banks were advised to give credit in the form of overdraft on saving bank account to its customers, so that
in case of small credit need like medical bill, any accidental charges etc. can be met in.
The ‘Know Your Customer’ (KYC) norms were relaxed in 2008 for No-Frill Accounts, in order to make it
easy for people to avail financial services. In 2010-11, KYC norms were further relaxed by including (a) job
cards issued by/under National Rural Employment Guarantee Act (NREGA) and (b) Aadhaar letters in the list
of Proof of Identity (PoI) documents, required for opening bank account.
In 2005, the RBI advised all scheduled commercial banks including RRBs, to introduce a General Credit Card
(GCC) Scheme for issuing GCC to their constituents in rural and semi-urban areas based on the assessment of
income and cash flow of the household similar to that prevailing under a normal credit card.
Eligible farmer were provided a Kisan Credit Card and a Pass Book or a Card-cum-Passbook. Revolving cash
credit facility allowing any number of withdrawals and repayments within the limit.
In 2006, the Government of India constituted the Committee on Financial Inclusion under the chairmanship of
Dr. Rangarajan to prepare a strategy of FI.
In January 2006, the RBI permitted banks to utilise the services of Non Governmental Organisations
(NGOs/SHGs), Micro Finance Institutions (other than Non-Banking Financial Companies), and other civil
society organisations (CSOs), as intermediaries in providing financial and banking services through the use of
Business Facilitators (BFs) and Business Correspondents (BCs) model. The BC model allows banks to do
‘cash in-cash out’ transactions at a location much closer to the rural population thus addressing the last mile
problem. During 2010-11, in order to harness the large and widespread retail network of corporate for
providing financial and banking services, ‘for profit’ companies were also allowed to be engaged as
intermediaries to work as BCs for banks in addition to entities permitted earlier.
The BCs carry hand held devices which are essentially smart card readers (now a days, Aadhaar based
biometric authentication devices). The information captured is transmitted to a central server where the
accounts are maintained. These devices are used for making payments to rural customers and receiving cash
from them at their door steps. Mobile phones have also been developed to serve as card readers. Account
holders are issued smart cards which have their photographs and finger impressions.
In the budget speech in 2007 (February), the Finance Minister announced setting up of two funds of Rs 50
Crores each, viz: Financial Inclusion Fund (FIF) and Financial Inclusion Technology Fund (FITF). The
objective of the FIF was, to support ‘developmental and promotional activities’, with a view of securing
greater FI, particularly among weaker sections, low income groups and in under developed regions and
hitherto unbanked areas. The objectives of FITF were to enhance investment in Information and
Communications Technology (ICT), aimed at stimulating research and technology innovation in the area of FI,
increase the adoption of technology among financial services providers.
Financial Literacy Centres are basic units that initiate the financial literacy activities at the ground level as it
enable consumers to understand benefits of formal products and to make choices that fit their needs and
represent good value for money.
The Working Group to Examine the Procedures and Processes of Agricultural Loans (Chairman: Shri C. P.
Swarnakar), appointed by Reserve Bank, had recommended in its report (April 2007) that banks should
actively consider opening of counselling centres, either individually or with pooled resources, for credit and
technological counselling. Accordingly, a Model Scheme for "Financial Literacy and Credit Counseling
Centres (FLCC)" was launched by RBI in 2009.
In year 2012, Lead banks were advised by RBI to set up Financial Literacy Centres (FLCs) in each of the Lead
District Manager (LDM) Offices in a time bound manner.
During Phase-I (2010-13), all unbanked villages with population more than 2,000 were identified and allotted
to various banks (public sector banks, private sector banks and regional rural banks) through State Level
Bankers’ Committees (SLBCs) for coverage through various modes – Branch or BC or other modes such as
ATMs, mobile vans, etc. It was named Swabhimaan Scheme.
After the completion of the first phase of the roadmap, the second phase (2013-16) to provide banking services
in unbanked villages with populations less than 2000 was rolled out.
All domestic Scheduled Commercial Banks (SCBs) – both in the public sector and private sector – were
advised to draw up board-approved Financial Inclusion Plans (FIPs) as an integral part of their business
strategy based on their competitive advantage. FIPs are submitted to the Reserve Bank and are implemented
over blocks of three years.
In April 2011, domestic SCBs were mandated to open at least 25 per cent of the total branches opened during a
year, in unbanked rural (Tier-5 and Tier-6) centres.
Basic Saving Bank Deposit (BSBD) accounts were provisioned in 2012. These accounts had minimum
common facilities such as no minimum balance, deposit and withdrawal of cash at bank branch and ATMs,
receipt/ credit of money through electronic payment channels, facility of providing ATM card.
Direct Benefit Transfer or DBT was launched by the Government in 2013. This was done by transfering
subsidies directly to the people through their bank accounts. The objetive was that, crediting subsidies into
bank accounts will reduce leakages, delays, etc.
In September 2013, banks were allowed to provide e-KYC services based on Aadhaar thus paving the way for
bank accounts to be opened by all and facilitating easy access to banking services.
The Direct Benefit Transfer of LPG (DBTL) or PAHAL (Pratyaksh Hanstantrit Labh) scheme was launched
in 2013 for transfer of subsidy directly into bank account of beneficiary for LPG cylinder.
Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched in 2014 for opening of no-frills accounts. The
Bank account opened under PMJDY does not require minimum balance. Further there is overdraft facility up
to Rs 5000 after 6 months. Free RuPay debit card is also made available. The Account opening and bank
transactions are possible through business correspondent. There is also inbuilt Rs. 1 lakh accident insurance
cover and a Life Insurance cover of Rs 30,000.
The JAM (short for Jan Dhan-Aadhaar-Mobile) trinity is the initiative by Government of India to link Jan
Dhan accounts, Mobile numbers and Aadhar cards of Indians to directly transfer subsidies to intended
beneficiaries and eliminate intermediaries and leakages. The JAM trinity was first proposed in the Economic
Survey 2014-15.
A Committee on Comprehensive Financial Services for Small Businesses and Low Income Households͟ was
set up by the RBI in Sep 2013 under the chairmanship of Nachiket Mor, an RBI board member.
In 2015, the Reserve Bank of India (RBI) constituted a committee to work out a five-year (medium-term)
action plan for financial inclusion under the RBI executive director Deepak Mohanty.
Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana
(PMSBY) were launched in 2015. PMJJBY offers a renewable one year term life cover of Rs 2 Lakh to all
subscribing bank account holders in the age group of 18 to 50 years, covering death due to any reason, for a
premium of Rs. 330 per annum per subscriber, to be auto debited from subscriber’s bank account. Similarly,
PMSBY offers a renewable 1 year accidental death cum disability cover to all subscribing bank account
holders in the age group of 18 to 70 years for a premium of Rs. 12 per annum per subscriber to be auto debited
from subscriber’s bank account. The scheme provides a cover of Rs. 2 Lakh for accidental death or total
permanent disability and Rs 1 Lakh in case of permanent partial disability.
Pradhan Mantri MUDRA Yojana (PMMY) was launched in 2015 for providing loans upto 10 lakh to the
non-corporate, non-farm small/micro enterprises. These loans are classified as MUDRA loans under PMMY.
These loans are given by Commercial Banks, RRBs, Small Finance Banks, Cooperative Banks, MFIs and
NBFCs. The borrower can approach any of the lending institutions mentioned above or can apply online
through this portal. Under the aegis of PMMY, MUDRA has created three products namely 'Shishu', 'Kishore'
and 'Tarun' to signify the stage of growth / development and funding needs of the beneficiary micro unit /
entrepreneur and also provide a reference point for the next phase of graduation / growth.
Shishu: covering loans up to Rs 50,000
Kishor: covering loans above Rs 50,000 and up to Rs. 5 lakh

Tarun: covering loans above Rs 5 lakh and up to Rs. 10 lakh
Micro Units Development & Refinance Agency Ltd (MUDRA) has been set up as a wholly owned subsidiary
of SIDBI for “funding the unfunded” micro enterprises in the country.
Atal Pension Yojna was launched in 2015 is open to all bank account holders in the age group of 18 to 40
years and they can choose different contributions based on the pension amount. Under this scheme monthly
pension is guaranteed to the subscriber and after him to his spouse and after their death, pension corpus as
accumulated till the age of 60 years is returned to the nominee of subscriber. Central Government also
contributes 50% of the contribution subject to a maximum of Rs 1000 per annum.
In 2018, the Government launched the Financial Inclusion Index to compare performance of states in
Financial Inclusion. The Department of Financial Services (DFS), Ministry of Finance will release an Annual
Financial Inclusion Index (FII) which will be a measure of access and usage of a basket of formal financial
products and services that includes savings, remittances, credit, insurance and pension products. The index will
have three measurement dimensions; (i) Access to financial services (ii) Usage of financial services and (3)
Quality. It enables fulfilment of G20 Financial Inclusion Indicators requirements.
(iii) Balanced Schemes: Aim to provide both growth and income by periodically distributing a part of
the income and capital gains they earn. They invest in both shares and fixed income securities in the
proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may
not normally keep pace or fall equally when the market falls.
(iv) Money Market / Liquid Schemes: Aim to provide easy liquidity, preservation of capital and
moderate income. These schemes generally invest in safer, short term instruments such as treasury
bills, certificates of deposit, commercial paper and interbank call money. Returns on these schemes
may fluctuate, depending upon the interest rates prevailing in the market.
(v) Other Schemes: Tax Saving Schemes (Equity Linked Saving Scheme - ELSS): These schemes
offer tax incentives to the investors under tax laws as prescribed from time to time and promote long
term investments in equities through Mutual Funds.
(vi) Special Schemes: This category includes index schemes that attempt to replicate the performance
of a particular index such as the BSE Sensex, the NSE 50 (NIFTY) or sector specific schemes which
invest in specific sectors such as Technology, Infrastructure, Banking, Pharma etc.
Besides, there are also schemes which invest exclusively in certain segments of the capital market,
such as Large Caps, Mid Caps, Small Caps, Micro Caps, 'A' group shares, shares issued through Initial
Public Offerings (IPOs), etc.
6.4 Pension Funds

Background
In 1999 the Government of India commissioned a national project, OASIS (an acronym for "old age social and
income security"), to examine policies related to old age income security in India. Based on the
recommendations of the OASIS report, the Government of India introduced a new Defined Contribution
Pension System for the new entrants to Central/State Government service, except for the armed forces,
replacing the existing system of the Defined Benefit Pension System.
On 23 August 2003, the Interim Pension Fund Regulatory & Development Authority (PFRDA) was
established through a resolution by the Government of India to "promote old age income security by
establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of
pension funds and for matters connected therewith or incidental thereto." The Pension Fund Regulatory &
Development Authority Act was passed on 19 September 2013 and notified on 1 February 2014, thus setting
up PFRDA as the regulator for pension sector in India.
The contributory pension system was notified by the Government of India on 22 December 2003, now named
as the National Pension System (NPS) with effect from 1 January 2004. The NPS was subsequently extended
to all citizens of the country with effect from 1 May 2009, including self-employed professionals and others in
the unorganized sector on a voluntary basis.
Types of Pensions
Pensions broadly divided into two sector: (A) Formal sector Pensions (B) Informal sector Pensions
(A) Formal Sector Pensions: The formal sector pensions in India can be divided into 3 categories:
(i) Those schemes that come under an Act or Statute: There are three defining Acts for pensions in
India:
(a) Pensions under the EPF&MP Act 1952: These include the Employees Provident Fund,
Employees Pension Scheme, and Employees Deposit Linked Insurance Scheme,
(b) Pensions under the Coal mines PF&MP Act 1948: These include Coal mines provident
fund, Coal mines pension scheme & Coal mines linked insurance scheme.
(c) Gratuity under the Payment of Gratuity Act, 1972.
There are other provident funds in India like Assam Tea Plantations PF, J&K PF, and
Seamen’s PF etc.
(ii) Government pensions: The Government pensions in India are defined under the Directive
Principles of State policy and are therefore not under a Statute. The Government amended the
regulations to put in place the new pension system. The old scheme continues for the existing
employees (i.e. those who joined service prior to January 1, 2004). Pensions for government
employees would include employees of the central as well as the state governments.
(a) Central Government Pensions like Civil servants pensions, Defenses, Railways, Posts.
(b) State Government Pensions
Bank pensions like Reserve Bank of India (RBI), Public Sector Banks, National Bank for Agriculture
and Rural Development (NABARD) and other banks pensions.
(iii) Voluntary pensions: Superannuation schemes are also sold in the market. These are typically
plans sold by Mutual funds and Insurance companies (Life Insurance & Postal Life Insurance).
(B) Informal Sector Pensions: The Government has stepped up its efforts to extend coverage of formal
pension arrangements to the nearly 350 million informal sector workers.
Pension Funds
Pension Fund means a fund established by an employer to facilitate and organize the investment of employees'
retirement funds contributed by the employer and employees. The pension fund is a common asset pool meant
to generate stable growth over the long term, and provide pensions for employees when they reach the end of
their working years and commence retirement.
Pension funds are commonly run by some sort of financial intermediary for the company and its employees,
although some larger corporations operate their pension funds in-house. Pension funds control relatively large
amounts of capital and represent the largest institutional investors in many nations. Pension funds now a days
in India play a huge role in development of the economy and it play active role in the Indian equity markets. A
change both in their investment attitudes and in the regulatory climate, encouraging them to increase their
investment levels in equities and would have a massive impact on capital market and on the economy as a
whole.
Since early withdrawal of funds is usually restricted or forbidden, pension funds have long term liabilities,
allowing holding of high risk and high return instruments. Accordingly, monies are intermediated by pension
funds into a variety of financial assets, which include corporate equities, government bonds, real estate,
corporate debt (in the form of loans or bonds), securitized loans, foreign holdings of the instruments mentioned
above and money market instruments and deposits as forms of liquidity.
Following are the features of Pension funds:

(a) Risk pooling for small investors, by this they provide a better trade-off of risk and return than for
direct holdings;
(b) Premium on diversification, both by holding a spread of domestic securities (which may be both
debt and equity) and also by international investment;
(c) Preference for liquidity, and hence for large and liquid capital markets, which trade standard or
'commoditized' instruments;
(d) Ability to absorb and process information, superior to that of individual investors in the capital
market;
(e) Large size and thus economies of scale, which result in lower average costs for investors;
(f) Countervailing power which may be used to reduce transactions costs and custodial fees.
Pension Fund Regulatory and Development Authority (PFRDA)

Pension Fund Regulatory and Development Authority was established with the President’s assent on 19
September 2013 and was made a permanent Act. The President was the guardian of PFRDA till Financial Year
2014-15 and it has become fully autonomous and functions independently from FY 2014-15.
It is a Central autonomous body and is a quasi-government organization and has executive, legislative and
judicial powers similar to other financial sector regulators in India such as Reserve Bank of India (RBI),
Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA)
and, Insolvency and Bankruptcy Board of India (IBBI).
Following are the function of Pension Fund Regulatory and Development Authority:
 Regulate NPS and pension schemes to which PFRDA Act applies
 Establish, develop and regulate pension funds
 Protect the interest of pension fund subscribers
 Register and regulate intermediaries
 Approve schemes, terms and conditions, and laying down norms for management of corpus of pension
funds
 Establish grievance redressal mechanism for subscribers
 Promote professional organization connected with the pension system
 Settle disputes among intermediaries and also between intermediaries and subscribers
 Train intermediaries and educate subscribers and the general public with respect to pension, retirement
savings and related issues
 Regulate the regulated assets
 Call for information, conduct inquiries, investigation and audit of intermediaries and other entities
connected with pension funds
NPS architecture
The NPS architecture consists of the following entities:
1. NPS Trust, which is entrusted with safeguarding subscribers' interests. National Pension System Trust
(NPST) was established by PFRDA as per the provisions of the Indian Trusts Act of 1882 for taking care of
the assets and funds under the NPS in the best interest of the subscribers. The powers, functions and duties of
NPS Trust are laid down under the PFRDA (National Pension System Trust) Regulations 2015.
2. Central Recordkeeping Agencies (CRAs) which maintains the data and records, performs the following
list of functions:
• Registration of Subscribers and issuance of Permanent Retirement Account Number.
• Dispatch of PRAN Card, IPIN/TPIN and Welcome Kit.
• Digitization and maintenance of Subscriber record/preferences.
• Updating Subscriber record/preferences based on requests made for change/revision.
The CRAs are: NSDL e-Governance Infrastructure Limited and Karvy Computershare Private Limited.
3. Point of Presence (POP) are collection, distribution and servicing arms. The functions includes subscriber
registration, processing of initial contribution, processing of regular contribution, changes in subscriber details,
grievance handling etc.
4. Pension fund managers (PFM) for managing the investments of subscribers act as, a custodian to take care
of the assets purchased by the fund managers. The Pension Fund functions in accordance with the terms of the
Letter of Appointment and the Regulations issued by Authority from time to time.
5. Trustee bank to manage the banking operations. Trustee Bank as an intermediary is responsible for the
day-to-day flow of funds and banking facilities in accordance with the guidelines/ directions issued by the
Authority under NPS. It receives NPS funds from all Nodal Offices and transfers the same to the Pension
Funds / Annuity Service Providers/other intermediaries as per the operational guidelines.
Axis Bank Ltd. has been appointed as Trustee Bank under NPS by PFRDA w.e.f. 1st July, 2015. The
appointment of Trustee Bank is valid for five (5) years subject to annual review by PFRDA.
6. Annuity Service Providers (ASPs) are to be appointed by PFRDA, to maintain the annuity contribution of
subscribers through their various schemes. Subscribers will have the option to invest their amount into one
annuity scheme upon retirement/resignation. ASPs would be responsible for delivering a regular monthly
pension (annuity) to the subscriber for the rest of his/her life.
Currently, 5 Annuity Service Providers have been appointed:
1) Life Insurance Corporation of India
2) HDFC Life Insurance Co. Ltd
3) ICICI Prudential Life Insurance Co. Ltd
4) SBI Life Insurance Co. Ltd
5) Star Union Dai - ichi Life Insurance Co. Ltd
7. Subscribers: An Indian citizen between the age of 18-65 years, whether resident or non-resident, can join
NPS either as an individual or as an employer-employee group subject to KYC documentation and submission
of relevant information. Once you have attained 65 years of age, you cannot further contribute to the NPS
accounts.
In Nov 2017, the PFRDA increased the maximum age of joining under NPS-Private Sector (i.e. All Citizen
and Corporate Model) from 60 years to 65 years of age. Now, any Indian Citizen, resident or non-resident,
between the age of 60- 65 years, can also join NPS and continue up to the age of 70 years in NPS. With this
increase of joining age, the subscribers who are willing to join NPS at the later stage of life will be able to avail
the benefits of NPS.
The subscribers receive a Permanent Retirement Account Number (PRAN) card which has a 12-digit unique
number. The numbers of subscribers as on 28th February 2019 are 1.23 Crores.
NPS is a market linked, defined-contribution product that needs you to invest regularly in the funds of your
choice. Being a market-linked product, returns are based on the performance of the fund that you choose. As
on May 2019, the number of pension fund managers (PFM) is 8, given below:
1. SBI Pension Funds
2. LIC Pension Fund
3. UTI Retirement Solutions
4. HDFC Pension Fund
5. ICICI Prudential Pension Fund
6. Kotak Pension Fund
7. Reliance capital Pension Fund
8. Birla Sun Life Pension Management Ltd.
No investments allowed in the following:

(a) International Securities - Strict Capital Account Controls exist in India. No Indian citizen or
corporate can invest overseas.
(b) Stocks – India has a large stock market
(c) Real Estate – Only Financial Assets allowed
(d) Gold – Only Financial Assets allowed
(e) No investments permitted in Bank or Corporate Deposits
(f) Investment allowed only in marketable securities
(g) No loans to individuals or Corporate
(h) Only exception is Central Government’s Special Deposits
Recent developments
Until now, private sector subscribers could choose who will manage their NPS corpus from among the 8
pension fund managers under NPS, the pension savings of government subscribers was mandatorily split
equally between three public sector pension fund managers—SBI Pension Funds Pvt. Ltd, LIC Pension Fund
Ltd and UTI Retirement Solutions Ltd.
Through a notification dated 31 January 2019, the PFRDA permitted the Central government employees to
choose their own pension fund manager from among the 8 fund managers under NPS. Government employees
can also decide the funds they want to invest in and in what percentage, within the conditions laid out under
NPS.
The same notification has also given government employees the freedom to choose between four types of asset
allocations, which are:
A) Existing asset allocation (with equity capped at 15%);
B) 100% in Government Bonds;
C) Conservative Lifecycle Fund with equity allocation capped at 25%; and
D) Moderate Lifecycle Fund with equity allocation capped at 50%.
In effect, government subscribers can now increase their equity exposure. Earlier, their contributions were
invested only in option A mentioned above, where equity was capped at 15%.
The subscriber can choose to invest either, wholly or in combination, from the four types of investment
schemes offered by the pension fund managers. These are:
1. Scheme E (equity) which allows up to 75% equity participation, this is invested in stocks. (limited
was increased from 50% to 75% in Oct 2018)
2. Scheme C (corporate debt) which invests only in high-quality corporate bonds (100 % limit).
3. Scheme G (government/Gilt bonds) which invests only in government bonds (100% limit).
4. Scheme A (Alternative Investment)which allows up to 5% (Newly added asset class only for
private sector subscriber with active choice)
Alternatively, the subscriber can opt for the default scheme, where his portfolio is rebalanced each year for the
proportion of equity, corporate bonds, and government bonds as per the time left to retirement.
NPS offers 2 types of accounts to its subscribers:

Tier I: The primary account, which is a pension account with restrictions on withdrawals and utilization of
accumulated corpus. All the tax breaks that NPS offers are applicable only to Tier I accounts.
Tier II: In order to introduce some liquidity to the scheme, the PFRDA allows for a Tier II account where
subscribers with pre-existing Tier I accounts can deposit and withdraw money as and when they want. NPS
Tier II is an investment account, similar to a mutual fund in characteristics. The contribution to voluntary
savings account (also called Tier-II account) can only be made by the subscriber and not by any third party.
Withdrawal
At any point in time before 60 years of Age: Subscriber would be required to invest at least 80% of the
pension wealth to purchase a life annuity from any IRDA regulated life insurance company. Rest 20% of the
pension wealth may be withdrawn as lump sum.
On attaining the Age of 60 years and upto 70 years of age: At exit subscriber would be required to invest
minimum 40 percent of his accumulated savings (pension wealth) to purchase a life annuity from any IRDA
regulated life insurance company.
Subscriber may choose to purchase an annuity for an amount greater than 40 percent. The remaining pension
wealth can either be withdrawn in a lump sum on attaining the age of 60 or in a phased manner, between age
60 and 70, at the option of the subscriber.
In case of phased manner subscriber has to withdraw minimum 10% of the pension wealth (lump sum amount)
every year. Any amount lying to the credit at the age of 70 should be compulsorily withdrawn in lump sum.
Death due to any cause: In such an unfortunate event, option will be available to the nominee to receive
100% of the NPS pension wealth in lump sum.
Atal Pension Yojana

To encourage people from the unorganised sector to voluntarily save for their retirement the Central
Government launched a co-contributory pension scheme, 'Swavalamban Pension Scheme' in the Union Budget
of 2010-11. Under Swavalamban Pension Scheme, the government will contribute a sum of Rs. 1,000 to each
eligible NPS subscriber who contributes a minimum of Rs. 1,000 and maximum Rs. 12,000 per annum. The
scheme targets the unorganized sector of the country. The government used to contribute an amount of Rs
1000 every year for people who had their National Pension Scheme (NPS) accounts, which were funded by the
grants of the government itself.
The Atal Pension Yojana replaced the SwavalambanYojana, and was thus launched in May 2015. The National
Pension Scheme later got replaced with Atal Pension Yojana which allowed subscription to anyone who is a
citizen of India and falls under the age group of 18 to 40 years. The scheme provides pension up to Rs 5000 a
month when a person reaches 60 years of age.
You are eligible to avail the benefits provided to you by Atal Pension Yojana if:
1. You are a citizen of India.
2. You fall under the age group of 18 to 40 years.
3. You will be able to make contributions for at least 20 years.
4. You have a bank account that is linked to your Aadhar.
5. You have a valid mobile number.
Also, people who were registered under SwavalambanYojana will automatically be able to get benefits under
Atal Pension Yojana too. Payment of pension and exit from the Pension Yojana is not allowed, except in
situations like terminal disease or death of the account holder.
The amount that is to be contributed will depend on:
1. The age at which you register yourself for the pension yojana.
2. The pension slab you opt for, ranging from Rs. 1000 to Rs. 5000.
3. The time of contribution you choose amidst monthly, half-yearly, or quarterly.
If you register yourself at the age of 18 years, you will have to make a monthly contribution of Rs 42. But, if
you register yourself at the age of 40, you'll be required to make a monthly contribution of Rs 291. In a similar
manner, if you opt for joining the slab of Rs 5000 pension per month at the age of 18 years, you'll have a make
a monthly contribution of Rs 210 and of Rs 1454 if you join at the age of 40 years.
NPS Lite
The NPS-Lite is basically designed with the intention to secure the future of the people who are economically
disadvantaged and who are not financially well to do. The Pension Fund Regulatory and Development
Authority (PFRDA) have introduced the National Pension System-Lite (NPS-Lite) with effect from April 01,
2010.
The servicing model of NPS Lite is based on group servicing. The people forming part of this low income
groups will be represented through their organizations known as "Aggregators" who would facilitate in
subscriber registration, transfer of pension contributions and subscriber maintenance functions. Subscribers in
the age group of 18 to 60 can join NPS - Lite through the aggregator and contribute till the age of 60.
Pradhan Mantri Shram Yogi Maan-dhan (PM-SYM) Scheme

The Government had launched a mega pension scheme for the unorganised sector in the interim Budget 2019.
The scheme would ensure old age protection for the workers in this sector. The category of unorganised
workers include agricultural workers, construction workers, beedi workers, home-based workers, street
vendors, mid-day meal workers, head loaders, brick kiln workers, cobblers, rag pickers, domestic workers,
washermen, rickshaw pullers, landless labourers, handloom workers, leather workers, audio-visual workers
and similar other occupations whose monthly income is Rs 15,000/ per month or less and belong to the entry
age group of 18-40 years. These people should not be under the New Pension Scheme (NPS), Employees’
State Insurance Corporation (ESIC) scheme or Employees’ Provident Fund Organisation (EPFO). Further,
he/she should not be an income taxpayer.
The following benefits lies under the scheme which can be availed by the contributors;
(i) Minimum Assured Pension: After attaining the age of 60 years, each subscriber under the PM-SYM, shall
receive minimum assured pension of Rs 3000/- per month.
(ii) Family Pension: The criteria for the same falls under the condition if subscriber dies, the spouse will
receive the pension which will be 50% of the pension amount. No other person is applicable for the same.
(iii) Benefits: If a beneficiary has given regular contribution and died due to any cause (before age of 60
years), his/her spouse will be entitled to join and continue the scheme subsequently by payment of regular
contribution or exit the scheme as per provisions of exit and withdrawal.
The contribution of subscriber to PM-SYM shall be made through ‘auto-debit’ facility from his/ her savings
bank account/ Jan- Dhan account. The amount for the same is given by the subscriber from the date of joining
till the age of 60 years.
The PM-SYM is a voluntary and contributory pension scheme on 50:50 basis where prescribed age-specific
contribution shall be made by the beneficiary and the matching contribution by the Central Government. The
subscriber will be required to have a mobile phone, savings bank account and Aadhaar number. The eligible
subscriber may visit the nearest Common Services Centers (CSC e-Governance Services India Limited (CSC
SPV)) and get enrolled for PM-SYM using Aadhaar number and savings bank account/ Jan-Dhan account
number on self-certification basis.
LIC will be the Pension Fund Manager and responsible for Pension pay out. The amount collected under PM-
SYM pension scheme shall be invested as per the investment pattern specified by Government of India. PM-
SYM will be a Central Sector Scheme administered by the Ministry of Labour and Employment and
implemented through Life Insurance Corporation of India and CSC e-Governance Services India Limited
(CSC SPV). LIC will be the Pension Fund Manager and responsible for Pension pay out. The amount collected
under PM-SYM pension scheme shall be invested as per the investment pattern specified by Government of
India.
6.5 NBFC
India has financial institutions which are not banks but perform bank like functions, especially the financial
intermediation of mobilisation of deposits and extending credit. These are called Non-Banking Financial
Companies (NBFCs).
The NBFCs in India include not just the finance companies that the general public is largely familiar with; the
term also entails wider group of companies that are engaged in investment business, insurance, chit fund,
mutual benefit finance companies (nidhis), merchant banking, stock broking, alternative investments, etc., as
their principal business. Though NBFCs do undertake bank like financial activities, none of them have access
to cheaper funds like banks through demand deposits. Therefore, most of the NBFCs rely on public funds such
as bank borrowings, Non-Convertible Debentures (NCDs), inter-corporate loans and commercial papers which
raise the cost of funding. Leveraging on these funds, NBFCs have emerged as a very important and significant
segment of the financial sector.
The bank-like financial intermediation undertaken by enterprises other than banks is referenced as 'shadow
banking system' globally.
A Non-Banking Financial Company (NBFC) as defined in the RBI Act, 1934 is a Company registered under
the Companies Act and engaged in the business of:
 Lending or financing
 Acquisition of shares / stocks / bonds/ debentures/securities issued by Government or local authority
 Leasing & hire-purchase
 Insurance business
 Chit business
 Collection of monies
 Acceptance of deposits
but does not include any company which carries on its principal business in
 Agriculture operations,
 Industrial activity
 Purchase or sale of any goods (other than securities)
 Providing any services and
 Sale / purchase / construction of immovable property.
Only those NBFCs that satisfy the 'Principal Business criteria' defined by the RBI will get themselves
registered with the RBI and these entities will be regulated and supervised by RBI. Financial activity as
“principal business” is when a company's financial assets constitute more than 50 per cent of the total assets
and income from financial assets constitute more than 50 per cent of the gross income. A company, which
fulfils both these criteria, will be registered as NBFC by the RBI.
Such NBFCs should bring in the minimum Net Owned Fund (NOF) stipulated for their category by the RBI
and obtain a Certificate of Registration (COR) from RBI. Hence, if there are companies engaged in agricultural
operations, industrial activity, purchase and sale of goods, providing services or purchase, sale or construction
of immovable property as their principal business and are doing some financial business in a small way, they
will not be regulated by the RBI.
For the purpose of Registration, NBFCs are classified into two categories by RBI, viz.,
 Deposit taking NBFCs (NBFC-D) and
 Non-Deposit taking NBFCs (NBFC-ND).
The Non-Deposit taking NBFCs (NBFC-ND) are further classified into two types based on source of funds and
customer interface as follows:
 Type I - NBFC-ND not accepting public funds not having customer interface.
 Type II - NBFC-ND accepting public funds and/or having customer interface.
“Public funds" shall include funds raised either directly or indirectly through public deposits, commercial
paper, debentures, inter-corporate deposits and bank finance but excludes funds raised by issue of instruments
compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue.
“Customer interface” means interaction between the NBFC and its customers while carrying on its business.
The Non-Deposit taking NBFCs (NBFC-ND) are further classified into two types based on the asset size as
“Systemically Important (SI)” and “Non-Systemically Important (Non-SI)”. NBFCs whose asset size are
of Rs 500 Crore or more as per last audited balance sheet are considered as “Systemically Important” NBFCs,
while those with asset size less than Rs 500 Crore are considered as “Non-Systemically Important” NBFCs.
The various categories of NBFCs and their nature of activity/principal business is listed below:
Asset Finance Company (AFC)- Financing real physical assets supporting economic activity
Investment Company (IC)- acquisition of securities
Loan Company (LC) - Providing loans and advances for any activity (not an AFC)
Infrastructure Finance Company (IFC) - Providing loans for Infrastructure development
Core Investment Company (CIC) - Investing in/lending to group companies
Infrastructure Debt Fund (IDF) - Invests only in Public Private Partnerships (PPP) and post commencement
of operations date (COD) in infrastructure projects
Micro Finance Institutions (MFI) - Collateral free loans to small borrowers
Mortgage Guarantee Companies (MGC) - Providing mortgage guarantees for loans
Non-Operative Financial Holding Company (NOHFC) - For setting up new banks in private sector through
its promoter/promoter groups
Asset Reconstruction Companies (ARC) - These companies are registered under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002 for acquiring
and dealing in financial assets sold by banks and financial institutions. ARCs play a crucial role in resolution
of non-performing assets (NPAs). They acquire any right or interest of any bank or financial institution (FI) in
any financial assistance for the purpose of realization of such financial assistance.
Account Aggregators (AA) – This is a new class of NBFC notified by Govt. of India in 2016 for maintenance
of a customer's financial assets in a comprehensive database. An Account Aggregator will collect and provide
information of customers' financial assets in a consolidated, organised and retrievable manner to the customer
or any other financial information user authorized by the customer.
Peer-to-Peer Lending (P2P) - These are on-line platforms that bring the lenders and borrowers together and
the activity is a type of crowd funding. They were brought under regulatory purview of RBI from October
2017 onwards. Guidelines on maximum amount of lending/borrowing, tenor of loan, funds transfer mechanism
through escrow accounts, grievance redressal mechanism, sharing of credit information, disclosure
requirements, etc. have been stipulated by RBI.
The RBI has put in place a four pronged supervisory framework for NBFC, based on:
(i) On-site inspection: The system of on-site examination put in place during 1997 is structured on the basis of
assessment and evaluation of CAMELS (Capital, Assets, Management, Earnings, Liquidity, and Systems and
Controls) approach and the same is akin to the supervisory model adopted by the RBI for the banking system.
(ii) Off-site monitoring supported by state-of-the art technology: In order to supplement information
gathered from on-site inspections, several returns have been prescribed for NBFCs as part of the off-site
surveillance system.
(iii) Market intelligence: Pro-active market intelligence can help pick up early warning signals about the
health of a particular NBFC and trigger supervisory action to protect the interest of the depositors / avoid
systemic risks.
(iv) Exception reports of statutory auditors of NBFCs: The Statutory Auditors are required to report to the
Reserve Bank about any irregularity or violation of regulations concerning acceptance of public deposits,
credit rating, prudential norms and exposure limits, capital adequacy, maintenance of liquid assets and
regularisation of excess deposits held by the companies.
The RBI launched a mobile friendly portal Sachet (sachet.rbi.org.in) on August 4, 2016, to help the public as
well as regulators to ensure that only regulated entities accept deposits from the public.
Not all NBFCs are regulated by the RBI. The regulators of other NBFCs are listed in the table below.

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7. Financial Regulators in India (other than RBI, IRDA) ................................................................................... 72

1. Reserve Bank of India

The Preamble of the Reserve Bank of India describes itsbasic functions:

The RBI has 5 training establishments:

The RBI has following Subsidiaries:

1.1 Governance Structure

The Central Board is assisted by 3 committees:

In addition, the Central Board has 4 subcommittees:

Board for Financial Supervision

Some of the initiatives taken by the BFS include:

1.2 Functions of RBI

The key functions of RBI are:

Regulator and Supervisor of the financial system

Manager of Foreign Exchange

Public Debt Functions

Regulation and Supervision of NBFC

Regulation & Supervision of Co-operative banks

Regulation of Derivatives and Money Market Instruments

Payment and Settlement Functions

Consumer Protection Functions

Financial Inclusion and Development Functions

 Banking Regulation Act, 1949

1.3 Monetary Policy Management

Monetary Targeting Framework

4.1 FI Journey in India

Kishor: covering loans above Rs 50,000 and up to Rs. 5 lakh

6.4 Pension Funds

Following are the features of Pension funds:

Pension Fund Regulatory and Development Authority (PFRDA)

No investments allowed in the following:

NPS offers 2 types of accounts to its subscribers:

Atal Pension Yojana

Pradhan Mantri Shram Yogi Maan-dhan (PM-SYM) Scheme

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