Important Banking Notes on Local Area Banks and NBFC (Non Banking Financial Companies), Important for IBPS Clerk, PO and IBPS RRB officer Scale & Office Assistant exam 2019, IBPS Clerk, PO and SBI Clerk, PO Important Bullet Points on Local Area Banks & NBFC –
Local Area Banks – Banking GK
· Local area banks were established on 24.08.1996
· They were set up in the private sector to cater to credit needs of the local people and to provide efficient and competitive financial intermediation services in their area of operation
· They are required to observe the priority sector lending target of 40 percent of net bank credit, as applicable to other domestic banks, out of which 25 percent shall be given to weaker sections
· They were registered as public limited companies as per Companies act, 1956.
· They got licence as per Banking regulation act 1949
· Included in the second schedule to RBI act, 1934
· They have the minimum paid up capital of Rs. 5 crore
· Promoters’ contribution to be Rs 2 crores.
· They can be promoted by individuals, corporate entities, trusts and societies
· The area of operation of local area bank shall be a maximum of three geographically contiguous districts.
· To comply with the provisions of the Banking Regulation act, 1949, RBI act, 1934 and other statutes
· They are subject to prudential norms, accounting policies and other policies laid down by RBI
Non Banking Finance Companies
· NBFCs consist of eight categories – each one of them conducting a particular business activity
· Equipment leasing company undertakes equipment leasing or the financing of such activity
· Hire purchase finance company is engaged in hire purchase transaction or the financing of such transactions
· Loan company provides finance by making loans or advances or otherwise for any activity other than its own.
· The main business of any investment company is the acquisition of securities and trading in such securities to earn a profit
· Mutual Benefit Financial Company are the companies which are notified by the Central Government under section 620 A of the companies act 1956
· Miscellaneous non banking company – the principal business of such company is managing, conducting or supervising as a promoter, foreman or agent of any transaction or arrangement by which the company enters into an agreement
· Housing finance company – acquisition of construction of houses including the acquisition or development of plots of land
· Residuary non banking company – receives deposits under any scheme or arrangement by whatever name called in one lump sum or in installments by way of contributions or subscriptions or by sale of units or certificates or other instruments or in any manner.
· Effective 4.3.2003, NBFCs are not allowed to offer more than 11 percent per annum interest on public deposit
· No official agency guarantees or undertakes the repayment of deposits or interest
· NBFC deposits are uninsured and not backed by security
· They are not allowed to offer more than 2 percent brokerage
· They are not allowed to offer gifts or incentives
· All depositors must be issued proper receipts for deposits
· NBFCs having track record of less than 2 years is not eligible to accept public deposits
· NBFCs seeking public deposit should be a profit making company
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