Page 81 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes uniform across all the States of the country. Some States have a unitary structure with the State
level banks operating through their own branches, while others have a mixed structure
incorporating both unitary and federal systems.
Financial institutions owed their origin to the objective of state driven planned economic
development, when the capital markets were relatively underdeveloped and judged to be
incapable of meeting adequately the long-term requirements of the economy. Over the years, a
wide range of FIs, mostly Government owned, came into existence to cater to the medium to
long-term financing requirements of different sectors of the economy. FIs played a key role in
extending development finance in India and for this purpose they were given access to
concessional finance in the form of Government guaranteed bonds and Long-term Operations
(LTO) Fund of the Reserve Bank. However, the government’s fiscal imperatives and market
dynamics forced a reappraisal of the policies and strategy with regard to the role of FIs in the
economy and the concessional finance was phased out by the mid-1990s. A major restructuring
in the financial sector occurred when two major FIs, viz., ICICI and IDBI converted into banks.
Thus, this particular segment of the credit market has shrunk significantly in recent years.

NBFCs encompass a heterogeneous group of intermediaries and provide a whole range of
financial services. Though heterogeneous, NBFCs can be broadly classified into three categories,
viz., asset finance companies (such as equipment leasing and hire purchase), loan companies and
investment companies. A separate category of NBFCs, called the Residuary Non-banking
Companies (RNBCs), also exists as it has not been categorised into any one of the above referred
three categories. Besides, there are miscellaneous non-banking companies (Chit Fund), mutual
benefit financial companies (Nidhis and unnotified Nidhis) and housing finance companies. The
number of NBFCs operating in the country was 51,929 in 1996. Following the amendments to
the provisions contained in Chapter III-B and Chapter III-C of the Reserve Bank of India Act,
NBFCs both, deposit taking and non-deposit taking, are required to compulsorily register with
the Reserve Bank. One of the conditions for registration for NBFCs was a minimum net owned
fund (NOF) of ` 25 lakh at the entry point. This limit was subsequently enhanced to ` 2 crore for
new NBFCs seeking grant of Certificate of Registration on or after April 21, 1999. The Reserve
Bank received 38,244 applications for grant of certificate of registration (CoR) as NBFCs till end-
March 2006. Of these, the Reserve Bank approved 13,141 applications, including 423 applications
of companies authorised to accept/hold public deposits. Due to consolidation in the sector, the
number of NBFCs declined to 13,014 by end-June 2006.
Of all institutions, in terms of assets, commercial banks constitute the largest category, followed
by rural co-operatives.

4.6.1 Credit Information Bureaus

Credit bureaus (or credit reference agencies) are useful as they help lenders to assess credit
worthiness of individual borrowers and their ability to pay back a loan. As credit bureaus
collect and collate personal financial data on individuals from financial institutions, a form of
price discrimination can be modelled taking into account credit rating and past behaviour of
borrowers. The information is generally aggregated and made available on request to
contributing companies for the purposes of credit assessment and credit scoring. Establishment
of credit information bureaus can facilitate in obtaining the credit history of the borrowers and,
thus, help the banks in correctly assessing the creditworthiness.
The CIBIL provides a vital service, which allows its members to make informed, objective and
faster credit decisions. CIBIL’s aim is to fulfill the need of credit granting institutions for
comprehensive credit information by collecting, collating and disseminating credit information
pertaining to both commercial and consumer borrowers, to a closed user group of members.

76 LOVELY PROFESSIONAL UNIVERSITY