The report of the working group set up by the RBI to look into issues concerning regulatory convergence, regulatory arbitrage and level playing field between bank sponsored NBFCs and non-bank sponsored NBFCs was submitted in March 2006. Despite the need to look into such issues as the said group deemed fit, this article analyzes certain other issues as well.Significantly, banks are full-fledged financial intermediaries, while the NBFCs conduct focused business, which is lesser in scope in comparison with banks. Against this background, banks and NBFCs have now emerged as competitors competing for similar kinds of businesses.

The NBFCs operating in India are either NBFC-Ds (Deposit accepting) or NBFC-NDs (Non-Deposit accepting). These are operating in private sector, public sector and under foreign ownership. Some NBFCs have been set up as associate/sister concerns of banks and a few have been set up as subsidiaries of foreign entities. The NBFCs have been classified by the RBI under five main categories based on the company's primary activity. These categories are: Equipment Leasing (EL), Hire Purchase finance (HP), Investment Company (IC), Loan Company (LC) and Residuary Non-Banking Company (RNBC) (these are companies that do not come under any single category). The services offered by the NBFCs are wide-ranging from retail service such as brokerage, hire purchase financing, leasing, loans, and distribution services, to services to corporate customers such as bill discounting and syndication.

The number of deposit taking and non-deposit taking NBFCs (excluding RNBCs) in the country at the end of January 2006 were 436 and 12,615 respectively. The total deposits held by them were Rs. 37.77 bn. Of these, the deposits held by 16 major NBFCs-D comprised 48.6% of the total deposits. Under the NBFCs-ND segment there were 104 companies (excluding holding companies, government companies, and primary dealers) having assets in excess of Rs. 1 bn. Out of these 104 companies, 10 companies held 43.3 % of the total assets. Of these 10 companies, five were foreign owned companies, which had the major share of bank borrowings, Commercial Papers (CPs) and debentures raised in this sector. Citi group tops this list in terms of aggregate assets with GE Capital and its associates occupying the second place.

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