Introduction to BFSI and Financial Literacy
The BFSI sector is the money-and-risk backbone of the economy, and this opening domain tests whether you can place a firm in the right wing and name the regulator that controls it. Expect definition-and-identification questions rather than calculations.
The three wings
- Banking - accepts deposits, lends, and forms part of the payment system. Regulated by the Reserve Bank of India.
- Financial services - non-bank lenders, mutual funds, stock broking, depository services, payment firms. Overseen mainly by SEBI and the RBI.
- Insurance - pools risk for a premium. Overseen by IRDAI.
Regulators you must know
- RBI (set up 1935, nationalised 1949): banks, NBFCs, payment systems, money market.
- SEBI (statutory powers 1992): stock exchanges, brokers, mutual funds, demat and depository participants.
- IRDAI (under the IRDA Act, 1999): insurers, agents, brokers, third-party administrators.
- PFRDA: pension products such as NPS and Atal Pension Yojana.
Financial inclusion schemes - PMJDY (2014), Aadhaar-enabled payments, RuPay cards, micro-insurance and pension products - are frequent short-answer items.
Worked example: which regulator?
"A firm collects money from 500 small investors and uses it to buy listed shares." Ask what the firm is doing. It is pooling money into a collective investment scheme, i.e. a mutual fund, which deals in securities. Therefore SEBI regulates it, not the RBI. Now change the facts: "a firm lends against gold jewellery and does not accept demand deposits." That is an NBFC, so the RBI registers it. A firm that issues a policy against hospital bills is an insurer, so IRDAI controls it.
Traps that cost marks
- Calling an NBFC a bank. NBFCs cannot accept demand deposits and cannot issue cheques drawn on themselves.
- Assuming every financial company is RBI-regulated.
- Mixing up the insurer (the company) with the agent (a licensed individual who sells for it).