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Banks and other non banking financial institutions differ in some functional area.NBFCs lend and make investments and hence their activities are akin to that of banks.NBFCs are financial intermediaries engaged primarily in the business of1. Loans and advances2. Acquisition of shares/stock/bonds/debentures/securities issued by government or local authority or other securities of like marketable nature,3. Leasing,4. Hire-purchase,5. Insurance business6. Chit businessHowever there are a few differences as given below:NBFC cannot accept demand deposits;NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itselfNBFC cannot issue Demand Drafts like banksDeposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.While banks are incorporated under banking companies act, NBFC is incorporated under company act of 1956Other features of NBFCs areThe NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand.The deposits with NBFCs are not insured.The repayment of deposits by NBFCs is not guaranteed by RBI.NBFC cannot engage into - 1. agriculture activity, 2. industrial activity, 3. sale/purchase/construction of immovable propertyIf an NBFC defaults in repayment of deposit then, the depositor can approach1)Company Law board or2)Consumer Forum or3)File a civil suit to recover the deposits.Why NBFC’s?Only 34% of Indian individuals have access to banks.Banks have a lot of constraints in lending.Conditions for getting a loan.Proximity of financial servicesSize of loans.Higher risk taking abilityInnovative business modelExpert skills.Relationship with customersSingle product and dedicated business.Examples: In infrastructure financing credit risk evaluation is the main job. For collecting the dues they use human resources and pay them lower than what banks pay,banks lack here.In truck financing majority of the truck drivers don’t have proper papers to get the loans. Many SME’s in India are like truck drivers.In home finance, housing finance companies (HFC) flourish with higher focus and better customer service. NBFC’s are the top priority in the above sectors.Hope this clarifies .

An investment bank is a financial institution that assists individuals, corporations, and governments in raising financial capital by underwriting or acting as the client's agent in the issuance of securities (or both).So what does an investment bank actually do? Several things, actually.Investment banking is comprised of three main areas: investment banking division (IBD), sales and trading (S&T), and asset management. The large global banks typically offer all three services, with smaller banks usually focusing more on the investment banking division side covering advisory and mergers and acquisitions (M&A).The investment banking division is sometimes referred to as corporate finance and is broadly split into 2 sectors, products and industries. The purpose of both is to provide advisory on transactions, mergers and acquisitions and to arrange (and sometimes even provide) financing for these transactions. This area of banking is the subject of the popular book “Monkey Business: Swinging Through the Wall Street Jungle”.When companies seek out an investment banking relationship, they are interested in a financial partner that can guide them through the complicated landscape related to financing a business and managing its assets. Investment bankers offer executives strategic planning advice. They often advise company executives about the best times to make a public offering or on asset management subject matter.Major functions of the investment bank:1. Raising Capital and Security UnderwritingInvestment banksraising capital are middlemen between a company that wants to issue new securities and the buying public. So when a company wants to issue, say, new bonds to get funds to retire an older bond or to pay for an acquisition or new project, the company hires an investment bank. The investment bank then determines the value and riskiness of the business in order to price, underwrite, and then sell the new bonds. Banks also underwrite other securities (like stocks) through an initial public offering (IPO) or any subsequent secondary (vs. initial) public offering.When an investment bank underwrites stock or bond issues, it also ensures that the buying public – primarily institutional investors, such as mutual funds or pension funds, commit to purchasing the issue of stocks or bonds before it actually hits the market. In this sense, investment banks are intermediaries between the issuers of securities and the investing public. In practice, several investment banks will buy the new issue of securities from the issuing company for a negotiated price and promotes the securities to investors in a process called a roadshow. The company walks away with this new supply of capital, while the investment banks form a syndicate (group of banks) and resell the issue to their customer base (mainly institutional investors) and the investing public.Investment banks can facilitate this trading of securities by buying and selling the securities out of their own account and profiting from the spread between the bid and the ask price. This is called “making a market” in a security, and this role falls under “Sales & Trading.”2. Mergers & Acquisitions.Banks advise buyers and sellers on business valuation, negotiation, pricing and structuring of transactions, as well as procedure and implementation.The scope of the M&A advisory services offered by investment banks usually relates to various aspects of the acquisition and sale of companies and assets such as business valuation, negotiation, pricing and structuring of transactions, as well as procedure and implementation. One of the most common analyses performed is the accretion/dilution analysis, while an understanding of M&A accounting, for which the rules have changed significantly over the last decade is critical. Investment banks also provide “fairness opinions” – documents attesting to the fairness of a transaction.Sometimes firms interested in M&A advice will approach an investment bank directly with a transaction in mind, while many times investment banks will pitch ideas to potential clients.When an investment bank takes on the role of an advisor to a potential seller (target), this is called a sell-side engagement. Conversely, when an investment bank acts as an advisor to the buyer (acquirer), this is called a buy-side assignment. Other services include advising clients on joint ventures, hostile takeovers, buyouts, and takeover defense.When investment banks advise a buyer (acquirer) on a potential acquisition, they also often help to perform what’s called due diligence to minimize risk and exposure to an acquiring company, and focuses on a target’s true financial picture.3. Sales & Trading and Equity ResearchBanks match up buyers and sellers as well as buy and sell securities out of their own account to facilitate the trading of securitiesInstitutional investors such as pension funds, mutual funds, university endowments, as well as hedge funds use investment banks in order to trade securities.Investment banks match up buyers and sellers as well as buy and sell securities out of their own account to facilitate the trading of securities, thus making a market in the particular security which provides liquidity and prices for investors. In return for these services, investment banks charge commission fees.In addition, the sales & trading arm at an investment bank facilitates the trading of securities underwritten by the bank into the secondary market. Revisiting our Gillette example, once the new securities are priced and underwritten, JP Morgan has to find buyers for the newly issued shares. Remember, JP Morgan has guaranteed to Gillette the price and quantity of the new shares issued, so JP Morgan better be confident that they can sell these shares.The sales and trading function at an investment bank exists in part for that very purpose. This is an integral component of the underwriting process – in order to be an effective underwriter, an investment bank must be able to efficiently distribute the securities. To this end, the investment bank’s institutional sales force is in place to build relationships with buyers in order to convince them to buy these securities (Sales) and to efficiently execute the trades (Trading).4. Front office vs back officeWhile the sexier functions like M&A advisory are “front office,” other functions like risk management, financial control, corporate treasury, corporate strategy, compliance, operations and technology are critical back office functions.Investment banks are split up into front office, middle office, and back office. Each sector is very different yet plays an important role in making sure that the bank makes money, manages risk, and runs smoothly.Front OfficeThe front office generates the bank’s revenue and consists of three primary divisions: investment banking, sales & trading, and research. Investment banking is where the bank helps clients raise money in capital markets and also where the bank advises companies on mergers & acquisitions. At a high level, sales and trading is where the bank (on behalf of the bank and its clients) buys and sells products. Traded products include anything from commodities to specialized derivatives. Research is where banks review companies and write reports about future earnings prospects. Other financial professionals buy these reports from these banks and use the reports for their own investment analysis.Other potential front office divisions that an investment bank may have include: commercial banking, merchant banking, investment management, and global transaction banking.Middle OfficeTypically includes risk management, financial control, corporate treasury, corporate strategy, and compliance. Ultimately, the goal of the middle office is to ensure that the investment bank doesn’t engage in certain activities that could be detrimental to the bank’s overall health as a firm. In capital raising, especially, there is significant interaction between the front office and middle office to ensure that the company is not taking on too much risk in underwriting certain securities.Back OfficeTypically includes operations and technology. The back office provides the support so that the front office can do the jobs needed to make money for the investment bank.Source: Learn Financial Modeling: Build DCF, LBO, M&A, Comps Models

This being a area, once I studied voraciously and came up with an article , I will try to address the question partly from my write-up.Extract from the article catering your question about Basel I and II:Banks are one among the major triggers in most of the economic crises. Banks are the veins of circulation of money in an economy. So the soundness of banking system is imperative to prevent the collapse of the system. The premature liberalization of the local financial markets and the failure to keep adequate checks on lending functions of the banks are the major reasons for the Asian economic crisis of 1997. Absence of effective regulation and supervision led to large capital inflows in the domestic short term debt market. Banks lent on long term basis using the foreign inflows. Later when signs of pessimism became visible foreign inflows to economies such as Philippines, Malaysia etc... started to decline. (Buckley n.d.) Similarly, in the year 2008 the reckless lending of US banks like Lehman brothers and securitization of the sub-standard loans into instruments known as CDO-s (Collateral Debt Obligations) and trading of the securities in the stock market led to the sub-prime crisis of 2008 and resultant recession in the follow-up. Thus a perfect regulation and prudential supervision of banks is tellingly important for the smooth sailing of an economy.Basel ICapital is the last recourse that would be available for any bank to prevent its failure. In the year 1974, after the failure of Herstatt bank in Germany the need for better regulation of banking sector was felt by G-10 countries. They constituted the Basel Committee for Banking Supervisory practices (BCBS) under the aegis of Bank for International Settlements (BIS). Basel I was recommended for implementation by the BCBS for mainly addressing the issue of Credit risk in the year 1988. Credit risk implies the risk involved in the recovery of loans that were lent. In order to address the issue BCBS fixed a minimum capital adequacy requirement to be maintained by the banks. It pegged the Capital adequacy ratio (CAR) at 8%. (Tarullo n.d.) Capital Adequacy Ratio (CAR) = Tier 1 Capital + Tier 2 Capital/ Risk Weighted Assets Tier 1 capital represents the capital that is more permanent in nature and is more reliable. Tier 1 capital or core capital of a bank includes the normal paid up share capital of the bank and other disclosed reserves as reduced by the intangible assets of the bank such as Goodwill, fictitious assets such as debit balance to the Profit and loss account, any expenditure that is not written off and the Deferred tax asset. The Tier 1 capital should form atleast 50% of the bank’s total capital base. Tier 2 represents the capital that is not as much reliable as the Tier 1 capital because of the lack of corroborated ownership as in the case of Tier 1 capital. Tier 2 or Supplementary capital consists of Undisclosed reserves, Cumulative non redeemable preference share capital, General provisions and loss reserves written back as surplus if the actual loss or diminution is found to be in excess of the provision or loss reserves created earlier, Revaluation reserves, Hybrid capital instruments and Subordinated debt with minimum maturity of 5 years. There are also restrictions such as subordinated debts could not exceed 50% of the core capital, general provisions and loss reserves could not exceed 1.25% of the total risk weighted assets. ‘Risk weighted assets’ is the value of the assets adjusted for the risk of the asset failing to liquidate as valued. Risk WeightsUnder Basel I, risk weights were classified into 5 Categories namely, 0%, 0% to 50%, 20, 50%, 100%. (Tarullo n.d.)The weight of zero percent was assigned to assets such as loans lent to OECD states, Investment with OECD central government’s securities, loans to borrowers, who are backed by the guaranties of the OECD states or who had given the securities of the OECD countries as collateral. Since OECD states are considered to be developed countries their securities were assigned zero credit risk. Loans to non – OECD countries and central banks too were assigned 0% risk weights, provided loans advanced to them were in their own currency i.e., in the currency of the borrowing country. This is done to eliminate the risk of exchange rate movements on the loans advanced in view of the probable depreciation of the currencies of the non-OECD countries.Loans or investment with domestic public sector enterprises that remain outside the ambit of central government were given risk weights ranging from 0% to 50% at the discretion of nation’s regulator , which could be 0%, 10%, 20% and 50%.Loans or investment with institutions such as Multilateral development banks, OECD banks, Non-OECD banks with tenor extending upto 1 year, loans guaranteed by OECD incorporated banks, short term loans guaranteed by non-OECD banks were assigned a weight of 20%.Loans to non-OECD banks given on a tenor of more than 1 year are assigned a weight of 50%.Loans or investment with private sector enterprises, Non – OECD banks with tenor more than one year, capital market instruments issued by other banks were assigned a weight of 100%.In order to capture the risk that resides with the off – balance sheet items such as contingent liabilities, a new parameter called "Credit conversion factor" (CCF) was deployed. For instance :General guarantees against loans were assigned 0%Letter of credits against Shipments were assigned 20%In 1996, in response to the financial innovations, as instruments like derivatives were started to be widely used, a new factor called market risk was introduced to strengthen the standards. Market risk is the risk of losses on account of movements in market prices with the on-balance sheet and off-balance sheet positions. (Basel Committee on Banking Supervision 2005) The way CAR would be calculated was modified to factor in Market risk and a new category of capital called as Tier 3 capital. The Tier 3 capital is composed of Short term subordinated bonds that would exclusively cover market risks. Market risk consists of interest rate risk, equity position risk, foreign exchange risk and commodities risk. For measuring market risk, BCBS proposed two approaches namely Standardized approach, where the principles of gauging the market risk were completely prescribed by the BCBS and Internal grading based approach, where a certain degree of independence was granted to banks in assessing market risk.Basel II​​Image Source: Basel II | Asymptotix As years passed by, Basel II evolved. Basel II was given approval in the year 2004. The norms of Basel II accord were on three fronts, which are given by the three pillars viz: 1.The minimum capital requirement; 2.The supervisory review; 3.The market discipline. The level of minimum capital requirement was continued to be maintained at 8% under the new framework. A new benchmark of risk called Operational risk was introduced. Operational risk is defined as the risk of loss resulting from the failure of internal processes or from the external events. For instance, Operational risk includes employee frauds, sabotage of assets of the bank, external frauds etc… Put simply, the losses that the bank may suffer, other than, in the normal course of business.Pillar 1Basel II provided three different approaches for credit risk determination. They are:Standardized approachFoundation internal rating based approach (F-IRB)Advanced internal rating based approach (A-IRB).The standardized approach provides that the risk weights should be assigned based on the ratings given by the External Credit Rating Institutions (ECAI). Under the new approach risk weights may range from 0% to 150%. Unlike Basel I, where loans to OECD central banks and OECD states where assigned a lower risk weights considering their credibility, in Basel II ratings assigned by the external credit rating agencies were considered as benchmarks and loans to foreign banks were assigned risk weights based on the ratings given by them. However when a foreign bank that is operating in a country lends to the central bank of the country, where it is incorporated then a lower risk weight may be applied to such asset provided the loan is funded and denominated in the domestic currency of the foreign bank. Another prominent feature of the Basel II accord is a corporate may get rated by an ECAI and be assigned a lower risk weight based on the ratings. This stands in contrast to the Basel I accord, where all the corporates were assigned a uniform risk weight of 100%. This might cause the banks to infer that lending to SME-s (Small and Medium Scale Enterprise) may prove to be expensive. (Francis n.d.) Internal ratings based approach allows the banks to devise their own models to assess the risk. Under the other two approaches, Banks use their own model to measure the parameters like PD (Probability of default), EAD (Exposure at default), LGD(Loss given default), which are used in calculating the Risk weighted assets (RWA). To cover operational risk of loss, Basel II prescribes three approaches namely basic indicator approach, standardized approach and advanced measurement approach.Basic indicator approach and standardized approach requires an appropriation of 15%, 12% to 18% respectively of bank’s average annual gross income to the reserves in the preceding three years.Under the standardized approach, bank’s activities are divided into eight business lines each possessing a different "Denoted beta" ranging from the 12% to 18%. The past three years average of the gross annual income of each business line is multiplied with the respective beta to arrive at the capital charge.Under the Advanced measurement approach banks can quantify the capital to cover operational risk using their own internal model taking into account internal risk variables and profiles.Pillar 2Pillar 2 specifies the norms for regulatory authorities. The banks should have deployed a system for assessing the stability of the capital and preclude any fall below the standard level. The regulator should mandate the banks to operate above the minimum capital requirement and should prevent the capital of the banks from falling below the minimum level, which is specified. Pillar 3 Under the Pillar 3, banks are required to follow a formal disclosure policy. Disclosures regarding capital adequacy, credit risk mitigation, the internal ratings systems that it follows under the IRB approach were all specified under Pillar 3.Works CitedBasel Committee on Banking Supervision. "Amendment to the Capital Accord to incorporate market risks." 2005.Buckley, Ross P. International Finance system - Policy and regulation.Francis, Smitha. "The Revised Basel Capital Accord: The Logic, Content and Potential."R.Kannan. "How to swat the NPA bug." Business Line, 4 5, 2013.Tarullo, Daniel K. Banking on Basel: The Future of International Financial Regulation.Source : Basel Capital Accords: An Overview*Now I will add up to this by pointing to the key modifications with the Basel III:Basel III:Basel III was introduced in December 2010. It came as a response to the sub-prime crisis in the year 2008. As of now, it's implementation has been extended to 31st March 2019.The Key modifications happened with Basel III are as follows :​​Image Source: Basel II-III: Disclosure Requirement on RemunerationThe requirement of minimum Tier 1 capital has been increased from 4% in Basel II to 6%A new buffer called as Capital conservation buffer with Tier 1 capital needs to maintained and the requirement level for this has been pegged at 2.5% of the RWA.The total "Capital adequacy ratio" requirement has been maintained at 8%But when combined with the newly introduced conservation buffer, the requirement of capital increases to 10.5%At the discretion of the central banks of the countries, banks may be required to maintain a "Counter cyclical buffer" ranging from 0% to 2.5% depending on the economic conditions.A new measure called leverage ratio is introduced. It measures the proportion of Tier 1 capital to the total exposure of the bank ( Not RWA). A minimum ratio of 3% is to be maintained.