Written byAn authorised deposit-taking institution (ADI) is a bank, credit union or building society that APRA has licensed under the Banking Act to take deposits from the public.
Also known as: ADI, authorised deposit-taking institution, deposit-taking institution
Key points
- Deposits with an ADI are covered by the Financial Claims Scheme, a government guarantee up to a cap per person per institution.
- ADIs must meet APRA's prudential standards on capital, liquidity and risk, the price of being allowed to lend out customer deposits.
- Many car, equipment and business lenders are not ADIs: they fund loans through wholesale facilities and securitisation rather than deposits.
- ADI or not, consumer lending is licensed by ASIC under an Australian credit licence, so the borrower protections are the same.
What makes an institution an ADI
Taking deposits from the public is restricted in Australia. An organisation needs an authority from APRA under the Banking Act 1959, and once it has one it is an ADI and lands on APRA's public register. The big four banks, the regional and mutual banks, credit unions, building societies and the Australian branches of foreign banks are all ADIs, though foreign branches face limits on retail deposits.
With the authority come obligations. APRA sets prudential standards for how much capital an ADI must hold against its loans, how much liquidity it keeps on hand, and how it manages risk, and it supervises them continuously. Even calling yourself a bank requires APRA's consent.
ADI versus non-bank lender
A large share of Australian car, equipment and small business finance is written by lenders that are not ADIs. Finance companies, specialist asset lenders and fintechs raise their money from wholesale lenders, from warehouse facilities provided by the banks, and by packaging loans into securities, then lend it on. Because they take no deposits, APRA does not supervise them and the Financial Claims Scheme does not apply to them.
That is not a mark against them. Non-bank lenders are often faster, more specialised and more willing to look at a used asset or a newer business. Both types answer to ASIC for consumer credit, both hold credit licences, and a broker's panel will usually mix the two.
What it means for your money and your loan
On the deposit side the label matters. Savings, a term deposit or a business trading account are only covered by the Financial Claims Scheme if they sit with an ADI, where the scheme stands behind the balance up to the cap. A bank guarantee for a lease or a contract also has to come from an ADI, which is why a non-bank lender cannot issue one.
On the borrowing side it matters less. A loan from a non-bank funder is the same binding contract as a loan from a bank, and if the lender is ever sold or fails, the loan simply passes to whoever takes over its book on the same terms. What separates them is the rate, fees, structure and how well the lender understands your asset or industry.
Example
A gym owner in Darwin keeps her trading account with a credit union and wants finance for a new fit-out. Her broker recommends a specialist lender that is not a bank. She checks APRA's register, sees the lender is not an ADI, and asks what that means. The broker explains that the lender holds a credit licence, funds its loans from wholesale facilities rather than deposits, and has a strong appetite for fitness fit-outs. Her savings stay with the credit union under the government guarantee; the fit-out loan settles with the non-bank lender on terms the bank could not match.
Not to be confused with
- Prime lenders
- prime lenders are defined by the borrowers they serve, not by whether they take deposits
- Funder
- a funder supplies the money behind a loan and may or may not be an ADI
Frequently asked questions
Is a credit union an ADI?
Yes. Credit unions, building societies and mutual banks all hold an authority from APRA under the Banking Act, which makes them ADIs, and their deposits are covered by the Financial Claims Scheme in the same way as a big bank's. The difference is ownership: a mutual is owned by its members rather than by shareholders.
Are non-bank lenders safe to borrow from?
A loan is a contract, and it is just as binding whether the lender is a bank or not. Non-bank lenders that lend to consumers must hold an Australian credit licence, belong to AFCA and follow the same responsible lending rules. If a lender fails, the risk sits with its investors; borrowers' loans carry on with a new owner.
Are my deposits protected if my bank fails?
If the institution is an ADI, yes, up to a cap per account holder per institution under the Financial Claims Scheme, which the government activates if an ADI fails. Money held with a non-bank, such as a balance in a payment app or a loan to a finance company, is not a deposit and is not covered.
How do I check whether a lender is an ADI?
APRA publishes a list of every authorised deposit-taking institution on its website, split into banks, foreign bank branches, credit unions and building societies. If a lender is not on it, it is a non-bank lender. For consumer credit you can separately check ASIC's professional registers to confirm the lender holds a credit licence.
What is the difference between a bank and an ADI?
Every bank is an ADI, but not every ADI is a bank. APRA licenses banks, credit unions and building societies under the same Banking Act, and the word bank is restricted: an institution needs APRA's consent to use it. Many credit unions have taken up the name as mutual banks; their deposits are covered either way.
Related terms
APRA
APRA is the Australian Prudential Regulation Authority, the statutory regulator responsible for prudential regulation of banks, credit unions, insurers and superannuation funds, protecting depositors, policyholders and fund members.
Read definitionPrudential regulation
Prudential regulation is APRA's framework of capital and risk rules designed to keep banks, insurers and superannuation funds financially sound, and it shapes how much they lend.
Read definitionASIC
ASIC is the Australian Securities and Investments Commission, the regulator for companies, markets, financial services and consumer credit, which licenses providers, keeps public registers and enforces conduct laws.
Read definitionAustralian credit licence (ACL)
An Australian credit licence (ACL) is the authorisation from ASIC that a business needs to provide consumer credit or credit assistance under the National Consumer Credit Protection Act.
Read definitionSecuritisation
Securitisation is the process of pooling loans, leases or receivables into a separate vehicle that issues securities to investors, so the originator raises funding and transfers risk.
Read definitionFunder
A funder is the party that provides the capital behind a lease or loan and carries the credit risk, whether or not it is the entity named on the contract.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.