Post on 30-Dec-2015
Submitted To: Lalit TankSubmitted By: Rakesh Dhimar 08
Amisha Patel 32Group : G Ashish Sakariya 46
Agenda
DefinitionIntroductionRole of NBFCsClassification of NBFCs
NBFCs - Definition
NBFCs are defined as, Non-Banking financial company (NBFC), Which is a loan company or an investment company or a hire purchase company or an equipment leasing company or a mutual benefit finance company.
Introduction
Non-Banking Financial Companies are very important.
NBFCs are financial intermediaries engaged primarily in the business of accepting deposits delivering credit.
They play an important role in channelising the scarce financial resources to capital formation.
NBFCs supplement the role of banking sector in meeting the increasing financial needs of the corporate sector, delivering credit to the unorganized sector and to small local borrowers.
All NBFCs are under direct control of RBI in India.
Salient features of NBFCsi) The 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
ii) NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 11 per cent per annum. The interest may be paid or compounded at rests not shorter than monthly rests.
iii) NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.
iv) NBFCs (except certain AFCs) should have minimum investment grade credit rating.
v) The deposits with NBFCs are not insured.
vi) The repayment of deposits by NBFCs is not guaranteed by RBI.
vii) There are certain mandatory disclosures about the company in the Application Form issued by the company soliciting deposits.
Role of NBFCs As recognized by RBI and expert committees
Development of sectors like Transport & Infrastructure
Substantial employment generation
Help & increase wealth creation
Broad base economic development
Irreplaceable supplement to bank credit in rural
segments major thrust on semi-urban, rural areas & first time
buyers / users
To finance economically weaker sections
Huge contribution to the State exchequer
Role of NBFCs (Contd...)70-80% of Commercial Vehicles are
finance driven Indian economy is more dependent on roads Heavy Govt. outlay for mega road projects Heavy replacement demand anticipated – 30 lacs
commercial vehicles by the year 2007 Another Rs.6000 Crores required for phasing out
old commercial vehicles CRISIL in its study has placed commercial vehicle
financing under “low risk” category Each commercial vehicle manufactured, sold and
financed gives employment to minimum 20 persons (direct and indirect)
Difference between banks & NBFCs
(i) a NBFC cannot accept demand deposits;
(ii) it is not a part of the payment and settlement system and as such cannot issue cheques to its customers; and
(iii)deposit insurance facility is not available for NBFC depositors unlike in case of banks.
Different types of NBFCs registered with RBI(i) equipment leasing company; (ii) hire-purchase company; (iii) loan company; (iv) investment company – Primary dealer, underwriter(v) Residuary Non-banking company (RNBC) – company
which receives deposits under any schemes or arrangements.
With effect from December 6, 2006 the above NBFCs registered with RBI have been reclassified as
(i) Asset Finance Company (AFC)
(ii) Investment Company (IC)
(iii) Loan Company (LC)
Regulatory Norms Registration requirement A company incorporated under the Companies
Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should have a minimum net owned fund of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999).
The company is required to submit its application for registration in the prescribed format along with necessary documents for Bank’s consideration.
Conti…
Maintenance of Liquid• They have to invest in approved
securities, shall not be less than 5% and maximum of 25% of the deposit outstanding amount.
Conti…
Creation of Reserve funds• 20% of net profit before declaring the
dividend every year.• With permission of RBI, they can use
this funds for some special purpose.
Classification of NBFCs
Equipment Leasing CompanyHire Purchase CompanyInvestment CompanyLoan CompanyMiscellaneous Non-Banking Companies
Equipment Leasing Company
Equipment Leasing Company means the company which is a financial institution carrying on the activity of leasing of equipments as its main business.
Hire Purchase Company
It is a company which is a financial institution carrying on its main activity as hire purchase transactions or the financing of such transactions.
Investment Company
It means a company which is a financial institution carrying on as its main business of the acquisition of securities.
Loan Company
It means any company which is a financial institution carrying on as its main business by providing finance whether by making loans or advances.
Miscellaneous Non-Banking Companies
Miscellaneous Non-Banking Companies are the companies engaged in the chit fund
business.
Can all NBFCs accept deposits and what are the requirements for accepting Public Deposits???
All NBFCs are not entitled to accept public deposits.
Only those NBFCs holding a valid Certificate of Registration with authorisation to accept Public Deposits can accept/hold public deposits.
The NBFCs accepting public deposits should have minimum stipulated Net Owned Fund and comply with the Directions issued by the Bank.
Ceiling on acceptance of Public Deposits, rate of interest and period of deposit
Category of NBFC Ceiling on public deposits
AFCs maintaining CRAR of 15% without credit rating
1.5 times of NOF (Net owned Funds) or Rs 10 crorewhichever is less
AFCs with CRAR of 12% and having minimum investment grade credit rating
4 times of NOF
LC/IC with CRAR of 15% and having minimum investment grade credit rating
1.5 times of NOF
Conti..
Presently, the maximum rate of interest a NBFC can offer is 11%. The interest may be paid or compounded at rests not shorter than monthly rests.
The 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.
RNBC can accept deposits for 12-84 monthsMNBC (chit funds)– 6 to 36 months
Number of NBFCs Registered with RBI
End June NBFCs
2000 8451
2001 13815
2002 14077
2003 13849
2004 13764
2005 13261
2006 13014
2007 12968
Activity wise profile of Deposits of NBFCs
Nature of Business
1999 2001 2003 2005 2007
Equipment Leasing
1172.91 1450.21
511.0 4727.0 3489.0
Hire Purchase 3339.78 3659.19
3539.0 20500.0 28682.0
Investment & Loan
455.80 785.82 329.0 2894.0 2987.0
RNBCs 10644.27
11625.24
15065.0
3926.0 2667.0
Other NBFCs 816.17 564.18 656.0 816.0 317.0
Total 20428.93
18084.64
20100.0
38908.0 38228.0
Sources of borrowing of NBFCs
Sources 1999 2001 2003 2005 2006 2007
Governments
2739.6
3041.0 1570.0
972.0 533.0 25
Bank & FIs 7582.9
8959.0 6954.0
8796.0
9197.0
14923
Debentures 4001.8
3758.0 5352.0
6976.0
8171.0
8777
Foreign sources
624.2 670.0 694.0 510.0 621.0 1201
Others 7672.1
6851.0 79050.0
7632.0
5519.0
7637
Total 22620.6
22559.0
24480.0
23044 23641.0
32563
Financial Ratios of NBFCs
-99 -01 -03 -05 -06 -07
NP as a % of Total Assets
0.3 0.3 0.9 1.6 1.5 1.2
Income as a % of Total Assets
18.9 16.9 13.5 12.7 12.2
12.0
Free Income A % Of Total Assets
0.7 1.0 1.0 1.0 0.4 0.3
Total Expenditure as a % of Total Assets
17.8 15.9 11.9 10.2 9.0 10.0
NPA of NBFCs
Year NPA (%)
2000 9.5
2001 5.6
2002 3.9
2003 2.7
2004 2.4
2005 2.5
2006 0.4
2007 0.4