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