Submitted To: Lalit Tank Submitted By: Rakesh Dhimar 08 Amisha Patel 32 Group : G Ashish Sakariya 46

Agenda  Definition  Introduction  Role of NBFCs  Classification 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 NBFCs i)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 yIndian economy is more dependent on roads yHeavy Govt. outlay for mega road projects yHeavy replacement demand anticipated – 30 lacs commercial vehicles by the year 2007 yAnother Rs.6000 Crores required for phasing out old commercial vehicles yCRISIL in its study has placed commercial vehicle financing under “low risk” category yEach 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 z(i) Asset Finance Company (AFC) z(ii) Investment Company (IC) z(iii) Loan Company (LC)

Regulatory Norms Registration requirement z 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). zThe 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 Company  Hire Purchase Company  Investment Company  Loan Company  Miscellaneous 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??? zAll NBFCs are not entitled to accept public deposits. zOnly those NBFCs holding a valid Certificate of Registration with authorisation to accept Public Deposits can accept/hold public deposits. zThe 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 NBFCCeiling on public deposits AFCs maintaining CRAR of 15% without credit rating 1.5 times of NOF (Net owned Funds) or Rs 10 crore whichever 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.. zPresently, 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. zThe 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. zRNBC can accept deposits for months zMNBC (chit funds)– 6 to 36 months

Number of NBFCs Registered with RBI End JuneNBFCs

Activity wise profile of Deposits of NBFCs Nature of Business Equipment Leasing Hire Purchase Investment & Loan RNBCs Other NBFCs Total

Sources of borrowing of NBFCs Sources Governments Bank & FIs Debentures Foreign sources Others Total

Financial Ratios of NBFCs NP as a % of Total Assets Income as a % of Total Assets Free Income A % Of Total Assets Total Expenditure as a % of Total Assets

NPA of NBFCs YearNPA (%)