NBFCs play an important role in serving underdeveloped sectors and areas untouched by banks through activities like leasing, loans, and retail financing. However, their performance and growth has been impacted by the global financial crisis and increased competition from banks. Looking to the future, NBFCs are expected to focus on improving customer service to fuel growth in retail financing, though some analysts predict a shakeout or further marginalization of the sector due to financial weaknesses and banks expanding into traditional NBFC business areas.

1. NBFCs
AND THEIR ROLE IN THE
EMERGING GLOBAL FINANCIAL MARKETS

2. THE AREAS OF FOCUS IN OUR PROJECT ARE-
What primarily are NBFCs?
When and why had they been introduced in the financial
markets?
How has their performance been till date?
What are the major functions performed by them?
What significance do they have in the global context?
What has been the impact of the inflation on the role of this
sector?
What role are they expected to play in the future in the
context of the financial markets?

4. "Non-banking financial company" means-
(i) a financial institution which is a company;
(ii) a non banking institution and which has as its principal business
the receiving of deposits, under any scheme or arrangement or in
any other manner, or lending in any manner;
(iii) such other non-banking institution or class of such institutions, as the
bank may, with the previous approval of the Central Government
and by notification in the Official Gazette, specify.
NBFCs as described by RBI in points are-
EQUIPMENT-LEASING COMPANY;
HIRE-PURCHASE COMPANY;
LOAN COMPANY;
INVESTMENT COMPANY

5. They are also categorized in a different format among 8 categories-
LOAN COMPANY
HIRE PURCHASE COMPANY
INVESTMENT COMPANY
MUTUAL BENEFIT COMPANY
MISCELLANEOUS NON-BANKING FINANCIAL COMPANY-CHIT FUNDS
RESIDUARY FINANCE COMPANY
HOUSING FINANCE COMPANY
EQUIPMENT LEASING COMPANY
Another and recent way of categorizing NBFCs is as under-
ASSET FINANCING COMPANY(AFC)
INVESTMENT COMPANY(IC)
LOAN COMPANY(LC)
(This is with effect from december,2006)

6. Loan company means a company which is a financial institution
carrying on as it’s principal business the providing of finance
whether by making loans or advances or otherwise for any activity
other than its own but does not include an equipment leasing
company or a hire-purchase finance company.

7. Hire purchase (frequently abbreviated to HP) is the legal
term for a contract developed in the United Kingdom.
In cases where a
buyer cannot afford to pay the asked price for an
item of property as a lump sum
But,
can afford to pay a percentage as a deposit,
a hire-purchase contract allows the buyer to hire the
goods for a monthly rent.
•When sum equal to the original full price plus interest
has been paid in equal installments
•the buyer may then exercise an option to buy the
goods at a predetermined price (usually a nominal
sum) or return the goods to the owner.

9. Investment Company is a company which is a financial institution
carrying on as it’s principal business the acquisition of securities.
An investment company is a company
whose main business is holding
securities of other companies purely for
investment purposes. The investment
company invests money on behalf of its
shareholders who in turn share in the
profits and losses.

10. Mutual Benefit Financial Company
means a company which is a financial institution
notified by The Central Government under The
Companies Act 1956.
•A mutual fund is a professionally managed
type of collective investment scheme in which
money is pooled from many investors and invests
it in many kinds of securities by a fund manager.
•Currently, the worldwide value of all mutual
funds totals more than $26 trillion.
•Mutual funds can invest in many kinds of
securities.

11. The most common securities in which the mutual funds invest the
money of the investors are-
Cash instruments
Stock
Bonds
but there are hundreds of sub-categories.
For example-
Stock funds can invest primarily in the shares of a particular industry,
such as technology or utilities.

12. CHIT means a transaction whether called chit, chit fund, chitty, kury
or by any other name or under which a person enters into an
agreement with a specified number of persons that every one of them
shall subscribe a certain sum of money by way of periodical
installments over a definite period and that each such subscriber
shall, in his turn, as determined by lot or by auction or by tender or
in such other manner as may be specified in the chit agreement, be
entitled to the prize amount.
Good source of finance-for all
sections of society
Good means of savings for any
contingency
Serves all persons-whether the
desire is for savings or for
contingency or for some
H
D
N
U
C
T
F
S
I
H
D
N
U
C
T
F
S
I
expense

14. Residuary Non-Banking Company-class of NBFC-
principal business the receiving of deposits,
under any scheme or arrangement or in any
other manner and not being investment, asset
financing, loan company.
Investments as per directions of RBI, in addition
to liquid assets.
The functioning of these companies is
different from those of NBFCs in terms of method
of mobilization of deposits and requirement of
deployment of depositors' funds.

15. NO CEILING ON THE AMOUNT OF DEPOSITS WITH RNBC-A BIT RISKY.
If the RNBCs are safe or not?
Although it is true-no ceiling on raising of deposits by RNBCs
But every RNBC has to ensure that the amounts deposited and
investments made by the company are not less that the aggregate
amount of liabilities to the depositors.
To secure the interest of depositor, such companies are required to
invest in a portfolio comprising of highly liquid and secured instruments
viz. Central/State Government securities, fixed deposit of scheduled
commercial banks (SCB), Certificate of deposits of SCB/FIs, units of Mutual
Funds, etc.

17. Indian Real Estate-on its way to donning the image of
an organized industry-global standards-as
fragmentation, disorganization, poor governance and
inefficient infrastructure; take a backseat.
Most financial institutions- home loans to
both Indian and NRI customers- floating and
fixed rate of interest or blended ones-
customized packages- purposes of
constructing/ buying a new house, vacant
plot or extension and even home
improvement.
BRIEF BACKGROUND
Housing Finance has accumulated expert experience spanning over 40 years in
construction/project finance with emphasis in multiple housing developments.

18. Products and services offered
include
Short-term construction loan of 4 to 6 months for
construction of single dwelling units.
Short-term multiple development construction loans
and bridging loan facilities for a period of up to 24 months.
Long-term financing of a wide spectrum of commercial
and residential properties for rental.
Evaluation of construction projects proposals for
project concept, commercial, technical and financial viability.
Marketing support through availing developer’s access to
website link, display of properties in ultra modern property
point for wide reach.

19. Means a company which is a financial institution carrying on as it’s principal
business, the activity of leasing of equipment. EQUIPMENT LEASE - An
agreement that specifies the rights and obligations between a lessor
(who owns equipment) and a lessee (to whom the lease gives certain
rights to possess and use the equipment). Obtaining the use of
machinery, vehicles or other equipment on a rental basis. This avoids the
need to invest capital in equipment. Ownership rests in the hands of the
financial institution or leasing company, while the business has the
actual use of it.

21. The deposit base of NBFCs grew
rapidly in early-mid nineties YEAR YEAR
NO.
3000 1 1988
DEPOSIT BASE
2500 2 1989
2000 DEPOSIT 3 1990
1500 BASE(Rs. In
billions) 4 1991
1000
5 1992
500
0 6 1993
1 2 3 4 5 6 7 8 7 1994
YEAR 8 1995
...then and now.

22. Initial years of NBFCs- not a good response in terms of performance-
seen in terms of their deposit base and share in the financial services
sector.
Banks-very popular at that time-enjoyed a much more larger share as
compared to the NBFCs.
Later-improvement in performance-
In 1981, number of NBFCs => 7063
In 1990, number shot upto => 24009
In 1995, number of NBFCs was => 55995
In terms of deposit base, it could be traced as
From April 1991 to March 1997, the deposit base grew at an average
rate of 88.57%. The public deposits managed in 1997 were of value of
about Rs.15000 crores.
Since 1998, due to stringent government regulations, the deosits with
the NBFCs have gone down.
Today the deposits managed by the sector has shrunk to about
Rs.3000crores.

23. Also the performance of the NBFCs-studied in terms of the asset base
they hold.
• As of 2000, the collective asset base of all the NBFCs was about
Rs.400 billion.
• This was a huge fall in the figures as there was a sharp fall in the
companies with an asset base of <Rs.5 million.
Generally speaking-core profitability of the NBFCs-rose in 2002-03
since the last two years the status of the NBFCs has increased,
although since the depression in the world economy-the growth and
performance of the NBFCs-gone down-compared to just previous
performance.

24. BANKS-financial institutions-reached the major section of every country of
the world
still there were some rural, under-privileged and under-served sections
in each of the nations
Requirement of the services of some
financial institution which could cater to
their needs.
Lead to the creation of the NON-
BANKING FINANCIAL COMPANIES or
simply NBFCs.
UNTOUCHED AREAS
IMPORTANT ROLE TO BE PLAYED
NEED OF BETTER FINANCIAL SERVICES
UNDER-SERVICED SEGMENTS

26. It makes a study of what special is there in NBFCs that provide them
an edge over the Banking sector.
If the NBFCs can prosper and flourish in the future or would it be subsided
due to the Banking sector?
Banks-covered major section of the nation-but still some under-served
sections exist -need for financial institutions for them-NBFCs CAME INTO
PICTURE.
BANKS-focus on the METRO-BASED MODEL-but NBFCs’ concern
NON-METRO-FOCUSSED MODEL.

27. NBFCs –concentrate their activities on areas NOT ENTERTAINED by the
BANKING sector -like-
1. HIRE-PURCHASE
2. LEASING
3. EQUIPMENT-LEASING
4. LOANS
5. CHIT FUNDING,etc.
Cost efficiency -NBFCs are better than Banks-greater LEEWAY on the
balance sheet-WORLD OVER.
NBFCs-important role in the provision of QUALITY CUSTOMER
SERVICES -much better than banks can ever do.

28. So to sum up we can define this section “BANKS OVER NBFCs” in the
following points-

29. IMPORTANT ROLE IN MACRO
ECONOMICS PERSPECTIVE
REACH THE UNDER-
DEVELOPED SECTOR
AREAS UNTOUCHED BY
BANKS-LEASING, LOANS, ETC.
HIGH QUALITY CUSTOMER
SERVICE TO RETAIL
CUSTOMERS.
FINANCING COMMERCIAL
VEHICLES AND EVEN SMALL
BUSINESSES.

30. Non-bank institutions frequently acts
as:-
 Suppliers of loans and credit.
Supporting investments in
property
 Trading money market instruments
 Funding private education,
 Wealth management.
 Underwrite stock and shares.
 Retirement planning
 Advisory functions.
 Discounting services.

33. GLOBAL FINANCIAL MARKET is an institution or arrangement
that facilitates the exchange of financial instruments, including
deposits and loans, corporate stocks and bonds and other
instruments across the world in a quick and easy manner………

34. POINTS TO DISCUSS
PRESENT CONTEXT
In the present day world -innovation in their activities-lower cost and
better efficiency-points to the growth of trend of mergers globally.
EFFECT OF CRISIS
Sub-prime mortgage crisis in the US -temporary blip in the domestic
financial sector and its impact on NBFC’s.
RETAIL’S EFFECT
In the emerging scene, the market for retail customers is where all
action is. Consumer credit remaining an under-served area — fuelled
the rapid growth of financial services companies-implies a growth
prospect for the NBFCs.
POLICIES IN INDIA:
Declining interest of the NBFCs in the public deposits-RBI should look
at the possibility of allowing only banks to take public deposits.

35. CONDITIONS FOR DEVELOPING WORLD
For a developing nation where infrastructure creation has been presently
accorded highest priority -leasing-immense potential.
NEED OF THE HOUR
The market for financial loans-not determined solely by the cost of finance.
Service -- loosely described as the convenience offered to the customer in
terms of speed & product features -- critical role in volume growth. So the
service sector has to be improved. And NBFCs-specially focused on
customer services-higher potential to grow.

36. TODAY it’s the world of GLOBAL INTEGRATION. And the performance of
each and every economy depends and reciprocally affects the other nation as
well.
Hence the overview of the future of NON-BANKING FINANCIAL COMPANIES
in the emerging global markets is very essential for us to have a look at.
To have an idea of this part of our project, we have divided the entire scope of
our idea into some parts:
STATUS of NBFCs in the future.
ROLES expected to be assumed by NBFCs in future.
The status again has to be studied in 2 parts-
NBFCs in the NEAR FUTURE.
NBFCs in the LONG RUN.

37. PREDICTION OF THE FUTURE can be done on the basis of-
STUDY OF PAST
STUDY OF PRESENT
PREDICTION ABOUT FUTURE

38. For 3 different periods the statistics for the TSR for the NBFCs and BANKS has been
shown below-
TSR for 2003-08(%)-
• PSU BANKS-42
• PRIVATE SECTOR BANKS-45.5(average)
• NBFCs-85
TSR for 2005-08(%)-
• PSU BANKS-21
• PRIVATE SECTOR BANKS-30.5(average)
• NBFCs-83
TSR for 2007-2008(%)-
• PSU BANKS-47
• PRIVATE SECTOR BANKS-18.5(average)
• NBFCs-83

40. Seeing the other side of the coin i.e., we get a totally opposite picture!
The return on the total income of 383 NBFCs decreased during the
period between APRIL and JUNE 2008.
The combined net profits of the 383 NBFCs have increased only
11.2% to Rs.2533 crore, resulting a decrease in return to total income
from 22.35% in APRIL-JUNE2007 to 20.36% in APRIL-JUNE2008.
This does give a negative implication and is also depicting that in case of
depression, NBFCs have been badly affected.
THE LAST couple of years have seen significant developments in the
financial sector that have raised competition across-the-board. Non-banking
finance companies (NBFCs) have perhaps felt the pressure most.

42. • Banks have started looking at NBFCs as competitors.
• High-yielding segments such as consumer durables, two-wheelers and pre-
owned CVs, where NBFCs have registered strong growth, still offer potential
to grow.
The views of the market players about the FUTURE of NBFCs are-
A.C. SHAH-
“A shakeout in the non-banking finance sector is likely in the near future.”
The public is not willing to park its funds with NBFCs due to the low rate of
interest offered by them for deposits.
Credit Rating and Information Services of India Ltd (CRISIL)-
“Concern over the weak financial fundamentals of non-banking finance
companies (NBFCs).”

43. RBI-
“The NBFCs have been declared to be the weakest link in the entire financial
services sector.”
ROOPA KUDVA, managing director and chief executive officer, Crisil-
"The decline in business volume will mean a further marginalisation of the
sector, a trend that has been accelerating over the past few years as banks
have taken over the traditional NBFC stronghold of retail lending.“
HEMANT KANORIA, CMD, SREI Infrastructure Finance Ltd-
“Over the last 3-4 months, it had become extremely difficult for NBFCs to
raise money in the domestic market. We have been awaiting the
government’s and the RBI’s approval for access to the ECB market.”
R RAVI, executive director of the Mumbai-based Alpic Finance-
"The future belongs to strong financial service factories.“
R. VAIDYANATH-
“NBFCs — creditable but unrecognized role.”

44. The future of the NON-BANKING SECTOR cannot be easily predicted for the long
run because it has seen through many ups and downs in it’s entire journey.
A merger between BANKS and NBFCs on the overall global front.
 NBFC’s would convert into BANKS.
Here we would be faced with two of the VERY IMPORTANT QUESTIONS and
those are-
WILL THE MERGERS AND CONVERSION OF NBFCs INTO BANKS WOULD
LEAD TO ENLARGEMENT OF THE NON-BANKING FINANCIAL COMPANIES?
OR,
WILL IT CAUSE THE NBFCs TO BECOME JUST A SMALL SECTOR TO THE
BANKING INDUSTRY?

45. NBFCs BANKS
FCs + NBFCs NBFCs

46. A BRIEF SAY ON MERGERS AND ACQUSITIONS…
It is very clear that the gap between the banks and NBFCs has been
narrowing lately. …. Other than deposit taking activity, their activities are
largely similar. The NBFCs have an advantage in management of risks and
reach.
NBFC’s are fast to adapt to the changes.
In the long-term, the gap between banks and NBFCs will narrow. In which
case a different breed of NBFCs will emerge. For instance, a very focused
entity catering to a small area.
Some NBFCs have converted themselves into banks, while others have
merged into banks.
Given this scenario, does CRISIL foresee NBFCs as having a role to play
in the Indian financial system over the medium to long term? Will there
be any NBFCs left in the country in a few years?

47. ROLES FOR FUTURE...
Traditionally, the NBFCs have dominated the market for retail finance.
With such new areas as insurance being opened up, top-rung NBFCs
are presented with an opportunity to grow.
There have been occurring mergers between the NBFCs and BANKS
but apart from mergers, other options waiting for NBFCs are to change
the tracks and explore new areas.
They have to extend their product portfolio to include asset
management companies, housing finance firms and to venture into
newly opened insurance sector for private participation.
There are some areas where the NBFCs can expand themselves due to
either the need of healthy customer service, or as they need to be
explored or even due to the expertise of the NBFCs in those areas.

48. ENTRY INTO
Retail finance
Housing loans
Insurance business
Web-based services
High yielding segments
Personal loans & Credit cards
Portfolio-management services
Sale of products of other financial intermediaries
These are the areas that either haven’t been touched at all or still offer
huge potential to grow.

49. Future Capital
Ashok Leyland Finance
Reliance Capital
ABN Amro Bank

50. Future Capital, the financial arm of Future Group, will soon start rolling out
Money Bazaars
across the country. This one stop-shop would be providing numerous
services like-
• Housing loans
• Personal loans
• Insurance
• MFs
• Credit cards

51. Traditionally, ALF has depended on commercial vehicle financing for a significant
proportion of its revenue. However, recently the company initiated steps to
broadbase its revenue stream by entering new areas of finance.
• The other segment they are concentrating on is passenger cars.
• The other segment they have is multi-utility vehicles (MUVs). It is more
or less on the pattern of commercial vehicles vis-à-vis risk. There we
certainly have considerable scope.
• The other segment is construction equipment...will take time for others
to get in.
• They are also at an advanced stage of developing a loan portal by which
they will have the capability to distribute loan products of other
intermediaries.
• The move of Ashok Leyland Finance to launch a finance portal that would
be used to sell products of other financial intermediaries and to use its
skill in collection to derive a pure service income.

52. Reliance Capital, an arm of the Anil Dhirubhai Ambani Group, will
set up a separate housing financial subsidiary and non-banking
financial company (NBFC) for the consumer finance sector.
Ambani said his company is also planning to selectively expand
its
• asset management
• life insurance, and
• broking operations
in emerging markets across Asia, Africa and
the Middle East.

53. ABN Amro Bank
Ms Meera Sanyal, Country Executive-ABN Amro Bank, India.
“ABN Amro Bank will use its NBFC to
complement its retail distribution business.”

54. The future of the Non-Banking Financial Companies would depend
largely on their performance in the present slowdown. It will be a
deciding factor for their future scope and role in the emerging global
financial markets.
In the PRESENT SCENARIO, it is very essential for them to come up
with best of customer services round-the-world because this is the
basic strength of this sector.
They need to explore all possible opportunities but also need to
strengthen their BASICS too!!!