2. Acknowledgement
We the members of group no. “E” would like to
acknowledge Dr.Bharat Pithadia , who gave us
this immense opportunity and his support to gain
knowledge in the field of NBFC in order to
accomplish our project.
Thank You !
3. Group Members
Name of the Member Roll no.
• Ashit Rajoria 851
• Deepti Prajapat 849
• Jai Aivole 812
• Kushank Makwana 836
• Pallavi Dethe 819
• Sumit Mehta 840
4. Areas Covered
• Introduction
• Eligibility criteria
• Difference between NBFC and Bank
• Types of NBFC
• Overview
• Role of NBFC
• Role of RBI in NBFC
• Problems faced
• Solutions
• Suggestions
• Case study
5. Introduction
• Fast emerging as an important segment of Indian
financial system
• It is an heterogeneous group of institutions (other than
commercial and co-operative banks) performing
financial intermediation in a variety of ways
▫ Accepting deposits, making loans and advances, leasing,
hire purchase, etc
• The Reserve Bank of India regulates and supervises the
Non-Banking Financial Companies as per Chapter III B
of the RBI Act, 1934
6. Definition (as per RBI)
A NBFC is one which is:
• Company registered under the companies act, 1956
• Engaged in the business
▫ Loans and advances, acquisition of shares/stock/bonds/
debentures/ securities issued by government or local
authority or other securities of like marketable nature,
leasing, hire-purchase, insurance business, chit business
• Does not include any institution whose principal business
▫ Agriculture activity, industrial activity sale/purchase/
construction of immovable property
7. Meaning
• A non banking finance company basically means an
institution, which mobilizes the savings of the community
and diverts them for financing different activities
Approved credit rating as per RBI
Rating company Minimum investment grade
CRISIL FA –(FA minus)
ICRA Ltd. MA –(MA minus)
CARE Ltd. CARE BBB
Fitch Rating In – BBB –( BBB minus)
8. Eligibility criteria of NBFC
• In terms of Section 45-IA of the RBI Act, 1934, no Non-banking
Financial company can commence or carry on
business of a non-banking financial institution without
▫ obtaining a certificate of registration from RBI
▫ having a Net Owned Funds of Rs. 25 laths (Rs two crore since
April 1999).
• However, certain categories of NBFCs which are
regulated by other regulators viz.
▫ Venture Capital Fund/Merchant Banking companies/Stock
broking companies by SEBI
▫ Insurance Company by IRDA
9. Difference between NBFC & Banks
• NBFCs lend and make investments and hence their
activities are akin to that of banks
• However there are a few differences as given below:
▫ NBFC cannot accept demand deposits
▫ NBFCs do not form part of the payment and settlement
system and cannot issue cheques drawn on itself
• NBFC doesn’t maintain CRR, SLR etc
• NBFC can't borrow money from RBI
• NBFC can finance certain activities which banks can’t
▫ e.g. finance to acquire land
10. Types of NBFC
With effect from December 6, 2006 the above NBFCs
registered with RBI have been reclassified as :
Asset
Finance
Company
NBFC
Investment
Company
Loan
Company
Infrastructu
re Finance
Company
Others
Micro
Finance
Institution
Infrastructure
Debt Fund
Systemically
Important
Core
Investment
Company
11. Asset Finance Company (AFC)
• A financial institution carrying its principal business of
financing physical assets that supports productive/ economic
activity
▫ Automobiles
▫ Tractors
▫ Lathe machines
▫ Generator sets
▫ Earth moving
▫ Material handling equipments
▫ General purpose industrial machines
12. Investment Company (IC)
• IC means any company which is a financial institution
carrying on as its 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
13. Loan Company (LC)
• Any company which is a financial institution carrying on
as its 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 asset
finance company
14. Infrastructure Finance Company (IFC)
• IFC is a non-banking finance company
a) which deploys at least 75 per cent of its total assets in
infrastructure loans
b) has a minimum Net Owned Funds of Rs. 300 crore
c) has a minimum credit rating of ‘A ‘or equivalent
d) CRAR of 15%
Infrastructure Debt Fund (IDF-NBFC)
• It is a company registered as NBFC to facilitate the flow of long
term debt into infrastructure projects
• IDF-NBFC raise resources through issue of Rupee or Dollar
denominated bonds of minimum 5 year maturity
• Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs
15. Systemically Important Core
Investment Company
• An NBFC carrying on the business of acquisition of shares and
securities which satisfies the following conditions:-
▫ Holds not less than 90% of its total assets in the form of
investment in equity shares, preference shares, debt or loans in
group companies
▫ Investments in the equity shares in group companies constitutes
not less than 60% of its total assets
▫ Does not carry on any other financial activity referred to in section
45i(c) and 45i(f) of the RBI act, 1934 except investment in bank
deposits, money market instruments, government securities, loans
to and investments in debt issuances of group companies or
guarantees issued on behalf of group companies
▫ Asset size is Rs. 100 crore or above
▫ Accepts public funds
16. Non-Banking Financial Company - Micro
Finance Institution (NBFC-MFI)
• A non-deposit taking NBFC having not less than 85% of its assets
in the nature of qualifying assets which satisfy the following
criteria
▫ Loan disbursed by an NBFC-MFI to a borrower with a rural household
annual income not exceeding rest. 60,000 or urban and semi-urban
household income not exceeding Rs. 1,20,000
▫ Loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000
in subsequent cycles
▫ Total indebtedness of the borrower does not exceed Rs. 50,000
▫ Tenure of the loan not to be less than 24 months for loan amount in
excess of Rs. 15,000 with prepayment without penalty
▫ Loan to be extended without collateral
▫ Aggregate amount of loans, given for income generation, is not less than
75 per cent of the total loans given by the MFIs
▫ Loan is repayable on weekly, fortnightly or monthly installments at the
choice of the borrower
17. Non-Banking Financial Company –
Factors (NBFC-Factors)
• NBFC-Factor is a non-deposit taking NBFC engaged in
the principal business of factoring
• The financial assets in the factoring business should
constitute at least 75 % of its total assets and its income
derived from factoring business should not be less than
75 % of its gross income
Others
• It includes:
▫ Chit-Fund Companies
▫ Nidhis or Mutual Benefit Finance companies etc
18. NBFCs : OVERVIEW
• 13000+ players registered under RBI : A & B categories
▫ Spread all across the country
▫ Approx. 570 NBFCs authorized to accept public deposits
(Category A)
▫ Assets worth Rs. 15000 Crore financed annually & growing
steadily
• Asset financing
▫ Commercial vehicles
▫ Passenger cars
▫ Multi-utility & multi-purpose vehicles
▫ Two-wheelers & Three-wheelers
▫ Construction equipments
▫ Consumer durables
19. Role of NBFCs
• As recognized by RBI & Expert Committees / Taskforce
▫ 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
20. 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)
21. Customer Service
• The key factor for our survival & growth
▫ NBFCs provide prompt, tailor made service with least hassles. This
more than compensates for the higher lending rates of NBFCs as
compared to Banks & FIs
▫ All customers get direct and easy access to and individual attention
of the top management
▫ NBFCs cater to a class of borrowers who :-
- Do not necessarily have a high income
- But have adequate net worth
- Are honest and sincere (gauged by the personal touch maintained
with them)
22. Role of RBI in NBFC
• Entrusted with the responsibility of regulating and
supervising the NBFC by virtue of powers vested in
Chapter III B of the RBI Act, 1934
• The regulatory and supervisory objectives
a) ensure healthy growth of the financial companies
b) Ensure companies function as a part of the financial system
within the policy framework, in such a manner that their
existence and functioning do not lead to systemic aberrations
c) Quality of surveillance and supervision exercised by the Bank
over the NBFCs is sustained by keeping pace with the
developments that take place in this sector of the financial
system
23. Role of RBI in NBFCs (Contd..)
• Towards this end, a four-pronged supervisory strategy
comprising
(a) on-site inspection based on CAMELS (capital, assets,
management, earnings, liquidity, systems and
procedures) methodology
(b) computerised off-site surveillance through periodic
control returns
(c) an effective market intelligence network, and
(d) a system of submission of exception reports by auditors of
NBFCs, has been put in place
24. Problems faced
• High cost of funds
• Slow industrial growth
• Small balance sheet resulting in low asset profile
• Non performing assets
• Competition
▫ Other NBFC’s
▫ Banks
25. Solutions/Remedies
• Categories of NBFCs and the practicality of
differentiated regulations by type of activity
• Regulatory arbitrage and convergence in regulation
• Liquidity ratio should be introduced for all registered
NBFCs
• Asset classification and provisioning norms be made
similar to that of banks for all registered nbfcs
• The tax treatment for provisions made by NBFCs should
be similar to that for banks.
• Implement macro prudential measures to address
systemic risk to NBFCs
26. Recommendations
• RBI should review the accounting norms prescribed for
NBFCs and apply the same norms for them as laid down
for banks
• Regulation between stock broking firms, merchant banks
and NBFC
• Liquidity management of NBFC
• Issues in corporate governance
• Disclosures for NBFC
• Supervisory framework for the NBFC sector
28. Introduction
• Established 15 years ago
• Central Idea
▫ To induce private investment to infrastructure projects
• Deals in both infra as well as non infra financing
▫ infrastructure, power and telecom sector
• Non-deposit taking NBFC
29. History
• Born out of the need for a specialized financial intermediary for
infrastructure
• In 1994, the Department Of Economic Affairs, recognize the need
to develop the country's infrastructure
▫ Established an expert group on commercialization of infrastructure
projects under the chairmanship of Dr. Rakesh Mohan
• Announcement for the setting up of IDFC by union Finance
minister's budget speech in July 1996.
• Incorporated on January 30, 1997 in Chennai
• In 2002, to attract private sector investment in infrastructure
projects & supplement public investment
▫ Finance minister of India in 2002-03, proposed the setting up of
10,000 million infrastructure equity fund, to be managed by IDFC, to
help in providing equity investment in infrastructure projects
30. Overview
• An integral part of the country's development story since
1997
• Vision is to be the 'one firm' that looks after the diverse
needs of infrastructure development
• Growth has been driven by
▫ Substantial investment requirements of the infrastructure
sector in India
▫ Growth in the Indian economy over the last several years
• Commitment to building India's infrastructure goes
beyond business
▫ Work closely with government entities and regulators to
advise & assist them in formulating policy and regulatory
frameworks
▫ Support private investment and public-private partnerships
in infrastructure development
31.
32. Working
Documents given by borrower
Risk department
Committee of senior managers
Preparation of documentation
Resources department
34. Conclusion
• Existing governance system with laws and updated guidelines
issued by RBI is doing justice
▫ Indian Economy
Existing guidelines have pace with dynamic commercial economy
RBI comes up with updated guidelines as and when it is required
▫ Public
RBI guidelines and the different laws governing NBFCs have many
powers and procedures which enables the depositors of these NBFCs
to enforce their rights
▫ NBFCs
RBI guidelines and the laws governing have generally given bright
prospects to the NBFC
35. Bibliography
• Primary sources
• Secondary sources
▫ Wikipedia
▫ Investorpedia
▫ Government of India, Ministry of Finance, Department of
Revenue, issued a notification dated July 1, 2005 in the Gazette
of India, notifying the Rules
▫ www.rbi.org
Notification issued by Department of Non Banking Supervision,
RBI (w.e.f April 21, 1999)
Notification issued by Department of Non Banking Supervision,
RBI (w.e.f January 2005 )
