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Banking and NBFC

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A compact and brief presentation on Indian Banking System including various statistical data.

A compact and brief presentation on Indian Banking System including various statistical data.

Published in: Business, Economy & Finance

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  • 1. NBFCs & Banks In INDIA Debraj Das | Debayan Ray Koushik Dutta | Anindya Mondal School of Management Sciences Indian Institute of Engineering Science and Technology, Shibpur
  • 2. ADVANTAGE INDIA ©Debraj,Debayan,Koushik&Anindya 2 Robust Demand • Increase in working population and growing disposable incomes will raise demand for banking and related services • Housing and personal finance are expected to remain key demand drivers • Rural banking is expected to witness growth in the future Innovation in services • Mobile, Internet banking and extension of facilities at ATM stations to improve operational efficiency • •Vast un-banked population highlights scope for innovation in delivery Policy support • Wide policy support in the form of private sector participation and liquidity infusion • Healthy Regulatory oversight and credible Monetary Policy by the RBI have leaf strength and stability to the country’s banking sector. Business fundamentals • Rising fee incomes improving the revenue mix of banks • High net interest margins, along with low NPA levels, ensure healthy business fundamentals FY12 Total asset size: ₹90.12 trillion FY25E Total asset size: ₹1712.28 trillion
  • 3. Evolution of the Indian banking sector ©Debraj,Debayan,Koushik&Anindya 3 1921 1935 1936 - 1955 1956 - 2000 2000 onwards • Closed market • State-owned Imperial Bank of India was the only bank existing • RBI was established as the central bank of country • Quasi central banking role of Imperial Bank came to an end • Imperial Bank expanded its network to 480 branches • In order to increase penetration in rural areas, Imperial Bank was converted into State Bank of India • Nationalisation of 14 large commercial banks in 1969 and 6 more banks in 1980 • Entry of private players such as ICICI intensifying the competition • Gradual technology upgradation in PSU banks • Number of banks increased to 27 public sector banks, 22 private sector banks and 41 foreign banks • Advent of mobile and internet banking • Growing FDI in the Indian banking sector Source: Indian Bank’s Association, Aranca Research, BMI Notes: RBI - Reserve Bank of India, FDI – Foreign Direct Investment Note: The data on number of banks belongs to FY11
  • 4. Growth in deposits ©Debraj,Debayan,Koushik&Anindya 4 489 665 822 763 1030 1182 1170 1274 1453 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Growth in deposits over the past few years ($ bn) Series 1
  • 5. Asset Base of Banks ©Debraj,Debayan,Koushik&Anindya 5 100 100 120 250 236 300 940 1000 1090 1290 1336 1510 FY10 FY11 FY12 Asset Base ($bn) Foreign Banks Private Banks Public Banks Total Linear (Total)
  • 6. Growth in Money Supply ©Debraj,Debayan,Koushik&Anindya 6
  • 7. Market Share by Deposits ©Debraj,Debayan,Koushik&Anindya 7 78.2 77.5 17.1 18.2 4.7 4.3 FY05 FY12 Market Share by deposits Public Banks Private Banks Foreign Banks
  • 8. Incomes of Banks ©Debraj,Debayan,Koushik&Anindya 8 56.9 63.8 76.3 101 17.7 17.3 20.2 27.96.3 5.5 5.9 7.6 FY09 FY10 FY11 FY12 Incomes from interest ($ bn) Public Banks Private Banks Foreign Banks 8.9 10.2 10 10.5 3.7 4.3 4.3 5.1 3.1 2.1 2.3 2.3 FY09 FY10 FY11 FY12 Other Income ($ bn) Public Banks Private Banks Foreign Banks
  • 9. ROI of Banks ©Debraj,Debayan,Koushik&Anindya 9 91% 100% 97% 128% 126% 79% 103% 96% 143% 175% 89% 88% 88% 153% 176% SBI & ITS ASSOCIATE NATIONALISED BANKS PUBLIC BANKS PRIVATE BANKS FOREIGN BANKS Return on Asset FY10 FY11 FY12
  • 10. ROI of Banks ©Debraj,Debayan,Koushik&Anindya 10 77% 71% 73% 77% 70% 80% 74% 76% 80% 81% 82% 76% 78% 82% 83% SBI & ITS ASSOCIATE NATIONALISED BANKS PUBLIC BANKS PRIVATE BANKS FOREIGN BANKS Loan-to-Deposit Ratio FY10 FY11 FY12
  • 11. ©Debraj,Debayan,Koushik&Anindya 11 All About Indian Banks: RBI (Apex Bank) Scheduled Banks Co-operative banks Urban co- operative Banks (52) State co- operative Banks (16) Commercial Banks Public Sector Banks (27) Private Sector Banks (30) Foreign Banks (40) Regional Rural Banks (196) Unscheduled Banks State Banks of Indian and associates (8 )and other nationalised bank (19)
  • 12. Primary Functions • Accepting Deposits 1. Saving Deposits 2. Fixed Deposits 3. Current Deposits 4. Recurring Deposits ©Debraj,Debayan,Koushik&Anindya 12 • Granting of Loans and Advances 1. Overdraft 2. Cash Credits 3. Loans 4. Discounting of Bill of Exchange So, Profit of a Bank is = ∑ Loan amount x lending interest rate − ∑ Publics’ deposit amount x deposit interest rate
  • 13. Secondary functions • Agency Functions The bank acts as an agent of its customers. Transfer of Funds 1. Collection of Cheque 2. Periodic Payments 3. Portfolio Management 4. Periodic Collections 5. Other Agency Function ©Debraj,Debayan,Koushik&Anindya 13 • General Utility Functions Issue of Drafts, Letter of Credits, etc. 1. Locker Facility 2. Underwriting of Shares 3. Dealing in Foreign Exchange 4. Project Reports 5. Social Welfare Programs 6. Other Utility Functions
  • 14. ©Debraj,Debayan,Koushik&Anindya 14 Indian Banks: Public Sector Banks Private Sector banks Foreign Bank
  • 15. • A company registered Company Act -1956 • RBI Act, 1934- 45-IA - Every NBFC should be registered with RBI to commence or carry on any business of non-banking financial institution. • NBFCs are financial intermediaries engaged primarily in the business of 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 that of agriculture activity industrial activity Sale / purchase / construction of immovable property. What are NBFC’s ©Debraj,Debayan,Koushik&Anindya 15
  • 16. Exemption from Registration • Certain category of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI:  Venture Capital Fund/Merchant Banking companies/Stock broking companies registered with SEBI  Insurance Company holding a valid Certificate of Registration issued by IRDA  Nidhi companies as notified under Section 620A of the Companies Act, 1956  Chit Funds Act, 1982, Sec 2 (b)  Housing Finance Companies regulated by National Housing Bank. ©Debraj,Debayan,Koushik&Anindya 16
  • 17. Features of NBFC’s • All the NBFC are not entitled to accept public deposits.  Only those NBFCs holding a valid Certificate of Registration (CoR) 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. • Accept deposit for a period less than 12 months and more than 60 months • They cannot accept deposits repayable on demand • NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time (at present @12.5% © RBI) • NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors. ©Debraj,Debayan,Koushik&Anindya 17
  • 18. Features of NBFC’s • NBFCs (except certain AFCs) should have minimum investment grade credit rating. • The deposits with NBFCs are not insured • The repayment of deposits by NBFCs is not guaranteed by RBI • There are certain mandatory disclosures about the company in the Application Form issued by the company soliciting deposits • If a NBFC defaults in repayment of deposit, the depositor can approach A. Company Law Board B. Consumer Forum C. file a civil suit to recover the deposits. ©Debraj,Debayan,Koushik&Anindya 18
  • 19. Types of NBFCs • NBFCs can be classified into two broad categories, viz.,  NBFCs accepting public deposit (NBFCs-D)  NBFCs not accepting/holding public deposit (NBFCs-ND) • Residuary Non-Banking Company  Residuary Non-Banking Company is a class of NBFC which is a company and has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner and not being Investment, Leasing, Hire- Purchase, Loan Company.  These companies are required to maintain investments as per directions of RBI, in addition to liquid assets. ©Debraj,Debayan,Koushik&Anindya 19
  • 20. Major NBFCs in India • Birla Global Finance • Cholamandalam Investment & Finance Co. Ltd • First Leasing Company of India • Sundaram Finance • Countrywide Finance • Housing Development Finance Company • LIC Housing Finance • CanFin Homes • Sakura Capital India Ltd ©Debraj,Debayan,Koushik&Anindya 20
  • 21. Why NBFC’s? • Only 34% of Indian individuals have access to banks. • Banks have a lot of constraints in lending. • Conditions for getting a loan. • Proximity of financial services. • Size of loans. • Higher risk taking ability. • Innovative business model. • Expert skills. • Relationship with customers. • Single product and dedicated business. ©Debraj,Debayan,Koushik&Anindya 21
  • 22. Some examples • In infrastructure financing credit risk evaluation is the main job. • For collecting the dues they use human resources and pay them lower than what banks pay. Banks lack here. • In truck financing majority of the truck drivers don’t have proper papers to get the loans. • Many SME’s in India are like truck drivers. • In home finance, housing finance companies (HFC) flourish with higher focus and better customer service. • NBFC’s are the top priority in the above sectors. ©Debraj,Debayan,Koushik&Anindya 22
  • 23. BANKS Vs. NBFC’s • NBFC cannot collect deposits in the manner of a bank • Interest rates for NBFC’s are different compared • NBFC is not a part of the payment and settlement system and as such an NBFC cannot issue cheque drawn on itself • NBFC cannot issue Demand Drafts like banks • While banks are incorporated under banking companies act, NBFC is incorporated under company act of 1956. • Deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks. • NBFC cannot engage into - 1. agriculture activity, 2. industrial activity, 3. sale/purchase/construction of immovable property ©Debraj,Debayan,Koushik&Anindya 23
  • 24. Online & ATM usages ©Debraj,Debayan,Koushik&Anindya 24 1988-94 1995-99 2001-2004 2004-2006 2007 onwards • Deposit of Cash • Withdrawal of Cash • Mini-statement • Balance Enquiry • Coupon dispensing • Fulfilling request from customers • Account Transfer • Touch screen menus • Bill payments • Mobile Recharging • Check Deposit with scanning • Customised ATMs Source: IBA statistics, Aranca Research
  • 25. Growth in ATMs ©Debraj,Debayan,Koushik&Anindya 25 16750 21509 27088 34789 43651 60153 74743 104500 210000 2005 2006 2007 2008 2009 2010 2011 2012 2014 E Growth in ATMs – CAGR 29.9% No of ATMs Expon. (No of ATMs)
  • 26. ADVANTAGE INDIA ©Debraj,Debayan,Koushik&Anindya 26 0.40% 9.20% 15.20% 24.30% 37.50% 39.90% 40.80% 2007 2008 2009 2010 2011 2012 2013 Rural Teledensity Rural Teledensity
  • 27. New Banking Licences as on 04-04-2014 • Bandhan Financial Services • Infrastructure Development Finance Company (IDFC) • A committee headed by former RBI governor Bimal Jalan had  examined 25 applications for new banking licences,  L&T Finance  an arm of engineering-to-IT conglomerate Larsen & Toubro  Bajaj Finance  Anil Ambani-controlled Reliance Capital  Aditya Birla Financial Services. ©Debraj,Debayan,Koushik&Anindya 27
  • 28. Notable trends in Banking Sector ©Debraj,Debayan,Koushik&Anindya 28 Increasing focus on Women Banking Wide usability of RGTS & NEFT Know Your Client (KYC) Technological Innovations Diversification of Revenue stream Improved Risk Management Practices
  • 29. Thank you all… ©Debraj,Debayan,Koushik&Anindya 29