AN APPROACH TONBFC ….Sweta Agarwal Neha Singhi & Co. C/O Kreeti Technologies #330, SDF Building, Block-GP Salt Lake City Sector- V, Kolkata-700091 Tel.:+91-9883116576 . 1
WHAT IS NBFC ? A Financial institute is NBFC As per Sec 45 1(f) of RBI Act,1934 ….which has a principal business of receiving deposits under any scheme or an arrangement or lending in any manner Approved by Central Government and notified by Official Gazette. 2
NBFC VS BANK NBFC are doing functions similar to banks. However there are few differences. NBFC + I + II + III = BANK A NBFC cannot accept demand deposits. It is not a part of the payment and settlement system and as such cannot issue cheques to its customers; and Deposit insurance facility of DICGC (Deposit Insurance and Credit Guarantee Corporation) is not available for NBFC depositors unlike in case of banks. 3
Non Banking Financial Companies (RBI) Regulations 1998.. Constitution of Audit Committee. Regulatory Factors Capital Adequacy Required. Exposure to Capital Market. Loan Against NBFC’s own shares are prohibited. 4
NBFC comprises following business organizations Hire Purchase Equipment Leasing Activities Investing Activities Loan Granting Activities NBFC Housing Finance Mutual Fund Finance Insurance Business 5
Classification based on purpose of acceptance of deposits by NBFC Directions 2006 NBFC Investment Companies (IC) Asset Finance Company (AFC) Loan Company (LC) 6
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. 7
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 8
Investment Company It means a company which is a financial institution carrying on as its main business of the acquisition of securities. 9
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. 10
Asset Finance Company AFC would be defined as any company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive / economic activity. 11
Regulation For NBFC’s Accepting Public Deposits The company accepting public deposits are required to comply with all prudential norms mentioned below IncomeRecognition Prudential Norms Asset Classification Accounting Standard Provision For Bad &Doubtful Debt Capital Adequacy Credit/investment Concentration 12
Eligibility criteria for accepting Public Deposits A NBFC having NOF of Rs 200 lakhs and above can accept public deposits. It has to obtain Minimum Stipulated Credit Rating from any one of approved Credit Rating Agencies once a year. There is a ceiling provided for the quantum of deposits accepted by NBFC Copy of Credit Rating should be sent to RBI along with the Return On Prudential Norms. 13
Eligibility criteria for accepting Public Deposits cont… A NBFC should have acquired a credit rating of not less than AAA rating or its equivalent in the previous year. If the credit rating is either downgraded or upgraded, the NBFC is required to report RBI within 15 days from the date it receives such information. It is to be noted that the deposits taken by the NBFC’s are repayable on demand and maximum period for which public deposits can be accepted is not less than 12 months with a maximum period of 84 months. 14
RBI Guidelines For Unrated NBFC All EL/HP Finance Companies that do not have The minimum investment grade credit rating and mobilizing public deposit upto 1.5 times of their NOF or 10 crore. ….whichever is lower, should not have CAR less than 15%. 15
Regulation for NBFC’s not accepting public deposits. All regulations related to interest rate, period and ceilings on quantum of borrowing do not apply. However, to ensure the disclose of a true and fair picture of the financial health, these companies are subject to prudential norms. Investment companies are exempt from all the provisions of the directions except the statutory provision for registration and creation of reserve funds. 16
Mother of all rules According to RBI Guidelines April 1999, all NBFC are required to maintain liquid assets of 15% of public deposits held on last working day of secondary preceding quarter. 17
Books and records maintained by NBFC The company accepting public deposits maintains the following Cash book & bank book. Interest register Books & records to be maintained by NBFC Loan ledger Due date & renewal register. Depositories ledger Investment ledger General ledger 18
Growth path for NBFC in future. Get the global expertise and products. Get innovative products, tie ups with global financial giants. Longer NBFC with critical mass Focus on returns & profits Multiply in size, look to convert into bank Increases Reach, Capital, Branding Consolidate their position, identify various revenue streams Reduction in cost to funds. 19
Systemically importance of NBFC NBFC plays an important role in channelizing the scarce financial resources to capital formation. NBFC provides assistance and guidance to their customers in matters relating to insurance. NBFC supplements the role of banking sector in meeting the increasing financial needs of the corporate sector ,delivering credit to the unorganized sector and to rural local borrowers. NBFC provides financial assistance to their borrowers in case of emergency need. 20
Enhancing the credit delivering mechanism
Reduction in interest cost and hence benefit the ultimate consumer.
Integrate domestic financial market by making NBFC channel parameter to larger banks.
Reversing the increase relationship between the size of borrowing and cost of borrowing.
Strengthing the professionalism of NBFC sector through education and training.