nbfc,types,importance and its working.

1. NON-BANKING FINANCIAL
COMPANIES
Ashok srikrishna

2. FINANCIAL INSTITUTION
 A financial institution is an institution which
collects funds from the public, and places them in
financial assets, such as deposits, loans and
bonds rather than tangible property.
FINANCIAL
INSTITUTION
Banking
institution
Non banking
institution

3. A Non-Banking Financial Company (NBFC) is a
company registered under the Companies Act, 1956
and is engaged 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.
It does not include any institution whose principal
business is that of agriculture activity, industrial
activity, sale/purchase/construction of immovable
property.

4. DIFFERENCE BETWEEN NBFC’S AND
BANK’S
(i) a NBFC cannot accept demand deposits (demand
deposits are funds deposited at a depository
institution that are payable on demand --
immediately or within a very short period -- like
your current or savings accounts.)
(ii) it is not a part of the payment and settlement
system and as such cannot issue cheque to its
customers drawn to itself.

5. NBFC’S VERSUS BANK’S
BANKS NBFCS
Definition Banking is acceptance of deposits
withdraw able by cheque or
demand; NBFC cannot accept
demand deposits
NBFC are companies
carrying financial business
Scope of business Scope of business of the bank is
limited by sec 16(1) of BR Act.
There is no bar on NBFC
carrying activity other then
financial activity.
Major limitation
on Business
No non banking activity are carried. Cannot provide checking
facilities.
Foreign
investment
Up to 74% is allowed to private
sector bank
Up to 100% is allowed
Need for a license License norms are tightly controlled
and generally it is perceived to be
quite difficult to get a license for a
bank
It is comparatively much
easier to get a registration
as an NBFC.
Regulations BR Act and RBI Act lay down the
stringent control over the bank.
Much lesser control over
NBFC

6. The NBFCs that are registered with RBI are:
(i) equipment leasing company;
(ii) hire-purchase company;
(iii) loan company;
(iv) investment company.
With effect from December 6, 2006 the above NBFCs
registered with RBI have been reclassified as
(i) Asset Finance Company (AFC)
(ii) Investment Company (IC)
(iii) Loan Company (LC)

7.  Asset finance Companies (AFC)
AFC are financial institutions whose principal business is of
financing physical assets such as automobiles, tractors,
construction equipments material handling equipments and other
machines.
ex: Bajaj Auto Finance corp. , Fullerton India etc
 Investment Companies (IC)
ICs generally are involved in the business of shares, stocks,
bonds, debentures issued by government or local authority that
are marketable in nature
ex: Stock Broking Companies, Gilt firms
 Loan Companies (LC)
LCs are loan giving companies which operate in the business of
providing loans. These can be housing loans, gold loans etc
ex: Mannapuram Gold Finance, HDFC
TYPES OF NBFC

8. NBFCS : OVERVIEW
 13000+ players registered under RBI : A & B categories
 Spread all across the country
 Approx. 570 NBFCs authorized to accept public deposits (Catg.
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

9. 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
 To finance economically weaker sections

10. 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
 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)

11. 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).

12. A company incorporated under the Companies Act, 1956 and
having desire 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). The company
is required to submit its application for registration in the
prescribed format along with necessary documents for Bank’s
consideration. The Bank issues Certificate of Registration
after satisfying itself that the conditions as enumerated in
Section 45-IA of the RBI Act, 1934 are satisfied.
REGISTRATION
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13. In case a NBFC defaults in repayment of deposit what course of action
can be taken by depositors?
If a NBFC defaults in repayment of deposit, the
depositor can approach Company Law Board or
Consumer Forum or file a civil suit to recover
the deposits

14. OVERVIEW OF PRESENT POSITION
 NBFCs are highly heterogeneous, continue to offer wide
range of niche and tailor-made financial services.
 In terms of relative importance of various activities
financed by them, hire purchase finance is the largest
activity, accounting for greater than 1/3rd
of total assets,
followed by loans and equipment leasing.
 The number of NBFCs have declined after 2000 due to
mergers, closures, cancellation of licenses, regulatory
strictness.

15.  The maximum rate of interest that NBFCs can pay
on their deposits has been reduced from 12.5 % to
11% per annum w.e.f March 4, 2003.
 The NPAs of NBFCs has not shown a clear decline
over the years.ed increase in their cost of funds.
 RBI has decided to impose penalties on NBFCs
having deposits of Rs. 50 crores & above if they don’t
submit periodic returns to RBI.

16. TOP FIVE NBFCS IN INDIA:
• Housing Development Finance Corporation
Limited
• Power Finance Corporation Limited
• Rural Electrification Corporation Limited
• National Bank of Agricultural and Rural
Development
• Infrastructure Development Finance Company
Limited

17. Category of NBFC Ceiling on public
deposits
AFCs maintaining CRAR of
15% without credit rating
AFCs with CRAR of 12% and
having
minimum investment grade
credit rating
1.5 times of NOF or Rs
10 crore
whichever is less
4 times of NOF
LC/IC with CRAR of 15%
and
having minimum investment
grade credit rating
1.5 times of NOF
CEILING ON PUBLIC DEPOSITS

18. The symbols of minimum investment grade rating of the Credit rating agencies are:
Name of rating agencies Level of minimum investment
grade credit rating (MIGR)
CRISIL FA- (FA MINUS)
ICRA MA- (MA MINUS)
CARE CARE BBB (FD)
FITCH Ratings India Pvt. Ltd tA-(ind)(FD)
SYMBOLS OF MINIMUM
INVESTMENT GRADE RATING

19. CONCLUSION
 The NBFCs have not been very much profitable.
 The operating cost of NBFCs has increased and it
stands much higher than co-operative banks. This is
one area in which improvement is needed.
 Enhancing the credit delivery
mechanisms: The credit delivery mechanism
needs to be more transparent and hassle free.
There should be more stringent norms for the
defaulters.
 RBI needs to educate people about NBFC