The document is Samiksha Kiran Naik's summer internship project report submitted to the University of Mumbai. It discusses her internship with IDFC First Bank, where she worked under the guidance of Prof. Iftiqar Mistry. The report includes an introduction to non-banking financial companies (NBFCs) in India, their role and regulation by the Reserve Bank of India. It also describes the objective of the project to gain experience in the NBFC sector and covers topics such as the company profile, research methodology, and findings about risk assessment models and credit processes at NBFCs.

1. UNIVERSITY OF MUMBAI
SUMMER INTERNSHIP PROJECT REPORT
“NBFC Sector and Understanding or risk management model and
credit memorandum”
Submitted By
Samiksha Kiran Naik
Specilization-Finance
Roll No.35
Academic Year : 2019-20
Under the Guidance of
Prof. Iftiqar Mistry
Faculty Guide
NCRD’s Sterling Institute of Management Studies
Plot No. 93/93A, Sector 19, Near Seawoods Darave Railway Station
Nerul (E), Navi Mumbai - 400706

2. NCRD’s Sterling Institute of Management Studies
Plot No. 93/93A, Sector 19, Near Seawoods Darave Railway Station
Nerul (E), Navi Mumbai - 400706
Institute Certificate
This is to certify that Ms. Samikhsa Kiran Naik MMS SEM III RollNo. 35 in Finance
Specialization, studying in this institute has completed the Summer Internship
Projecttitled as “NBFC Sector and Understanding or risk management model and
credit memorandum”under our guidance.
Prof. Iftiqar Mistry Dr. Prashant Gundawar
Faculty Guide Director
Place : Nerul, Navi Mumbai
Date :

3. ACKNOWLEDGEMENTS
I would like to take this opportunity to express my sincere gratitude to IDFC First Bank forallowing
me carry out the project work in their premises. Thanks to Mr. Mahesh Payannavar(N BFC
Banking-Head) for allocating me the project and rendering all the assistance whenever Ineeded it.
My sincere gratitude & thanks to Mr. Charudatta Bhide (Senior Relationship Manager)for helping
me in this project and his time to time guidance.We are thankful to our Director Dr. A.A.
Attarwala, for his confidence he has shown in us todesign this project and the encouragement he
has given us in opting for our project entitled, “AnOverview Of NBFC sector and Understanding
of Risk Assessment Model and CreditMemorandum”.
Prof. SantoshiMam Dr. Prashant Gundawar
Faculty Guide Director

4. NCRD’s Sterling Institute of Management Studies
Plot No. 93/93A, Sector 19, Near Seawoods Darave Railway Station
Nerul (E), Navi Mumbai - 400706
DECLARATION
I ,Samiksha KiranNaikherebydeclare thatthe projectworktitledas “NBFCSectorand Understanding
or riskmanagementmodel andcreditmemorandum”underourguidance.isthe originalworkdone by
me underthe guidance and Santoshi Mam of NCRD’SSterelingInstitute of Managementstudies.
Name of the Student : Samiksha kiran Naik
Specialization : Finance
Roll No. 35
Year: 2019-20

5. INDEX
Chapter
No.
Particulars Page
No.
1. Introduction
1.2 Objective of the project 6
1.3 Objective of the study 7
1.4 Review of literature 8
1.5 Scopeof the study 9
1.6 Limitations of the study 10
2 Introduction of the Topic 11
2.1 Introduction of the Non- Financial Compiances 12-13
2.2 Requirement for registrations 14
2.3 Characteristics 15
2.4 Types of NBFC’s 16-17
2.5 Soucres of Fundings 18-19
2.7 Risk AssessentModel 21-27
2.8 Crises in the NBFC Sector 28
3 Profile of the Organization 32
3.1 About the company
4 Research Methodology 33
5 Annexures 37
6 Findings 46
7 Conculsions 47
8 References 48

6. OBJECTIVE OF THE PROJECT.
In the curriculum of University of Mumbai for the course of Master in Management Studies, this
project i.e summer internship give the students a broader way and the experience of real market
situation. In these two months of Summer Internship, the objective is to gain wide exposure and
experience of that sector or an industry in which students are doing their summer internship.
Following are some bullet points which can be taken into consideration for the Project.
Organizational culture-
We get to learn about the organizational culture of the company in which students have to learn
what kind of behaviour we should carry while working with this institution or company.
Organizational culture is depending on with which company you are working for. With learning
in the company students should develop that kind of nature and improving themselves to work
inefficient manner.
Excellence-
We must constantly strive to achieve the highest possible standards in our day to day work and in
the quality of the services that we are rendering to other financial institutions. We do have great
opportunity to gain knowledge about that particular sector.
Unity-
We must work cohesively with our colleagues across the group and customers. Unity is building
strong relationships based on tolerance, understanding and mutual co-operation. There is group
of the people behind the achievement of any organization, this achievement cannot be achieved
by one single person, there is group or unity of people behind that success.
Responsibility-
We must continue to be responsible, sensitive to the countries, communities and environments in
which we work, always ensuring that what comes from the people goes back to people many
times over. Becoming responsible is the basic objective of the any intern or employee of the
company and we must ensure that whatever task we have done for organization we should
consider our self-responsible for that task.
Integrity-
We must conduct our business fairly, with honesty and transparency. Whatever we do must stand
that test of public scrutiny. We must follow the business etiquettes which is required in
the particular organization. We must serve our services to the organization without any fraud,
misleading business which will affect organization adversely

7. OBJECTIVE OF THE STUDY
⮚ To understand, what are the NBFC i.e. Non-Banking Financial Companies?
⮚ To understand various business segments covered by NBFC sector (Types of NBFCs).
⮚ To study the role played by the NBFC sector in financial markets.
⮚ To study the credit analysis of NBFCs

8. REVIEW OF LITERATURE
Researchpaper by Dr.C. Thilakam and M. Saravanan on CAMEL Analysis of NBFCs in
Tamilnadu
In this research paper, researchers have studied about the CAMEL analysis of the NBFC
companies. Basically, CAMEL analysis is common analysis of the Qualitative analysis of
any NBFCs, Banks and Financial Institutions. Capital Adequacy, Asset Quality, ManagementEx
cellence, Earnings, and Liquidity. In last decade, Non-Banking Financial Companies have shown
phenomenal growth in financial market and economy growth. During the last
decade NBFCs have undergone wide volatility and change as an industry and have been witnessi
ngconsiderable business upheaval over the last decade because of market dynamics, public
sentiments and regulatory environment. Author had selected 30 companies out of 36 from the
Tamil Nadu. It has been seen that the only serious players have been performing well in the
economy and others who are not that serious have been not performing well, few have been
shutdown and some of them merged with other financial institution.2.
Researchpaper by Srinivas Grumparthi on Risk Assessment Model for Assessing
NBFCs’
Non-Banking Financial Companies form an integral part of the Indian Financial System. Most
of
the NBFCs are operating with high risk of lending and more often NBFCs’ lend to small and
medium size enterprises, which are categorized as high risk class of assets. In this paper
,researchers have studied the Risk Assessment Model by selecting the class of Asset
Financing NBFCs. He has selected one type of the NBFCs that is Asset Financing Companies
and tried to make and Risk assessment model on the both basis Qualitative and Quantitative
basis. To study this industry by qualitative aspect he has selected the CAMEL Model of analysis
that is, he has studied the industry on the basis of five qualitative basis that are, Capital
Adequacy, Asset quality, Management competence, Earnings and Liquidity of the company. To
study this industry by quantitative method he has used the key financial ratios like, Debt Equity
ratio, Current ratio interest coverage ratio, Return on Asset, Return on Capital employed, Return
on Equity, and Leverage ratio. He has calculated the actual scores by using the parameters (Risk
Weighted). He has found that the customers with high scores and low risks are the prompt payer
of the loans which are good for the lender

9. SCOPE OF THE STUDY
⮚ Various types of NBFCs.
⮚ Business segments have been covered by NBFC sector
⮚ Growth of the NBFC sector in financial market.
⮚ Credit Memorandum.
⮚ Risk Assessment Model
.

10. LIMITATION OF THE STUDY
⮚ The company had to share very less data as it is confidential.
⮚ Time required is too short as the study of NBFC sector.
⮚ I could not attend client meeting
⮚ I had to rely on secondary data.

11. Introduction of Non-Banking FinancialCompanies (NBFCs)
Non-Banking Financial Companies are financial companies which performs like banks
but they are not actual bank. These types of financial companies have to be registered under
Companies act,1956. These financial companies engage in the business of financial loans and
advances, acquisition of securities/bonds/debentures which are issued by Government or local
authority or the marketable securities of a like nature, leasing, hire-purchase, insurance business,
chit business but does not it does not include whose prime principal business is that of agricultural
activity, industrial activity, purchase or sale of any goods. A Non-Banking Financial Companies
have head business of accepting stores under any plan or course of action in one singular amount
or in portions by method for commitments or in some other way, is additionally a non-banking
budgetary organization.
NBFCs garnered the attention of the Reserve Bank of India (‘RBI’) when several
depositors lost their money, during the failure of several banks in the late 1950s and early 1960s.
In order to prevent the large number of depositors, RBI initiated regulating them by introducing
Chapter IIIB in the Reserve Bank of India Act, 1934. In March 1996, there were around 41,000
NBFCs in India and they were not recognized as a separate class. However, due to the failure of
some of the institutions the regulatory structure along with the reporting and supervision was
constricted by RBI. In the late 90s, sweeping changes were brought to protect the interest of
depositors and ensuring the desired functioning of NBFCs.
The capital requirement was changed in the year 1999, NBFCs getting registered on or
after the issuance of notification dated April 21, 19991 were required to have the minimum net
owned funds of ` 200 lakhs in order to commence the business of an NBFC. Due to snowballing
trend in the sector and to ensure the growth of the sector in a healthy and efficient manner various
regulatory measures were taken for identifying the systemically important companies and bringing
them under the austere norms. The NBFC-ND with asset size of ` 100 crores or more were
considered to be systemically important companies. During the FY 2011-12, two new categories
of NBFCs were introduced viz., IDF and MFI.

12. DEFINITION ( Reserve Bank ofIndia)
Definition for Non-Banking Financial Company, it carries functions like bank but it is not
actual bank. Reserve bank of India has defined NBFC as below. RBI has defined it in systematic
way, it has explained each term in detailed i.e. what is financial institution? What is non-banking?
An NBFC is a company registered under the Companies act, 1956 or Companies act, 2013
and is engaged in the Business of financial Institution.
Section 45I(f) of the Reserve Bank of India act, 1934 defines “Non-Banking Financial
Companies” as-
(i) A financial Institution which is a company;
(ii) A non-banking financial institution which is company and which has its principal business the
receiving of deposits, under any scheme or arrangement or in any order manner, or in lending
in any manner;
(iii) Such other non-banking financial institution or class of such institution, as the bank may, with
the previous approval of the central government and by notification in the Official gazette,
specify;
Section 45I(c) of the Reserve Bank of India act, 1934 defines the term “Financial Institution” as-
Financial institution means any non-banking institution which carries on as it’s business or part
of its business any of the following activities, namely: -
(i) The financing, whether by way of making loans or advances or otherwise, of any activities
other than its own;
(ii) The acquisition of shares, stocks, bonds, debentures or securities issued by government or
local authority or other marketable securities of a like nature;
(iii) Letting or delivering of any goods to a hirer under hire-purchase agreement as defined in
clause (c) of section 2 of the hire purchase act, 1972;
(iv) The carrying on of any class of business;
(v) Managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or
kooris as defined as any law which is for the time being in force in any state, or in any business,
which is similar thereto;

13. (vi) Collecting, for any purpose or under any scheme or arrangement by whatever name called,
monies in lump sum or otherwise, by way of subscription or by sale of units, or other
instruments or other any manner and awarding prizes or gifts, whether in cash or kind, or
disbursing monies in any other way, to persons from whom monies are collected or to any
other person, but does not include any other institution, which carries on as its personal
business:-
o Agricultural operations; or
o Industrial activity; or
o The purchase or sale of any goods (other than securities) or the providing of any services;
or
o The purchase, construction or sale of any immovable property, so however, that no other
portion of income of the institution is derived from the financing of the purchases,
constructions or sale of immovable property by other persons.
NBFCs v/s BANKS
NBFCs functions are very different from Banks. Following are some difference have been
mentioned:
● NBFCs cannot accept demand deposits.
● NBFCs do not form part of payment and settlement system and cannot issue
cheques drawn on itself.
● Deposits insurance facility of Deposit Insurance and Credit Guarantee Corporation
is not available to depositors of NBFCs, unlike in case of banks:
● NBFCs do not have power under the Securitization and Reconstruction of Financial
Assets and Enforcement of Securities Interest Act, 2002.
● 100% FDI in NBFCs is allowed under the automatic route in 18 specified activities,
subject to minimum capitalization norms;
● 74% FDI permitted in private sector banking, 49% under automatic route and
beyond 49% and up to 74% under approval route.
REQUIREMENT FOR REGISTRATION WITH RBI
Section 45-IA of the RBI Act, 1934 states that-

14. No Non-Banking Financial company shall commence or carry on the business of a Non-
Banking Financial Institution without –
⮚ Obtaining Certificate of Registration; and
⮚ Having Net Owned Fund of Rs . 2 cores (Prior to the issuance of notification dated 21st
April, 1999 the requirement of having minimum Net owned fund was revised from 25 lac
to 2 crores)
However, as per revised regulatory framework if a NBFC having NOF less than Rs. 2 crores then
such companies need to increase the NOF in the following manner –
⮚ Rs. 1 crore before 1st April, 2016; and
⮚ Rs. 2 crores before 1st April, 2017.
An application for the registration needs to be submitted by the company in the prescribed format
along with the necessary documents for the RBIs consideration. RBI has specified different
indicative list of documentation/information to be submitted along with for the application for
NBFC-CIC (Core Investment Companies), NBFC-Factors, NBFC-MFI (Micro Finance
Company), and other NBFCs. However, in order to avert dual registration, RBI has exempted
certain class of companies from the requirement of registration with the RBI.
CHARACTERISTICS

15. NBFC is the financial institution which is working as shadow for Banks. Banks are mostly in
consumer banking while NBFCs are working in many segments like they are into consumer
banking, corporate banking, wholesale banking, mortgage loans, private banking, wealth
management, and investment banking.
Incorporation of non-banking financial firm is essential as they are small players who
provide loans, chit funds etc, as 70% of population comes from the rural part of India. Many
companies have come forward ad registered themselves with RBI to attain the status of NBFC.
NBFCs are integral part of our Indian Economy and Financial Sector. Contribution towards Indian
economy from NBFC sector is increasing, recently it has been contributed 12.5% towards GDP of
Indian economy. This recent success of NBFC can be attributed to its lower cost, swiftness in
providing strong risk management services and their reach in the sector where public sector banks
don’t.
NBFCs provide business loans at basic eligibility criteria. They study and do analysis of
the financial status of company and verify the credibility of the borrower company on the basis of
parameters. These parameters include CIBIL score, ITR, Business background, assets quality,
management of the company, liquidity and others.
Terms and conditions of the NBFCs are customer friendly because of which companies do
approach NBFCs for corporate loans rather than approach bank. Many NBFCs provides unsecured
business loans which do not require hypothecation of any collateral. For small businesses, terms
and conditions are very customer-friendly where it can avail them loans easily.
Business loan interest rates of the NBFCs are very competitive in market. They provide
borrower moratorium period on the basis of terms and conditions of the lender. They have zero
prepayment charges and don’t have any hidden charges. They allow borrowers to repay them as
per their pocket i.e. lender offer multiple repayment tenor options that borrower can choose from
and can repay the loan.

16. TYPES OF NBFCS
LIABILITY
There are two types in classification of NBFCs by Liability.
⮚ Deposit accepting NBFCs
⮚ Non-Deposit accepting NBFCs
All Non-Banking Financial Companies don’t accept deposits. Only those NBFCs which
are holding a valid Certificate of Registration (CoR) with authorisation to accept Public
Deposits can accept/hold public deposit.
Section 45-I(bb) of the Reserve Bank of India Act, 1934 defines the term deposits as-
Stores (Deposits) incorporates and will be deemed always to have included any receipt of
cash by way of deposit or credit or in any other structure, however does exclude -
(i) Amounts raised by the way share capital;
(ii) Amounts contributed as capital by partners of the firm;
(iii) Amounts received from scheduled bank or co-operative bank or any other
banking company as defined in clause (c) of section 5 of the banking regulation
act, 1949;
(iv) Any amount received from, - a State financial corporation, any financial
institution specified in or under section 6 a of IDBI act, 1964, or any other
institution that may be specified by bank in this behalf;
NBFCS
LIABILITY SIZE ACTIVITY

17. (v) Money got in normal course of business, by method for – Security Deposits,
Dealership Deposits, sincere cash, and advance against request of merchandise,
properties or administrations.
(vi) Any sum got from an individual or a firm or a relationship of a people not being a
body corporate, enlisted under any institution identifying with cash loaning which
is for now in power in any state;
SIZE
NBFCs are categorised into two different categories viz. Deposit accepting and Non-
Deposit accepting. The non-depositing NBFCs further bifurcated into:
1. Systematically Important-
The term “Systematically important non-deposit taking non-banking financial company”
has been defined to means a Non-Banking Financial Company not accepting/holding
public deposits and having total assets of Rs. 500 crores and above.
2. Non-systematically Important-
The term “Non-systematically important non-deposit taking non-banking financial
company” has been defined to means a Non-Banking Financial Company not
accepting/holding public deposits and having total assets less than Rs. 500 crores.
ACTIVITY
1. Underlying one or more assets as security for
availing credit .
2. Principal Business, Financing for Physical
Assets like automobiles, tractors, and generator
sets etc.
ASSET FINANCING
COMPANY
INVESTMENT
COMPANY
4. Engaged in business of pooled capital of
investors in financial securities
5. It can be corporation, partnership, business
trust, or LLP.
6. E.g. Tata Investment Corporation Li
LOAN COMPANY
7. Provide Finance by making Loans or advances.
8. Offer different types of loans as per
individual’s preference.
9. Accepts deposits at higher interest rate and
further give loans on higher interest to

18. =
INFRASTRUCTURE
FINANCE COMPANY
10. Non-Deposit taking NBFC.
11. Deploys 75% of its total assets in
infrastructural loans.
12. Minimum Net Owned fund Rs.300 crores,
minimum credit rating of ‘A’ or equivalent,
and CAR should be 15 %. E.g. L&T, IDFC
⮚ Assets size 100 crores and Accept public
deposits.
⮚ Does not hold less than 90% of its total assets
in the form of investment in shares.
⮚ Principal business, acquisition of shares and
securities.
CORE INVESTMENT
COMPANY
⮚ Non-Deposit taking NBFC with minimum Net
Owned Funds of 5 crores.
⮚ Loans to be extended without collateral.
⮚ Indebtedness should not be exceed Rs.100,000.
⮚ E.g. Unnati Micro Finance Private Limited.
MICRO FINANCE
INSTITUTIONS
● Principal business of financing of acquisition
or construction of houses.
● Regulated by National Housing Finance
● Net owned fund of Rs.10 Crores
● E.g. HDFC ltd, IndiaBulls Housing Finance
HOUSING FINANCE
COMPANY

19. SOURCE OF FUNDING
● NBFCs do not depend on CASA (Current account Saving Account) deposits in order to
raise resources. NBFCs have to look for an alternative source of money supply, which are
higher than the traditional deposits taking by banks, where the interest rate offered is
between 4%-6%.
● Assets means investment in the operation of NBFCs and liabilities are defined as amounts
owed to parties that have supplied monies, the interest charged between both transaction is
called an arbitrage which is turned into Net Interest Margin.
● One of the primary source of NBFCs is lending Long term loans. NBFCs do take loan from
banks in lump-sum, as banks usually provide loans at lower rate which is compiled to
CASA deposit, which helps NBFCs because of the have high risk-return profile.
● Funds can be obtained through distributing debentures of the company which have to be
repaid on the maturity of the debentures. It is long term borrowing which have to be repaid
on the maturity of the debenture with its interest.
● Short term loans offered by NBFCs can be issued by raising the funds through commercial
papers (CP) which are short term unsecured promissory notes issued by companies with
the tenor of 3 months to 12 months.
Table VI.7: Sources of Borrowings of NBFCs-ND-SI
(Amount in ₹ billion)
Items
At end- March
2017
At end- March
2018
At end-Sept
2018
Share in per cent
Mar-17 Mar-18 Sep-18
1 2 3 4 5 6 7
1. Debentures 5,795 6,321 6,681 48.6 46.2 42.5
2. Bank
borrowings
2,527 3,318 4,108 21.2 24.2 26.1
3. Borrowings
from FIs
263 221 277 2.2 1.6 1.8
4. Inter-corporate
borrowings
404 500 701 3.4 3.7 4.5
5. Commercial
paper
1,119 1,224 1,525 9.4 8.9 9.7
6. Borrowings
from government
193 175 1 1.6 1.3 0.01
7. Subordinated
debts
333 352 361 2.8 2.6 2.3

20. 8. Other
borrowings
1,283 1,580 2,062 10.8 11.5 13.1
9. Total
borrowings
11,917 13,691 15,716 100 100 100
Note: Data are provisional.
Source: RBI Supervisory Returns.
CREDIT RATING (INTERNAL RATING)
A credit rating organisation is an organisation that rates accounts holders which are going
to pay back the amount of credit which have been availed to them on the basis of their ability to
pay back interests and principal amount on time and the probability of defaulting. These companies
also analyse the creditworthiness of debt and issuers and provide the credit ratings to only
organisations and not individuals consumers. The assessed entities may be companies, special
purpose entities, state governments, local government bodies, non-profit organisations and even
countries. There are specialized credit bureaus which have been set up for the individual. These
bureaus assign credit score to each of the individual on the basis of their history of payment
towards interest on loan and Principal amount.
Credit rating agencies, these are not too old agencies in the India. They came into existence
in the second half of the 1980’s. There are 6 Credit rating agencies which have been recognized as
the best Credit rating agencies in India namely; CARE, CRISIL, ICRA, Brickworks rating,
SMERA and IRRP. From above, I get to learn about three agencies namely, CISIL, CARE, and
ICRA. Rating provided by these agencies determine the nature and integrals of the loan. Banks,
NBFCs, or any Financial Institutions look for Credit rating which have been assigned by the
recognized Credit Rating Agency of the borrowing party. If Credit rating is high of the borrower
company then they can be given loan on lower rate of interest. There is common parameter to rate
companies called as CAMELS (Capital Adequacy, Assets Quality, Management Quality, Earning,
Liquidity, and Sensitivity) which is used by the credit rating agency. This CAMELS have been
explained as follows.

21. Capital Adequacy
⮚ Assess through Capital Trend Analysis.
⮚ Compliance with regulations pertaining to risk based net worth requirement.
⮚ Compliance with interest and dividend rules and practice.
⮚ Other factors are involved in rating and assessing capital adequacy are its growth
plans, economic environment, ability to control risk, and Loan & investments
concentration.
Assets Quality
⮚ Covers an institutional loan’s quality, which reflects the earnings of the company.
⮚ Analysing investment risk factors that company may face and comparing these
risks with company’s capital earnings, which shows the stability of the company
when faced with particular risks.
⮚ Analysis of Company’s fair market value of investments when mirrored with the
company’s book value of investments.
⮚ It reflected by the efficiency of a company’s investment policies and practices.
ManagementQuality
⮚ Management assessment determines whether company is able to properly react to
financial stress or not
⮚ This parameter is reflected by the management’s capability to point out, measure,
look after and control risks of the company’s daily activities.
⮚ Management of resources in systematic way which will reflect in efficiency.
⮚ It covers management’s ability to ensure the safe operation of the company as
they comply with necessary and applicable internal and external regulations.
Earnings
⮚ Company’s ability to create appropriate returns to be able to expand, retain
competitiveness, and add capital is a key factor in rating its continued
viability.Determined by assessing the company’s growth, stability, valuation

22. allowances, net interest margin, net worth level and the quality of the company’s
existing assets.
Liquidity
⮚ Analyst look at interest rate risk sensitivity, availability of assets that can be easily
be converted into cash, dependence on short term volatile financial resources and
Assets Liability Management (ALM) technical competence.
Sensitivity
⮚ Covers how particular risk exposures can affect institutions.
⮚ Analyst assess an institution’s sensitivity to market risk by monitoring the
management of credit concentration.
⮚ How lending to specific industries affects company.
⮚ Exposure to foreign exchange, commodities, equities, and derivatives are also
included in rating the sensitivity of a company to market risk.
RISK ASSESSMENT MODEL(RAM)
During Summer internship in IDFC FIRST Bank, I got to learn about Risk Assessment
Model as I was working in Wholesale Banking department. This Risk Assessment Model was an
excel sheet in which I have to put financial data into that excel sheet. There are different Risk
Assessment Model for NBFC-MFI (Micro Finance Institution and Other Non-Banking Finance
Companies. CRISIL i.e. Credit Rating Service of India Limited provides RAM to Financial
Institution for internal credit rating. This internal credit is used for making Credit Assessment
Memo (CAM). While learning Risk Assessment Model, there were many new concepts I got to
learn which are very important factors of Credit Analysis. Following are the Some important
concepts which have to be taken into consideration while Credit Assessment Model.
● Assets Classification
There are three types of assets classification which have been classified on some criteria.
o Standard Assets -

23. When there is no default in repayment of principal or interest and does not
disclose any problem or carry more than normal risk attached to the business then
those assets are classified as standard assets.
o Sub-standard assets -
Terms of the agreement regarding interest or principal amount have been
renegotiated, restructured or rescheduled after initiating of operating of
organisation till one year then the assets can be classified as non-performing
asset.
o Doubtful-assets -
Term loan, less assets, hire purchase asset or any other asset remaining sub-
standard of period exceeding 18 months or such shorter period*.
o Loss-assets –
Identified the company/external or internal auditor /RBI or an asset which is
adversely affected by a potential threat of non-recoverability due to either erosion
in the value of security or non-availability of security or due to any fraudulent act
or omission on the part of borrower.
* The period of 18 months shall be reduced to 16 months for the FY ended
March 31, 2016; 14 months for the FY ended March 31, 2017 and 12 months for
the FY ended March 31, 2018.
Capital Risk Adequacy Ratio
The Capital Risk Adequacy Ratio is a measurement of Bank’s available capital expressed
as a percentage of a bank’s risk weighted credit exposures. It is also known as Capital to Risk
Weighted Assets Ratio (CRAR), is used to protect depositors and promote the stability and
efficiency of financial system. The Capital Adequacy Ratios ensure the efficiency and stability of
nation’s financial system by lowering the risk of banks becoming insolvent. It has to be maintained

24. minimum Capital Adequacy because it ensures that banks have enough resources to absorbs a
reasonable amount of losses before they become insolvent and consequently lose the fund of
depositors. Two types of capital are measured that are Tier-1 capital, which can absorb losses
without bank being cease the operation, and Tier-2 Capital, which can absorbs the losses if the
organisation is going to be winding-up.
Every NBFC’s shall maintain a minimum CAR of 15 percent. Capital Adequacy Ratio
formula as follows.
CAR= Tier-1 + Tier-2 (Capital) / Aggregate Risk Weighted Assets.
The total Tier-1 capital, at any point of time shall not be less than 8.5 percent by March 31st,
2016 and 10 percent by March 31st , 2017.
The total Tier II Capital for NBFC-MFIs, at any point of time, shall not exceed 100 percent of
Tier I Capital.
The Tier I capital of an IFC, at any point of time, shall not be less than 10%
● Tier-1 Capital
It includes shareholder’s equity and retained earnings which is disclosed in financial
statement of the organisation and it is primary indicator to measure a bank’s financial
health. It can be used when a bank must absorb losses without winding-up business
operations. It is the key funding source of the bank. It consists nearly all of the bank’s
accumulated funds and are generated specifically to support banks when losses are
covered so that regular business operations do not have to be shut down.
● Tier-2 Capital
It is the secondary part of bank own funds, in addition to tier 1 capital, that makes up a
bank’s required reserves. It is supplementary capital and it includes items which do not
disclosed in the financial statement of the company such as revaluation reserves,
undisclosed reserves, hybrid instruments, and subordinate debt. It is considered as less

25. secure than tier 1capital. It is also difficult to calculate accurate amount of Tier 2 Capital
and it is very difficult to liquidate as it composes in difficult ways.
CREDIT CHECKS
While learning in IDFC First Bank (NBFC Sector), I could learn the Credit Check. It is
term use to check company’s (Borrower) debt. That means, there are many organisations who
keeps the data of all company regarding their Loans have been taken from other financial
institutions and banks. Analyst do check whether directors of company, do they have any credit
due or any suit filed against them. Following are some aspects have been got to know.
CIBIL Check (Credit Information Report)
It has been recognised as the first Credit Information Company in India. It collects and
maintains records of individuals’ and companies’ loans and credit cards. These records are
submitted monthly to CIBIL by its members which are banks and other financia l
institutions.
As analyst, it is very useful to get to know about companies’ all loans and credits.
It makes easy that payment history or credit-worthiness of company. Lenders generally
treat all borrowers equally. Each borrower, if approved by the lender’s internal credit
policy, would get charged the same rate of interest for particular loan size and purpose.
Before sanctioning the loan to any financial institution or any bank, analyst firstly does
credit checking through the CIBIL. It provides you the prompt payment, as well as default
payment and all facilities are mentioned in the report. The Credit Information Report
additionally has a list of enquiries made on your account by various members banks/
financial institutions/ NBFCs for purpose of the approving the Credit Facility.
● CRILC
Reserve bank of India has constituted a Central Repository of Information on Large Credits
(CRILC) to collect, store, and publish data on all borrowers’ credit exposures. Banks/
Financial institutions are expected to report findings to CRILC. Banks have to provide all
information regarding their borrowers with an aggregate fund-based and non-fund-based

26. exposure of and over 5 crores. Banks also have to report the SMA status of their borrowers
to the CRILC. It has been built up for financial institutions to notify the status of their
stressed borrowers and submit the information to a central database of the Reserve bank of
India. CRILC reports have been useful to the lender, because it can be found out that from
how many banks or financial institutions borrower has borrowed money.
MCA (Ministry of Corporate Affairs) Report
Ministry of Corporate Affairs provides the company’s master data. Lender has to
keep record of MCA report of borrower. It provides company’s CIN, Registration number,
Company Category and Sub-Category, and Class of Company that is whether it is private
or public company. It also provides how much authorised capital company does hold and
how much paid-up capital of company.
Lender can refer information regarding how much assets are there under charge. It
provides the data of all directors or signatories with their DIN/ PAN number and provides
information of directors who hold and directorship in any other companies.
CIBIL Suit-filed Database
India’s first credit information bureau has been established to cater to the credit information
requirement of the financial sector and serves as an effective mechanism of cubing the
growth of Non-Performing Assets (NPAs). The Reserve Bank of India constituted a
working group in December 2001 to examine the possibility of CIBIL performing the role
of collecting and disseminating information on suit-filed accounts and list of defaulters,
being reported to RBI by banks and notified Financial Institutions.
It provides the data that if any director of borrower company has been there in suit filed
databased or not.
CREDIT ASSESSMENT MEMORANDUM (CAM)
While working with the Bank, I got to learn how to prepare a Credit Assessment
Memorandum. It is the loan approval proposal which is prepared by the lender bank. In this
whole process there are key players who play an important role. Sales manager, Relationship
manager, Credit Officer, and Credit analyst, these officials have to perform in this whole process.

27. This process is starts with sales manager, he is the one who brings the customer. Sales
manager is the official is someone who has to take prompt decision on loan proposal that this
should be accepted or not. After that this loan proposal is identified by the relationship manager
and he begins with the preliminary discussion with the customer who wish for loan. Discussion
between relationship manager and the customer is typically regarding amount, tenor and interest
rate of the loan.
After approval of this loan proposal relationship manager request for some documents to use in
evaluating the request. For documentation, there are several documents which are important that
are 2 years of tax returns for both the business and the individual, a personal financial statement,
a current financial statement for the business which have to be prepared by Chartered Account
(CA), Cash Flow Statement, and Proforma if it is real estate company, and any other documents
that will require for the loan proposal. These all documents have to be brought to Credit analyst
by Relationship Manager and both discuss on the loan proposal and the document which have
been sent by the borrower company. Then Credit analyst do analysis of the borrower company in
both aspect that are in Quantitative and Qualitative. This analysis has to be in-depth analysis of
credit risk factors, Critical assessment of the client under the Credit policy guidelines of the
bank. Then it is sent to marketing department to enclose required recommendations and to
commence the Credit Approval process. Credit Assessment Memo has to be prepared in
systematic way and must be accompanied with concern legal document papers and the financial
information of the borrower. Credit Memo generally covers contains like specifically control
number and the base number of each client, credit risk grading by the credit rating agency,
authorization for the approval of process, description of proposed credit facility, for which kind
of work borrower company is seeking for loan, Financial statements like income statement,
balance sheet, and Cash flow which should be at least past five years, lending agreement, and
compliances of the policies and guidelines of the Reserve Bank of India
Credit AssessmentMemorandum contains assessmentofthe following areas

28. ● Analysis of the Borrower Company
Qualitative analysis has to be done of the borrowing bank or financial institutions.
Assessment of the shareholders, management team and group or affiliate companies is
analysed. Board of Directors, their industry experience, and their qualification have to be
assessed by the analyst. What is the current status of the borrower company in Financial
market, what is the experience of the borrower company in the market, these all factors
have to be analysed. If there are any issues regarding the Company’s lack of management
dept, ownership structure or internal transactions are addressed, and risks mitigated.
● Analysis of Industry
Assessment of the key risk factors of the borrower’s industry has to be done. Credit
analyst has to compare financial health of borrower company with the industry’s average
and has to take decision whether borrower can pay off the loan and interest amount. If
there are any issues regarding the borrower’s standing in the industry, industry concern or
if there are any competitive forces that are addressed. Identification of strengths and
weaknesses of the borrower relative to its competition has to be done.
● Analysis of History of financial data.
Borrower has to present his audited financial data. Credit analyst have to analyse
minimum 3 years and maximum any no. of years financial data. Corporate guarantor and
guarantor financial statements, both of these have to be analysed in-dept as he is the one
is going to pay back the loan and interest in case of default. This analysis shows the
whole picture of company’s financial strength. Specially it shows strength of cash flow,
leverage and profitability of the borrower company.
● Projection of Financial Performance
Future financial projection is provided to the lender by the borrower company if the
credit facility tenor is going to be more than 1 year with indicating an analysis of the
sufficient of cash flow to meet the requirement of the debt services. Credit facility will
not be provided if the cash flow analysis of the borrower company is not sufficient
enough to meet debt services.
● Lending Guidelines

29. Loan proposal clearly state whether or not the proposal is in compliance with the lender’s i.e.
bank’s Lending Guidelines. It has to be prepared under the guidelines of the Reserve Bank of
India and it has to be compliance with all norms of the Reserve Bank of India.
● Mitigating Factors
In the credit assessment mitigating factors for risks are identified. There could be risks
involving like high leverage that is high debt; debtor issue; merger, acquisition and
expansion; management changes or succession issue; Client fixation; and absence of
straight forwardness or and industry issue.
Facility Structure
Projected repayment ability and loan purpose, on these two important factors amounts
and tenor of financing proposed are justified. There can be risk of business fund diversion
if borrower are seeking for an extension of loan amount or tenor of the loan and it can
also impact on the borrower’s repayment.
● Security
In the whole credit memo process, this is the most important factor which has to be taken
into consideration before bank sanction the credit. A present valuation of guarantee is
acquired and the quality and need of security being proposed are evaluated. Credit that is
loan, which is not only allowed on the basis of security.

30. CRISIS IN THE NBFC SECTOR
▪ INFRASTRUCTURE LEASING AND FINANCE COMPANY (ILFS)
It is investment company and it serves as the holding company of the
Infrastructure Leasing and Finance Company. Business operations of this company have
been working in many expertise sectors such as infrastructure, finance, and social and
environmental services.
The company has been working very well till September 2018, the IL&FS had
been defaulted due to it could not be met the debt obligations amounting to Rs.3,800
crores which resulted in the Credit squeezing of the company. The Government-owned
firms have 40% of IL&FS company which is the private entity and Government had to
ensure the solvency of IL&FS in order to maintain.
Due to this default, NBFC sector has been affected adversely and facing issues of
credit degrading, over-leveraging, and misadventures by some large entities. Srinivas, of
the officials said that,” imminent crisis has been brought in the NBFC sector. This sector
is facing issues of Credit degrading, over-leveraging, excessive concentration, largest
mismatch between assets and liabilities, which is correct and perfect recipe for the
disaster in this sector.” In May,2019, IL&FS faced the debt obligation of Rs.94000
crores. This defaults have been significant impact on India’s credit market. It’s
borrowings from banks are around Rs.57000 crore which is made up between 0.5% and
0.7% of banking loan. This defaults have created more trouble for Indian lenders and
already have created huge toxic loan pile.
As Government-owned firms have major stockholding in the IL&FS, IL&FS
group has been controlled by the government whose 358 subsidiaries owe more than
Rs.94000 crores to banks and other financial institutions. Government had appointed six-
members board under Uday Kotak.
▪ DEEWAN HOUSING FINANCE LIMITED
From September 2018, Housing Finance Companies has been facing a lot of financial
problem. This crisis started from the default of the Major player in the housing finance
company i.e. Infrastructure Leasing and Finance Services (IL&FS). IL&FS could not

31. pay-off its debt obligations which was nearly RS.94000 crores. It was due to IL&FS
could not pay-off its short term period debts obligations like Commercial papers,
Convertible debentures. This crisis affected another major player in Housing Finance
Companies i.e. Deewan Housing Finance Limited (DHFL). Due to this, share of the
DHFL which was trading at Rs.630 it drops directly 6825 BPS that is Rs.200.
Commercial Banks stopped lending loans to Non-Banking Financial Companies
and Housing Finance Companies due to this default in IL&FS. This also brought liquidity
crises around the all Housing Finance Companies.
Major reason for the Deewan Housing Finance crisis is that, promoters of the
company had sold shares of Rs.31000 crores illegally which has been claimed by the
Cobra-post. Losers in this entire DHFL crises were public sectors banks that are State
bank of India and Bank of Baroda.
DHFL, this housing finance company is the biggest player, as a responsible corporate has
met its all debt obligations to lenders and paid back to them in excess of Rs.17000 crores.
It has strong corporate governance regime and it has been received as AAA credit rating
from lending credit agencies. All financials is checked by the global auditors

32. PROFILE OF THE ORGANISATION
ABOUT THE COMPANY
IDFC has been founded based on recommendations of the “Expert group on
commercialization of Infrastructural Projects” in 1997. In 2000, IDFC registers with SEBI as
merchant banker and in 2009, it became part of Nifty 50. IDFC is first NBFC to be classified as
Infrastructure Finance Company (IFC) by RBI. In 2011, IDFC and Natixis global assets
management entered into a strategic partnership. In 2013, IDFC had applied for a Banking
license and in 2014, the Reserve Bank of India granted an in-principal approval to setup a bank.
In 2015, IDFC bank had been inaugurated by our Prime Minister Narendra Modi and it launched
23 branches across India on 1st oct 2015. IDFC had been awarded by India Bond House of Year
2015. In 2017, IDFC bank had been partnered with Zeta to launch ‘IDFC Bank Benefits’ an
employee benefit solution for corporates.
In January 2018, IDFC Bank and Capital First announced that they had reached an
understanding to merge with each other and shareholders of Capital First were to be issued 139
shares of the merged entity for every 10 shares of Capital First. The Competition Commission of
India approved the transaction in March 2018. The Reserve Bank of India approved the
transaction in June 2018. Shareholders of IDFC Bank approved the merger with an
overwhelming approval of 99.98% votes in favour. Capital First shareholders too approved the
merger with an equally overwhelming approval rate of 99%. This was also first merger between
an NBFC and Commercial Bank. Thus, IDFC First Bank was founded as new entity by the
merger of IDFC Bank and Capital First on 18th Dec 2018.

33. FOUNDER OF IDFC FIRST BANK
Rajiv Lall
Dr. Rajiv Lall is the Non-Executive Chairman. He was the Founder MD and CEO of
IDFC Bank from October 1, 2015 till December 18, 2018. Beforehand, he was the Executive
Chairman of IDFC Limited. A veteran financial expert for a long time, He has been a functioning
piece of the money and approach scene, both in India and universally. In his assorted profession,
he has additionally held positions of authority in worldwide venture banks and multilateral
offices. His mastery traverses task account, private value/investment, universal capital markets,
exchange, foundation and macroeconomic strategy issues, with a specific spotlight on
developing markets including India and China.
He has served on various advisory groups of the Government of India and the Reserve
Bank of India, including the Raghuram Rajan Committee on Financial Sector Reforms, the High-
Powered Expert Committee for Urban Infrastructure, the High-Level Committee on Financing
Infrastructure. He has likewise filled in as India's agent to the G-20 Working Group on
Infrastructure.
He is individual from the National Council of the Confederation of Indian Industry (CII),
the Asia Business Council and the City of London Advisory Council for India. He was likewise
President of the Bombay Chamber of Commerce and Industry.
Mr. V. Vidyanathan
Mr. V. Vaidyanathan is the first Managing Director and CEO of IDFC FIRST Bank, a bank
established by the merger of Capital First and IDFC Bank in December 2018.
Before this job, he established Capital First Limited by first gaining a value stake in a current
NBFC, and afterward executing a Management Buyout (MBO) by verifying a value sponsorship
of Rs. 810 crores in 2012 from PE Warburg Pincus. The MBO included (a) buyout of dominant
part and minority investors through Open Offer to open; (b) Fresh capital raise of Rs. 100 crores

34. into the organization; (c) Reconstitution of the Board of Directors (d) Change of business from
discount to retail loaning; (e) Creation of another brand "Capital First".
He was selected the Executive Director on the Board of ICICI Bank in 2006 and later turned into
the Managing Director on the Board of ICICI Prudential Life Insurance Company in 2009. He
was additionally the Chairman of ICICI Home Finance Co. Ltd (2006), and served on the Board
of CIBIL-India's first Credit Bureau (2005), and SMERA-SIDBI's Credit Rating Agency (2005).
He began his vocation with Citibank India in 1990 and worked there till 2000, where he took in
the ropes in Consumer Banking.
IDFC FIRST BANK AND POSITIONING
IDFC (Infrastructure Development Finance Company) was incorporated on 30th Jan 1997
with its registered office in Chennai. IDFC had five subsidiaries that are IDFC Bank, IDFC
Mutual Fund, IDFC Alternatives, IDFC Securities.
After merger of IDFC Bank and Capital First, now it is known as IDFC First Bank.
Assets Under Management increased from Rs.94 crore to Rs.25,243 crore. Now, IDFC First
Bank currently financing seven million customers through new age model technology models.
The credit rating has been increased from A+ to AAA. The Gross and Net NPA reduced from
5.28% & 3.78% respectively to 2% & 1% respectively. The Return on Equity has been risen
2.5% to near 15%. IDFC First bank has the strong loan assets of more than Rs.104,660 crore.
IDFC FIRST BANK – PRODUCTSAND SERVICES
● Consumer Banking
● Corporate Banking
● Wholesale Banking
● Mortgage Loans

35. ● Private Banking
● Wealth Management
● Investment Banking
Future Plans
As point of Assets, the bank plans to grow the retail asset book from Rs. 36,236 Cr.
(31st Dec 2018) to over Rs. 100,000 Crores in the next 5-6 years. The loan book is going to
be diversified so well across sectors and a large number of consumers. As of 31st Dec 2018,
the retail book contributes to 34.62% of the total funded assets. The bank plans to increase
the retail book composition to more than 70% in the next 5-6 years.
The key focus of the bank is to increase the CASA (Current Account Savings
Account) ratio from 10.3% as of December 31st, 2018 on continuous basis year on year and
strive to reach 30% CASA ratio with next 5-6 years. The Bank plans to set up 600-700 more
bank branches in the next 5-6 years from the current branch count on 206. This would be
suitably supported by the attractive product propositions and other associated services as well
as cross selling opportunities.
The Bank plans to improve cost to income ratio to 50-55% over the next 5-6 year from 80%.
It is planned to expand Net Interest Margin to about 5% - 5.5% in the next 5-6 years. With
the improvement of Net Interest Margin and Cost to Income ratio, the bank aims to reach the
following benchmarks in the next 5-6 years.
Return on Assets of 1.4% - 1.6%
Return on Equity of 13% - 15%
RESEARCH METHODOLOGY

36. Method of Study
Analysis have been done on the secondary source. There are two types of research which are
descriptive and exploratory, where my research is part of descriptive research. In this Two Sub-
sector of Non-Banking Financial Companies have been taken into consideration. All research has
been done by statistical way and its analysis. Two sub-sectors, Housing Finance Companies and
Infrastructure Finance Companies, have been taken to do the analysis and from each sector one
company has been selected to do the ratio analysis, comparative analysis and common size ratio.
Sampling Design
Samples have been taken on random basis from Housing Finance Companies and Infrastructure
Finance Companies which come under Non-Banking Financial Companies (NBFC Sector). One
Company from each sector has been taken to analyse. Financial data has been taken for last three
years (2016 to 2018) from annual reports of the concern companies.
Data Collection
Data has been collected from external resources that is, it is secondary type of data collection.
The data has been taken from annual report and took down manually.
Data Interpretation
Analysed data and its interpretation have been explained in annexures. Kindly refer annexure for
Data Interpretation.
ANNEXURES

37. Housing Finance
March 31st, 2017 March 31st, 2016
RETURN ONCAPITAL EMPLOYED 16.01% 19.91%
RETURN ONASSETS 2.21% 2.46%
RETURN ONEQUITY 20.23
Average equity 367.95
DEBT SERVICE RATIO 4.10 4.36
EBIT 31622.84 29482.61
INTEREST COVERAGERATIO 1.51 1.52
NET INTEREST MARGIN 1.06 0.04
GEARING (TIMES) 4.85 4.42
COST TO INCOME 12.53% 12.73%
net interest 11214.86 9882.8
SECURITY COVERAGERATIO 1.25 1.26
ASSETS UNDER MANAGEMENT 10626.74 263853.01

38. This is the ratio analysis for the HDFC Ltd. As per Profitability ratio, it can be observed that it has
good maintained ratio. Return on assets of this company is increasing year on year, it is good indicator
that company is earning good return in less equity. Debt service ratio is debt to equity ratio which has
to be maintained, even if debt is more it has advantage of tax cutting in profit which is good enough for
any company. Cost to income has been reduced year by year. Net interest margin which is calculated
as Interest earned less interest paid, which has been increased
drastically. These are the key ratios have been calculated to analyse the how much good
company is this which has been resulted as good company and it holds first rank in the housing
finance companies.
PROFIT AND LOSS STATEMENT
March 31st,
2018
March 31st,
2017
March
31st,2016
Income
Revenue fromOperations 98.80% 96.84% 94.51%
Profitonsale investments 1.07% 3.02% 5.32%
Otherincome 0.13% 0.14% 0.17%
Total revenue 35229.89 33159.6 30956.57
Expenses
Finance Cost 63.11% 63.02% 62.59%
Employee benefitsexpenses 1.21% 1.17% 1.13%
Establishmentexpenses 0.28% 0.26% 0.27%
Otherexpenses 1.09% 0.92% 0.88%

39. Depreciationandamortization 0.14% 0.17% 0.18%
ProvisionsandContingencies 1.29% 2.11% 2.31%
Total Expenses 67.12% 67.65% 67.35%
Profit Before Exceptional Itemsand
Tax 32.88% 32.35% 32.65%
Exceptional Items 10.45% 0.00% 0.00%
Profit before tax 43.33% 32.35% 32.65%
Currenttax 9.84% 8.41% 9.28%
MAT creditentitlement -0.88% 0.00% 0.00%
Deferredtax (+or -) -0.16% 1.49% 0.46%
Profit for the year 34.53% 22.44% 22.91%

40. Common Size Statement
Above is the Common Size statement, as per analysis of the statement almost 60% to 63% of the
part of total revenue of the company has been covered by the finance cost that is the interest has
been paid by the bank in the consideration of any financial obligation. It can be observed that,
Provisions and Contingencies have been decreased year on year, it is good indicator that
whatever bank is lending fund in the form of loans, it is recovering all the financial obligations
that is why they don’t need to make provisions for any default.
COMPARATIVE FINANCIAL ANALYSIS
March 31st,
2018
March 31st,
2017
March
31st,2016
Income
Revenue fromOperations 118.97% 109.75% 100.00%
Profitonsale investments 22.94% 60.79% 100.00%
Otherincome 86.92% 90.98% 100.00%
Total revenue 113.80% 107.12% 100.00%
Expenses
March 31st,
2018
March 31st,
2017
March
31st,2016
Finance Cost 114.76% 107.85% 100.00%
Employee benefitsexpenses 121.88% 111.38% 100.00%
Establishmentexpenses 118.80% 102.41% 100.00%
Otherexpenses 141.14% 112.67% 100.00%
Depreciationandamortization 18.14% 20.62% 100.00%
ProvisionsandContingencies 63.64% 97.90% 100.00%
Total Expenses 113.43% 107.60% 100.00%
Profit Before Exceptional Itemsand Tax 114.58% 106.12% 100.00%
Exceptional Items
Profit before tax 151.00% 106.12% 100.00%
Currenttax 120.64% 97.08% 100.00%

41. MAT creditentitlement
Deferredtax (+or -) -38.73% 348.59% 100.00%
Profit for the year 171.49% 104.93% 100.00%
Observation from Comparative analysis of the Profit and Loss statement of HDFC Ltd. is that,
Net Interest margin has been increased by 4.21% which means that company is earing more
interest than it is paying for interest which interprets that Company is making good business
from loans which are being disbursed and Company has ability to recollect it and this is resulted
in the Profit of the company which has been increased by 71.49% if we take the base year 2016.
Larsen & Tubro

42. Ratio Analysis
KEY FINANCIAL RATIOS
31ST MARCH
2018
31ST MARCH
2017
31ST MARCH
2016
RETURN ONCAPITAL
EMPLOYED 9.79% 8.86% 12.70%
RETURN ONASSETS 0.65% 0.04% 1.63%
RETURN ONEQUITY 19.08% 1.95%
Average equity 1519.59 822.18
DEBT SERVICE RATIO 4.62 6.30 3.84
EBIT 2931.38 1987.93 440.31
INTEREST COVERAGERATIO 1.17 1.01 1.44
NET INTEREST MARGIN 6.55% 7.44% 9.16%
GEARING (TIMES) 4.05 4.05 7.11
COST TO INCOME 84.19% 98.70% 71.23%
net interest 2500.60 2122.54 465.15
SECURITY COVERAGERATIO 1.19 1.16 1.15
ASSETS UNDER MANAGEMENT 38205.01 28511.48 5079.68
Key ratios have been taken into consideration to ratio analysis. These all ratios are inter-related
to each other. Return on Assets, it is better to compare within companies which are from same
sectors because it is different for each industry. It means higher income from less investment; in
this case it is lower ratio. As a Banking sector it is important to calculate the interest coverage
ratio, it is the ratio which is calculated as interest earned divide by interest paid. It is better to
keep this ratio 1.5 but again this ratio is also depending in which industry. Cost of income is too
high which is not good while security coverage ratio is also comparatively low. Even though
Assets Under Management is increased but the performance is still comparatively low.

43. PROFIT AND LOSS STATEMENT
March 31st, 2018 March 31st, 2017 March 31st,2016
Income
Revenue fromOperations 95.27% 98.48% 99.78%
Profitonsale investments 0.00% 0.00% 0.00%
Otherincome 4.73% 1.52% 0.22%
Total revenue 5245.69 4144.98 772.85
Expenses
Finance Cost 47.60% 47.27% 39.59%
Employee benefitsexpenses 6.06% 7.26% 6.89%
ProvisionsandContingencies 17.24% 19.02% 0.00%
Otherexpensesandadministrationexp 7.60% 8.69% 21.16%
Allowancesandwrittenoffs 0.00% 0.00% 14.63%
Depreciationandamortization 13.22% 17.07% 0.35%
Total Expenses 91.72% 99.31% 82.62%
0.00% 0.00% 0.00%
Profit Before Exceptional Itemsand Tax 8.28% 0.69% 17.38%
0.00% 0.00% 0.00%
Exceptional Items 0.00% 0.00% 0.00%
0.00% 0.00% 0.00%
Profit before tax 8.28% 0.69% 17.38%
Currenttax 5.66% 3.33% 7.17%
MAT creditentitlement 0.00% 0.00% 0.00%
Deferredtax (+or -) -2.91% -3.03% -1.10%
0.00% 0.00% 0.00%
Profit for the year 5.53% 0.39% 11.31%
Common Size Statement
This is the common size statement for the Profit and Loss account. As the part Banking sector,
most of the cost has been consumed by the finance cost which is interest paid and then bank has
to maintain some provisions to meet the defaults. Maximum cost is the interest paid by the bank
on loans which has been taken.
Comparative Analysis
All particulars have been increased at very high rate if we take 2016 as base year. If we
compare total revenue and Total cost, Revenue has been increased by 6.7x where Cost has been

44. increased by 7.5x, which is not good for the company. Even though it is making profit out of all
this situation, it should take some decisions to cut down the cost and try to increase profit.

49. FINDINGS
● Non-Banking Finance Companies covers many financial segments which may be difficult
to cover by consumer banks.
● Every Non-Banking Financial Company has to maintain their NPA.
● In NBFC sector, there can be switch over to another financial institution if the services
are beneficial. For E.g. interest rate as the switch over is fairly easy when rivals are
providing lesser rates in their schemes.
● NBFC sector consist of many sub-sectors, there is rivalry among the financial companies
which are the parts of different sectors as buyers are very flexible here.
● Major finding is that, to set-up NBFC the initial investments are so high that it nearly
impossible to get enter into this sector and to exit from this sector, if you don’t want to
exit from this sector there is only one suitable option is to get into mergers with related or
financial services organisations.
● There too many government rules and regulations have to be followed by Non-Banking
Financial Companies.

50. CONCLUSION
Non-banking Financial Companies have been playing a vital in the Indian Financial
Market from both perspectives of Macroeconomics and Indian financial system. It has been a
very conventional way to meet various financial requirements in the business enterprise point of
view. Customers find it very reliable and flexible as it provides quick and efficient services
without making any very complex banking formalities.
As per recent crisis in the NBFC sector, now this sector has been struggling with staying
in the financial market of India. Due to IL&FS (Infrastructure Leasing and Financial Limited.)
fraud the whole NBFC sector has been affected. Because of this fraud, it has affected other good
NBFCs such as Dewan Housing Financial Limited., IndiaBulls Housing Finance Limited. Non-
Performing Assets of all these NBFCs have been increased which affected this NBFC sector. To
recover this loss, Reserve Bank of India is now constantly striving to bring necessary regulatory
changes in the NBFC sector to ensure financial stability in the long run.

51. References
1. https://economictimes.indiatimes.com/idfc-first-bank-
ltd/infocompanyhistory/companyid-62245.cms
2. https://www.idfcbank.com/about/leadership/mr-v-vaidyanathan.html
3. https://www.idfcbank.com/about/leadership/dr-rajiv-b-lall.html
4. https://www.idfcbank.com/about/journey.html
5. https://www.quickcompany.in/articles/non-banking-financial-company-nbfc
6. https://www.quora.com/What-are-the-advantages-of-nbfc
https://m.rbi.org.in/Scripts/BS_ViewNBFCNotification.aspx