Nbf cs


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Nbf cs

  1. 1. NBFCs
  2. 2. RBI Act Framework • The RBI regulates different types of NBFCs under the provisions of Chapter IIIB and IIIC of the RBI Act.
  3. 3. NBFC means • A financial institution that is a company • A non banking institution that is a company whose principal business is the receiving of deposits under any scheme/arrangement or lending in any manner. • Such other non banking institutions or class of institutions that the RBI may specify
  4. 4. Registration • With effect from January, 1997, an NBFC must obtain a certificate of registration from the RBI. • Its minimum net owned funds must be Rs 25 lakhs and it must satisfy other conditions stipulated by the RBI Act.
  5. 5. Regulation • NBFCs are regulated by the RBI • Which has the power to issue directions, prohibit any issue soliciting deposits from the Public • To collect or call for information • Inspection of books and documents • Impose penalty etc.
  6. 6. Activities that NBFCs are generally engaged in • Hire Purchase Finance • Investment • Loan • Mutual Benefit Finance • Equipment Leasing etc.
  7. 7. Important Provisions of the RBI Act • NBFCs that have minimum net owned funds of Rs 25 lakhs can accept public deposits provided minimum Net owned funds of Rs 25 lakhs and • They obtain minimum investment grade or other specified credit rating for their fixed deposits from one of the approved rating agencies, at least once a year.
  8. 8. Important Provisions of the RBI Act • NBFCs cannot accept deposits payable on demand. This differentiates them from banking companies. • They can accept/renew deposits for a minimum period of 12 months and a maximum period of 60 months from the date of acceptance/renewal. • They are permitted to accept/renew deposits upto maximum 1.5 times their net owned funds (NOF).
  9. 9. Asset Classification • NBFCs are required to classify their assets into four categories:
  10. 10. Standard Assets • A standard Asset is one with respect to which no default in repayment of principal or payment of interest is perceived and which does not disclose any problem or carry more than normal risk attached to the Business.
  11. 11. Sub-standard Asset • That has been classified as a non performing asset for a period not exceeding 18 months.
  12. 12. Doubtful Asset • That remains a sub standard asset for a period exceeding 18 months.
  13. 13. Loss Assets • Where loss has been identified by the NBFC – non recoverability.
  14. 14. Provisioning requirements • Provisions have to be made as per RBI’s prudential norms direction as a percentage depending on the category of the assets.
  15. 15. Capital Adequacy Requirements • All NBFCs are required to maintain a minimum capital ratio of Tier – I and Tier – II capital equal to 12 per cent of their Risk weighted assets • and risk adjusted value of off balance sheet items eg. Guarantees, Underwriting obligations etc.
  16. 16. Concentration of Credit/Investments • The NBFCs cannot lend to any single borrower or single group of borrowers in excess of 15 and 25 per cent respectively, of their owned funds.
  17. 17. Asset Liability Management systems • The focus of the RBI Guidelines on ALM system is to enforce Risk Management Discipline. • It rests on three pillars:
  18. 18. ALM Information Systems • Management Information Systems • Availability, accuracy and adequacy of information
  19. 19. ALM Organization • Structure and Responsibilities • Levels of Top Management Involvement.
  20. 20. ALM Process • Risk Identification • Risk measurement • Risk management • Risk policies and Tolerance Levels.
  21. 21. Questions for Revision • Discuss the regulatory framework and the important provisions relating to NBFCs?
  22. 22. Thank You