Chapter V

Non-Banking Financial Companies

1 Registration of NBFCs
2 Supervision of NBFCs
3 Policy Developments Relating to NBFCs
4 Implementation of Recommenations of !as" Force on NBFCs #1$$%&
' Business of t(e NBFC Sector
) Region*+ise Composition of Deposits (el ,y NBFCs
- Interest Rate an .aturity Pattern of Deposits +it( NBFCs
% /sset Profile of NBFCs
$ Distri,ution of /ssets of NBFCs accoring to /ctivity
10 /nalysis of Borro+ings ,y NBFCs
11 Net 1+ne Funs of NBFCs
12 Income 23peniture Statement of NBFCs
13 Capital /e4uacy Ratio
14 1t(er Developments
Non*,an"ing financial companies #NBFCs& (ave ,een t(e su,5ect of focusse attention uring
t(e nineties6 In particular7 t(e rapi gro+t( of NBFCs7 especially in t(e nineties7 (as le to a
graual ,lurring of iviing lines ,et+een ,an"s an NBFCs7 +it( t(e e3ception of t(e e3clusive
privilege t(at commercial ,an"s e3ercise in t(e issuance of c(e4ues #C(art 861&6 Simplifie
sanction proceures7 orientation to+ars customers7 attractive rates of return on eposits an
fle3i,ility an timeliness in meeting t(e creit nees of specifie sectors #li"e e4uipment leasing
an (ire purc(ase&7 are some of t(e factors en(ancing t(e attractiveness of t(is sector6 !(e total
regulate eposits
1
of NBFCs aggregate Rs61-73$0 crore7 as at en of .arc( 1$$47 e4uivalent
to 460 per cent of ,an" eposits6 !(e 4uantum of regulate eposits gre+ more t(an t(ree*fol
an as at en*.arc( 1$$-7 at Rs6'3711) crore constitute -6$ per cent of ,an" eposits6
'62 In t(e year 1$$%7 a ne+ concept of pu,lic eposits meaning eposits receive from pu,lic
incluing s(are(olers in t(e case of pu,lic limite companies an unsecure e,entures9 ,ons
ot(er t(an t(ose issue to companies7 ,an"s an financial institutions7 +as introuce for t(e
purpose of focusse supervision of NBFCs accepting suc( eposits6 !(e amount of suc( pu,lic
eposits (el ,y NBFCs7 +(ic( as at en of .arc( 1$$% +as Rs6237%20 crore7 ecline to
Rs61$7341 crore as at en of .arc( 20006
'63 1+ing to certain is4uieting evelopments in t(e NBFC sector7 t(e RBI /ct +as amene
in 1$$-7 proviing for a compre(ensive regulatory frame+or" for NBFCs6 !(e RBI
#/menment& /ct7 1$$- provies for compulsory registration +it( t(e Reserve Ban" of all
NBFCs7 irrespective of t(eir (oling of pu,lic eposits7 for commencing an carrying on
,usiness7 minimum entry point norms7 maintenance of a portion of eposits in li4ui assets7
creation of Reserve Fun an transfer of 20 per cent of profit after ta3 annually to t(e Fun6 !(e
/menment /ct also conferre po+ers on Reserve Ban" to issue irections to companies an its
auitors7 pro(i,it eposit acceptance an alienation of assets ,y companies an effect +ining up
of companies6
'64 /ccoringly7 t(e Reserve Ban" issue irections to companies on acceptance of pu,lic
eposits7 pruential norms li"e capital ae4uacy7 income recognition7 asset classification7
provision for ,a an ou,tful e,ts7 e3posure norms an ot(er measures to monitor t(e
financial solvency an reporting ,y NBFCs6 Directions +ere also issue to auitors to report
non*compliance +it( t(e RBI /ct an regulations to t(e Reserve Ban"7 Boar of Directors an
s(are(olers6
1. Registration of NBFCs
'6' !(e registration is compulsory for all NBFCs7 irrespective of t(eir (oling of pu,lic
eposits6 !(e types of NBFCs regulate ,y t(e Reserve Ban" are inicate in !a,le 8616 !(e
amene /ct7 +(ic( introuce compre(ensive c(anges in C(apter III*B7 III*C an 87 provies
for an entry point norm of Rs62' la"( as t(e minimum net o+ne fun #N1F&6 Su,se4uently7 for
ne+ NBFCs see"ing registration +it( t(e Reserve Ban" to commence ,usiness on or after /pril
217 1$$$7 t(e re4uirement of minimum level of N1F +as revise up+ars to Rs62 crore6 No
NBFC can commence or carry on ,usiness of a financial institution incluing acceptance of
pu,lic eposit +it(out o,taining a Certificate of Registration #CoR& from t(e Reserve Ban"6
Table V.1: Non-Banking Financial Entities Regulate b! Reser"e Bank
Non-Banking Financial Companies #rincipal Business
I6 Non*Ban"ing Financial Company In terms of t(e Section 4'*I#f& rea +it( Section 4'*I#c& of t(e
RBI /ct7 1$347 as amene in 1$$-7 t(eir principal ,usiness is
t(at of receiving eposits or t(at of a financial institution7 suc(
as lening7 investment in securities7 (ire purc(ase finance or
e4uipment leasing6
24uipment leasing company #2:& 24uipment leasing or financing of suc( activity6
;ire purc(ase finance company #;P& ;ire purc(ase transaction or financing of suc( transactions6
Investment company #IC& /c4uisition of securities an traing in suc( securities to earn a
profit6
:oan company #:C& Proviing finance ,y ma"ing loans or avances7 or ot(er+ise for
any activity ot(er t(an its o+n< e3clues 2:9;P9;ousing
Finance Companies #;FCs&6
Resiuary non*,an"ing company #RNBC& Company +(ic( receives eposits uner any sc(eme or
arrangement7 ,y +(atever name calle7 in one lump*sum or in
instalments ,y +ay of contri,utions or su,scriptions or ,y sale
of units or certificates or ot(er instruments7 or in any manner6
!(ese companies o not ,elong to any of t(e categories as state
a,ove6
II6 .utual ,enefit financial company #.BFC& i6e6
Nidhi Company
/ny company +(ic( is notifie ,y t(e Central =overnment
uner Section )20/ of t(e Companies /ct1$') #1 of 1$')&6
III6 .utual Benefit Company #.BC&7 i6e67
potential Nidhi company
/ company +(ic( is +or"ing on t(e lines of a Nidhicompany6
;o+ever7 it (as not yet ,een so eclare ,yt(e Central
=overnment7 (as minimum N1F of Rs610 la"(7 (as applie to
t(e Reserve Ban" for CoR an also to Department of Company
/ffairs #DC/& for eclaration as nidhi company an (as not
contravene irection9 regulation of Reserve Ban"9DC/
I86 .iscellaneous non*,an"ing company#.NBC&7
i6e67 Chit Fund Company
.anaging7 conucting or supervising as a promoter7 foreman or
agent of any transaction or arrangement ,y+(ic( t(e company
enters into an agreement +it( aspecifie num,er of su,scri,ers
t(at every one of t(em s(all su,scri,e a certain sum in
instalments over a efinite perio an t(at every one of suc(
su,scri,ers s(all in turn7 as etermine ,y lot or ,y auction or ,y
tener or in suc( manner as may ,e provie for in t(e
arrangement7 ,e entitle to t(e pri>e amount
'6) !(e Reserve Ban" receive applications for CoR from 3)7'0' NBFCs7 of +(ic(7 137%1'
applications +ere approve an 1%73'' +ere re5ecte7 as at en*/ugust 20016 1ut of t(e total
approvals of 137%1' applications7 only --) companies (ave ,een permitte to accept pu,lic
eposits6
$. %uper"ision of NBFCs
'6- !(e supervisory frame+or" for NBFCs is ,ase on t(ree criteria7 vi>67 #a& t(e si>e of
NBFC7 #,& t(e type of activity performe7 an #c& t(e acceptance or ot(er+ise of pu,lic eposits6
!o+ars t(is en7 a four*pronge supervisory strategy comprising #a& on*site inspection ,ase on
C/.2:S #capital7 assets7 management7 earnings7 li4uiity7 systems an proceures&
met(oology7 #,& computerise off*site surveillance t(roug( perioic control returns7 #c& an
effective mar"et intelligence net+or"7 an #& a system of su,mission of e3ception reports ,y
auitors of NBFCs7 (as ,een put in place6 !(e regulation an supervision is compre(ensive for
companies accepting or (oling pu,lic eposits to ensure protection of interests of epositors.
'6% Companies (oling or accepting pu,lic eposits are re4uire to comply +it( all t(e
irections on acceptance of pu,lic eposits7 pruential norms an li4ui assets7 an s(oul
su,mit perioic returns to t(e Reserve Ban"6 !(ey are supervise using all t(e supervisory tools
inicate a,ove6
'6$ Companies not (oling or accepting pu,lic eposits are regulate an supervise in a
limite manner6 !(ey are re4uire to comply only +it( pruential norms relating to income
recognition7 accounting stanars7 asset classification an provisioning against ,a an ou,tful
e,ts6 !(ey are less fre4uently inspecte6 Suc( companies are presently not re4uire to su,mit
any returns to t(e Reserve Ban"6 !(us7 mar"et intelligence an auitors? e3ception reports
constitute t(e important supervisory tools in respect of t(ese companies6
&. #olic! 'e"elopments Relating to NBFCs
(a) NBFCs Registere an Regulate b! Reser"e Bank
Monetary and Credit Policy Statements
'610 !(e .i*!erm Revie+ of .onetary an Creit Policy for t(e year 2000*01 announce in
1cto,er 2000 an t(e .onetary an Creit Policy for 2001*02 announce in /pril 2001 fine*
tune t(e policy environment governing NBFCs6 Policy c(anges7 inter alia7 inclue c(anges in
interest rate on pu,lic eposits an introuction of asset*lia,ility management system for certain
categories of NBFCs6 / (alf*yearly Financial Sta,ility Revie+ using .acropruential Inicators
#.PI& ata as relevant for NBFCs +as also prepare6 !(e c(ronology of ma5or policy
evelopments is presente in t(e /nne3ure6
Reduction in Interest Rate on Deposits
'611 2ffective from /pril 17 20017 ta"ing into account t(e mar"et conitions an c(anges in
ot(er interest rates in t(e financial system7 t(e ma3imum rate of interest t(at NBFCs can pay on
t(eir pu,lic eposits +as reuce from 1) per cent to 14 per cent per annum6 !(e ceiling on
interest rate on t(e eposits accepte ,y .iscellaneous Non*Ban"ing Companies #Chit Fund
companies& an .utual Benefit Financial Companies #Nidhi companies& +as also ,roug(t o+n
to 14 per cent6 2ffective Novem,er 17 20017 t(e ceiling on rate of interest (as ,een furt(er
,roug(t o+n to 126' per cent6
Issuance of Commercial Paper by NBFCs
'612 1n 1cto,er 107 20007 t(e Reserve Ban" issue guielines for issue of commercial paper
,y companies7 inter alia, e3empting money receive ,y NBFCs ,y issue of commercial paper
#CP& in accorance +it( t(is guielines7 from t(e purvie+ of pu,lic eposits6
sset !iability Mana"ement #!M$ System for NBFCs
'613 !(e Reserve Ban" announce /:. guielines for NBFCs for effective ris" management6
/ll NBFCs +it( asset si>e of Rs6100 crore or a,ove or +it( pu,lic eposits of Rs620 crore or
a,ove7 as per t(eir ,alance s(eet as on .arc( 317 20017 +ere instructe to (ave /:. systems in
place6 !(ese NBFCs +ere avise to constitute an /:. Committee7 uner t(e c(arge of C(ief
23ecutive 1fficer or ot(er Senior 23ecutive an ot(er specialist mem,ers7 for formalising /:.
systems6 !(e num,er of companies li"ely to ,e covere ,y t(e guielines is a,out -0 an t(ey
account for -'*%0 per cent of total pu,lic eposits (el ,y reporting NBFCs6 !(e /:. system is
re4uire to ,e implemente ,y NBFCs ,y .arc( 317 20026 In t(e case of NBFCs (oling pu,lic
eposits of Rs620 crore or a,ove7 t(e first /:. return7 comprising of statements on structural
li4uiity7 s(ort*term ynamic li4uiity an interest rate sensitivity7 as on Septem,er 307 20027
s(oul ,e su,mitte to t(e Reserve Ban" ,y 1cto,er 317 20026 NBFCs not (oling pu,lic
eposits7 ,ut (aving asset si>e of Rs6100 crore or a,ove +oul ,e avise of t(e supervisory
frame+or" in ue course of time6 !(e companies (ave ,een avise to conuct trial runs uring
t(e (alf*year ening Septem,er 307 2001 an (alf*year ,eginning 1cto,er 17 20017 an report
operational ifficulties in implementing t(e system for rectification6 !(e Chit Funds an Nidhi
companies (ave7 for t(e present7 ,een "ept out of t(e purvie+ of t(ese guielines6 NBFCs not
4ualifying presently (ave also ,een avise to put in place an /:. system7 as it is t(e eneavour
of t(e Reserve Ban" to e3ten t(ese guielines to all NBFCs in future6
Rationalisation of the Re%uirement of Introduction for Depositors of NBFCs
'614 !o rationalise re4uirements of introuction for epositors stipulate earlier in @une 20007
it +as clarifie t(at re4uirement of introuction +as for purpose of ientification of epositors7
so t(at eposits are not mae in fictitious names6 NBFCs +ere avise to o,tain an "eep on
recor copies of ientification of epositors7 &i'., passport7 ration car7 election ientity car7
ientification ,y an e3isting epositor7 as proof of ientity of t(e prospective epositors6
(ntry of NBFCs into Insurance Business
'61' Conse4uent upon issue of final guielines for entry of NBFCs into insurance ,usiness in
@une 20007 t(e Reserve Ban" permitte five NBFCs to unerta"e insurance ,usiness as 5oint
venture participants in insurance companies6 1f t(ese7 +(ile t+o NBFCs +ere grante
permission to unerta"e ,ot( life an general insurance ,usiness7 t(ree NBFCs +ere permitte to
unerta"e only life insurance ,usiness +it( ris" participation6 1ne company +as permitte ,ot(
to engage in insurance agency ,usiness as +ell as to ma"e strategic investment in e4uity of
insurance company upto 10 per cent of its o+ne fun6 /not(er company +as grante
permission to conuct only insurance agency ,usiness +(ile a t(ir company coul only ma"e
strategic investment in e4uity of insurance company6
Rationalisation of Returns Submitted by NBFCs
'61) In orer to improve t(e reporting of supervisory information an facilitate electronic
processing7 t(e formats of all returns prescri,e in terms of Directions issue uner RBI /ct7
su,mitte ,y t(e NBFCs an Chit Fund companies at 4uarterly7 (alf*yearly an annual intervals
+ere rationalise6 Suc( a step +as also necessitate ,y t(e t+in concerns of t(e Reserve Ban" to
ta"e e3peitious steps7 +(erever necessary7 as also to intensify off*site monitoring proceure of
t(e eposit*ta"ing9 (oling NBFCs6 / mont(ly return on repayment of eposits +as prescri,e
for NBFCs (oling pu,lic eposits7 +(ose applications for CoR uner Section 4'*I/ of RBI /ct7
1$34 +ere re5ecte or CoR +as cancelle7 if it +as grante earlier6
Focus on !ar"e NBFCs )ith Public Deposit e*ceedin" Rs. +, crore
'61- For aressing supervisory concerns an for pic"ing up early +arning signals of
eterioration in financial (ealt( of companies #especially t(ose (oling a su,stantial 4uantum of
pu,lic eposits&7 t(e 4uarterly return for compiling monetary aggregates7 calling for information
on asset*lia,ility position from NBFCs (oling pu,lic eposits of Rs620 crore an a,ove7 +as
e3pane to inclue certain critical supervisory information6 !(e return prescri,es companies to
furnis( information on net o+ne fun7 pu,lic eposits7 NP/ position7 creit rating7 cas( flo+7
certain "ey ratios7 etc6 !(is is e3pecte to ena,le closer monitoring of large NBFCs (oling
pu,lic eposits of Rs620 crore an a,ove6
Residuary Non-Ban.in" Companies #RNBCs$
'61% RNBCs are a class of NBFCs +(ic( cannot ,e classifie as e4uipment leasing7 (ire
purc(ase7 loan7 investment7 nidhi or chit fund companies7 ,ut +(ic( tap pu,lic savings ,y
operating various eposit sc(emes7 a"in to recurring eposit sc(emes of ,an"s6 !(e eposit
acceptance activities of t(ese companies are governe ,y t(e provisions of Resiuary Non*
Ban"ing Companies #Reserve Ban"& Directions7 1$%-6 !(ese irections inclue provisions
relating to t(e minimum #not less t(an 12 mont(s& an ma3imum perio #not e3ceeing %4
mont(s& of eposits7 pro(i,ition from forfeiture of any part of t(e eposit or interest paya,le
t(ereon7 isclosure re4uirements in t(e application forms an t(e avertisements soliciting
eposits an perioical returns an information to ,e furnis(e to t(e Reserve Ban"6
'61$ In t(e a,sence of any lin"age of eposits to t(eir N1F7 to safeguar t(e epositorsA
interests7 t(ese companies (ave ,een irecte to invest not less t(an %0 per cent of aggregate
eposit lia,ilities as per t(e investment pattern prescri,e ,y t(e Reserve Ban"7 an to entrust
t(ese securities to a pu,lic sector ,an" to ,e +it(ra+n only for repayment of epositors6 Su,5ect
to compliance +it( t(e investment pattern7 t(ey can invest 20 per cent of aggregate lia,ilities or
ten times its net o+ne fun7 +(ic(ever is lo+er7 in a manner ecie ,y its Boar of Directors6
'620 !(e RNBCs are t(e only class of NBFCs +(ic( are en5oine to pay a minimum rate of
interest on t(eir eposits6 !(e floor rate of interest for eposits are specifie ,y t(e Reserve Ban"
in terms of RNBC Directions7 1$%-6 !(ere is no upper limit prescri,e for RNBCs unli"e ot(er
NBFCs7 +(ic( can pay any rate of interest su,5ect to t(e ma3imum ceiling prescri,e ,y t(e
Reserve Ban"6 !(e floor interest rate paya,le ,y RNBCs +as revise o+n+ars from ) per cent
to 4 per cent per annum #to ,e compoune annually& on aily eposit sc(emes an from % per
cent to ) per cent per annum #to ,e compoune annually& on ot(er eposit sc(emes of (ig(er
uration or term eposits6 !(e provisions of pruential norms +ere e3tene to RNBCs7 uner
t(e provisions of t(e NBFC Pruential Norms #RB& Directions7 1$$% an compliance +it(
pruential norms is manatory an a prere4uisite for acceptance of eposits6
'621 .onitoring an inspection of t(ese companies7 from time to time7 reveale continuance
of many unsatisfactory features li"e non*compliance +it( t(e core provisions of t(e Directions7
forfeiture of t(e epositorsA money on one prete3t or t(e ot(er7 iversion of epositorsA money to
associate concerns an9or investment in illi4ui assets7 violation of investment
re4uirements9pattern7 etc67 t(us 5eoparising t(e interests of epositors6 !(e Reserve Ban" +as
issuing pro(i,itory orers on a case*,y*case ,asis restraining erring RNBCs from accepting
eposits6 Some of t(e ingenious promoters floate ne+ companies an starte accepting eposits
t(roug( ne+ entities or s(ifte t(eir area of operations to ot(er States6 !(e re4uirement of
compulsory registration ,efore commencing ,usiness of RNBC an concerte action ta"en
against suc( companies (as cur,e suc( practices to a large e3tent6
'622 !(e Reserve Ban" receive 10) applications for Certificate of Registration #CoR& from
NBFCs +(ic( +ere functioning as RNBCs ,y accepting eposits uner some sc(eme or
arrangement6 B(ile 12 companies su,se4uently converte t(emselves to NBFCs7 applications of
%4 companies (ave ,een re5ecte6 !en NBFCs are still functioning as RNBCs7 t(e total eposits
of +(ic( amounte to nearly Rs6 117000 crore7 constituting a,out '-60 per cent of t(e total
eposits of all reporting NBFCs6
(b) NBFCs not Registere *ith the Reser"e Bank
Mutual Benefit Companies
'623 .utual Benefit financial companies #Nidhis& are NBFCs notifie uner Section )20/ of
t(e Companies /ct7 1$') an primarily regulate ,y Department of Company /ffairs #DC/&
uner t(e irections 9 guielines issue ,y t(em uner Section )3- / of t(e Companies /ct7
1$')6 !(ese companies are e3empt from t(e core provisions of t(e RBI /ct &i'., re4uirement of
compulsory registration7 maintenance of li4ui assets an transfer of profits to Reserve Fun6
!(ese companies are also e3empte from t(e core provisions of NBFC irections relating to
acceptance of pu,lic eposits6 Directions relating to ceiling on interest rate7 maintenance of
register of eposits7 furnis(ing receipt to epositors an su,mission of returns to Reserve Ban"
are (o+ever applica,le to t(ese companies6
'624 !(e =overnment of Inia constitute an 23pert Committee in .arc( 2000 #C(airmanC
S(ri P6Sa,anayagam& to e3amine various aspects of t(e functioning of t(e Nidhi companies an
suggest an appropriate policy frame+or" for overall improvement of t(ese companies6 !(is +as
one +it( a vie+ to facilitate t(eir (ealt(y functioning an restore t(e confience of t(e
investing pu,lic6 !(e salient features of t(e recommenations of t(e Committee are etaile in
Bo3 8616
Miscellaneous Non-Ban.in" Companies #MNBCs$
'62' .NBCs are mainly engage in t(e Chit Fund ,usiness6 !(e term AepositA as efine
uner Section 4' I#,,& of t(e Reserve Ban" of Inia /ct7 1$34 oes not inclue su,scription to
Chit Funds6 !(e Chit Fund companies (ave ,een e3empte from all t(e core provisions of
C(apter IIIB of t(e RBI /ct incluing registration6 In terms of .iscellaneous Non*Ban"ing
Companies #RB& Directions7 t(e companies can accept eposits upto 2' per cent an 1' per cent
of t(e N1F from pu,lic an s(are(olers7 respectively7 for a perio of ) mont(s to 3) mont(s7
,ut cannot accept eposits repaya,le on eman9notice6
'62) !(e Reserve Ban" only regulates t(e eposits accepte ,y t(ese companies7 ,ut it oes
not regulate t(eir Chit Fund ,usiness7 +(ic( is aministere ,y t(e respective State =overnments
t(roug( t(e offices of Registrars of C(its6 !(e Chit Funds /ct7 1$%2 +as enacte as a Central /ct
for ensuring uniformity in t(e provisions applica,le to Chit Fund institutions t(roug(out t(e
country7 an all State =overnments are re4uire to frame rules for e3tening t(e provisions of
t(is /ct to t(eir respective 5urisictions6 /t present7 1) States an ) Dnion !erritories (ave
aopte t(e Central /ct an t(e Reserve Ban" is pursuing +it( t(e State =overnments of /n(ra
Praes(7 /runac(al Praes(7 =u5arat7 ;aryana7 Eerala7 .a(aras(tra7 .i>oram an Nagalan for
early formulation of rules uner t(e Central /ct
2
6
Bo+ V.1: Recommenations of the E+pert Committee on Nidhis
!(e 23pert Committee on Nidhis, comprising mem,ers from t(e =overnment as +ell as t(e Reserve Ban"7
su,mitte its Report to t(e =overnment on Septem,er 2%7 20006 !(e Committee o,serve t(at alt(oug( Nidhis
essentially operate on t(e principle of Amutual ,enefitA #i6e67 t(ey accept eposits only from mem,ers an len only to
mem,ers&7 given t(e large num,er of failures in t(is sector7 t(e regulatory frame+or" governing suc( companies
s(oul ,e on t(e same lines as t(at applica,le to NBFCs7 +it(out stifling t(e ,asic principle on +(ic( t(ey are
forme or istur,ing t(eir local c(aracter6 /ccoringly7 t(e regulatory frame+or" for suc( companies recommene
,y t(e Committee encompasse entry point ,arriers7 minimum capital funs7 e,t*e4uity ratio7 li4ui asset
re4uirements7 restrictions on ivien7 ceiling on interest rates on eposits an loans7 regulations of various
managerial aspects7 isclosure norms7 pruential norms7 ae4uate supervisory frame+or"7 role of auitors an ot(er
measures for protection of epositorsA interests6
!(e statutory regulatory frame+or" for Nidhis suggeste ,y t(e Committee encompass t(e follo+ing stipulationsC
I. Entry Point Norms
#i& 2ntry point ,arriers of minimum mem,ers of '00 an minimum capital fun of Rs610 la"(7
#ii& Dse of ANidhiA as part of t(e name of t(e company to istinguis( ,et+een a NBFC an a Nidhi company7 restrictions on
opening ,ranc(es ,y Nidhi companies7
#iii& Regulation over issue of e4uity an preference s(are capital7
II. Prudential Norms
#iv& Pruential norms on income recognition7 asset classification7 creit concentration7 provisioning for ,a an ou,tful
e,ts7
#v& Restrictions over voting rig(ts an ot(er managerial aspects incluing remuneration an loans to Directors7 norms for
conuct of affairs of t(e Boar of Directors7 pro(i,ition of grant of loans to Directors7 etc6
#vi& Sectoral e3posure ceilings for aggregate loans against eac( type of collateral security7
III. Regulatory Stipulations
#vii& Ceiling on interest rates on eposits an loans7
#viii& .inimum an ma3imum perio of eposits7
#i3& /vertisement an isclosure norms for eposit acceptance7 #3& Net o+ne fun to eposit ratio of 1C207
#3i& :i4ui asset re4uirements of not less t(an 10 per cent of eposits7
#3ii& /e4uate reporting system an supervisory frame+or"7 su,mission of 4uarterly an ot(er perioical returns ,y t(e
Nidhis to t(e regulatory aut(ority after certification ,y t(e auitor7
#3iii& /ppointment of auitors ,y t(e company out of t(e t(ree names suggeste ,y t(e regulatory aut(ority7
IV. Other Measures
#3iv& Divien not to e3cee 2' per cent per annum7 su,5ect to transfer of e4uivalent amount to t(e Reserve Fun7
#3v& Penal provisions for various violations7 an7
#3vi& 1t(er epositorsA protection measures li"e contingency fun7 insurance cover7 if possi,le6
/t present7 Nidhis are governe uner t(e provisions of t(e Companies /ct in force6 ;o+ever7 t(e Reserve Ban" is
also empo+ere to issue irections in matters relating to eposit acceptance activities6 !(e Committee7 t(erefore7
suggeste t(at t(e ual regulatory control over Nidhis s(oul ,e one a+ay +it( an t(at t(e sole responsi,ility for
regulating an supervising of Nidhis coul ,e uner t(e DC/7 =overnment of Inia an t(e Reserve Ban" coul
tener avice from time to time6 !(e Report is presently uner consieration of t(e =overnment6
,. -mplementation of Recommenations of Task Force on NBFCs (1../)
Financial Companies Re"ulation Bill, +,,,
'62- !(e !as" Force constitute ,y =overnment of Inia #C(airmanC S(ri C6.6 8asuev& to
revie+ t(e regulatory an supervisory frame+or" for NBFCs an unincorporate ,oies an
aress t(e s(ortcomings in ealing +it( t(e investorsA complaints su,mitte its report on
1cto,er 2%7 1$$%6 !(e recommenations7 +(ic( (ave since ,een accepte ,y t(e =overnment7
can ,e stratifie into four ,roa strans7 accoring to t(eir status of implementation7 &i'.,
recommenations +(ic( #a& +ere implemente +it( immeiate effect #on Decem,er 1%7 1$$%&
,y moifying t(e e3isting notification9Directions< #,& re4uire statutory amenments7 #c&
re4uire amenments to t(e Directions uner t(e RBI /ct7 an #& neee to ,e implemente
over a perio of time t(roug( aministrative action6 !(e =overnment of Inia frame t(e
Financial Companies Regulation Bill7 2000 to implement t(e recommenations re4uiring
statutory c(anges7 as also consoliate t(e la+ relating to NBFCs an unincorporate ,oies +it(
a vie+ to ensure epositor protection7 #Bo3 862&6
State cts for Protection of Interests of Depositors
'62% !(e !as" Force on NBFCs (a recommene t(at State =overnments s(oul ,e empo+ere
to initiate penal action against t(ose NBFCs +(ic( function illegally or accept pu,lic eposits
+it(out any aut(orisation6 It emp(asi>e t(at suc( legislation s(oul ,e e3peitiously enacte6
/s a move to+ars t(is process7 !amil Nau Protection of Interests Depositors #in Financial
2sta,lis(ments& /ct7 1$$-7 +(ic( contains penal provisions for promoters of financial
esta,lis(ments efaulting on repayment of eposits an interest payments7 an for attac(ment of
assets of efaulters to ensure payment to epositors +as passe6 It also provies for setting up of
special Courts to +(ic( t(e pening cases against financial companies coul ,e transferre6 !(e
Reserve Ban" also avise State =overnments 9 Dnion !erritories to enact suc( legislations6
2leven State =overnments 9 Dnion !erritories (ave since ta"en su,stantial steps in t(is regar6
Bo+ V.$: Financial Companies Regulation Bill0 $111
!(e =overnment of Inia frame a ne+ legislation to amen an consoliate t(e provisions containe in C(apter III*
B7 III*C an 8 of t(e RBI /ct7 1$34 relating to t(e regulation an supervision of financial companies7 (it(erto
"no+n as non*,an"ing financial companies #NBFCs&6 !(is inclue pro(i,ition of acceptance of eposits ,y
unincorporate ,oies an incorporating t(e recommenations of t(e !as" Force on NBFCs7 +(ic( (a mae certain
recommenations to t(is effect6 !(e salient features of t(e propose legislation7 +(ic( are materially ifferent from
t(e corresponing provisions of RBI /ct or are ne+ provisions are as follo+sC
I. Basic Stipulations
#i& !(e raft ,ill (as ,een name as AFinancial Companies Regulations Bill7 2000A6 /ll t(e NBFCs +ill ,e
"no+n as Financial Companies instea of NBFCs6
#ii& !(e term Apu,lic epositA (as ,een efine in t(e Bill for t(e first time an t(e efinition +oul mean t(e
same as at present in t(e NBFC Directions6
#iii& !(ere +oul ,e a nine mem,er /visory Council for Financial Companies uner t(e C(airmans(ip of
Deputy =overnor7 ra+ing on mem,ers from t(e representatives of /ssociations of Financial
Companies an ot(er e3perts in relate areas to avise t(e Reserve Ban"6
#iv& NBFCs (oling 9accepting pu,lic eposits +oul ,e pro(i,ite from carrying on any non*financial
,usiness +it(out t(e prior approval of t(e Reserve Ban" an t(e non*financial ,usiness presently carrie
on ,y t(em +oul (ave to ,e +oun up or transferre to a su,siiary +it(in t(ree years6 /ny ot(er
,usiness or fee*,ase activity li"e insurance agency ,usiness7 portfolio management7 etc67 +oul re4uire
prior approval of t(e Reserve Ban"6
II .Entry Point Norms
#v& !(e re4uirement of o,taining t(e CoR from t(e Reserve Ban" +oul ,e compulsory for all financial
companies7 irrespective of +(et(er t(e companies accept pu,lic eposits or not6 ;o+ever7 t(e non*
pu,lic eposit ta"ing financial companies +oul re4uire minimum o+ne fun of Rs62' la"(7 +(ereas
t(e pu,lic eposit ta"ing financial companies +oul re4uire minimum net o+ne fun #N1F& of Rs62
crore an a specific aut(orisation from t(e Reserve Ban" to accept pu,lic eposits6
#vi& !(ere +oul ,e po+ers +it( t(e Reserve Ban" to #a& prescri,e ifferent capital for ifferent classes of
financial companies7 #,& raise t(e re4uirement of minimum o+ne fun #entry norm& from Rs62' la"( to
Rs6200 crore for ne+ financial companies not accepting pu,lic eposits7 #c& raise t(e minimum N1F
#entry norm& from t(e present ceiling of Rs62 crore to Rs610 crore in t(e case of ne+ financial
companies intening to accept pu,lic eposits7 an #& raise t(e minimum N1F from t(e present level
of Rs62' la"( to Rs62 crore for t(e e3isting financial companies accepting pu,lic eposits6 ;o+ever7
sufficient time +oul ,e allo+e to suc( financial companies to attain t(e en(ance capital re4uirement6
#vii& !(e re4uirement of creation of reserve fun +oul ,e applica,le only to t(e financial companies
accepting pu,lic eposits7 as against t(e earlier re4uirement applica,le to all NBFCs6
#viii& Dnsecure epositors +oul (ave first c(arge on li4ui assets an assets create out of t(e eployment
of t(e part of t(e reserve fun6
#i3& !(e financial companies +oul re4uire prior approval of t(e Reserve Ban" for any c(ange in t(e name7
c(ange in t(e management or c(ange in t(e location of t(e registere office6
#3& /ny sale of property in violation of orer for pro(i,ition from alienation of any property or assets
+oul ,e voi an t(at suc( orer coul ,e e3tene ,y t(e Reserve Ban" in tranc(es of one year eac(
on eac( occasion upto a perio of five years6
III Regulatory and Supervisory Issues
#3i& !(e Reserve Ban" +oul ,e empo+ere to appoint Special 1fficer#s& on a elin4uent financial
company an a uty (as ,een cast on suc( company to cooperate +it( suc( Special 1fficer#s&6
#3ii& !(e Company :a+ Boar #C:B& +oul continue to ,e aut(ority to a5uicate t(e claims of epositors
against t(e elin4uent companies +it( po+ers to orer initial payment of a part of eposit7 attac( assets
of frauulent financial company an appoint Recovery 1fficer#s& for management of suc( asset6 !(e
financial company +oul (ave no recourse to t(e C:B to see" eferment of t(e epositorsA ues6
#3iii& !(e pro(i,itory provisions for unincorporate ,oies +oul continue in t(e Financial Companies
Regulations Bill7 ,ut t(e role of e3ercising t(e po+ers for enforcement of t(ese provisions (ave ,een
e3clusively entruste to State =overnments7 in aition to t(e po+ers uner t(e respective State :a+s
for protecting t(e interests of investors in financial esta,lis(ments6
#3iv& !(ere +oul ,e po+ers veste in t(e District .agistrates to call for information an to procee against
elin4uent unincorporate ,oies6
#3v& !(ere +oul ,e a ,an on t(e issue of avertisement for soliciting eposits ,y all unincorporate ,oies7
irrespective of +(et(er t(ey are conucting financial ,usiness or not6
#3vi& Dnaut(orise eposit*ta"ing ,y companies #a& +(ose applications for Certificate of Registration (ave
,een re5ecte7 #,& +(ose registration (as ,een cancelle7 #c& +(o (ave ,een pro(i,ite from accepting
pu,lic eposits +oul ,e a cognisa,le offence6 !(e same +oul ,e t(e case for unregistere financial
companies as +ell as unincorporate ,oies6
#3vii& Po+ers +oul ,e veste +it( a police officer of t(e ran" not ,elo+ t(at of t(e Superintenent of Police
of any State to orer investigations into t(e allege violations of re4uirement of registration ,y financial
companies an pro(i,ition from acceptance of eposits ,y unincorporate ,oies6
#3viii& Penalties (ave ,een rationalise in accorance +it( t(e severity of efaults7 +it( t(e o,5ective t(at t(e
penalty s(oul serve as a eterrent to ot(ers6
!(e Bill (as ,een introuce in t(e Parliament in 2000 an (as since ,een referre to t(e Staning Committee on
Finance6
2. Business of the NBFC %ector
'62$ !(e ,roa profile of t(e NBFC sector for 1$$%*$$ an 1$$$*20007 ,ase on t(e
regulatory returns su,mitte ,y eposit (oling9accepting companies is presente in !a,le 8626
In vie+ of t(e ifference in t(e num,er of reporting companies in t(e t+o years7 t(e ata are not
strictly compara,le6 /s at en*.arc( 1$$$7 t(e total outstaning pu,lic eposits of t(e 17'4-
eposit (oling companies #,ot( registere an unregistere& aggregate Rs620742$ crore7
e4uivalent to 26) per cent of t(e outstaning eposits #Rs6-7-1712$ crore& of sc(eule
commercial ,an"s #e3cluing Regional Rural Ban"s&6 In t(e case of 1700' reporting companies7
as at en*.arc( 20007 t(e total 4uantum of outstaning pu,lic eposits reporte ,y t(em +as
Rs61$7342 crore7 e4uivalent to 262 per cent of t(e aggregate eposits #Rs6%7$)7)$) crore& of
sc(eule commercial ,an"s6
Table V.$: #rofile of the NBFC %ector
#/s at en*.arc(&
#/mount in Rs6 crore&
-tem 1... $111
NBFCs of hich RNBCs NBFCs of hich RNBCs
1 2 3 4 '
Num,er of reporti ng companies 102,3 11 10112 $
Total 4ssets ,301,/.21 1101/1.21 210&$,.$5 110&13.&1
Pu,lic Deposits 20742%6$3 107)4462- 1$73416-2 1170036--
#'261& #')6$&
Net 1+ne Funs $711%62- *)))63$ )72226%$ *4426%2
NotesC 16 Figures are provisional6
26 Figures in ,rac"ets inicate percentages to total outstaning eposits of NBFCs6
'630 !(e aggregate assets of t(e NBFC sector increase to Rs6'17324 crore as on .arc( 317
20007 from Rs64-704$ crore7 as on .arc( 317 1$$$6
'631 !(e ,rea"*up of pu,lic eposits +it(in t(e ifferent categories of NBFCs is provie in
!a,le 8636 Some of t(e companies (ave converte t(emselves into non eposit*(oling
companies ,y repaying t(e eposits (el ,y t(em6 /t t(e isaggregate level7 pu,lic eposits
+it( t(e (ire purc(ase companies an RNBCs increase ,y 2263 per cent an 364 per cent7
respectively #C(art 862&6
5. Region-*ise Composition of 'eposits hel b! NBFCs
'632 !(e region*+ise analysis is ,ase on t(e num,er of eposit*(oling9accepting NBFCs t(at
reporte ata to t(e Reserve Ban" for t(e years ening .arc( 1$$$ an .arc( 2000 #!a,le 864
an C(art 863&6 !(e NBFCs ,ase in t(e sout(ern region continue to account for a significant
s(are of t(e reporting NBFCs in ,ot( years alt(oug( t(eir s(are fell s(arply from 236- per cent of
total pu,lic eposits at en*.arc( 1$$$7 to 1)64 per cent at en*.arc( 20006 1f t(e NBFCs
locate in t(e sout(ern region7 t(e ma5or 4uantum of pu,lic eposits +as (el ,y t(e NBFCs
locate in C(ennai6 !(e eposits of NBFCs locate in t(e +estern region ecline from 1460 per
cent at en*.arc( 1$$$ to 126) per cent at en*.arc( 20006 !(e s(are of eposits of t(e NBFCs
,ase in t(e nort(ern region to t(e total eposits of all NBFCs7 recore an increase from 264 per
cent at .arc( 1$$$ to 26- per cent at .arc( 20007 mainly ue to an increase in t(e s(are of
pu,lic eposits (el in Ne+ Del(i6 !(e s(are of eposits in t(e eastern region increase from
3-6- per cent of total eposits to 4$6' per cent mainly on account of mo,ilisation of non*
converti,le e,entures #NCDs& to t(e tune of Rs6 17))% crore ,y one =overnment*o+ne NBFC
,ase in Best Bengal6 !(e pu,lic eposits reporte ,y NBFCs in four metropolitan centres of
.um,ai7 Ne+ Del(i7 Eol"ata an C(ennai accounte for Rs6147403 crore #-06' per cent& an
Rs6147$20 crore #--61 per cent&7 respectively7 of t(e total eposits for t(e years ening .arc(
1$$$ an .arc( 20006
Table V.& : 4cti"it!6*ise #rofile of #ublic 'eposits of NBFCs
#/s at en*.arc(&
#/mount in Rs6 crore&
Nature of Business #ublic 'eposits #ercentage Variation
Col. (&) o"er Col. ($)
1$$$ 2000
1 2 3 4
16 24uipment :easing #2:& 171-26 $1 17021620 *126$
#'6-& #'62&
26 ;ire Purc(ase #;P& 3733$6-% 470%36'4 2263
#1)63& #2162&
36 Investment an :oan #I:& 474''6%0 27'1-64) *436'
#216%& #1360&
46 RNBCs 107)4462- 1170036-- 364
#4-6%& #')6$&
'6 1t(er NBFCsF %1)61- -1'6-' *1263
#460& #36-&
Total $10,$/..& 1.0&,1.3$ -2.&
(111.1) (111.1)
F inclues .iscellaneous Non*Ban"ing Companies7 unregistere an unnotifie Nidhis etc6
NoteC Figures in ,rac"ets inicate percentages to total6
3. -nterest Rate an 7aturit! #attern of 'eposits *ith NBFCs
'633 !(e maturity*+ise analysis of eposits (el ,y NBFCs toget(er +it( t(e interest rate
range on t(e eposits is presente in !a,le 86' an !a,le 86)6
'634 !(e ,roa trens inicate t(at NBFCs #ot(er t(an RNBCs& (a outstaning pu,lic
eposits of Rs6$7-%' crore as at en*.arc( 1$$$7 +(ic( ecline to Rs6 %733% crore ,y en*
.arc( 20006 !(e ecline of Rs61744- crore #146% per cent& in pu,lic eposits +as o,serve in 1*2
year7 2*3 year an 3*' year maturities6 ;o+ever7 t(e 4uantum of pu,lic eposits in t(e maturity
,uc"et e3ceeing ' years +itnesse a significant 5ump7 from Rs61)% crore at en*.arc( 1$$$ to
Rs617-1% crore ,y en*.arc( 20006 !(is is mainly ue to mo,ilisation of non*converti,le
e,entures #NCDs& to t(e tune of Rs6 17))% crore ,y one =overnment*o+ne NBFC ,ase in
Best Bengal6 In 1$$$7 aroun $0 per cent of t(e eposits +ere in t(e maturity ,uc"et of 1*'
years7 +(ile as at en*.arc( 20007 most eposits +ere in t(e maturity ,uc"et A1*2 yearsA7 A2*3
yearsA an Ae3ceeing ' yearsA< t(e last category comprising over one*fift( of t(e pu,lic eposits
as at en*.arc( 20006
'63' Interest rate*+ise7 t(ere +as a rise in t(e 4uantum an percentage of eposits in t(e
interest rate range of 12*14 per cent6 !(e eposits in t(is range increase from Rs6 2733- crore
#236$ per cent& in 1$$$ to Rs6 37-02 crore #4464 per cent& #C(art 864&6 Deposits +it( interest rates
of over 1) per cent ecline from Rs6 37)4' crore to Rs6 17144 crore7 over t(e year6
/. 4sset #rofile of NBFCs
'63) !(e information on t(e asset profile of NBFCs #e3cluing RNBCs& ,ase on reporting
companies reveals t(at out of 17'3) companies7 30 NBFCs +it( an asset si>e e3ceeing Rs6'0
crore accounte for $2 per cent of t(e total assets6 By en*.arc( 20007 t(e num,er of suc(
companies increase to )) an t(ese accounte for $1 per cent of t(e total assets of NBFC sector
#!a,le 86-&6 Percepti,le reuction in t(e num,er of small companies +as evience uring t(e
year 20006 !(e num,er of companies in t(e asset range of Rs62' la"( to Rs610 crore ecline
from 17442 in 1$$$ to %40 companies in 20006
Table V.,: Region-*ise break-up of #ublic 'eposits hel b! Registere an 8nregistere NBFCs
#/s at en*.arc(&
#/mount in Rs6 crore&
1... $111
#ublic 'eposits #ublic 'eposits
Region NBFCs NBFCs
No6 /mount Per cent of )hich RNBCs No /mount Per cent of )hich RNBCs
No /mount Per cent No6 /mount Per cent
1 2 3 4 ' ) - % $ 10 11 12 13
Nort(ern 204 4%460- 264 * * * 2'1 '2$604 26- * * *
Nort(*2astern 30 06%$ Neg6 * * * 4 -602 Neg6 1 '6'' 061
2astern )4 -7-116$1 3-6- ' -70)%62) ))64 32 $7'-360' 4$6' ) -7'0)6)2 )%62
Central 244 47'336$4 2262 4 37'-46-3 336) 124 37)23641 1%6- 2 374$16)4 316-
Bestern 1%0 27%'160% 1460 1 062- Neg6 %) 2744161- 126) * * *
Sout(ern %2' 47%4-604 236- 1 1601 Neg6 '0% 371)%60- 1)64 * * *
Total 102,3 $10,$/..& 111.1 11 1105,,.$3 111.1 10112 1.0&,1.35 111.1 . 11011&./1 111.1
Memorandum Items:
.um,ai 123 2740'604 116% * * * )% 273%1621 1263 * * *
C(ennai 40% 37%43613 1%6% * * * 340 27'--6') 1363 * * *
Eol"ata 3% -7-026'3 3-6- ' -70)%62) ))64 2% $7'0%6'3 4$62 ' -744)6)- )-6'
Ne+ Del(i $0 4'261- 262 * * * 122 4'26)' 263 * * *
Neg6* Negligi,le
Table V.2: 7aturit! #attern of 'eposits hel b! NBFCs G
#/s at en*.arc(&
#/mount in Rs6 crore&
7aturit! #erio 4mount of 'eposits Variation of Col. $ o"er Col.&
1... $111 4mount #er cent
1 2 3 4 '
:ess t(an 1 year 17)$46'$ 1732364' *3-1614 *216$
#1-63& #1'6$&
1*2 years 27$04634 17)1'6$4 *172%%640 *4464
#2$6-& #1$64&
2*3 years 27%$'6%0 274)264% *433632 *1'60
#2$6)& #2$6'&
3*' years 2712261) 1721%64' *$036-1 *426)
#216-& #146)&
' years an a,ove 1)-6-- 17-1-6)3 17'4$6%) $236%
#16-& #206)&
!otal $7-%46)) %733-6$' *1744)6-1 *146%
#10060& #10060&
G 1n t(e ,asis of resiual maturity of outstaning eposits #e3cluing RNBCs&6
Table V.5: 'istribution of NBFC 'eposits accoring to Rate of -nterest G
#/s at en*.arc(&
#/mount in Rs6 crore&
-nterest Range 4mount of eposits #er cent to total eposits
(per cent)
1... $111 1... $111
1 2 3 4 '
Dpto10 '263% 226$) 06' 063
10*12 %-64$ '%%6'0 06$ -61
12*14 2733)6)- 37-0260% 236$ 4464
14*1) 37))26-4 27%%06-$ 3-64 346)
.ore t(an1) 37)4'63% 171436)2 3-63 136)
!otal $7-%46)) %733-6$' 10060 10060
G 23cluing RNBCs6
.. 'istribution of 4ssets of NBFCs accoring to 4cti"it!
'63- !(e ma5or portion of t(e assets of NBFCs #e3cluing RNBCs& are in t(e form of (ire
purc(ase an e4uipment leasing assets6 !(ese t+o portfolios constitute 426$ per cent of t(e total
assets of NBFCs as at en*.arc( 20006 !(e loans an inter*corporate eposit #ICD& portfolios
accounte for 2)64 per cent of t(e assets of t(e NBFCs #!a,le 86%&6
11. 4nal!sis of Borro*ings b! NBFCs
'63% !(e ,orro+ings ,y NBFCs #e3cluing RNBCs& for t(e years ene .arc( 1$$$ an
2000 are presente in !a,le 86$6 /s evient from t(e !a,le7 total ,orro+ings registere a
marginal ecline of 06% per cent7 t(e ecline is more pronounce in inter*corporate ,orro+ings
#4061 per cent&7 money raise t(roug( converti,le ,ons or secure e,entures #1)63 per cent&
an ,orro+ings from financial institutions #1064 per cent&6 .oney raise t(roug( commercial
paper increase from Rs64)' crore to Rs6''4 crore an ,orro+ings t(roug( ot(er sources
increase from Rs6 47130 crore to Rs6 )74%0 crore #C(art 86'&6
11. Net 9*ne Funs of NBFCs
'63$ Net o+ne fun #N1F& of NBFCs is t(e aggregate of pai*up capital an free reserves7
nette ,y #i& t(e amount of accumulate ,alance of loss7 #ii& eferre revenue e3peniture an
ot(er intangi,le assets7 if any7 an furt(er reuce ,y investments in s(ares an loans an
avances to #a& su,siiaries7 #,& companies in t(e same group an #c& ot(er NBFCs7 in e3cess of
10 per cent of o+ne fun6
'640 !(e ata on N1F of NBFCs for t(e years 1$$$ an 2000 presente in !a,le 86107 reveals
t(at t(e num,er of companies (aving N1F upto Rs6 2' la"( (ave ecline from -3) as at en*
.arc( 1$$$ to 20' as at en*.arc( 20006 !(is reuction7 to an e3tent7 is reflecte in t(e ecline
of num,er of reporting companies ,y '40 uring t(e same perio6
Table V.3: 4sset #rofile of NBFCs:
#/s at en*.arc(&
Range of 4ssets No. of reporting 4ssets #ercentage
(Rs. crore) companies (Rs. crore) Variation of Col.
1... $111 1... $111
1 2 3 4 ' )
16 :ess t(an 062' -3) %2 3061' -6%) *-36$
26 062' * 06'0 31$ $' 4$61' 3)63) *2)60
36 06'0 * 2 332 3$- 30-641 434632 4163
46 2 * 10 '' 2)) $)164$ 17142602 1%6%
'6 10 * '0 )4 $0 17-01631 17$21611 126$
)6 '0 * 100 11 1) 17-0$6$' 1711463' *346%
-6 100 * '00 1% 2% %71226-) -7%2'622 *36-
%6 /,ove '00 1 22 2370%'6-% 2-7'2'6-1 1$62
Total 102&5 ..5 &20.5/.11 ,10115..2 11.$
F !(e $$) reporting NBFCs #e3cluing RNBCs& (ave ,een regroupe on t(e ,asis of t(eir asset si>e as on
en*.arc(1$$$ an en*.arc( 20006
1$. -ncome E+peniture %tatement of NBFCs
'641 !(e profita,ility analysis of t(e NBFCs inicates t(at t(e net profits of t(ese
institutions registere an increase uring t(e year 1$$$*20006 B(ile income +itnesse a ecline
of 06) per cent7 largely ue to a rop in fun*,ase income7 t(e ecline in e3peniture +as more
pronounce7 +it( t(e result t(at t(e net profits of NBFCs increase ,y 1462 per cent from
Rs6120 crore in 1$$%*$$ to Rs613- crore in 1$$$*20006 !(e fee*,ase income of t(e reporting
NBFCs (as registere an increase of Rs6 213 crore #!a,le 8611&6
1&. Capital 4e;uac! Ratio
'642 !(e capital ae4uacy norms +ere mae applica,le to NBFCs in 1$$%6 !(e norms
relating to capital ae4uacy ratio #C/R& stipulate t(at every NBFC s(all maintain a minimum
capital ratio consisting of tier I an tier II capital t(at s(all not ,e less t(an #a& 10 per cent on or
,efore .arc( 317 1$$%< an #,& 12 per cent on or ,efore .arc( 317 1$$$7 of its aggregate ris"*
+eig(te assets an of ris"*a5uste value of off*,alance s(eet items6 !(e total of tier II capital7
at any point of time7 s(all not e3cee 100 per cent of tier I capital6 !a,le 8612 presents C/R of
t(e reporting companies for t(e years ene .arc( 1$$$ an .arc( 20007 respectively6
1,. 9ther 'e"elopments
Role of BFS in Monitorin" NBFCs
'643 Consiering t(e manifol gro+t( of t(e non*,an"ing financial companies in t(e early
nineties an +it( a vie+ to (aving an integrate approac( to t(e entire financial sector7 t(e
supervision of NBFC sector +as ,roug(t uner t(e 5urisiction of t(e Boar for Financial
Supervision #BFS& +it( effect from @uly 17 1$$'6 Since t(en7 t(e BFS (as ,een serving as an
important supervisory ,oy for irection7 formulation an overseeing t(e implementation of
policy as +ell as supervision of NBFCs6 /pproval of BFS is o,taine ,efore any important
policy c(ange an amenments in t(e regulatory frame+or" of NBFCs are carrie out6 BFS also
serves as an important forum for eciing t(e course of action against pro,lem companies an
monitoring t(eir status on an on*going ,asis6 In aition to information notes on specific
companies7 4uarterly reports on t(e status of large7 +ea" an pro,lem companies are iscusse in
BFS meetings6 Furt(ermore7 (alf*yearly reports on t(e performance of t(e NBFC sector are also
put up for information of BFS6
Table V./: 4cti"it!-*ise 'istribution of 4ssets of NBFCs <
#/s at en*.arc(&
4cti"it! 4mount in Rs.crore #er cent
1... $111 1... $111
1 2 3 4 '
:oans H ICD 271'%611 107')163' )60 2)64
Investments 473'2613 '7'-%6)' 1261 136$
;ire Purc(ase 13712%62$ 12701)6-$ 3)6' 3060
24uipment H :easing 371)'61% '714)6-0 %6% 126$
Bills 170$'6') 172%060$ 360 362
1t(er assets 1270)%6-3 '742363- 336) 136)
Total &20.5/.11 ,10115..2 111.1 111.1
G e3cluing RNBCs6
!(e s(are uner :oans H ICD (as increase ,ecause of appropriate classification of assets in 20007 +(ic( +ere
earlier ,oo"e uner t(e (ea I1t(er /ssets?6
Table V..: Classification of Borro*ings b! NBFCs (e+cluing RNBCs)
#/s at en*.arc(&
#/mount in Rs6 crore&
-tem 1... $111
1 2 3
.oney ,orro+e from Central9State =overnment G 27-3$6'$ 27)036)0
#1261& #116)&
.oney ,orro+e from foreign sourcesF )2461% )01632
#26%& #26-&
Inter*corporate ,orro+ings 370-)64% 17%426-4
#136)& J%62&
.oney raise ,y issue of converti,le or secure e,entures7 470016-% 3734%6%2
Incluing t(ose su,scri,e ,y ,an"s #1-6-& #146$&
Borro+ings from ,an"s )703%610 '7)326--
#2)6-& #2'61&
Borro+ings from Financial Institutions 17'446-) 173%464-
#)6%& #)61&
Commercial Paper 4)'623 ''4642
#261& #26'&
1t(ers K 4713064- )74%0624
#1%63& #2%6$&
Total $$05$1.2. $$0,,/.&/
(111.1) (111.1)
G .ainly ,y State*=overnment o+ne companies6
F !(e amount receive from foreign colla,orators as +ell as from institutional investors #/sian Development
Ban"7
International Finance Corporation7 etc6&6 !(e ma5or amount is in infrastructure an leasing companies6
K Inclues security eposits from employees an caution money7 allotment money7 ,orro+ings from mutual
funs7 Directors7 etc6
NoteCFigures in ,rac"ets are percentages to total6
Table V.11: Net 9*ne Funs vis!"!vis #ublic 'eposits of NBFCs <
#/s at en*.arc(&
#/mount in Rs6 crore&
Range of 1... $111
N9F
4mounts No. of Net #ublic #ublic No. of Net #ublic #ublic
reporting 9*ne 'eposits 'eposits reporting 9*ne 'eposits 'eposits
companies Fun as companies Fun as
multiple multiple
of N9F of N9F
1 2 3 4 ' ) - % $
Dpto 062' -3) 3%60% )'0622 1-61 20' *21'61' 3$46-% *16%
062' * 06'0 31$ -0643 11'6'1 16) 3)0 11)61- 1$4620 16-
06'0 * '60 332 4426-4 170)-6'' 264 314 '016$% 3)26%) 06-
' * 10 '' 33)63- 2)46-1 06% 43 2$4612 202613 06-
10 * '0 )4 172%'60% 2710-61' 16) 4) 170)0624 27--361) 26)
'0 * 100 11 -%)6$$ 172-160' 16) $ )2%640 %--6'% 164
100 * '00 1% 37$4)60- 472%)6-3 161 1$ 472-$6$' 37'33624 06%
/,ove 17000 1 171206%3 216-4 0602 * * * *
Total 102&5 /01$5.2. .03/,.55 1.$ ..5 50552.31 /0&&3..2 1.&
G 23cluing RNBCs6
Note C !(ere +ere no reporting companies +it( N1F of a,ove Rs6 17000 crore as at en*.arc( 2000
Table V.11: Financial #erformance of NBFCs:
#/mount in Rs6 crore&
-tem 1../-.. 1...-$111 Variation of Col. (&)
o"er Col. ($)
1 2 3 4 '
4bsolute #ercentage
4.-ncome (i=ii) 50/1. 50331 -&. -1.5
i& Fun )7''1 )72$$ *2'2 *36%
ii& Fee 2'% 4-1 213 %26)
B.E+peniture (-=ii=iii) 50,15 50&5& -2& -1./
i& Financial 473'' 37)%- *))% *1'63
ii& 1perating 170-- 17)14 '3- 4$6$
iii& 1t(er $%4 170)2 -% -6$
C.Ta+ #ro"isions $3& $31 -& -1.1
'.Net #rofit 1$1 1&3 13 1,.$
E.Total 4ssets &20.5/ ,10113 ,01&. 11.$
F.Financial Ratios G
i& Income 1%6$ 1)6$ *260 *
ii& Fun Income 1%62 1'6- *26' *
iii& Fee Income 06- 162 06' *
iv& 23peniture 1-6% 1'6$ *16$ *
v& Financial 23peniture 1261 $62 *26$ *
vi& 1perating 23peniture 360 460 160 *
vii& 1t(er 23peniture 26- 26- *061 *
viii&!a3 Provisions 06% 06- *061 *
i3& Net Profit 063 063 060 *
F e3cluing RNBCs6
G Ratios to !otal /ssets
Close Monitorin" of (rrant NBFCs
'644 !(e Reserve Ban" continue to "eep close surveillance on large NBFCs7 particularly
t(ose +(ic( (a ifficulties in (onouring commitments to epositors an against +(om
Company :a+ Boar #C:B& (a issue orers for repayment of eposits6 !(e implementation of
C:B orers is ,eing monitore ,y Regional Co*orination Committees forme at C(ennai7
Eol"ata7 Ne+ Del(i an .um,ai +it( representatives from Department of Company /ffairs an
2conomic 1ffences Bing of State =overnments6
Institutionalised Decision-ma.in" Mechanism
'64' !(e Informal /visory =roup for NBFCs constitute ,y t(e Reserve Ban" in @anuary
1$$% consists of representatives from t(e Institute of C(artere /ccountants of Inia7 national
level /ssociations of NBFCs7 c(ief e3ecutive officers of t+o large NBFCs7 ,esies t(e Reserve
Ban"6 !(e =roup meets at 4uarterly intervals to eli,erate on regulatory issues relating to
NBFCs for aiing ecision*ma"ing process7 an serves as a useful institutionalise frame+or"
for perioical consultation +it( various associations of NBFCs6 !(e term of t(e =roup (as ,een
e3tene to @une 20026
De&elopmental spects
'64) !(e NBFCs are +iely isperse across t(e country an t(eir managements e3(i,it
varie egrees of professionalism6 Furt(ermore7 t(e epositors (ave varie egrees of
perceptions regaring safety of t(eir eposits +(ile ma"ing an investment ecision6 !(erefore7 a
nee +as felt for eucating t(e epositors a,out t(e regulations of NBFCs7 t(e personnel of
NBFCs an t(eir auitors a,out t(eir o,ligation to t(e regulator an t(e personnel of
enforcement ,oies li"e police an State =overnment epartments a,out t(eir role in cur,ing
unscrupulous activities6 !(e !as" Force on NBFCs (a also suggeste t(at t(e State
=overnments s(oul ,e increasingly involve in cur,ing t(e illegal an unaut(orise eposit
ta"ing activities of t(e NBFCs an unincorporate ,oies engage in t(e financial ,usiness6 !(e
Reserve Ban" also receive re4uests from a num,er of State =overnments for conucting
seminars9programmes for t(eir civil an police officials on various aspects of legal an
supervisory issues pertaining to NBFCs6 /ccoringly7 t(e Reserve Ban" (as organise focusse
training programmes9 seminars9+or"s(ops for personnel of NBFCs an enforcement agencies6
Table V.1$: 'istribution of Reporting NBFCs b! CR4R
#/s at en*.arc(&
CR4R 1... $111
Range E> ?# >C@-C RNBC Total E> ?# >C@-C RNBC Total
(per cent)
1 2 3 4 ' ) - % $ 10 11
:ess t(an 10 11 33 3$ 1 /, - 11 12 2 &$
10*12 1 1 2 * , * * 1 * 1
12*1' 1 - 10 * 1/ 1 3 3 * 3
1'*20 - 2- 1' 1 21 3 31 % * ,$
20*30 10 -1 3- * 11/ 12 '2 1) 1 /1
/,ove 30 2- 144 230 2 ,1& 23 2'3 1'$ 1 ,&5
Total 23 $/& &&& , 533 ,5 &21 1.. , 2..
Publicity Campai"n for NBFC Depositors
'64- !(e ela,orate pu,licity campaign for eucating epositors t(roug( avertisements +(ic(
,egan in @uly 1$$% continue t(roug( t(e year6 !(e campaign (as since ,een fine*tune +it( a
t(ree*pronge strategy comprising avertisements in print meia7 spots on electronic meia an
informal pu,licity t(roug( seminars an press meets eluciating t(e steps ta"en for ensuring
protection of epositors? interests6
Committee for Redesi"nin" Balance Sheet Format for NBFCs
'64% !(e Committee for Reesigning of Financial Statements of Non*Ban"ing Financial
Companies #C(airmanC S(ri 86S6N6.urty&7 su,mitte its Report in Septem,er 1$$$6 It
recommene revise formats for ,alance s(eets +(ic( essentially follo+s t(e e3isting formats
prescri,e uner t(e Companies /ct7 +it( aitional isclosures in respect of maturity profile of
assets an lia,ilities7 sector*+ise concentration of assets an lia,ilities7 etails in respect of
overue loans an ot(er creits7 non*performing assets an provisioning t(ereagainst7 valuation
of investments7 etc67 as sc(eules to t(e main ,alance s(eet as +ell as t(e formats for t(ese
aitional sc(eules6 !+o salient recommenations of t(e Committee &i'., uniform accounting
year ening on .arc( 317 an constitution of auit committees for NBFCs (aving asset si>e of
Rs6'0 crore an a,ove (ave ,een implemente6 1t(er recommenations of t(e Committee are
uner t(e consieration of t(e Reserve Ban"6
sset Securitisation
'64$ !(e =overnment of Inia constitute an 23pert Committee #C(airmanC S(ri !6R6
/n(yaru5ina& for t(e purpose of formulating specific proposals to give effect to t(e suggestions
mae ,y t(e Committee on Ban"ing Sector Reforms #C(airmanC S(ri .6 Narasim(am& relating
to c(anges neee in t(e legal frame+or"6 !(e Committee su,mitte its Report in Fe,ruary
20006 /s a follo+ up7 t(e =overnment of Inia constitute a Bor"ing =roup #C(airmanC S(ri
S6;6 B(o5ani7 +it( S(ri .6R6Dmar5i as a mem,er from t(e Reseve Ban"& on asset securitisation
in @uly 2000 to e3amine t(e 23pert CommitteeAs recommenations for implementation6 !(e
Bor"ing =roup (as rafte a Bill on asset securitisation an su,mitte t(e same to t(e
=overnment6
Foreclosure !a)s
'6'0 !(e =overnment of Inia constitute a Bor"ing =roup #C(airmanC S(ri .6R6 Dmar5i& in
@uly 2000 to e3amine t(e recommenations of t(e /n(yaru5ina 23pert Bor"ing =roup on
Foreclosure :a+s regaring vesting of po+ers +it( ,an"s an financial institutions for ta"ing
possession an sale of securities +it(out t(e intervention of t(e courts an to raft a ,ill for
consieration of t(e =overnment6 !(e Bor"ing =roup su,mitte its report to t(e =overnment
along +it( t(e raft Bill in .ay 20016
1
Regulate eposits are efine as receipt of money ,y +ay of eposit or loan or in any ot(er form e3cluing
amounts receive as s(are capital7 ,an" ,orro+ings7 institutional ,orro+ings7 c(it su,scription7 ,orro+ings from
registere money leners an money receive in orinary course of ,usiness< furt(er e3cluing certain ot(er forms
of eposits as specifie in Non*Ban"ing Financial Companies #Reserve Ban"& Directions7 1$-- li"e money receive
from Central or State =overnments7 foreign =overnment7 financial institutions7 companies an certain ot(er forms
of eposits6
2
/s regars plantation companies7 t(e Securities an 23c(ange Boar of Inia #S2BI& is entruste +it( t(e
responsi,ility of regulating t(e resource*ta"ing activities of t(ese companies6 /ccoringly7 S2BI (as implemente a
regulatory frame+or" in terms of +(ic( no ne+ plantation sc(eme can ,e floate +it(out creit rating an minimum
re4uirement of pai up capital6 !(e S2BI #Collective Investment Sc(emes& Regulations7 1$$$ +ere notifie in
1cto,er 1$$$6 /s prescri,e in t(e regulations7 no person ot(er t(an a Collective Investment .anagement
Company7 +(ic( (a o,taine a CoR from S2BI uner t(e S2BI #Collective Investment Sc(emes& Regulations7
1$$$ +oul ,e entitle to carry on or sponsor or launc( a collective investment sc(eme6 /lso7 no company engage
in t(e ,usiness of collective investment sc(eme can launc( any ne+ sc(eme or raise money from investors even
uner e3isting sc(emes7 unless a CoR is grante to it uner t(e aforesai regulations6 !(e Securities :a+s #Secon
/menment& /ct7 1$$$ inserte a ne+ section 11 // in t(e S2BI /ct7 1$$26 In Fe,ruary 20007 t(e S2BI #Collective
Investment Sc(emes& /menment Regulations7 2000 +ere notifie in t(e =a>ette of Inia6