A Comparative Study of NBFC in India

IMPORTANCE OF NBFCS
According to RBI Non Banking Finance Companies (NBFCs) is a constituent of the institutional structure of the organized financial system in India. NBFCs perform a significant and important role in our financial system. They facilitate the process of canalizing of public savings and provide better return to the depositors. We are aware that due to liberalization and globalization, banking industry and financial sector has gone through many reforms. In the present economic environment it is very difficult to cater need of society by Banks alone so role of Non Banking Finance Companies and Micro Finance Companies become indispensable. The activities of non-banking financial companies (NBFCs) in India have undergone qualitative changes over the years through functional specialization. The role of NBFCs as effective financial intermediaries has been well recognized as they have inherent ability to take quicker decisions, assume greater risks, and customize their services and charges more e according to the needs of the clients. While these features, as compared to the banks, have contributed to the proliferation of NBFCs, their flexible structures allow them to unbundled services provided by banks and market the components on a competitive basis. The distinction between banks and non-banks has been gradually getting blurred since both the segments of the financial system engage themselves in many similar types of activities. At present, NBFCs in India have become prominent in a wide range of activities like hire-purchase finance, equipment lease finance, loans, investments, etc. By employing innovative marketing strategies and devising tailormade products, NBFCs have also been able to build up a clientele base among the depositors, mop up public savings and command large resources as reflected in the growth of their deposits from public, shareholder s, directors and their companies, and borrowings by issue of non-convertible debentures, etc. According to KPMG survey The Indian Non Banking Finance Company (NBFC) sector has often been relegated to the shadows, in most discussions on the Indian Financial Services (FS) industry. Banks, insurance companies and capital market players take centre e stage and invariably, NBFCs attract public attention only during times of crisis. Little attention has been paid to the silent but effective manner in which NBFCs have spread their operations across the country. NBFCs have provided financial solutions to sections of society who hitherto were at the mercy of unorganized players for credit and savings products, which were delivered on economically and socially usurious terms. In recent times, NBFCs are once again in the spotlight for their perceived strengths and capabilities rather than their problems. While this re-rating ought to bring cheer to a much maligned sector, a degree of caution needs to be instilled within potential investors in NBFCs, who need to clearly understand the true drivers of value for finance companies. This understanding is imperative to enable a better judgment of the intrinsic worth of NBFCs. This article proceeds to illustrate the key factors responsible for the strong re-rating of the NBFC sector, as well as discuss the validity of each of these factors, as actual drivers of value. Today, the NBFC sector is as financially sound as it has ever been. To

an extent, this can be attributed to the very problems affecting the sector which have resulted in the purging of several players, leaving the fittest few to dominate the landscape. Taking the Reserve Bank of Indias (RBI) definition of =reporting NBFCsas a proxy for non-dormant players, a mere 24 NBFCs held 92.7 percent of the total assets of all NBFCs in 2005-2006. The balance assets, amounting to less than 8 percent of the total, were fragmented across 439 NBFCs. In addition to this consolidation, at present, NBFCs in general are well-capitalized with strong parent support. A majority of active NBFCs reported capital adequacy ratios exceeding 12 percent ROLE OF NBFCS According to EPW Research Foundation (EPWRF) The Indian economy is going through a period of rapid `financial liberalization'. Today, the `intermediation' is being conducted by a wide range of financial institution through a plethora of customer friendly financial products. The segment consisting of Non-Banking Financial Companies (NBFCs), such as equipment leasing/hire purchase finance, loan and investment companies, etc. have made great strides in recent years and are meeting the diverse financial needs of the economy. In this process, they have influenced the direction of savings and investment. The resultant capital formation is important for our economic growth and development. Thus, from both the macroeconomic perspective and the structure of the Indian financial system, the role of NBFCs has become increasingly important. The crucial role of Non Banking Finance Institutions (NBFIs) in broadening access to financial services, and enhancing competition and diversification of the financial sector has been well recognized. The main advantages of these companies lie in their ability to lower transactions costs of their operations, their quick decision-making ability, customer orientation and prompt provision of services. While NBFIs are sometimes seen as akin to banks in terms of the products and services offered, this is strictly not accurate, as more often, NBFIs play a range of roles that complement banks. Further, Status

RESEARCH DESIGN
Since the research is for industry analysis and it is structured for NBFCS. The research uses secondary data for analysis and interpretation.

OBJECTIVE
The confined objectives of the present study are: To analyze the market of NBFCs in India To study the financials of NBFCs

SCOPE OF THE STUDY

The study was limited to the Financial Service market of India which included NBFCs mainly from the . The study was completed within the time frame of 60 days(2 months) starting from 1st April, 2010 and ending on 1st June, 2010. The target groups of the study were the NBFCs

DATA COLLECTION
There are two methods of data collection that can be considered when collecting data for research purpose. These data collection types include the following: 1. Primary data 2. Secondary data Both the secondary and primary data collection methods were used in the study.

PRIMARY DATA
The primary data required for this study was collected by visiting the financial services and analyzing the information provided by them.

SECONDARY DATA
The secondary data for the research was collected from journals, research articles, books and internet websites, annual reports etc whose details and references has been given in Chapter-2 and in References . The source of the secondary data was British Library, NBFCs and Internet.