Non Banking Financial

Companies - 2007

Dr P Janakiramudu and
Prof Chowdari Prasad
January 19, 2008
 Indian Financial System
• Development Financial Institutions – IFCI,
IIBI, TFCI, EXIM Bank, SIDBI, NABARD, NHB,
IL& FS, IDFC., etc..
• Commercial Banks – PSBs (including State
Bank Group), Private (Old & New), Foreign,
Cooperative and Local Area Banks
• Non Banking Financial Companies
• Others – National Small Savings/Post Office
Schemes (GOI) and Stock Exchanges...

NBFCs Research PJCP 2008 2

 NBFCs - Business
• Incorporated under Companies Act, 1956
• Registered with RBI/ SEBI/ IRDA/ PFRDA/ NHB

• Acceptance of Public Deposits and / or

• Engaged in Financial Services like - 1.Lease Financing

2.Hire Purchase 3.Bill Discounting 4.Insurance 5.Merchant
Banking 6.Stock Broking 7.Housing Finance 8.Investments
in Securities 9.Granting of loans 11.Factoring and Forfaiting
12.Credit Rating 13.Credit Information Bureau 14.Credit
Card Companies 15.Mutual Funds 16.Primary Dealers
17.Asset Reconstruction 18.Securitisation 19. Chit Funds
20. Nidhis (Mutual Benefit Companies), 21. VC / PE funding,
22. Micro Financing, etc.

• Banks, SIDBI and NABARD extend loans to NBFCs

NBFCs Research PJCP 2008 3
 VARIOUS COMMITTEES
• Bhabatosh Dutta Study Group - 1971
• James Raj Study Group - 1975
• Sukhmoy Chakravarty Committee - 1985
• Narayan Vaghul Committee - 1987
• S Narasimham Committee on FSR - 1991
• Dr A C Shah Committee - 1992
• Khanna Group - 1996
• Mrs Shere Committee - 1997
• CM Vasudev Task Force - 1998
NBFCs Research PJCP 2008 4
 NBFCs : CLASSIFICATION
• FUND BASED ACTIVITIES
– Deposits, Equipment Leasing, Hire
Purchase, Bills Discounting, Loans/
Investments, Housing Finance, Factoring,
Forfaiting, ARCs, Credit Cards etc.
• FEE BASED ACTIVITIES
– Issue Management, Portfolio Management,
Corporate Counselling, Loan/Lease Syndi-
cation, M & A, Capital Restructuring, Credit
Rating, CIBIL,etc.
NBFCs Research PJCP 2008 5
 Another Classification
• NBFCs – Deposit taking

• NBFCs – No Deposits

• Residuary Non Banking Finance Companies

NBFCs Research PJCP 2008 6

Acceptance of Deposits : Rules
• Banking Laws (Misc Provns) Act, 1963
• NBFC Directions, 1977
• MNBCs Directions, 1977
• RNBCs Directions, 1987
• Amendments to “RBI Act” and “Issue of
NBFCs Acceptance of Public Deposits
(RBI) Directions 1998 (in place of earlier
Directions, 1977) and from time to time

NBFCs Research PJCP 2008 7

 Prudential Norms
1. Statutory Liquidity Ratio – 25%
2. Credit Rating with one of the Credit Rating
Agencies – CRISIL, ICRA, CARE, Fitch...
3. Capital Adequacy Norms – 15%
4. Minimum Capital Rs. 2 Crores
5. Deposit Acceptance Rules linked to Credit
Rating
6. Maximum Rate of Interest offered on
deposits: 12.5% pa
7.NBFCs
Duration – min -1Research
year and
PJCP 2008
max- 6 years 8
 Prudential Norms......contd.
8. Rules for release of Advertisement soliciting
deposits
9. Disclosures in Deposit Application Forms
10. Exposure norms / ceilings for lending
11. Income Recognition and Asset Classification
norms – NPAs and Provisioning for bad debts
12. 20% Reserve – transfer from Profits every year
13. Asset Liability Management System
14. Statutory Audit as per RBI Guidelines
15. Corporate Governance requirements
16. Know Your Customer (KYC) norms compliance

NBFCs Research PJCP 2008 9

 Some Data on NBFCs
Source : Trend and Progress of Banking in
India, 2006-2007 : Reserve Bank of India

NBFCs Research PJCP 2008 10

 1.Number of NBFCs regd with RBI

NBFCs Research PJCP 2008 11

 2. Profile of NBFCs

NBFCs Research PJCP 2008 12

 3.Share of Public Deposits of NBFCs in
Broad Liquidity (L3) of Total SCBs Deposits

NBFCs Research PJCP 2008 13

 4. Major components of Liabilities
NBFCs-D-Group-wise

NBFCs Research PJCP 2008 14

 5.Public Deposits held by
NBFCs-D-Group-wise

NBFCs Research PJCP 2008 15

 6. Range of Deposits held by
NBFCs-D

NBFCs Research PJCP 2008 16

 7. Public Deposits held by NBFCs-
Region-wise

NBFCs Research PJCP 2008 17

8. Distribution of Public Deposits of
NBFCs-D according to Rate of Intt

NBFCs Research PJCP 2008 18

 9. Maturity Pattern of Public
Deposits held by NBFCs-D

NBFCs Research PJCP 2008 19

 10. Spread in Deposit Interest
Rates of Banks and NBFCs

NBFCs Research PJCP 2008 20

 11. Borrowings by NBFCs-D

NBFCs Research PJCP 2008 21

 12.Sources of Borrowings by
NBFCs-D-Group-wise

NBFCs Research PJCP 2008 22

 13. Financial Performance of
NBFCs

NBFCs Research PJCP 2008 23

 14. Non-Performing Assets of
NBFCs-D

NBFCs Research PJCP 2008 24

 Some more data......
• To refer to www.rbi.org.in – Trends and
Progress of Banking in India, 2007

NBFCs Research PJCP 2008 25