Presentation

on
Non Banking Financial
Companies

Presented By:-
Ravi Agarwal
Mahendra Purohit
Ram Dayal Gehlot
Shiv Prasad kankani
Gajendra Singh Solanki
What is a non-banking financial company (NBFC)?

 NBFC is a company registered under the Companies

Act, 1956
 It is engaged in the business of loans and advances,
acquisition of shares/stock/bonds/debentures/securities
issued by government or local authority or other
securities of like marketable nature, leasing, hire-
purchase, insurance business
 It does not include any institution whose principal
business is that of agriculture activity, industrial activity,
sale/purchase/construction of immovable property

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 NBFC
 The RBI (Amendment) Act, 1997 defines
NBFC as an institution or company whose
principle business is to accept deposits under
any scheme or arrangement or in any other
manner, and to lend in any manner

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Difference between Banks & NBFCs

 NBFC cannot accept demand deposits (demand

deposits are funds deposited at a depository institution
that are payable on demand -- immediately or within a
very short period -- like your current or savings
accounts.)
 It is not a part of the payment and settlement system and
as such cannot issue cheques to its customers

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 Salient features of NBFCs regulations
 NBFCs are allowed to accept/renew public deposits for a
minimum period of 12 months and maximum period of 60 months
 NBFCs cannot offer interest rates higher than the ceiling rate
prescribed by RBI from time to time. The present ceiling is 11%
per annum
 NBFCs cannot offer gifts/incentives or any other additional benefit
to the depositors
 NBFCs (except certain AFCs) should have minimum investment
grade credit rating
 The deposits with NBFCs are not insured
 The repayment of deposits by NBFCs is not guaranteed by RBI
 There are certain mandatory disclosures about the company in
the Application Form issued by the company soliciting deposits 5
Contd….
 Minimum net owned funds of Rs.25 lacs (now 200 lacs)
& RBI registration are the entry point norms. The RBI
has power to cancel registration of NBFCs
 NBFCs have to maintain 10 & 15% of their deposits in
liquid assets
 They have to create reserve fund & transfer fund not less
than 20% of their net deposits in every year
 RBI can direct them on issues of disclosures, prudential
norms, credit, investment etc.
 Unincorporated bodies engaged in financial activity
cannot accept deposits from the public
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 Categories of NBFC
 Equipment Leasing Company
 Hire-Purchase Company

 Housing Finance Company

 Investment Company

 Loan Company

 Mutual Benefit Financial Company

 Miscellaneous Non Banking Company

 Residuary Non Banking Company

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NBFC registered with RBI

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 Asset Finance Company means financing of physical assets
supporting productive / economic activity, such as automobiles,
tractors, lathe machines, generator sets, earth moving and
material handling equipments, moving on own power and
general purpose industrial machines
 Loan companies give short term unsecured loans to wholesale &
retail traders, small scale industries & self employed persons
 Hire – purchase credit is loan supplied for the purchases of
consumer goods, services & sometimes producer goods & these
are liquidated fractionally during the period
 Lease finance enables firms to acquire the economic use of
assets for a stated period without owning them
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 NBFCs which are regulated by other regulators

 Venture capital banking

 Merchant banking

 Insurance companies

 Nidhi companies

 Housing Finance companies

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 VCF are mutual funds or institutional investors which
provide risk capital & management and marketing
expertise to highly risky & new private businesses,
especially in technology – oriented or knowledge
intensive industries
 Function of Merchant Banking is origination,
underwritings & distribution of industrial securities
 Nidhis or Mutual Benefit Funds offer various loan linked
saving schemes. The sources of their funds usually
come from share capital & fixed/recurring/demand
deposits from the members & public
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 The HUDCO, state housing finance societies, HDFC,
commercial banks, housing finance subsidiaries of banks
& financial institutions and housing finance companies
in the private sector are the main supplier of funds in
Housing finance field
 NHB has been set up as an apex level institution to
develop base level housing finance institutions
 Factors manage the collection of accounts of the
business firms & bears the credit risk associated with
those accounts

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 Some facts about NBFCs
 Only those NBFCs holding a valid certificate of
registration with authorization to accept public deposits
can accept/hold public deposits
 Nomination facility is available to the depositors of
NBFCs
 If rating of a NBFC is downgraded to below minimum
investment grade rating, it has to stop accepting public
deposit
 If a NBFC defaults in repayment of deposit, the depositor
can approach Company Law Board or Consumer Forum
or file a civil suit to recover the deposits
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 Credit Ratings
 Credit ratings are designed for grading debt
instruments according to their investment
quality
 They help investors to manage risk/return
trade off
 They also help companies & other financial
market intermediaries

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NBFCs accepting public deposits should
furnish to RBI:-
 Audited balance sheet of each financial year and an
audited profit and loss account in respect of that year as
passed in the general meeting together with a copy of
the report of the Board of Directors and a copy of the
report and the notes on accounts furnished by its
Auditors
 Statutory annual return on deposits
 Certificate from the auditors that the company is in a
position to repay the deposits as and when the claims
arise
 Quarterly return on liquid assets
 Half-yearly return on prudential norms
Cont… 15
Cont…
 Half-yearly ALM return by companies having public
deposits of Rs 20 crore and above or with assets of Rs
100 crore and above irrespective of the size of deposits
 Monthly return on exposure to capital market by
companies having public deposits of Rs 50 crore and
above
 A copy of the Credit Rating obtained once a year along
with one of the Half-yearly Returns on prudential norms

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THANKS

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