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An Analysis of Hire Purchase system in NBFCs with reference to Shriram Investments Ltd
A Dissertation submitted in partial fulfillment of the requirement for the award of M.B.A Degree of Bangalore University
By
Prof N S Vishwanath
M.P.Birla Institute of Management Associate Bharatiya Vidya Bhavan #43, Race Course Road Bangalore 560001
DECLARATION
I hereby declare that this project work embodied in this dissertation entitled An analysis of hire purchase in NBFCs with reference to shriram investments ltd Has been carried out by me under the guidance and supervision of Prof. N S Vishwanath, M.P.B.I.M Bangalore.
I also declare that this dissertation has not been submitted to any University/Institution for the award of any Degree/Diploma.
CERTIFICATE
I hereby certify that the project work embodied in this dissertation entitled Event Study on Insider trading before Dividend announcements has been undertaken and completed by KIRAN K under my guidance and supervision.
I also certify that she has fulfilled all the requirements under the covenant governing the submission of dissertation to the Bangalore University for the award of M.B.A Degree.
(Professor N S Vishwanath)
M.P.B.I.M Bangalore 560001
CERTIFICATE
This is to certify that the project work embodied in this dissertation entitled Event Study on Insider trading before Dividend announcements has been carried out by Mr. KIRAN K under the guidance of Prof. N S Vishwanath, Faculty, M.P.B.I.M Bangalore.
ACKNOWLEDGEMENT
I take this opportunity to thank Dr N.S.Mallavalli, Principal, M.P.Birla Institute of Management for having given this opportunity to conduct this dissertation. I would like to express my deep sense of gratitude to my guide Prof. N S Vishwanath for providing me with sufficient interaction, and information and for guiding me during the course of my dissertation.
I would like to thank all the personnel of ITC LTD for their cooperation and for providing the relevant data required. Last but not the least; I would also like to thank my family and friends for their support and encouragement throughout the project.
CHAPTER I
INTRODUCTION
Hire purchase agreement is the one under which the owner hires the goods to the hirer, giving the hirer the option to purchase the goods. On the other hand, when the person borrows money and pays it to the vendor, transaction between the customer and the lender will be a loan transaction in a hire purchase agreement, the hirer to under no obligation to buy. Where the customer is himself the owner and with a view to finance his purchase, he enters into an arrangement in the form of hire purchase agreement, it will be a loan transaction. A hire purchase agreement may in substance be a loan transaction and the label of such an agreement is not conclusive. It is open to the court to determine whether a particular agreement is a loan transaction or a hire purchase agreement. Thus, where the customer entered in to an agreement with the finance company for purchase of vehicle and the vehicle was purchased in the name of the customer and the ownership was with the customer only and the intension of the parties was only to secure payments and the agreement in the question would be loan transaction even though referred to as hire purchase finance agreement.
CHAPTER II
BACKGROUND OF THE S TU D Y
Hire purchase System is a mode of financing the price of the goods to be sold on a future date. In Hire purchase Transaction, the goods are let on hire, the purchase price is to be paid in installments and the hirer is allowed an option to purchase the goods by paying all the installments. Hire purchase Agreement is defined as a peculiar kind of transaction in which the goods are let on hire with an option to the hirer to purchase them, under the following stipulations.
Hire purchase (HP) is a well-established method of financing the purchase of assets by businesses. Under a HP agreement the customer will pay an initial deposit, with the remainder of the balance and interest paid over a period of time. The finance company, which provides finance, is known as the "creditor". It will purchase the asset on behalf of the customer, who is known as the "hirer". The finance company owns the asset until the final installment is paid for the asset.
The possession is delivered to the hirer at the time of entering the The property in the goods passes to the hirer on the payment of the last Each installment is treated as hire charges so that if default is made in the payment of any installment, the seller becomes entitled to take away the The hirer/purchaser is free to return the goods without being required to pay any further installments falling due after the return. goods, and installment.
intending seller and the intending buyer or the hirer. Nowadays, Hire purchase Contract generally involves three parties, namely, the seller, the financier and the hirer. With the emergence of the finance function as a separate business activity and the substantial growth of finance companies in the recent tunes, the sale element in the Hire purchase Contract has been divorced from the finance element. A deal now normally arranges Hire purchase Agreement through the finance company with the customer. It is therefore a Tripartite Deal. A Tripartite Hire purchase Contract is arranged with the following modalities. 1. The dealer contracts a finance company to finance hire purchase deals submitted by him. For this purpose they enter into a contract drawing out the term warranties that the dealer gives with each transaction, etc. 2. The customer selects the goods and expresses his desire to acquire them on purchase. The dealer arranges for him the full set of documents to be completed, to make the Hire purchase Contract. The documents are generally printed by the finance company. 3. The customer then makes cash down payment on completing the proposal form. The dealer generally retains the down payment as a payment on account of the price to be paid to him by the company. 4. 5. The dealer then sends the documents to the finance company requesting them purchase the goods and accept the Hire purchase Transaction. The finance company; if it decides to accept the transaction signs the agreement and sends a copy to the hirer along with the instructions as to the payment to the installments. The finance company also notifies the same to the dealer and also him to delivery the goods, if he has not already done it. 6. 7. The dealer delivery the goods to the hirer against acknowledgement and the property in the goods pass on to the finance company. The hirer makes payment of the hire purchase installment periodically.
An Analysis of Hire Purchase In NBFC Sector 8. On the completion of the term, the hirer pays the last installment and the property in the goods passes to him on the issue of a completion certificate by the finance company.
To appropriate payments Where the hirer is required to pay several the hire purchase installments under two or more agreements to the same owner, and he makes a payments not sufficient to discharge the total amount when due under all the agreements, he may appropriate the payment to such agreements.
To Assign and Transmit: The hirer has a right to assign the right, title and interest under the agreement, with consent of the owner. If the owner unreasonably withholds his consent, the hirer may make assignment without his consent.
The Hirer must pay the hire installment in accordance with the agreement goods caused by his negligence Not To Make Unauthorized Use
The Hirer must not use the goods for any purpose not authorized in the agreement, otherwise he is liable for any loss or the damage to the goods.
When the hirer fails to make the payment of more than one hire installments, the owner may terminate the agreement after giving the hirer the notice in writing. The notice should not be less than one week, where the hire purchase installment is payable at weekly or lesser intervals and two weeks in any other case. When the hirer makes any unauthorized of the goods or breaks an express condition of the agreement, on the breach of which the owner becomes entitled to terminate the agreement. The owner may terminate the agreement after giving the hirer the notice in writing.
To retain hire: The owner has right to retain the hire, which has already been paid, and to recover the arrears due up to the date of termination. This is however, subject to the hirers right to refund in case of the seizure of the goods. To forfeit the initial deposit: The owner has right to forfeit the initial deposit if the agreement so permits.
To supply, free of cost, a true copy of the agreement signed by him to the hirer immediately after the execution of the agreement To supply on demand copy of the agreement to surety To supply on demand by the hirer the following information The amount paid by on behalf of the hirer, The amount due and unpaid, the date on which each unpaid installment becomes due and the amount of each such installment The amount, which become payable, the date on which each installment are to become due and the amount of each such installments.
2.7 COMPARISON OF HIRE PURCHASE SYSTEM TO OTHER FORMS OF FINANCING: HIRE PURCHASE SYSTEM V/S LEASING
Leasing and Hire purchase are usually used by business to acquire plant and equipment for use in creating the business's cash flow. Business Asset Finance can be used for cars, trucks, machinery, office equipment, computer hardware, office furniture and other plant and equipment, which are considered physical assets to the business. A lease purchase is essentially the same as HP; the main difference is in the terms and structure of repayments. Some finance companies differentiate Lease Purchase from Hire Purchase by using it where the customer wishes to defer payment of a substantial part of the asset cost until the end of the agreement. Hire purchase also, sometimes called Lease Purchase, the operation of such a contract is very similar to Lease. Payments are made at an agreed rate and for an agreed duration, but the important difference is that ownership of the asset does pass to the customer. For the slightly higher risk to the hirer, the costs are somewhat higher. On the other hand, leasing, a product of the eighties found its application mainly to plant and machinery. Historical reasons as to this identification of leasing with machinery segment, and Hire Purchase with the vehicles segment, have ceased to exist over time, and the distinction between the two is very often blurred in practice The lessee cannot claim depreciation and investment allowance but the hirer can do it.
Bill discounting
There are some non-fund/ fee based activities of NBFCs. They are: Merchant banking Stock broking Corporate advisory Syndication of loans
Underwriting of shares and debentures NBFCs are registered under the companies act. They are governed by the guidelines of the RBI.
Those engage in Merchant banking activities are further subject to scrutiny by the SEBI. NBFCs have arrived in 1950s & 60s with an increase in economic activities and difficulties in securing resources without being compelled to provide collateral securities much higher than the amount of borrowed funds. The guidelines of the RBI: Credit rating
Reporting to RBI
CHAPTER III
To measure the effectiveness of hire purchase for commercial To study the legal frame work and policies of hire purchase To analyze the source of funds for hire purchasing
CHAPTER IV
REVIEW OF LITERATURE
In a recent Credit Policy representation to the Reserve Bank Governor, the Association of Leasing & Financial Services Cos (ALFS) has urged the apex bank to increase the deposit acceptance limit of unrated Hire Purchase and Leasing Companies (HPLCs) from the existing one-and-a-half times to at least three times their Net Owned Funds (NOF). It is further suggested that rating should not be used as a regulatory tool, particularly when it was an option only. The deposit acceptance limit for unrated HPLCs was prescribed in 1998 following the recommendations of the Task Force on NBFCs, with a clear understanding that the limit would be reviewed in the light of regulatory experience over such companies, said Mr. Mahesh Thakkar, Executive Director of ALFS. The level of confidence enjoyed by HPLCs today, according to him, is far more than what it was in 1998. It is high time the RBI gave some relief to the well-run HPLCs, which have survived the turmoil in this sector in the last three years, he pointed out. ALFS is of the view that with all other sources of funding drying up, public deposits raised by these companies through their clean track record and personalised service is the only mode of funding available. Pointing out that the Deferred Tax accounting standard, under AS-22, now made mandatory by ICAI, has had a severe impact on leasing companies, the association has stated that even in a country like Pakistan, deferred tax accounting was mandatory for all except leasing companies. ALFS has urged the RBI to give NBFCs a time-frame of at least five years to absorb the impact of this standard on the net owned funds of the NBFCs. Seeking steps to create a suitable recovery mechanism for HPLCs, viewed as a pre-requisite for payment of liabilities and public deposits like DRTs for the NBFC sector, the association has cited problems with regard to re-possession of assets given under HP/Lease, in case of default, with the police authorities. Authorities, it is pointed out, are quite categorical about the fact that police
___________________________________________________________________ 23 M P BIRLA INSTITUTE OF MANAGEMENT
support in repossessing assets cannot be provided in the absence of any clear law on this. On the Bill to amend the proposed creation and enforcement of security interest by banks and FIs, it is suggested that the committee under Mr M.R.Umarji (which drafted the Bill) does not include HP/Leasing activities on the grounds that these were "title retention contracts and do not involve security interest creation". The association has sought insertion of a new clause in the Bill, saying "Hire purchase/leasing contracts being title retention contracts, give full authority to HPLCs to reposess any asset given under HP/Lease agreement, in case of default." Welcoming the report of the Indian Bank Association (IBS) Working Group on financing for purchase of vehicles through HPLCs, under the chairmanship of Mr R.V. Shastri, ALFS has stated that while the recommendations have been accepted by the Ministry of Finance and the RBI, the commercial banks were yet to start implementing these in practice. The apex bank has been urged to instruct banks to start considering proposals from the NBFC sector for on-lending to the commercial vehicles sector.
(Source: Business Line dated 26th April, 2002 and The Hindu Group of Publications)
CHAPTER V
RESEARCH DESIGN
Identification of the research title An Analysis of hire purchase in NBFCs with special reference to Shriram Investments Limited, Data analysis as per the stated objectives. Bangalore
SECONDARY DATA
This is vast and abundant. The major sources are text books, journals and articles
o HIRE PURCHASE PRICE" means the total sum payable by the hirer under a Hire Purchase agreement in order to complete the purchase of, or the acquisition of property in, the goods to which the agreement relates and includes any sum so payable by the hirer under Hire Purchase agreement by way of a deposit other initial payment, or credited or to be credited to him under such agreement on account of any such deposit or payment, whether that sum is to be a or has been paid to the owner or to any other person or is to be or has been discharged by payment or money or by transfer or delivery
of goods or by any other means but does not include any sum payable as a penalty or as compensation or damages for a breach of the agreement.
o HIRER" means the person who obtains or has obtained possession of goods from an owner under a HIRE PURCHASE agreement, and includes a person to whom the hirers rights or liabilities under the a greement have passed by assignment or by operation of law.
o "OWNER" means the person who lets or has let, delivers or has delivered possession of goods, to a hirer under a HIRE PURCHASE agreement and includes a person to whom the owners property in the goods or any of the owners rights or liabilities under the agreement has passed by assignment or by operation of law.
o DEMAND PROMISSORY NOTE (DNP) is a collateral security through which the hirer argues that the owner is entitled to get the entire amount due from him and the owner can use this DNP to sue the hirer when the amount is not recovered.
o OVERDUE COMPENSATION as per the agreement, it is the compensation on overdue hp installments and other sums including taxes, fees, repairs and suppliers, which may be due from the hirer to the owner. o SALE LETTER is a letter, which can be made use by the owner at the time of termination by default by the hirer to resell the vehicle in order to recover the loss amount. o DEAL FORWARDING SHEETS is used in order to have full details regarding the transaction which contains the details like branch, contract
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CHAPTER VI
Over 70% of India' s freight moves on trucks. Individuals own 90% of these trucks. Despite its crucial importance to the Indian economy, finance for small truck operators is hard to come by. At the grassroots level, only the Private Sector Non-Banking Finance Companies (NBFCs) and lakhs of small financiers reach out to the vast truck financing market. Owners who operate less than 5 trucks are a majority of commercial vehicles owners in India. Their freight earning capacity is marketed through an efficient of intermediaries. Except for immobilization by accidents or major repairs, the average commercial vehicle is kept busy for about 330 days a year. The high capacity utilisation averaging over 90%, provides operates with a steady cash flow and enables them to avail of structured financing of the lease and hire purchase variety The fluctuations in the freight market are not violent. And, the mobility of the asset, coupled with an efficient intermediary system, make it possible for operators to shift vehicles from sluggish freight markets to more buoyant ones. This mobility provides the operator's economics with a stability that reduces lending risks for financiers to the trucking business.
The laws governing the registration of motor vehicles in this country effectively establish ownership, and the claims of lenders to the titles to a motor vehicle. As a result of this, the repossession of a truck in the event of default is easy and the fear of repossession acts as a great deterrent against default on debtrelated obligations. Cases of irrecoverable capital loss are quite rare in the truck finance business because, typically, the operator himself contributors 30% to 40% of the capital cost of the vehicle, while the financier has a claim on the entire value of the asset. By close monitoring of the debt servicing efficiency of the operator, it is almost always possible to terminate the contract and recover dues from the disposal of the vehicle.
Because of the steady rise in the capital cost of new commercial vehicles, the market for used vehicles also acquires stable buoyancy. As a result, the financier in the truck financing business is in the comfortable position of owning a collateral asset, which has a steady realizable value while the amount outstanding against its hypothecation comes down with every installment received.
CHAPTER VII
Shriram Group is an organization with a strong corporate personality. A multi-locational, multi-dimensional Rs.2.7 billion concern serving 2.7 million customers, Shriram today has acquired a significant national presence in the field of financial services, with a leadership position in many segments. Their Policy is to achieve service exclusivity; corporate identity and customer care quality through their vast Network Structure, Collection Centers and Network Management. They have also successfully diversified into transport and property development. It's hard to imagine that they started off as a single operation in a single town. With a vibrant and young management team heading each activity, the group is always on the lookout for associations and opportunities, both internationally and in India.
SERVICES:
The Shriram Group is recognised for its comprehensive range of financial and non-financial services. The efficiency and promptness of their service is among the best in the industry. The following are the services they offer.
FINANCIAL SERVICES
Established in 1974, the financial service companies of the Shriram Group are major players in Truck Financing, Chit Funds, Consumer Durable Financing, Merchant Banking and Mutual Funds.
NON-FINANCIAL AREAS
Today, Shriram is an emerging force in diverse fields in pharmaceuticals and auto ancillaries, transportation and property development, project engineering and packaging. Offering a wide range of products from oil seals to shock absorbers to edible oils to Indian and international markets. The products manufactured by the Group Companies could be grouped into the following categories:
Auto Ancillaries Project Engineering and Services Pharmaceuticals Consumer Product Packaging and Packaging Accessories
NETWORK :
The Shriram Group, which started off as a single operation in a small town, just two decades ago, has today emerged to be a multi-dimensional, multilocational corporate with more than 300 offices situated across the country.
CHAPTER VIII
8.2 DATA ANALYSIS Shriram Investments Limited IN HIRE PURCHASE for TRUCK FINANCING:
The Shriram Group began financing individuals for purchase of trucks in 1979. Today, the Group is among the largest financiers of individual truck purchases. Over 60,000 truck drivers have been transformed into owners of trucks, thanks to the Shriram Group. Nearly 140 Shriram Group Branches are active all over India, empowering small truck operators to prosperity. And in the process, help moving the Indian economy ahead. These Branches also manage a huge truck portfolio for Citigroup, UTI Bank and other Banks, exceeding Rs.500 crores (US$ 107million). Price Waterhouse Coopers, the globally acclaimed management accountants, audited and certified that the Groups Truck Financing Companies
earn a bad-debt adjusted return of 27.6% on the funds employed and have achieved a collection efficiency of 98%. With its trained manpower and a huge database of customers, the Shriram Group helps deploy and manage roughly Rs.2, 000 crores (US$ 425 million) in truck finance, annually. There is no better place to park your hard-earned money, for safe and high return. And in the process, salute the unsung heroes of the Indian Economy.
1.1 Graphical representation showing the increase in number of branches in truck financing
Years
The no. of branches of SIL in truck financing increased considerably over the years the last three to four a years there isnt any increase in the no. of branches of SIL.
1.2 Graphical representation showing the number of trucks financed by SIL over the years
90000 80000 No of Trucks Financed 70000 60000 50000 40000 30000 20000 10000 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Years
From the above graph it is evident that there is a significant increase in the number of trucks financed. From the year 1998 the trucks finance sector in SIL increased very rapidly.
1.3 Graphical representation showing the increase in number of deposit holders in SIL
1600000 1400000 No of deposit holders 1200000 1000000 800000 600000 400000 200000 0
As the number of trucks financed increased the public were more and more willing to have a stake in the company thus increasing over the years
19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03
Years
CHAPTER IX
The procedures to be followed by Shriram Investments Limited in financing the commercial vehicles under hire purchase are as follows:
These banks finance the prospective customer through Shriram who plays the role of financier and the power of attorney vests with Shriram investments limited
LENDING OF FUNDS:
The funds thus collected through debentures are used to finance the customers who are interested in owning a commercial vehicle under the hire purchase system by the company.
Sanction Stage
The divisional manager in charge for the branch with the help of the Zonal officer under the supervision of regional heads sanctions the lending amount to the branch, which is the limit a branch, can lend to the customer for a particular period of time as per the rules and regulations of the company. Proposal Stage The interested customer visits the nearby branch with a proposal and a quotation of the vehicle, the field officer investigates the vehicle. He prepares an inspection report, which contains the report and details of the vehicles, condition of the vehicle. Customer contact verification is done, the company-investigating officers do enquiries, and customer credit worthiness is determined on the basis of the details given by the references. The customer should also produce a guarantor who is a transporter. The customer has to produce the photograph of the vehicle, himself and the guarantor, which would hold as a document to the agreement. After both the parties the customer and the guarantor signs the agreement, it would be approved by the branch manager if found worth and the hirer has to have endorsed in the RC book with the regional transport office that the vehicle is under Hire purchase3 agreement with the company. Shriram identifies the prospective hirer and the guarantor. After verifying all the necessary requirements of both the parties, it decides the value of the vehicle based on current market value and the condition of the vehicle.
___________________________________________________________________ 46 M P BIRLA INSTITUTE OF MANAGEMENT
Funding amount: The funding amount is decided on the basis of the condition of the vehicle and the fair market value of the vehicle. As per the norms of the company, it can finance up to 12 years vehicles and the advance amount would be 75% of OLV Original Liquidation Value 60% of FMV Fair Market Value
415000
60%
Rs.250000/-
Therefore, the said customer would be funded: 60% (415000) = 249000 which is rounded off to Rs.250000/Therefore as per the case, the Advanced Amount = Rs.250000/Shriram executes all necessary documents with the hirer; customer enters into an agreement with Shriram.
Advance Stage The branch manager sends the proposal (list of invoices with hirers' details and agreement Nos., etc) to the divisional manager for the approval and if approved by divisional manager, he sends a demand draft of Rs.2, 50,000/- to the branch in favour of the seller as the case may be. The branch manager sends the DD to seller. The branch manager also finalizes the repayment schedule with the hirer as required by the company. The documents are later sent to the zonal manager for the reimbursement of funds to the divisional office. The zonal manager responsible for accounting makes the reimbursement on the verification of the documents. Collection Stage Shriram collects the monthly installments from the hirer and issues a receipt to the hirer with the help of its field officers responsible for the same. The installment period stats from the day of funding as in the DD issued. the loan amount includes the advanced amount , interest part , insurance premium for all the years of agreement excluding the first year. As per the case the loan amount and monthly installments would be as follows :
Note: The insurance premium of the first year is considered to be paid by the customer himself.
INTEREST PAYABLE = Advanced Amount * Interest * Tenor = 250000 * 15/100 * 3 = Rs.1,12,500/Loan Amount = Advanced Amount + Interest Payable + Insurance Premium
TOTAL AMOUNT
LOAN
EMIs = Loan amount / Tenor(months) = 3,82,500 / 36 = Rs.10, 625/ per month The customer will receive a repayment schedule from the company which contains the following:
TABLE 4: Repayment Schedule Months Due Date Installment Payable Balance Due
The collection detail of the customer is as follows: TABLE 5: FLAT PAYMENT HP Installment Amount Due (annual) 127500/127500/127500/Interest Principal (funded amount + insurance) 61824.33 37500 13175.67 65, 675.67 90,000 1,09,534
Year 1 2 3
Interest Allocation on yearly basis: 1st year = 112500 * 366/666 = Rs.61824.33 2nd year = 112500 * 222 /666 = Rs.37500 3rd year = 112500 * 78 /666 =Rs.13175.67
TABLE 6 : STRUCTURED PAYMENT (40: 30: 30) Year 1 2 3 HP Installment Interest Amount Due (annual) 153000/61824.33 114750/114750/37500 13175.67 Principal 65, 675.67 90,000 1,09,534 EMIs 12,750 9562.5 9562.5
The branch manager also submits a statement of actual collection hirer wise to the regional office.
CHAPTER X
GUARANTEE
Guarantor is the very important and the third party to the agreement. He acts as a security to the hirer or the agreement. As per the agreement in case of the owner hiring out the vehicle to the hirer, guarantor agrees to fulfill all the obligations or responsibilities to be done by the hirer in case he fails to do so. The guarantor shall stand discharged of his obligations as the owner receives all amounts due owing and payable to the owner in pursuance of the agreement. He agrees that he shall be in full force and will be valid till the complete discharge of all liabilities of the hirer under this agreement
SCHEDULE OF PAYMENT
The hirer pays the said sum in equal installments, which are known as hire purchase installments. Which are known as hire purchase installments and at the end he is required to pay Re.1 with an option to buy the vehicle.
RIGHT AND OBLIGATIONS OF THE HIRER The hirer cannot sell, transfer, assign, sublet, pledge, hypothecate the vehicle to others or not even allow the 3rd person to use the vehicle without the consent of the owner. The hirer shall be entitled to the manufacturers warranty benefits and in the event of any defect in the vehicle he can directly take recourse against the manufacturer directly as per the warranty of the manufacturer. Though the ownership lies with the owner, the owner shall not be held responsible for any repair, service or defects in the MV or the operation thereof.
TERMINATION BY DEFAULT
The agreement can be terminated by the owner as the hirer committing an act of default like. The hirer fails to pay the installments as the required due date. To inform the owner about the accident occurred for more than 48 hours which would have caused damage to the motor vehicle itself or some other person or property. If the hirer is using the vehicle for any other purpose than stated in the agreement or any other illegal purpose.
The owner has right to repossess the vehicle upon the termination of the agreement the hirer shall be liable to pay the owner all the arrears of the HP installments and other changes along with the penalty as overdue payments and all the costs incurred by the owner in repossession and the expenditure incurred by the owner in putting the vehicle in paid.
The company has a financial tie up with many banking institutions in financing these small operators .the scheme is as follows:
THE SCHEME:
Shriram group offers to manage truck portfolio for banks. Banks have the option to fulfill the priority sector quota if they desire. The scheme offers the truck operator credit on very reasonable terms in case the bank does not the priority quota option. The Shriram group will take over the portfolio as soon as they threaten to become NPAs. The credit is for a five-year term. The procedure followed is the same as above, but the bank finances the customer and the company would be involved in all the transactions with the customer.
Accounting
The Shriram Investments Limited will keep accounts for the individual operator. The Shriram Investments Limited will give monthly statements to the bank, if required by the bank.
Documentation
The documentation will be between the operator and the bank. However power of attorney will have to be given to the Shriram Investments Limited by the bank to cover the following Collection and issue of receipts Repossession of vehicles in case of defaults Formalities with RTO Custodian for documents can be appointed to monitor status of accounts and security, if required, at bank's cost.
NPAs
Contracts with more than 4 EMIS outstanding will be considered as NPAS. The Shriram Investments Limited will make an early settlement with respect to the NPA contracts within a month and take over the same
DOCUMENTS TO BE SIGNED
The hirer along with the guarantor has to duly sign the following documents. Demand Promissory note: which shows or contains the details of the total amount along with the interest payable due from the hirer to the owner as per the agreement. Sale Letter: a letter, which can be made use by the owner at the time of termination by default by the hirer to resell the vehicle in order to recover the loss amount. The hire purchase cum guarantee agreement, which contains all the terms, and conditions of the contract to be accepted by the hirer and the guarantor which they are expected to accept to enter the contract. The hirer has to sign the following RTO forms for the respective reasons
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Form 20: this form is used for the registration of the vehicle as per Form 29: Application for name transfer motor vehicle. 61(1) the rule 47
Form 30: Application for intimation of transfer of ownership of Form 35: Notice of termination of an agreement of Hp as per rule Form 26: Application for the issue of duplicate certificate of Form ACC: Application for the surrender of permit and the Form 27: Application for assignment of new registration mark to a Form 33: Intimation of the change of address recording in the RC and office records (as per rule 59) NOTE : All the above forms should be done in duplicate if the vehicle is held under the agreement of HP and the duplicate with endorsement of the registering authority to be returned to the financier motor vehicle (as per rule 54) clearance certificate as per rule 204. registration as per rule 53
CHAPTER XI
CONCLUSION
Hire purchase is one of the important types of financing a purchase of commercial vehicles. It is most preferred type of financing with its advantages over other types. Many NBFCs are coming up with the hire purchase system to provide finance to the commercial vehicles and improving the economic standards by making the facility profitable and cost effective. Shriram Investments Limited is one of the major players in Hire Purchase industry by providing truck finance to the small owners across the country. The study of hire in a NBFC Shriram Investment Limited reveals the following: NBFCs provide various types of financial services to the society distinct from normal banking services, which include hire Hire purchase is the most commonly used type of financing against Shriram finances only small truck owner but not fleet transport, Shriram also financial tie-ups with major financial companies to finance both used and new vehicles with its own funds for used vehicles leasing and hypothecation for commercial vehicles. purchase.
CHAPTER XII
The hire purchase facility should be made easily available to the The customer should not feel burden about the hire purchase installments, i.e., they should be provided with better provisions in The company should help the customer in owning the advanced The lending rates should be reasonable considering the economic condition of the society. vehicles payments. public.
CHAPTER XIII
BIBLIOGRAPHY
13. Bibliography
Books
Financial Management by Khan and Jain. 4th edition T M H Publishers Financial Management by Prasanna Chandra. 4th edition T M G Hill, New Delhi. From page no. 21.19 to 21.32 New Delhi.Page no. 414
Websites
www.google.com www.shriram.com www.blonnet.com www.hinduonline.com