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lC8 1PL ÞA81lAL luLllLLMLn1 lC8
CuALll?lnC 8ŦlŦM ÞA811 LxAMlnA1lCnŦ
8ACPLC8 ln llnAnClAL MA8kL1S ż8ŦlŦMŽ
(8A1CPťŴ 2011Ŵ20012)
Su8Ml11Lu 8?ťŴ
nLL8Av ŦSPlvkuMA8Ŧ 1PAkkL8
8CLL noŦ 34

keference 1C ID8I


ÞkCILC1 GUIDLť MrŦ A8unkuMA8 uu8PL?




8efore we geL lnLo Lhlck of Lhlngsţ l would llke Lo add a few words of
appreclaLlon for Lhe people who have been a parL of Lhls pro[ecL rlghL from
lLs lncepLlonŦ 1he wrlLlng of Lhls pro[ecL has been one of Lhe slgnlflcanL
academlc challengesŦ l Lake Lhls apporLunlLy Lo presenL before you Lhls
pro[ecL on ƍnon banklng llnanclal Companles (n8lCs) wlLh reference Lo
lu8l"Ŧ 1he success of Lhls pro[ecL ls a resulL of sheer hard workţ and
deLermlnaLlon puL ln by me wlLh Lhe help of my pro[ecL guldeŦ
l hereby Lake Lhls opporLunlLy Lo add a speclal noLe of Lhanks for
MrŦ nlLln Þawer who underLook Lo acL as my menLor desplLe hls many oLher
academlc and professlonal commlLmenLsŦ Pls wlsdomţ knowledgeţ and
commlLmenL Lo Lhe hlghesL sLandards lnsplred and moLlvaLed meŦ WlLhouL
hls lnslghLţ supporLţ and energyţ Lhls pro[ecL wouldnƌL have klckŴsLarLed and
nelLher would have reached frulLfulnessŦ
l am greaLly Lhankful Lo MrsŦ ShruLl Chavarkarţ course coordlnaLor
(8lM) for provldlng an apporLunlLy Lo presenL a creaLlve ouLpuL ln Lhe form
of Lhls pro[ecLŦ
l also feel hearLlesL sense of obllgaLlon Lo my llbrary sLaff members Ǝ
senlorsţ who helped me ln collecLlon of daLa Ǝ resource maLerlal Ǝ also ln lLs
processlng as well as ln drafLlng manuscrlpLŦ 1he pro[ecL ls dedlcaLed Lo all
Lhose peopleţ who helped me whlle dolng Lhls pro[ecLŦ LasL buL noL Lhe leasLţ
we Lhank our famllyţ our parenLs for glvlng us llfe ln Lhe flrsL place for
educaLlng us wlLh aspecLsŦ


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1Ŧ1 Definition Cf n8lC's 9
1Ŧ2 8egulaLlons of n8lC's 10
1Ŧ3 Culdellnes for new deposlLs 12
1Ŧ4 8esponslblllLles 14
1Ŧ3 CurrenL Scenarlo 13
CHAPTER-2 Roles & ¡mportance of NBFC 17
2Ŧ1Ŧ leaLures of n8lC 18
2Ŧ2 8ole Cf n8lC'Ŧ 19
2Ŧ3 lmporLance of n8lC'sŦ 20
2Ŧ4 Cn Clobal Crlsls 22
CHAPTER-3 8tructure of NBFCs 23
3Ŧ1 AccepL ueposlLs from n8ls 24
3Ŧ2 Symbols of 8aLlng 23
3Ŧ3 8esponslblllLles of AccepLlng Þubllc ueposlLs 26
3Ŧ4Ŧ ClasslflcaLlon of n8lC daLa 27
CHAPTER- 4 Historical Background 30
3Ŧ1 8eglsLraLlon 8equlremenLs 38
3Ŧ2 Mlnlmum neLŴowned lund 41


6Ŧ1Ŧ ulfference 8eLween 8AnkS n8lC'S 43
6Ŧ2Ŧ 1op 3 8anks and n8lCs wlLh hlghesL proflLablllLy 47
7Ŧ1Ŧ luncLlons of lu8l 30
7Ŧ2Ŧ Cvervlew of lu8l 31
7Ŧ3Ŧ lu8l Lendlng Þrocedure 33
7Ŧ4Ŧ CaplLal MarkeL 34
7Ŧ3Ŧ 8lsk ManagemenL 33
CHAPTER-8 Funding & Managerial ¡mplications 37
8Ŧ1Ŧ lundlngs 38
8Ŧ2Ŧ 88l Measures 39
9Ŧ1 8ecommendaLlonť 62
9Ŧ2 Concluslon 63
Bibliography 64




1he sLudy presenLs a comparaLlve sLudy of n8lC's ln lndlaŦ 1here are almosL
13000 reglsLered n8lC's ln lndlaŦ 1he sLudy ls almed Lo provlde an hollsLlc
vlew of Lhe n8lC lndusLryŦ n8lC fulfllls Lhe flnanclal gap by provldlng loan aL
a lower raLe of lnLeresLŦ
1he sLudy also compared Lhe lndlan 8anks v/s n8lCŦ lL was found LhaL aL
even aL Lhe Llme of Lhe economlc slowdown n8lC was more proflLableŦ 1he
lndusLry ls noL LlghLly regulaLed as Lhere are many regulaLory bodlesŦ Penceţ
Lhere was an lmporLanL need Lo sLudy Lhe n8lC as Lhe lndusLry plays an
lmporLanL role ln Lhe flnanclal Servlces markeL of lnulAŦ
lL ls encouraglng LhaL Lhe n8lC secLor's lmporLance ls flnally belng
acknowledged across lS markeL consLlLuenLs as well as Lhe regulaLorŦ
Poweverţ Lhe lmporLance aLLached Lo Lhe secLor ls ofLen Lranscendlng lnLo
mlsplaced exuberanceŦ Cver slmpllfled and vague drlvers for n8lC valuaLlons
such as sLraLeglc flL and cusLomer baseţ can never subsLlLuLe dlspasslonaLe
buslness analyLlcsŦ
A raLlonal assessmenL of Lhe lnLrlnslc values of n8lCs facLorlng lssues such
as pasL performanceţ sLrucLural weaknesses of Lhe secLor (for lnsLance
fundlng dlsadvanLages)ţ along wlLh an ldenLlflcaLlon of real capablllLles are
essenLlal Lo ensure LhaL Lhe equlllbrlum beLween prlce pald and value
reallzed ls reached Lo Lhe exLenL posslbleŦ ln Lhe absence of Lhlsţ lndla ls sure
Lo wlLness Lhe reŴopenlng of Lhe n8lC horror sLory albelL wlLh a new chapLer
on Lhe eroslon of n8lC lnvesLmenL values affecLlng lnvesLors across


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A nonŴ8anklng llnanclal Company (n8lC) ls a company reglsLered under Lhe Companles
AcLţ 1936 and ls engaged ln Lhe buslness of loans and advancesţ acqulslLlon of
shares/sLock/bonds/debenLures/securlLles lssued by CovernmenL or local auLhorlLy or
oLher securlLles of llke markeLable naLureţ leaslngţ hlreŴpurchaseţ lnsurance buslnessţ chlL
buslness buL does noL lnclude any lnsLlLuLlon whose prlnclpal buslness ls LhaL of
agrlculLure acLlvlLyţ lndusLrlal acLlvlLyţ sale/purchase/consLrucLlon of lmmovable properLyŦ
A nonŴbanklng lnsLlLuLlon whlch ls a company and whlch has lLs prlnclpal buslness of
recelvlng deposlLs under any scheme or arrangemenL or any oLher mannerţ or lendlng ln
any manner ls also a nonŴbanklng flnanclal company (8eslduary nonŴbanklng company)Ŧ
n8lCs are dolng funcLlons akln Lo LhaL of banksŤ however Lhere are a few dlfferencesť
(l) An n8lC cannoL accepL demand deposlLsŤ
(ll) An n8lC ls noL a parL of Lhe paymenL and seLLlemenL sysLem and as such an n8lC
cannoL lssue cheques drawn on lLselfŤ and
(lll) ueposlL lnsurance faclllLy of ueposlL lnsurance and CredlL CuaranLee CorporaLlon ls
noL avallable for n8lC deposlLors unllke ln case of banksŦ
lor Lhls purposeţ Lhe deflnlLlon of 'Þrlnclpal 8uslness' glvenţ vldes Þress 8elease 1998Ŵ
99/1269 daLed Aprll 8ţ 1999 may be followedť
º1he company wlll be LreaLed as a nonŴbanklng flnanclal company (n8lC) lf lLs flnanclal
asseLs are more Lhan 30 per cenL of lLs LoLal asseLs (neLLed off by lnLanglble asseLs) and
lncome from flnanclal asseLs ls more Lhan 30 per cenL of Lhe gross lncomeŦ 8oLh Lhese
LesLs are requlred Lo be saLlsfled as Lhe deLermlnanL facLor for prlnclpal buslness of a


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1.1 Definitions of NBFC:-
Whereas Lhe '8eserve bank of lndla AcL 1934' lLself deflnes Lhe Lerm n8lCţ Lhere ls a
dlfferenL deflnlLlon of Lhe same Lerm vlzŦ n8lC ln Lhe 'nonŴ8anklng llnanclal Companles
AccepLance of Þubllc ueposlLs (8eserve 8ank) ulrecLlonsţ 1988' LhaL Lhe 88l lLself has
lssued under Lhe aforesald AcL of 1934Ŧ
AŦ n8lC under Lhe 88l AcL
'n8lC'ţ lLself ls deflned under secŦ 43Ŵl(f) of Lhe AcLţ as under
SecŦ 43Ŵl (f)ť ) ƍnonŴbanklng flnanclal companyƍ meansŴ
(l) A flnanclal lnsLlLuLlon whlch ls a companyŤ
(ll) A non banklng lnsLlLuLlon whlch ls a company and whlch has as lLs prlnclpal buslness
Lhe recelvlng of deposlLsţ under any scheme or arrangemenL or ln any oLher mannerţ or
lendlng ln any mannerŤ
(lll) Such oLher nonŴbanklng lnsLlLuLlon or class of such lnsLlLuLlonsţ as Lhe bank mayţ wlLh
Lhe prevlous approval of Lhe CenLral CovernmenL and by noLlflcaLlon ln Lhe Cfflclal
CazeLLeţ speclfyŦ


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1Ŧ ln Lerms of SecLlon 43ŴlA of Lhe 88l AcLţ 1934ţ lL ls mandaLory LhaL every n8lC should be
reglsLered wlLh 88l Lo commence or carry on any buslness of nonŴbanklng flnanclal
lnsLlLuLlon as deflned ln clause (a) of SecLlon 43 l of Lhe 88l AcLţ 1934Ŧ Poweverţ Lo
obvlaLe dual regulaLlonţ cerLaln caLegorles of n8lCs whlch are regulaLed by oLher
regulaLors are exempLed from Lhe requlremenL of reglsLraLlon wlLh 88l vlzŦ venLure
CaplLal lund/MerchanL 8anklng companles/SLock broklng companles reglsLered wlLh
SL8lţ lnsurance Company holdlng a valld CerLlflcaLe of 8eglsLraLlon lssued by l8uAţ nldhl
companles as noLlfled under SecLlon 620A of Lhe Companles AcLţ 1936ţ ChlL companles as
deflned ln clause (b) of SecLlon 2 of Lhe ChlL lunds AcLţ 1982 or Pouslng llnance
Companles regulaLed by naLlonal Pouslng 8ankŦ
2Ŧ A company lncorporaLed under Lhe Companles AcLţ 1936 and deslrous of commenclng
buslness of nonŴbanklng flnanclal lnsLlLuLlon as deflned under SecLlon 43 l(a) of Lhe 88l
AcLţ 1934 should have a mlnlmum neL owned fund of 8s 23 lakh (ralsed Lo 8s 200 lakh
wŦeŦf Aprll 21ţ 1999)Ŧ 1he company ls requlred Lo submlL lLs appllcaLlon onllne by
accesslng 88l's secured webslLe hLLpsť//secwebŦrblŦorgŦln/CCSMCS/rblloglnŦdo (Lhe
appllcanL companles do noL need Lo log on Lo Lhe CCSMCS appllcaLlon and hence user lds
for Lhese companles are noL requlred)Ŧ 1he company has Lo cllck on źCLlCkȉ for
Company 8eglsLraLlon on Lhe logln pageŦ A wlndow showlng Lhe Lxcel appllcaLlon forms
avallable for download would be dlsplayedŦ 1he company can Lhen download sulLable
appllcaLlon form (lŦeŦ n8lC or SC/8C) from Lhe above webslLeţ key ln Lhe daLa and upload
Lhe appllcaLlon formŦ 1he company may noLe Lo lndlcaLe Lhe name of Lhe correcL 8eglonal
Cfflce ln Lhe fleld źCŴ8ȉ of Lhe źAnnexŴldenLlflcaLlon ÞarLlcularsȉ worksheeL of Lhe Lxcel
appllcaLlon formŦ 1he company would Lhen geL a Company AppllcaLlon 8eference number
for Lhe Co8 appllcaLlon flled onŴllneŦ 1hereafLerţ Lhe company has Lo submlL Lhe hard copy
of Lhe appllcaLlon form (lndlcaLlng Lhe Company AppllcaLlon 8eference number of lLs onŴ
llne appllcaLlon)ţ along wlLh Lhe supporLlng documenLsţ Lo Lhe concerned 8eglonal CfflceŦ
1he company can Lhen check Lhe sLaLus of Lhe appllcaLlon based on Lhe
acknowledgemenL numberŦ 1he 8ank would lssue CerLlflcaLe of 8eglsLraLlon afLer
saLlsfylng lLself LhaL Lhe condlLlons as enumeraLed ln SecLlon 43ŴlA of Lhe 88l AcLţ 1934
are saLlsfledŦ


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3Ŧ ÞresenLlyţ Lhe maxlmum raLe of lnLeresL an n8lC can offer ls 12Ŧ3ƷŦ 1he lnLeresL may be
pald or compounded aL resLs noL shorLer Lhan monLhly resLsŦ 1he n8lCs are allowed Lo
accepL/renew publlc deposlLs for a mlnlmum perlod of 12 monLhs and maxlmum perlod
of 60 monLhsŦ 1hey cannoL accepL deposlLs repayable on demandŦ
4Ŧ 1he n8lCs are allowed Lo accepL/renew publlc deposlLs for a mlnlmum perlod of 12
monLhs and maxlmum perlod of 60 monLhsŦ 1hey cannoL accepL deposlLs repayable on
demandŦ r
3Ŧ n8lCs cannoL offer lnLeresL raLes hlgher Lhan Lhe celllng raLe prescrlbed by 88l from Llme
Lo LlmeŦ 1he presenL celllng ls 12Ŧ3 per cenL per annumŦ 1he lnLeresL may be pald or
compounded aL resLs noL shorLer Lhan monLhly resLsŦ
6Ŧ n8lCs cannoL offer glfLs/lncenLlves or any oLher addlLlonal beneflL Lo Lhe deposlLorsŦ
n8lCs (excepL cerLaln AlCs) should have mlnlmum lnvesLmenL grade credlL raLlngŦ
7Ŧ 1he deposlLs wlLh n8lCs are noL lnsuredŦ
8Ŧ 1he repaymenL of deposlLs by n8lCs ls noL guaranLeed by 88lŦ
9Ŧ CerLaln mandaLory dlsclosures are Lo be made abouL Lhe company ln Lhe AppllcaLlon
lorm lssued by Lhe company sollclLlng deposlLsŦ
10Ŧ LffecLlve from Aprll 24ţ 2004ţ n8lCs cannoL accepL deposlLs from n8ls excepL deposlLs by
deblL Lo n8C accounL of n8l provlded such amounL does noL represenL lnward remlLLance
or Lransfer from n8L/lCn8 (8) accounLŦ Poweverţ Lhe exlsLlng n8l deposlLs can be


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1Ŧ CusLomer ldenLlflcaLlonť ƌknow 1he CusLomerƌ (k?C) should be Lhe key guldlng prlnclple
for ldenLlflcaLlon of an lndlvldual / corporaLe cusLomer (deposlLor or borrower)Ŧ

2Ŧ Accordlnglyţ Lhe k?C framework should have LwoŴfold ob[ecLlveţ (l) Lo ensure cusLomer
ldenLlflcaLlon and verlfylng hls ldenLlLy and resldenLlal addressŤ and (ll) Lo monlLor
LransacLlons of a susplclous naLureŦ

3Ŧ n8lCs should ensure LhaL Lhe ldenLlLy of Lhe cusLomerţ lncludlng beneflclal owner ls done
based on dlsclosures by cusLomers LhemselvesŦ

4Ŧ 1yplcally easy means of esLabllshlng ldenLlLy would be documenLs such as ÞermanenL
AccounL number (ÞAn)ţ raLlon cardţ drlvlng llcenceţ LlecLlon Commlsslonƌs ldenLlLy cardţ
passporLţ eL ceLera ln case of lndlvlduals and reglsLraLlon cerLlflcaLeţ parLnershlp
deed/agreemenLţ eL ceLera and oLher rellable documenLs ln respecL of companlesţ flrms
and oLher bodlesŦ

3Ŧ verlflcaLlon Lhrough such documenLs should be ln addlLlon Lo Lhe lnLroducLlon by a
person known Lo Lhe n8lCŦ

6Ŧ Þrocedures for exlsLlng cusLomersťŴ

1Ŧ ln respecL of exlsLlng cusLomersţ n8lCs should ensure LhaL gaps and mlsslng lnformaLlon
ln compllance of k?C guldellnes on cusLomer ldenLlflcaLlon procedure ls fllled up and
compleLed before !une 30ţ 2004Ŧ

7Ŧ Celllng and monlLorlng of cash LransacLlonsťŴ
1Ŧ n8lCs would normally noL have large cash wlLhdrawals and deposlLsŦ

2Ŧ Poweverţ wherever LransacLlons of 8s 10 lakh (8s 1 mllllon) and above are underLakenţ
Lhey should keep record of Lhese LransacLlons ln a separaLe reglsLer malnLalned aL
branchţ as well as aL 8eglsLered CfflceŦ

3Ŧ Such lnformaLlon should be made avallable Lo regulaLory and lnvesLlgaLlng auLhorlLlesţ
when demandedŦ

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8Ŧ Culdellnes and monlLorlng proceduresťŴ
1Ŧ 1he board of dlrecLors of n8lCs should formulaLe pollcles and procedures Lo
operaLlonallse Lhe guldellnes and puL ln place an effecLlve monlLorlng sysLem Lo ensure
compllance by Lhelr branchesŦ
2Ŧ Larly compuLerlsaLlon of branch/offlce reporLlng wlll faclllLaLe prompL generaLlon of such
reporLs and monlLorlngŦ
9Ŧ lnLernal conLrol sysLemsťŴ
1Ŧ uuLles and responslblllLles should be expllclLly allocaLed among Lhe sLaff for ensurlng LhaL
pollcles and procedures are managed effecLlvely and LhaL Lhere ls full commlLmenL and
compllance Lo an effecLlve k?C programme ln respecL of boLh exlsLlng and prospecLlve
10Ŧ lnLernal audlL/lnspecLlon
1Ŧ lnLernal audlLors musL speclflcally scruLlnlse and commenL on Lhe effecLlveness of Lhe
measures Laken by branches / offlces of n8lC ln adopLlon of k?C norms and sLeps
Lowards prevenLlon of money launderlngŦ

2Ŧ Speclflc cases of vlolaLlon should be lmmedlaLely broughL Lo Lhe noLlce of head /
conLrolllng / reglsLered offlceŦ
11Ŧ 8ecord keeplng
1Ŧ n8lCs should prepare and malnLaln proper documenLaLlon on Lhelr cusLomer
relaLlonshlps and cash LransacLlons of 8s 10 lakh and aboveŦ

2Ŧ 1he records of all such LransacLlons should be reLalned for aL leasL Len years afLer Lhe
LransacLlon has Laken place and should be avallable for perusal and scruLlny by audlL
funcLlonarles as well as regulaLors and law enforcemenL auLhorlLlesŤ as and when
requlredţ aL Lhe branch as well as aL reglsLered offlceŦ
12Ŧ 1ralnlng of sLaff and managemen
1Ŧ lL ls lmporLanL LhaL all Lhe operaLlng and managemenL sLaff ls made fully aware of Lhe
lmpllcaLlons and undersLand Lhe need for sLrlcL adherence Lo k?C normsŦ

2Ŧ n8lCs may Lake sulLable sLeps Lo lmparL Lralnlng Lo Lhelr operaLlonal sLaff on anLlmoney
launderlng measuresŦ

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1.4 RE8PON8¡B¡L¡T¡E8:-
1he n8lCs accepLlng publlc deposlLs should furnlsh Lo 88
lŦ AudlLed balance sheeL of each flnanclal year and an audlLed proflL and loss accounL ln
respecL of LhaL year as passed ln Lhe annual general meeLlng LogeLher wlLh a copy of Lhe
reporL of Lhe 8oard of ulrecLors and a copy of Lhe reporL and Lhe noLes on accounLs
furnlshed by lLs AudlLorsŤ

llŦ SLaLuLory Annual 8eLurn on deposlLs Ŵ n8S
lllŦ CerLlflcaLe from Lhe AudlLors LhaL Lhe company ls ln a poslLlon Lo repay Lhe deposlLs
as and when Lhe clalms arlseŤ
lvŦ CuarLerly 8eLurn on llquld asseLsŤ
v PalfŴyearly 8eLurn on prudenLlal normsŤ
vlŦ PalfŴyearly ALM 8eLurns by companles havlng publlc deposlLs of 8sŦ 20 crore and
above or wlLh asseLs of 8sŦ 100 crore and above lrrespecLlve of Lhe slze of deposlLs Ť
vllŦ MonLhly reLurn on exposure Lo caplLal markeL by companles havlng publlc deposlLs of
8sŦ 30 crore and aboveŤ and vlllŦ
vlllŦ A copy of Lhe CredlL 8aLlng obLalned once a year along wlLh one of Lhe PalfŴyearly
8eLurns on prudenLlal norms as aL (v) aboveŦ


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nearly 11 years afLer Lhe lasL of Lhe Lwo banklng llcences were lssued by 88l Lo prlvaLe
secLor enLlLlesţ Lhe governmenL has agaln sLarLed Lhe process of allowlng Lhe beLLerŴ
managed nonbanklng flnance companles (n8lCs) Lo graduaLe Lo fullŴfledged banksŦ lM
Þranab Mukher[ee's 8udgeL proposal on lrlday was Lhe flrsL sLep Lowards Lhe sameŦ
1he second sLep wlll be enacLed on 1uesday mornlngŦ A selecL group of offlclals from Lop
n8lCsţ under Lhe aegls of Lhe llnance lndusLry uevelopmenL Councll (lluC)ţ Lhe Lrade
body for n8lCs ln lndlaţ are meeLlng 8 Copalanţ Lhe banklng secreLary ln Lhe flnance
mlnlsLryţ Lo presenL a case for selecL n8lCs Lo be converLed lnLo fullŴfledged banksţ
sources saldŦ AbouL 12Ŵ13 n8lCs and corporaLe houses havlng presence ln Lhe flnanclal
secLor are expecLed Lo [oln Lhe race Lo floaL a bankŦ
1he flnance mlnlsLer ls convlnced LhaL Lhere ls a huge need for lowŴcosL flnanclng aL Lhe
semlŴurban and rural areas ln lndlaţ'' sald a lndusLry sourceŦ 1he flnanclal servlces
lndusLry belleves Lhe 8udgeL proposal was a reflecLlon of Lhe sameŦ __ln Lhe flnance
mlnlsLry Lhlngs are movlng ln Lhe rlghL dlrecLlon and Lhe banklng secreLary's meeLlng
proves Lhe sameţ'' sald Lhe sourceŦ lluC offlce bearers could noL be conLacLed durlng Lhe
exLended weekend ln Lhe lasL unlon 8udgeLţ Lhe lM had announced LhaL 88l ls
conslderlng glvlng addlLlonal banklng llcences Lo prlvaLe secLor playersţ lncludlng n8lCsŦ
1hls was osLenslbly Lo furLher flnanclal lncluslon and also Lo lmprove Lhe slze and
sophlsLlcaLlon of Lhe lndlan banklng sysLemŦ 1he announcemenL seL Lhe flnanclal markeLs
on flre wlLh a loL of con[ecLurlng as Lo who would be Lhe lucky fewŦ 1he access Lo lowŴcosL
currenL accounL and savlngs accounLs and Lhe ablllLy Lo offer all flnanclal producLs under
one roof were clLed as ma[or aLLracLlons for n8lCs Lo rush Lo seek banklng llcencesŦ lL was
also expecLed LhaL 88l would glve new llcences Lo prlvaLe players very soonŦ 8uLţ an
analysls reveals a dlfferenL plcLureŦ nelLher ls 88l ln a hurry Lo lssue fresh llcences nor are
many n8lCs keen Lo geL lnLo commerclal banklngŦ
1he reasons for Lhls are manlfoldŦ 88l rules are sLrlngenL for commerclal banks as Lhey
are Lhe vlslble face of Lhe lndlan flnanclal sysLem and commerclal banks are prlmarlly Lhe
cusLodlans of publlc moneyŦ 88l places resLrlcLlons on commerclal banks ln Lhelr lendlng
operaLlonsŦ CuL of 8s 100 Laken ln as deposlLsţ approxlmaLely 8s 30 has Lo be seL aparL as
sLaLuLory requlremenLs Lowards C88 and SL8Ŧ 1hls leaves Lhe banks wlLh 8s 70 Lo lendŦ
CuL of Lhlsţ 40Ʒ has Lo be sLaLuLorlly lenL Lowards Lhe prlorlLy secLor as deflned by 88lŦ
1hls leaves banks wlLh approxlmaLely 8s 42 Lo lend aL Lhelr own dlscreLlonŦ Many n8lCs
would deflnlLely flnd Lhls as resLrlcLlve Lo say Lhe leasLŦ As per Lhe guldellnes of 2001ţ

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n8lCs seeklng a banklng llcence should have a mlnlmum paldŴup caplLal of 8s 200 croreţ
whlch musL be lncreased Lo 8s 300 crore wlLhln 3 years of converslon lnLo a bankŦ
lurLherţ banks have Lo lnvesL large funds ln flxed asseLs and lnformaLlon Lechnology
prlmarlly Lo faclllLaLe flnanclal lncluslonţ rlsk managemenLţ anLl money launderlngţ eLcŦ
1hese huge caplLal expendlLures lncrease Lhe payback perlod for Lhe lnvesLmenLs madeŦ
Alsoţ banklngŴasŴaŴbuslness model ls far more peopleŴţ processŴ and producLŴdrlven Lhan
a slmple n8lC modelŦ lor exampleţ ln order Lo adopL unlversal banklngţ Lhe sLaff needs Lo
be mulLlŴskllled ln banklng funcLlonsŦ Soţ Lhe operaLlng expenses wlll be subsLanLlally
hlgherţ whlchţ ln Lurnţ would reduce Lhe proflLablllLy of operaLlonsŦ Alsoţ Lhere are
resLrlcLlons on ownershlp and voLlng rlghLsŦ CurrenL sLlpulaLlons cap voLlng rlghLs aL 10ƷŤ
hlgher rlghLs requlre Lhe speclflc approval ofŦ


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0F tßFC


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2.1. 8alient features of NBFCs:-

aŦ 1he n8lCs are allowed Lo accepL/renew publlc deposlLs for a mlnlmum perlod of 12
monLhs and maxlmum perlod of 60 monLhsŦ 1hey cannoL accepL deposlLs repayable on
bŦ n8lCs cannoL offer lnLeresL raLes hlgher Lhan Lhe celllng raLe
prescrlbed by 88l from Llme Lo LlmeŦ 1he presenL celllng ls 11 per cenL
per annumŦ 1he lnLeresL may be pald or compounded aL resLs noL shorLer Lhan monLhly
cŦ n8lCs cannoL offer glfLs/lncenLlves or any oLher addlLlonal beneflL Lo Lhe deposlLorsŦ
dŦ n8lCs (excepL cerLaln AlCs) should have mlnlmum lnvesLmenL grade credlL raLlngŦ
eŦ 1he deposlLs wlLh n8lCs are noL lnsuredŦ
fŦ 1he repaymenL of deposlLs by n8lCs ls noL guaranLeed by 88lŦ
gŦ 1here are cerLaln mandaLory dlsclosures abouL Lhe company ln Lhe AppllcaLlon lorm
lssued by Lhe company sollclLlng deposlLsŦ


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2.2 ROLE OF NBFC'8:-
Accordlng Lo LÞW 8esearch loundaLlon (LÞW8l1he lndlan economy ls golng Lhrough a
perlod of rapld `flnanclal llberallsaLlonƌŦ 1odayţ Lhe `lnLermedlaLlonƌ ls belng conducLed by
a wlde range of flnanclal lnsLlLuLlon Lhrough a pleLhora of cusLomer frlendly flnanclal
producLsŦ 1he segmenL conslsLlng of nonŴ8anklng llnanclal Companles (n8lCs)ţ such as
equlpmenL leaslng/hlre purchase flnanceţ loan and lnvesLmenL companlesţ eLcŦ have
made greaL sLrldes ln recenL years and are meeLlng Lhe dlverse flnanclal needs of Lhe
economyŦ ln Lhls processţ Lhey have lnfluenced Lhe dlrecLlon of savlngs and lnvesLmenLŦ
1he resulLanL caplLal formaLlon ls lmporLanL for our economlc growLh and developmenLŦ
1husţ from boLh Lhe macroeconomlc perspecLlve and Lhe sLrucLure of Lhe lndlan flnanclal
sysLemţ Lhe role of n8lCs has become lncreaslngly lmporLanLŦ 1he cruclal role of non
8anklng llnance lnsLlLuLlons (n8lls) ln broadenlng access Lo flnanclal servlcesţ and
enhanclng compeLlLlon and dlverslflcaLlon of Lhe flnanclal secLor has been well
recognlzedŦ 1he maln advanLages of Lhese companles lle ln Lhelr ablllLy Lo lower
LransacLlons cosLs of Lhelr operaLlonsţ Lhelr qulck declslonŴmaklng ablllLyţ cusLomer
orlenLaLlon and prompL provlslon of servlcesŦ Whlle n8lls are someLlmes seen as akln Lo
banks ln Lerms of Lhe producLs and servlces offeredţ Lhls ls sLrlcLly noL accuraLeţ as more
ofLenţ n8lls play a range of roles LhaL complemenL banksŦ lurLherţ SLaLus noLe on n8lCs
n8lls can add Lo economlc sLrengLh Lo Lhe exLenL Lhey enhance Lhe reslllence of Lhe
flnanclal sysLem Lo economlc shocksŦ A well developed and properly regulaLed n8ll
secLor ls Lhus an lmporLanL componenL of broadţ balancedţ efflclenL flnanclal sysLem LhaL
spreads rlsks and provldes a sound base for economlc growLh and prosperlLyŦ



Accordlng Lo 88l non 8anklng llnance Companles (n8lCs) ls a consLlLuenL of Lhe
lnsLlLuLlonal sLrucLure of Lhe organlzed flnanclal sysLem ln lndlaŦ n8lCs perform a
slgnlflcanL and lmporLanL role ln our flnanclal sysLemŦ 1hey faclllLaLe Lhe process of
channellslng of publlc savlngs and provlde beLLer reLurn Lo Lhe deposlLorsŦ We are aware
LhaL due Lo llberallzaLlon and globallsaLlonţ banklng lndusLry and flnanclal secLor has gone
Lhrough many reformsŦ ln Lhe presenL economlc envlronmenL lL ls very dlfflculL Lo caLer
need of socleLy by 8anks alone so role of non 8anklng llnance Companles and Mlcro
llnance Companles become lndlspensableŦ 1he acLlvlLles of nonŴbanklng flnanclal
companles (n8lCs) ln lndla have undergone quallLaLlve changes over Lhe years Lhrough
funcLlonal speclallsaLlonŦ 1he role of n8lCs as effecLlve flnanclal lnLermedlarles has been
well recognlsed as Lhey have lnherenL ablllLy Lo Lake qulcker declslonsţ assume greaLer
rlsksţ and cusLomlse Lhelr servlces and charges more accordlng Lo Lhe needs of Lhe cllenLsŦ
Whlle Lhese feaLuresţ as compared Lo Lhe banksţ have conLrlbuLed Lo Lhe prollferaLlon of
n8lCsţ Lhelr flexlble sLrucLures allow Lhem Lo unbundle servlces provlded by banks and
markeL Lhe componenLs on a compeLlLlve baslsŦ

1he dlsLlncLlon beLween banks and nonŴbanks has been gradually geLLlng blurred slnce
boLh Lhe segmenLs of Lhe flnanclal sysLem engage Lhemselves ln many slmllar Lypes of
acLlvlLlesŦAL presenLţ n8lCs ln lndla have become promlnenL ln a wlde range of acLlvlLles
llke hlreŴpurchase flnanceţ equlpmenL lease flnanceţ loansţ lnvesLmenLsţ eLcŦ 8y
employlng lnnovaLlve markeLlng sLraLegles and devlslng LallorŴmade producLsţ n8lCs
have also been able Lo bulld up a cllenLele base among Lhe deposlLorsţ mop up publlc
savlngs and command large resources as reflecLed ln Lhe growLh of Lhelr deposlLs from
publlcţ shareholdersţ dlrecLors and Lhelr companlesţ and borrowlngs by lssue of
nonconverLlble debenLuresţ eLcŦ

Accordlng Lo kÞMC survery 1he lndlan non 8anklng llnance Company (n8lC) secLor has
ofLen been relegaLed Lo Lhe shadowsţ ln mosL dlscusslons on Lhe lndlan llnanclal Servlces
(lS) lndusLryŦ 8anksţ lnsurance companles and caplLal markeL players Lake cenLre sLage
and lnvarlablyţ n8lCs aLLracL publlc aLLenLlon only durlng Llmes of crlslsŦ LlLLle aLLenLlon
has been pald Lo Lhe sllenL buL effecLlve manner ln whlch n8lCs have spread Lhelr
operaLlons across Lhe counLryŦ n8lCs have provlded flnanclal soluLlons Lo secLlons of
socleLy who hlLherLo were aL Lhe mercy of unorganlzed players for credlL and savlngs
producLsţ whlch were dellvered on economlcally and soclally usurlous LermsŦ ronlcallyţ ln

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recenL Llmesţ n8lCs are once agaln ln Lhe spoLllghL for Lhelr percelved sLrengLhs and
capablllLles raLher Lhan Lhelr problemŦ
Whlle Lhls reŴraLlng oughL Lo brlng cheer Lo a much mallgned secLorţ a degree of cauLlon
needs Lo be lnsLllled wlLhln poLenLlal lnvesLors ln n8lCsţ who need Lo clearly undersLand
Lhe Lrue drlvers of value for flnance companlesŦ 1hls undersLandlng ls lmperaLlve Lo
enable a beLLer [udgmenL of Lhe lnLrlnslc worLh of n8lCsŦ 1hls arLlcle proceeds Lo
lllusLraLe Lhe key facLors responslble for Lhe sLrong reŴraLlng of Lhe n8lC secLorţ as well as
dlscuss Lhe valldlLy of each of Lhese facLorsţ as acLual drlvers of valueŦ 1odayţ Lhe n8lC
secLor ls as flnanclally sound as lL has ever beenŦ 1o an exLenLţ Lhls can be aLLrlbuLed Lo
Lhe very problems affecLlng Lhe secLor whlch have resulLed ln Lhe purglng of several
playersţ leavlng Lhe flLLesL few Lo domlnaLe Lhe landscapeŦ 1aklng Lhe 8eserve 8ank of
lndla's (88l) deflnlLlon of _reporLlng n8lCs' as a proxy for nonŴdormanL playersţ a mere
24 n8lCs held 92Ŧ7 percenL of Lhe LoLal asseLs of all n8lCs ln 2003Ŵ2006Ŧ 1he balance
asseLsţ amounLlng Lo less Lhan 8 percenL of Lhe LoLalţ were fragmenLed across 439 n8lCsŦ
ln addlLlon Lo Lhls consolldaLlonţ aL presenLţ n8lCs ln general are wellŴcaplLallzed wlLh
sLrong parenL supporLŦ A ma[orlLy of acLlve n8lCs reporLed caplLal adequacy raLlos
exceedlng 12 percenL



2.3 ON GLOBAL CR¡8¡8:-

Accordlng Lo CA8Lť
n8lC secLor faced slgnlflcanL sLresses on asseL quallLyţ llquldlLy and fundlng
cosLs due Lo Lhe global economlc slowdown Ǝ lLs lmpacL on Lhe domesLlc economyŦ Whlle
all Lhe n8lCs were affecLedţ Lhe lmpacL varled accordlng Lo Lhe sLrucLural feaLures of
each n8lCŦ AsseLŴllablllLy maLurlLy (ALM) profllesţ Lype of asseLs flnanced and orlglnaLlon
/ collecLlon models followed were Lhe prlmary dlfferenLlaLors wlLhln n8lCsŦ 1he supporL
provlded by Lhe 8eserve 8ank of lndla (88l) hlghllghLed Lhe expllclL accepLance of Lhe
sysLemlc lmporLance of Lhe secLorŦ l?10 was marked by reŴallgnlng of Lhe llablllLy profllesţ
LlghLenlng of lendlng norms coupled wlLh closlng down of many of Lhe unsecured loan
segmenLsŦ Cn a sLrucLural baslsţ Lhe secLor ls now more robusL due Lo Lhe lessons learned
by n8lCs from Lhls crlslsŦ ÞroflLablllLy ls expecLed Lo be lower Lhan hlsLorlcal levels due Lo
conservaLlve ALM managemenLţ hlgher provlslonlng and avoldance of hlgh yleldlng
unsecured loan segmenLsŦ Powever proflLs are aL Lhe same Llme expecLed Lo be much
more sLable Ǝ less suscepLlbleŦ


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Whether N8ICs can accept depos|ts from NkIs?
LffecLlve from Aprll 24ţ 2004ţ n8lCs cannoL accepL deposlLs from n8l excepL
deposlLs by deblL Lo n8C accounL of n8l provlded such amounL do noL represenL lnward
remlLLance or Lransfer from n8L/lCn8 (8) accounLŦ
Poweverţ Lhe exlsLlng n8l deposlLs can be renewedŦ
Is nom|nat|on fac|||ty ava||ab|e to the Depos|tors of N8ICs?
?esţ nomlnaLlon faclllLy ls avallable Lo Lhe deposlLors of n8lCsŦ 1he 8ules for nomlnaLlon
faclllLy are provlded for ln secLlon 43C8 of Lhe 8eserve 8ank of lndla AcLţ 1934Ŧ nonŴ
8anklng llnanclal Companles have been advlsed Lo adopL Lhe 8anklng Companles
(nomlnaLlon) 8ulesţ 1983 made under SecLlon 43ZA of Lhe 8anklng 8egulaLlon AcLţ 1949Ŧ
Accordlnglyţ deposlLor/s of n8lCs are permlLLed Lo nomlnaLeţ one person Lo whomţ
Lhe n8lC can reLurn Lhe deposlL ln Lhe evenL of Lhe deaLh of Lhe deposlLor/sŦ n8lCs are
advlsed Lo accepL nomlnaLlons made by Lhe deposlLors ln Lhe form slmllar Lo one
speclfled under Lhe sald rulesţ vlz lorm uA 1 for Lhe purpose of nomlnaLlonţ and lorm
uA2 and uA3 for cancellaLlon of nomlnaLlon and varlaLlon of nomlnaLlonţ respecLlvelyŦ
What e|se shou|d a depos|tor bear |n m|nd wh||e depos|t|ng money w|th N8ICs?
Whlle maklng deposlLs wlLh a n8lCţ Lhe followlng aspecLs should be borne ln mlndť
O (l) Þubllc deposlLs are unsecuredŦ
O (ll) A proper deposlL recelpL whlch shouldţ besldes Lhe name of Lhe deposlLor/s sLaLe Lhe
daLe of deposlLţ Lhe amounL ln words and flguresţ raLe of lnLeresL payable and Lhe daLe of
maLurlLy should be lnslsLedŦ 1he recelpL shall be duly slgned by an offlcer auLhorlsed by
Lhe company ln LhaL behalfŦ
O (lll) 1he 8eserve 8ank of lndla does noL accepL any responslblllLy or guaranLee abouL Lhe
presenL poslLlon as Lo Lhe flnanclal soundness of Lhe company or for Lhe correcLness of
any of Lhe sLaLemenLs or represenLaLlons made or oplnlons expressed by Lhe company
and for repaymenL of deposlLs/dlscharge of Lhe llablllLles by Lhe companyŦ
It |s sa|d that rat|ng of N8ICs |s necessary before |t accepts depos|t? Is |t true? Who
rates them?
An unraLed n8lCţ excepL cerLaln AsseL llnance companles (AlC)ţ cannoL accepL publlc
deposlLsŦ An excepLlon ls made ln case of unraLed AlC companles wlLh C8A8 of 13Ʒ
whlch can accepL publlc deposlL up Lo 1Ŧ3 Llmes of Lhe nCl or 8s 10 crore whlchever ls
lower wlLhouL havlng a credlL raLlngŦ A n8lC may geL lLself raLed by any of Lhe four raLlng
agencles namelyţ C8lSlLţ CA8Lţ lC8A and ll1CP 8aLlngs lndla ÞvLŦ LLdŦ


What are the symbo|s of m|n|mum |nvestment grade rat|ng of d|fferent compan|es?
1he symbols of mlnlmum lnvesLmenL grade raLlng of Lhe CredlL raLlng agencles areť
name of raLlng agencles ť Level of mlnlmum lnvesLmenL grade credlL raLlng (MlC8)
O C8lSlLť lAŴ (lA MlnuS)
O lC8Ať MAŴ (MA MlnuS)
O CA8Lť CA8L 888 (lu)
O ll1CP 8aLlngs lndla ÞvLŦ LLdť LAŴ(lnd)(lu)
O lL may be added LhaL AŴ ls noL equlvalenL Lo Aţ AAŴ ls noL equlvalenL Lo AA and AAAŴ ls noL
equlvalenL Lo AAAŦ
Can a N8IC wh|ch |s yet to be rated accept pub||c depos|t?
noţ a n8lC cannoL accepL deposlL wlLhouL raLlng excepL an LL/PÞ company
complylng wlLh prudenLlal norms and havlng C8A8 of 13Ʒţ Lhough noL raLedţ may accepL
publlc deposlL up Lo 1Ŧ3 Llmes of nCl or 8s 10 crore whlchever ls lessŦ
What are the respons|b|||t|es of the N8ICs accept|ng]ho|d|ng pub||c depos|ts w|th
regard to subm|ss|on of keturns and other |nformat|on to k8I?
1he n8lCs accepLlng publlc deposlLs should furnlsh Lo 88lť
O lŦ AudlLed balance sheeL of each flnanclal year and an audlLed proflL and loss accounL ln
respecL of LhaL year as passed ln Lhe general meeLlng LogeLher wlLh a copy of Lhe reporL
of Lhe 8oard of ulrecLors and a copy of Lhe reporL and Lhe noLes on accounLs furnlshed by
lLs AudlLorsŤ
O llŦ SLaLuLory Annual 8eLurn on deposlLs Ŵ n8S 1Ť
O lllŦ CerLlflcaLe from Lhe AudlLors LhaL Lhe company ls ln a poslLlon Lo repay Lhe deposlLs as
and when Lhe clalms arlseŤ
O lvŦ CuarLerly 8eLurn on llquld asseLsŤ
O vŦ PalfŴyearly 8eLurn on prudenLlal normsŤ
O vllŦ PalfŴyearly ALM 8eLurns by companles havlng publlc deposlLs of 8s 20 crore and
above or wlLh asseLs of 8s 100 crore and above lrrespecLlve of Lhe slze of deposlLs Ť
O vlllŦ MonLhly reLurn on exposure Lo caplLal markeL by companles havlng publlc deposlLs of
8s 30 crore and aboveŤ and
O lxŦ A copy of Lhe CredlL 8aLlng obLalned once a year along wlLh one of Lhe PalfŴyearly
8eLurns on prudenLlal norms as aL (v) aboveŦ


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What are the documents or the comp||ance requ|red to be subm|tted to the keserve 8ank of
Ind|a by the N8ICs not accept|ng]ho|d|ng pub||c depos|ts?
1he n8lCs havlng asseLs slze of 8s 100 crore and above buL noL accepLlng publlc deposlLs
are requlred Lo submlL a MonLhly 8eLurn on lmporLanL flnanclal parameLers of Lhe
companyŦ All companles noL accepLlng publlc deposlLs have Lo pass a board resoluLlon Lo
Lhe effecL LhaL Lhey have nelLher accepLed publlc deposlL nor would accepL any publlc
deposlL durlng Lhe yearŦ
Poweverţ all Lhe n8lCs (oLher Lhan Lhose exempLed) are requlred Lo be reglsLered wlLh
88l and also make sure LhaL Lhey conLlnue Lo be ellglble Lo remaln 8eglsLeredŦ lurLherţ all
n8lCs (lncludlng nonŴdeposlL Laklng) should submlL a cerLlflcaLe from Lhelr SLaLuLory
AudlLors every year Lo Lhe effecL LhaL Lhey conLlnue Lo underLake Lhe buslness of n8ll
requlrlng holdlng of Co8 under SecLlon 43ŴlA of Lhe 88l AcLţ 1934Ŧ
88l has powers Lo cause lnspecLlon of Lhe books of any company and call for any oLher
lnformaLlon abouL lLs buslness acLlvlLlesŦ


lor Lhls purposeţ Lhe n8lC ls requlred Lo furnlsh Lhe lnformaLlon ln respecL of any change
ln Lhe composlLlon of lLs board of dlrecLorsţ address of Lhe company and lLs dlrecLors and
Lhe name/s and offlclal deslgnaLlons of lLs prlnclpal offlcers and Lhe name and offlce
address of lLs audlLorsŦ WlLh effecL from Aprll 1ţ 2007 nonŴdeposlL Laklng n8lCs wlLh
asseLs slze of 8s 100 crore and above have been advlsed Lo malnLaln mlnlmum C8A8 of
10Ʒ and shall also be sub[ecL Lo slngle/group exposure normsŦ

3Ŧ4Ŧ 1ypes of n8lC'S 8eglsLered wlLh 88lťŴ
Crlglnally n8lC'S reglsLered wlLh 88l were Classlfled ť

n8lC's ln lndla

1Ŧ lnvesLmenL Company
2Ŧ LqulpmenL Leaslng
3Ŧ Loan Company
4Ŧ Plre Þurchase Leaslng

n8ll n8lC lnSu8AnCL Mu1uAL

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8eserve 8ank of lndla 8eŴCrouped Lhe AsseLŴflnanclng nonŴbanklng flnanclal companles
(n8lCs) engaged ln flnanclng real and physlcal asseL supporLlng economy acLlvlLyŴsuch as
auLomoblles and general purpose lndusLrlal machlnery asŴ asseL flnanclng companles
(AlCs)Ŧ 1he remalnlng companles wlll conLlnue Lo be called as loan and lnvesLmenL
companlesţ lŦe wlLh effecL from uecember 6ţ 2006 Lhe above n8lCs reglsLered wlLh 88l
have been reŴclasslfled as
lŦ AsseL llnance Company (AlC)
llŦ Loan Company (LC)
lllŦ lnvesLmenL company (lC)

lŦ AsseL flnance Companles (AlC)ťŴ
AlC are flnanclal lnsLlLuLlons whose prlnclpal buslness ls of flnanclng physlcal
asseLs such as auLomobllesţ LracLorsţ consLrucLlon equlpmenLs maLerlal handllng
equlpmenLs and oLher machlnesŦ
Lgť 8a[a[ AuLo llnance corpŦ ţ lullerLon lndla eLc

llŦ lnvesLmenL Companles (lC)ťŴ
lCs generally are lnvolved ln Lhe buslness of sharesţ sLocksţ bondsţ
debenLures lssued by governmenL or local auLhorlLy LhaL are markeLable ln naLure
Lgť SLock 8roklng Companlesţ CllL flrms

lllŦ Loan Companles (LC)ťŴ
LCs are loan glvlng companles whlch operaLe ln Lhe buslness of provldlng
loansŦ 1hese can be houslng loansţ gold loans eLc
Lgť Mannapuram Cold llnanceţ PulC
Investment Compan|es are further d|v|ded |nto fo||ow|ng subcategor|esť
% Core Investment Compan|esť
1he 8eserve 8ank of lndla vlde lLs noLlflcaLlon no un8S(Þu)CCŦnoŦ
197/03Ŧ10Ŧ001/2010Ŵ11 daLed AugusL 12ţ 2010ţ a new class of n8lCs by Lhe name of
'Core lnvesLmenL Companles' (ClC) was added

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Core lnvesLmenL Companles ln Lerms of 88l's noLlflcaLlon meansť
A nonŴbanklng flnanclal company carrylng on Lhe buslness of acqulslLlon of shares
and securlLles and whlch saLlsfles Lhe followlng condlLlons as on Lhe daLe of Lhe lasL
audlLed balance sheeLťŴ
(l) lL holds noL less Lhan 90Ʒ of lLs neL asseLs ln Lhe form of lnvesLmenL ln equlLy sharesţ
preference sharesţ bondsţ debenLuresţ debL or loans ln group companlesŤ
(ll) lLs lnvesLmenLs ln Lhe equlLy shares (lncludlng lnsLrumenLs compulsorlly converLlble
lnLo equlLy shares wlLhln a perlod noL exceedlng 10 years from Lhe daLe of lssue) ln group
companles consLlLuLes noL less Lhan 60Ʒ of lLs neL asseLsŦ
neL asseLsţ for Lhe purpose of Lhls provlslonţ would mean LoLal asseLs excludlng Ŷ
% Cash and bank balancesŤ
% lnvesLmenL ln money markeL lnsLrumenLs and money markeL muLual funds
% advance paymenLs of LaxesŤ and
% deferred Lax paymenLŦ
(lll) lL does noL Lrade ln lLs lnvesLmenLs ln sharesţ bondsţ debenLuresţ debL or loans ln
group companles excepL Lhrough block sale for Lhe purpose of dlluLlon or dlslnvesLmenLŤ
(lv) lL does noL carry on any oLher flnanclal acLlvlLy referred Lo ln SecLlon 43 l (c) and 43 l
(v) Cf Lhe 8eserve 8ank of lndla AcLţ 1934 excepLť
aŦ lnvesLmenL ln
lŦ 8ank deposlLsţ
llŦ Money markeL lnsLrumenLsţ lncludlng money markeL muLual fundsţ
lllŦ CovernmenL securlLlesţ and
lvŦ 8onds or debenLures lssued by group companlesŤ
b) CranLlng of loans Lo group companlesŤ and
c) lssulng guaranLees on behalf of group companlesŦ


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1he 8eserve 8ank of lndla AcLţ 1934 was amended on 1sL uecemberţ 1964
by Lhe 8eserve 8ank AmendmenL AcLţ 1963 Lo lnclude provlslons relaLlng Lo nonŴbanklng
lnsLlLuLlons recelvlng deposlLs and flnanclal lnsLlLuLlonsŦ lL was observed LhaL Lhe exlsLlng
leglslaLlve and regulaLory framework requlred furLher reflnemenL and lmprovemenL
because of Lhe rlslng number of defaulLlng n8lCs and Lhe need for an efflclenL and qulck
sysLem for redressal of grlevances of lndlvldual deposlLorsŦ Clven Lhe need for conLlnued
exlsLence and growLh of n8lCsţ Lhe need Lo develop a framework of prudenLlal
leglslaLlons and a supervlsory sysLem was felL especlally Lo encourage Lhe growLh of
healLhy n8lCs and weed ouL Lhe lnefflclenL onesŦ WlLh a vlew Lo revlew Lhe exlsLlng
framework and address Lhese shorLcomlngsţ varlous commlLLees were formed and
reporLs were submlLLed by LhemŦ Some of Lhe commlLLees and lLs recommendaLlons are
glven hereunderť

1Ŧ !ames 8a[ CommlLLee (1974)ťŴ
1he !ames 8a[ CommlLLee was consLlLuLed by Lhe 8eserve 8ank of lndla ln 1974Ŧ
AfLer sLudylng Lhe varlous money clrculaLlon schemes whlch were floaLed ln Lhe counLry
durlng LhaL Llme and Laklng lnLo conslderaLlon Lhe lmpacL of such schemes on Lhe
economyţ Lhe CommlLLee afLer exLenslve research and analysls had suggesLed for a ban
on Þrlze chlL and oLher schemes whlch were causlng a greaL loss Lo Lhe economyŦ 8ased
on Lhese suggesLlonsţ Lhe Þrlze ChlLs and Money ClrculaLlon Schemes (8annlng) AcLţ 1978
was enacLedŦ

2Ŧ ChakravarLhy CommlLLee (1984)ťŴ
1hls CommlLLee headed by Shrl Sukhamoy ChakravarLy was formed Lo revlew Lhe Worklng
of Lhe MoneLary SysLemŦ lL made several recommendaLlons for Lhe developmenL of
money markeLŦ

3Ŧ vaghul CommlLLee (1987)ťŴ
As a followŴup Lo Lhe ChakravarLy commlLLeeţ Lhe 88l seL up a Worklng Croup
on MoneyMarkeL under Lhe Chalrmanshlp of Shrl nŦ vaghulţ whlch submlLLed lLs 8eporL ln
1987conLalnlng number of measures Lo wlden and deepen Lhe money markeLŦ

4Ŧ naraslmhan CommlLLee (1991)ťŴ
1hls commlLLee was formed Lo examlne all aspecLs relaLlng Lo Lhe sLrucLureţ organlzaLlon
Ǝ funcLlonlng of Lhe flnanclal sysLemŦ

3Ŧ urŦAŦCŦShah CommlLLee (1992)ťŴ
1he Worklng Croup on llnanclal Companles consLlLuLed ln Aprll 1992 lŦe Lhe Shah
CommlLLee seL ouL Lhe agenda for reforms ln Lhe n8lC secLorŦ 1hls commlLLee made wlde
ranglng recommendaLlons coverlngţ lnLerŴalla enLry polnL normsţ compulsory reglsLraLlon

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of large slzed n8lCsţ prescrlpLlon of prudenLlal norms for n8lCs on Lhe llnes of banksţ
sLlpulaLlon of credlL raLlng for accepLance of publlc deposlLs and more sLaLuLory powers
Lo 8eserve 8ank for beLLer regulaLlon of n8lCsŦ

6Ŧ khanna CommlLLee (1993)ťŴ
1hls Croup was seL up wlLh Lhe ob[ecLlve of deslgnlng a comprehenslve and
effecLlve supervlsory framework for Lhe nonŴbanklng companles segmenL of Lhe flnanclal
1he lmporLanL recommendaLlons of Lhls commlLLee are as followsť
lŦ lnLroducLlon of a supervlsory raLlng sysLem for Lhe reglsLered n8lCsŦ 1he raLlngs
asslgned Lo n8lCs would prlmarlly be Lhe Lool for Lrlggerlng onŴslLe lnspecLlons aL varlous
llŦ Supervlsory aLLenLlon and focus of Lhe 8eserve 8ank Lo be dlrecLed ln a comprehenslve
manner only Lo Lhose n8lCs havlng neL owned funds of 8sŦ100 lakhs and aboveŦ
lllŦ Supervlslon over unreglsLered n8lCs Lo be exerclsed Lhrough Lhe offŴslLe survelllance
mechanlsm and Lhelr onŴslLe lnspecLlon Lo be conducLed selecLlvely as deemed necessary
dependlng on clrcumsLancesŦ
lvŦ need Lo devlse a sulLable sysLem for coŴordlnaLlng Lhe onŴslLe lnspecLlon of Lhe n8lCs
by Lhe 8eserve 8ank ln Landem wlLh oLher regulaLory auLhorlLles so LhaL Lhey were
sub[ecLed Lo oneŴshoL examlnaLlon by dlfferenL regulaLory auLhorlLlesŦ
vŦ Some of Lhe nonŴbanklng nonŴflnanclal companles llke lndusLrlal/manufacLurlng unlLs
were also underLaklng flnanclal acLlvlLles lncludlng accepLance of deposlLsţ lnvesLmenL
operaLlonsţ leaslng eLc Lo a greaL exLenLŦ 1he commlLLee sLressed Lhe need for ldenLlfylng
an approprlaLe auLhorlLy Lo regulaLe Lhe acLlvlLles of Lhese companlesţ lncludlng
planLaLlon and anlmal husbandry companles noL falllng under Lhe regulaLory conLrol of
elLher ueparLmenL of Company Affalrs or Lhe 8eserve 8ankţ as far as Lhelr moblllzaLlon of
publlc deposlL was concernedŦ
vlŦ lnLroducLlon of a sysLem whereby Lhe names of Lhe n8lCs whlch had noL complled
wlLh Lhe regulaLory framework / dlrecLlons of Lhe 8ank or had falled Lo submlL Lhe
prescrlbed reLurns consecuLlvely for Lwo years could be publlshed ln reglonal
MosL of Lhe recommendaLlons of Lhe CommlLLee were accepLed by Lhe 8eserve 8ank
afLer an ln depLh analysls and Lhe revlsed framework for effecLlve supervlslon of Lhe
n8lCs lncludlng offŴ slLe monlLorlng of n8lCs ls belng puL ln placeŦ

7Ŧ vasudev CommlLLee (1998)
1hls commlLLee emphaslsed Lhe need for sLrengLhenlng of Lhe n8lC secLor lncludlng
enLry norms and prudenLlal normsţ and dealL wlLh framework for accepLance of publlc
deposlLsţ lssues concernlng unlncorporaLed flnanclal lnLermedlarles and addresses lssues
of supervlslon of n8lCsŦ
1he lmporLanL recommendaLlons of Lhls commlLLee are as followsť
lŦ ÞresenL mlnlmum capLlal requlremenL of 8sŦ23 lakhs Lo be revlewed upwards keeplng ln
vlew Lhe need Lo lmparL greaLer flnanclal soundness and achleve economles of scale ln
Lerms of efflclency of operaLlons and managerlal sklllsŦ

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llŦ As operaLlons of n8lCs are concenLraLed ln remoLe areasţ Lhe 88l may apprlse Lhe
SLaLe CovernmenLs of Lhe companles whlch have been granLed reglsLraLlon as well as Lhe
companles whose appllcaLlons have been re[ecLedŦ
lllŦ 1he presenL caplLal adequacy raLlo requlremenL may be malnLalned aL 12Ʒ for all
raLed n8lCsţ hlgher raLe of abouL 13Ʒ need Lo be prescrlbed by 88l for Lhose n8lCs
whlch seek publlc deposlL wlLhouL credlL raLlngŦ
lvŦ 88l may sLlpulaLe LhaL Lhe n8lCs should lnvesL aL leasL 23Ʒ of Lhelr reserves ln
markeLable securlLles aparL from Lhe SL8 securlLles already held by Lhe n8lCsŦ
vŦ Llnklng of quanLum of publlc deposlLs wlLh credlL raLlng because aparL from havlng Lhe
effecL of conferrlng regulaLory funcLlons on Lhe raLlng agenclesţ lL also exposes Lhe n8lCs
Lo frequenL asseL llablllLy mlsmaLches arlslng ouL of changes ln credlL raLlngŦ

vlŦ 88l should conslder measures for easlng Lhe flow of credlL from banks Lo n8lCs and
Lhen conslder prescrlblng a sulLable raLlo as beLween secured and unsecured deposlLs for
vllŦ AppolnLmenL of deposlLors' grlevance 8edressal auLhorlLles wlLh speclfled LerrlLorlal
vlllŦ 1he procedure for llquldaLlon of n8lCs Lo be subsLanLlally ln llne wlLh Lhose avallable
for banksŦ
lxŦ A separaLe lnsLrumenLallLy for regulaLlon and supervlslon of n8lCs under Lhe aegls of
Lhe 88l should be seL upţ so LhaL Lhere ls a greaL focus ln regulaLlon and supervlslon of Lhe
n8lC secLorŦ
xŦ 1he CommlLLee felL lL was noL [udlclous Lo lnLroduce a deposlL lnsurance scheme for Lhe
deposlLors ln n8lCs because of Lhe moral hazard lssuesţ llkellhood of asseLs sLrlpplng and
llkely negaLlve lmpacL on Lhe growLh of a healLhy n8lC secLorŦ
xlŦ 8eserve 8ank could use Lhe servlces of charLered accounLanLs wlLh sulLable experlence
and capablllLles Lo carry ouL lnspecLlon of Lhe smaller n8lCsŦ
1he nonŴbanklng flnanclal companles (n8lCs) flourlshed ln lndla ln Lhe decade of Lhe
1980s agalnsL Lhe backdrop of a hlghly regulaLed banklng secLorŦ 1he slmpllfled sancLlon
procedures and low enLry barrlers encouraged Lhe enLry of a hosL of n8lCsŦ Poweverţ ln
many cases mlsmanagemenL / lack of efflclenL managemenL resulLed ln problems arlslng
ouL of adverse porLfollo selecLlonţ unŴprudenL operaLlonsţ lnablllLy Lo manage rlsk boLh on
asseL and llablllLy sldeŦ ln many cases due Lo non avallablllLy of adequaLe credlL from Lhe
banklng secLor n8lCs had Lo rely excesslvely on unsecured publlc deposlLs for Lhelr
exlsLence / survlval by paylng hlgher raLe of lnLeresLŦ 1o servlce such hlgh cosL deposlLsţ
some n8lCs were forced Lo deploy Lhelr funds whlch carrled hlgh reLurn coupled wlLh
hlgh rlsk Ŧ 1hls ulLlmaLely resulLed ln hlgher rlsks for Lhelr deposlLorsţ whlch ln some cases
had culmlnaLed ln Lhe crlsls of confldence and credlblllLyŦ
under Lhls scenarloţ lL was felL necessary Lo lnlLlaLe lmmedlaLe acLlon for Lhe proLecLlon
of deposlLors' lnLeresLŦ 88l lssued Lhe non 8anklng Companles (8eserve 8ank) ulrecLlonsţ
1977ţ guldellnes on prudenLlal norms and varlous oLher ulrecLlons and clarlflcaLlonsţ from
Llme Lo Llme for governlng Lhe acLlvlLles of n8lCsŦ CenLral CovernmenLţ durlng 1974ţ
lnLroduced 38A ln Lhe Companles AcLţ 1936 whlch empowered CenLral CovernmenL Lo

TY BFN Page ŷŸ

regulaLe accepLance and renewal of deposlLs and Lo frame rules ln consulLaLlon wlLh
8eserve 8ank of lndla (88l) prescrlblng
(a) Lhe llmlL up Loţ
(b) Lhe manner and
(c) Lhe condlLlons sub[ecL Lo whlch deposlLs may be lnvlLed or accepLed / renewed by
1he CenLral CovernmenL ln consulLaLlon wlLh 88l framed Companles (AccepLance of
ueposlLs) 8ulesţ 1973Ŧ ConLlnulng Lhls processţ 88l AcLţ 1934 was amended ln 1997 whlch
auLhorlsed Lhe 8eserve 8ank Lo deLermlne pollclesţ and lssue dlrecLlons Lo n8lCs
regardlng lncome recognlLlonţ accounLlng sLandardsţ nÞAsţ caplLal adequacyţ eLcŦ 1he
amended AcLţ lnLer allaţ provlded for compulsory reglsLraLlon of all n8lCs lnLo Lhree
broad caLegorlesţ vlzŦţ
(l) n8lCs accepLlng publlc deposlLŤ
(ll) n8lCs noL accepLlng/holdlng publlc deposlLŤ and
(lll) core lnvesLmenL companles (lŦeŦţ Lhose acqulrlng shares/securlLles of Lhelr group/
holdlng/subsldlary companles Lo Lhe exLenL of noL less Lhan 90 per cenL of LoLal asseLs
and whlch do noL accepL publlc deposlL)Ŧ
unLll some years backţ Lhe prudenLlal norms appllcable Lo banklng and nonŴ
banklng flnanclal companles were noL unlformŦ Moreoverţ wlLhln Lhe n8lC groupţ Lhe
prudenLlal norms appllcable Lo deposlL Laklng n8lCs (n8lCsŴu) were more sLrlngenL Lhan
Lhose for nonŴdeposlL Laklng n8lCs (n8lCsŴnu)Ŧ Slnce Lhe n8lCsŴnu were noL sub[ecLed
Lo any exposure normsţ Lhey could Lake large exposuresŦ 1he absence of caplLal adequacy
requlremenLs resulLed ln hlgh leverage by Lhe n8lCsŦ Slnce 2000 howeverţ Lhe 8eserve
8ank has lnlLlaLed measures Lo reduce Lhe scope of 'regulaLory arblLrage' beLween banksţ
n8lCsŴu and n8lCsŴnuŦ

Some of Lhe recenL measures lncludeť
1Ŧ Advlslng n8lC on AdverLlsemenL ln LlecLronlc MedlaŴln order Lo ensure Lransparency ln
Lhe lnLeresL of deposlLors ln Lhe conLexL of such adverLlsemenLsţ a provlslon was
lncorporaLed ln Lhe nonŴ8anklng llnanclal Companles AccepLance of Þubllc ueposlLs
(8eserve 8ank) ulrecLlonsţ 1998ţ ln Lerms of whlch companles are requlred Lo sLaLe LhaL
Lhey have a valld CerLlflcaLe of 8eglsLraLlon lssued by Lhe 8eserve 8ankŦ Poweverţ Lhe
8eserve 8ank does noL accepL any responslblllLy or guaranLee abouL Lhe presenL poslLlon
as Lo Lhe flnanclal soundness of Lhe company or for Lhe correcLness of any of Lhe
sLaLemenLs or represenLaLlons made or oplnlons expressed by Lhe company and for
repaymenL of deposlLs/dlscharge of Lhe llablllLles by Lhe companyŦ
2Ŧ CorporaLe Covernance LlsLed n8lCs whlch are requlred Lo adhere Lo llsLlng agreemenL
and rules framed by SL8l on CorporaLe Covernance are already requlred Lo comply wlLh
SL8l prescrlpLlons on CorporaLe CovernanceŦ
As per Lhe 88l Clrcular 88l/2006Ŵ2007/383 un8SŦÞu/CC 94/03Ŧ10Ŧ042/2006Ŵ07 daLed
8Ŧ03Ŧ2007Ť guldellnes for corporaLe governance have been proposed for
1Ŧ All ueposlL Laklng n8lCs wlLh deposlL slze of 8s 20 crore and above
2Ŧ All nonŴdeposlL Laklng n8lCs wlLh asseL slze of 8s 100 crore and above (n8lCŴnuŴSl)Ŧ
Some of Lhe guldellnes lnclude Ŵ

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a) ConsLlLuLlon of AudlL CommlLLee ln case of n8lCŴu wlLh deposlL slze of 8s 20 crore
b) ConsLlLuLlon of nomlnaLlon commlLLeeť 1he guldellnes sLaLe LhaL lL would be deslrable
n8lCŴu wlLh deposlL slze of 8s 20 crore and above and n8lCŴnuŴSl may form a
CommlLLee Lo ensure 'flL and proper' sLaLus of proposed/exlsLlng ulrecLors

c) ConsLlLuLlon of 8lsk ManagemenL CommlLLeeŴ1o manage Lhe lnLegraLed rlskţ a rlsk
managemenL commlLLee may be formedţ ln addlLlon Lo Lhe ALCC (AsseL LlablllLy
ManagemenL CommlLLee) ln case of Lhe above caLegory of n8lCsŦ
d) ulsclosure Ǝ 1ransparency Ŵ CerLaln lnformaLlon should be puL up by Lhe n8lC Lo Lhe
8oard of ulrecLors aL regular lnLervals as may be prescrlbed by Lhe 8oard ln Lhls regardŦ
e) Compllance wlLh lnsLrucLlons on connecLed lendlng relaLlonshlps

3Ŧ 8evlslng 8aLe of lnLeresL Ŷ
1he maxlmum lnLeresL raLe payable on publlc deposlLs by n8lCs was
revlsed Lo 12Ŧ3 per cenL per annum on and from Aprll 24ţ 2007Ŧ

4Ŧ Advlslng n8lCs for
(a) noL engaglng LelemarkeLers who do noL have any valld reglsLraLlon CerLlflcaLe from
ueparLmenL of 1elecommunlcaLlons (uo1)ţ CovernmenL of lndla as 1elemarkeLersţ
(b) lurnlshlng llsL of LelemarkeLers engaged by Lhem alongwlLh Lhe reglsLered
1elŦnos belng used by Lhem for maklng LelemarkeLlng calls Lo 18Al and
(c) ensurlng LhaL all Lhe agenLs presenLly engaged by Lhem reglsLer Lhemselves wlLh uo1
LelemarkeLers ln pursuance Lo Lhe 1elecom 8egulaLory AuLhorlLy of lndla (18Al) havlng
framed 1elecom unsollclLed Commerclal CommunlcaLlons (uCC) 8egulaLlons for curblng
uCC Lo Lhe subscrlbers who do noL wanL Lo recelve uCCŦ

3Ŧ 8eporLlng of Secondary MarkeL 1ransacLlons
All n8lCs were advlsed Lo reporL Lhelr secondary markeL LransacLlons ln corporaLe bonds
done ln C1C markeLţ on 1he llxed lncome Money MarkeL and uerlvaLlves AssoclaLlon of
lndla's (llMMuA's) reporLlng plaLform wlLh effecL from SepLember 1ţ 2007
llMMuA ls an AssoclaLlon of Commerclal 8anksţ llnanclal lnsLlLuLlons and Þrlmary
uealersŦ llMMuA ls a volunLary markeL body for Lhe bondţ Money And uerlvaLlves

6Ŧ MonlLorlng of lrauds ln n8lCs
ln March 2008 all deposlL Laklng n8lCs (lncludlng 8n8Cs) were advlsed LhaL Lhe exLanL
lnsLrucLlons wlLh regard Lo monlLorlng of frauds were revlsed and as such cases of
'negllgence and cash shorLages' and 'lrregularlLles ln forelgn exchange LransacLlons' were
Lo be reporLed as fraud lf Lhe lnLenLlon Lo cheaL/defraud was suspecLed/provedŦ
Poweverţ ln cases where fraudulenL lnLenLlon was noL suspecLed/ proved aL Lhe Llme of
deLecLlon buL lnvolve cash shorLages of more Lhan Len Lhousand rupees and cases where
cash shorLages more Lhan flve Lhousand rupees were deLecLed by

TY BFN Page ŷź

managemenL/audlLor/lnspecLlng offlcer and noL reporLed on Lhe occurrence by Lhe
persons handllng cashţ Lhen such cases may also be LreaLed as fraud and reporLed

7Ŧ lssulng Culdellnes on 8eglsLraLlonţ CperaLlonsţ ÞrudenLlal norms and lnvesLmenL
ulrecLlons for MorLgage CuaranLee Companles

8Ŧ lssulng guldellnes on 1reaLmenL of ueferred 1ax AsseLs (u1A) and ueferred 1ax
LlablllLles (u1L) for CompuLaLlon of CaplLal
As creaLlon of deferred Lax asseLs (u1A) or u1L glves rlse Lo cerLaln lssues lmpacLlng Lhe
balance sheeL of Lhe companyţ n8lCs were advlsed on !uly 31ţ 2008 regardlng Lhe
regulaLory LreaLmenL Lo be glven Lo Lhese lssuesŦ As per Lhese guldellnesţ Lhe balance ln
u1L accounL wlll noL be ellglble for lncluslon ln 1ler l or 1ler ll caplLal for caplLal adequacy
purpose as lL ls noL an ellglble lLem of caplLalŦ u1A wlll be LreaLed as an lnLanglble asseL
and should be deducLed from 1ler l caplLalŦ n8lCs were advlsed Lo ensure compllance
wlLh Lhese guldellnes from Lhe accounLlng year endlng March 31ţ 2009Ŧ

9Ŧ lnsLrucLlng on Lhe obllgaLlons of n8lC under ÞMLA AcLţ2002
Cash LransacLlon reporLlng by branches/offlces of n8lCs Lo Lhelr Þrlnclpal Cfflcer should
be submlLLed on a monLhly basls and Lhe Þrlnclpal Cfflcerţ ln Lurnţ should ensure Lo
submlL cash LransacLlon reporL (C18) for every monLh Lo Lhe llnanclal lnLelllgence unlL Ŷ
lndla (lluŴlnu) wlLhln Lhe prescrlbed Llme scheduleŦ

10Ŧ underLaklng varlous Þollcy lnlLlaLlves for n8lCsŴnuŴSl ln 2007Ŵ08 such as Culdellnes
CaplLal Adequacyţ LlquldlLy and ulsclosure normsŤ lssuance of ÞerpeLual uebL
lnsLrumenLs and Access Lo ShorLŴ1erm lorelgn Currency 8orrowlngs

11Ŧ lnsLrucLlons on CaplLal adequecy norms for nonŴ deposlL Laklng n8lC
1he 8eserve 8ank of lndla (88l) on 2nd !une 2008 asked nonŴdeposlL Laklng n8lCs Lo ralse
Lhe mlnlmum CaplLal Lo 8lskŴwelghLed AsseLs 8aLlo (C8A8) from 10Ʒ now Lo 12Ʒ wlLh
lmmedlaLe effecL and furLher Lo 13Ʒ wlLh effecL from Aprll 1ţ 2009Ŧ


TY BFN Page ŷŻ

CARRYlt6 0t ßuSltFSS
0F tßFC


TY BFN Page ŷ8

5.1 Registration Requirements:-
ln Lerms of SecLlon 43ŴlA of Lhe 88l AcLţ 1934ţ lL ls mandaLory LhaL every n8lC should be
reglsLered wlLh 88l Lo commence or carry on any buslness of nonŴbanklng flnanclal
lnsLlLuLlon as deflned ln clause (a) of SecLlon 43 l of Lhe 88l AcLţ 1934Ŧ
LxempLlons from Lhe provlslons of 88l AcLţ 1934 As lald down ln MasLer Clrcular Lhe
followlng are some exempLlons from Lhe provlslons of 88l AcLţ 1934 daLed !uly 1ţ 2008
buL sub[ecL Lo cerLaln condlLlonsţ
(l) A Pouslng llnance lnsLlLuLlons has been exempLed from provlslons of ChapLer lll 8 of
Lhe 88l AcLţ 1934
(ll) A merchanL banklng company has been exempLed from Lhe provlslons of SecLlon 43ŴlA
ż8equlremenL of reglsLraLlon and neL owned fundŽţ
SecLlon 43Ŵl8 żMalnLenance of llquld asseLsŽ and 43ŴlC żCreaLlon of 8eserve lundŽ of Lhe
88l AcLţ 1934 ţ nonŴ8anklng llnanclal Companles AccepLance of Þubllc ueposlLs (8eserve
8ank) ulrecLlonsţ 1998 and nonŴ8anklng llnanclal Companles ÞrudenLlal norms (8eserve
8ank) ulrecLlonsţ 1998
(lll) ln Lhe case of Mlcro llnance Companles and MuLual 8eneflL CompanlesŴ SecLlons 43Ŵ
lAţ 43Ŵl8 and 43ŴlC of Lhe 8eserve 8ank of lndla AcLţ 1934 shall noL apply
(lv) ln Lhe case of CovernmenL CompanlesŴ SecLlons 43Ŵl8 and 43ŴlC of Lhe 8eserve 8ank
of lndla AcLţ 1934 paragraphs 4 Lo 7 of Lhe nonŴ8anklng llnanclal Companles AccepLance
of Þubllc ueposlLs ( 8eserve 8ank) ulrecLlonsţ 1998 and nonŴ8anklng llnanclal Companles
ÞrudenLlal norms (8eserve 8ank) ulrecLlonsţ 1998 excepL paragraph 13 A of Lhe sald
dlrecLlons relaLlng Lo submlsslon of lnformaLlon Lo 8eserve 8ank ln regard Lo change of
addressţ dlrecLorsţ audlLorsţ eLc shall noL apply
(v) ln Lhe case of venLure CaplLal lund Companles SecLlon 43ŴlA and SecLlon 43ŴlC of Lhe
8eserve 8ank of lndla AcLţ 1934 shall noL apply
(vl) ln Lhe case of lnsurance/SLock Lxchange/SLock 8roker/SubŴ8rokerŴ1he provlslons of
SecLlon 43ŴlAţ 43Ŵl8ţ 43ŴlCţ 43M8 and 43MC of Lhe 8eserve 8ank of lndla AcLţ 1934 and
provlslons of nonŴ8anklng llnanclal Companles AccepLance of Þubllc ueposlL (8eserve
8ank) ulrecLlons conLalned ln noLlflcaLlon noŦ ulCŦ118 / uC(SÞ1)Ŵ98 daLed !anuary 31Ŧ
1998ţ Lhe nonŴ8anklng llnanclal Companles ÞrudenLlal norms (8eserve 8ank) ulrecLlonsţ
1998 daLed !anuary 31ţ 1998 shall noL applyŦ

TY BFN Page ŷ9

(vll) ln Lhe case of nldhl Companlesţ Lhe provlslons of SecLlons 43ŴlAţ 43Ŵl8 and 43ŴlC of
Lhe 8eserve 8ank of lndla AcLţ 1934 shall noL applyŦ
(vlll) ChlL Companles dolng Lhe buslness of chlLs excluslvely are exempLed
1he n8lC ls requlred Lo submlL lLs appllcaLlon for reglsLraLlon ln Lhe prescrlbed formaL
along wlLh necessary documenLs for 8ank's conslderaLlonŦ 1he 8ank lssues CerLlflcaLe of
8eglsLraLlon afLer saLlsfylng lLself LhaL Lhe condlLlons as enumeraLed ln SecLlon 43ŴlA of
Lhe 88l AcLţ 1934 are saLlsfled
An lndlcaLlve llsL of documenLs/lnformaLlon Lo be furnlshed along wlLh Lhe appllcaLlonŦ
All documenLs/lnformaLlon ls Lo be submlLLed ln dupllcaLeŦ
1Ŧ Mlnlmum nCl requlremenL 8sŦ 200 lakhŦ

2Ŧ AppllcaLlon Lo be submlLLed ln Lwo separaLe seLs Lled up properly ln Lwo
separaLe fllesŦ
3Ŧ Annex ll Lo be submlLLed duly slgned by Lhe dlrecLor/AuLhorlzed slgnaLory
and cerLlfled by Lhe sLaLuLory audlLors
4Ŧ Annex lll (dlrecLors' proflle) Lo be separaLely fllled up for each dlrecLorŦ
Care should be Laken Lo glve deLalls of bankers ln respecL of
flrms/companles/enLlLles ln whlch dlrecLors have subsLanLlal lnLeresLŦ
3Ŧ ln case Lhe dlrecLors are assoclaLed or have subsLanLlal lnLeresL ln oLher
companlesţ lndlcaLe clearly Lhe acLlvlLy of Lhe companles (wheLher n8lC
or noL)Ŧ
6Ŧ 8oard 8esoluLlon speclflcally approvlng Lhe submlsslon of Lhe appllcaLlon
and lLs conLenLs and auLhorlslng slgnaLoryŦ
7Ŧ 8oard 8esoluLlon Lo Lhe effecL LhaL Lhe company has noL accepLed any
publlc deposlLţ ln Lhe pasL (speclfy perlod)/does noL hold any publlc deposlL
as on Lhe daLe and wlll noL accepL Lhe same ln fuLure wlLhouL Lhe prlor
approval of 8eserve 8ank of lndla ln wrlLlngŦ
8Ŧ 8oard resoluLlon sLaLlng LhaL Lhe company ls noL carrylng on any n8lC
acLlvlLy/sLopped n8lC acLlvlLy and wlll noL carry on/commence Lhe same
before geLLlng reglsLraLlon from 88lŦ
9Ŧ AudlLors CerLlflcaLe cerLlfylng LhaL Lhe company ls/does noL accepL/ls noL
holdlng Þubllc ueposlLŦ
10Ŧ AudlLors CerLlflcaLe cerLlfylng LhaL Lhe company ls noL carrylng on any
n8lC acLlvlLyŦ
11Ŧ neL owned fund as on daLeŦ
12Ŧ CerLlfylng compllance wlLh secLlon 43S of ChapLer lllC of Lhe 88l AcLţ
1934 ln whlch dlrecLor/s of Lhe company has subsLanLlal lnLeresLŦ
13Ŧ ueLalls of changes ln Lhe Memorandum and ArLlcles of AssoclaLlon duly


14Ŧ LasL Lhree years AudlLed balance sheeL along wlLh dlrecLors Ǝ audlLors
13Ŧ ueLalls of clauses ln Lhe memorandum relaLlng Lo flnanclal buslnessŦ
16Ŧ ueLalls of change ln Lhe managemenL of Lhe company durlng lasL flnanclal
year Llll daLe lf any and reasons LhereofŦ
17Ŧ ueLalls of acqulslLlonsţ mergers of oLher companles lf any LogeLher wlLh
supporLlng documenLsŦ
18Ŧ ueLalls of group companles/assoclaLe concerns/subsldlarles/holdlng
19Ŧ ueLalls of lnfuslon of caplLal lf any durlng lasL flnanclal year LogeLher wlLh
Lhe copy of reLurn of alloLmenL flled wlLh 8eglsLrar of CompanlesŦ
20Ŧ ueLalls of Lhe bank balances/bank accounLs/compleLe posLal address of Lhe
branch/bankţ loan/credlL faclllLles eLcŦ avalledŦ
21Ŧ 8uslness plan for nexL Lhree years lndlcaLlng markeL segmenL Lo be covered
wlLhouL any elemenL of publlc deposlLsŦ
22Ŧ Cash flow sLaLemenLţ asseL/lncome paLLern sLaLemenL for nexL Lhree yearsŦ
23Ŧ 8rlef background noLe on Lhe acLlvlLles of Lhe company durlng Lhe lasL
Lhree years and Lhe reasons for applylng for n8lC reglsLraLlonŦ
24Ŧ ll (b) ls Lhe company engaged ln any caplLal markeL acLlvlLy? lf soţ wheLher
Lhere has been any nonŴcompllance wlLh SL8l 8egulaLlons?
(SLaLemenL Lo be cerLlfled by AudlLors)Ŧ
23Ŧ WheLher any prohlblLory order was lssued ln Lhe pasL Lo Lhe company or
any oLher n8lC/8n8C wlLh whlch Lhe dlrecLors/promoLers eLcŦ were
assoclaLed? lf yesţ deLalls Lhere ofŦ

26Ŧ WheLher Lhe company or any of lLs dlrecLors was/ls lnvolved ln any crlmlnal
caseţ lncludlng under secLlon 138(1) of Lhe negoLlable lnsLrumenLs AcL? lf
yesţ deLalls LhereofŦ
27Ŧ WheLher Lhe company was granLed any permlsslon by LCu Lo funcLlon as
lullŴfledged Money Changers?
28Ŧ WheLher Lhe company was/ls auLhorlsed by LCu Lo accepL deposlLs from
29Ŧ WheLher ºllL and Þroper" norms for ulrecLors have been fulfllledŦ
1Ŧ Annex l Ŵ ldenLlflcaLlon parLlculars
2Ŧ Annex ll Ŵ SLaLemenL on prudenLlal norms
3Ŧ Annex lll Ŵ lnformaLlon abouL Lhe managemenL

TY BFN Page Ÿŵ

All n8lCs reglsLered wlLh 88l should make sure LhaL Lhey conLlnue Lo be ellglble Lo reLaln
Lhe 88l 8eglsLraLlon
5.2 Minimum Net-owned Fund:-
A company lncorporaLed under Lhe Companles AcLţ 1936 and deslrous of
commenclng buslness of nonŴbanklng flnanclal lnsLlLuLlon as deflned under SecLlon 43 l(a)
of Lhe 88l AcLţ 1934 should have a mlnlmum neL owned fund of 8s 23 lakh (ralsed Lo 8s
200 lakh wŦeŦf Aprll 21ţ 1999)Ŧ
neL Cwned lund ls deflned ln Lhe LxplanaLlon Lo SecLlon 43ŴlA of Lhe 88l AcL 1934 as
(a) 1he aggregaLe of Lhe paldŴup equlLy caplLal and free reserves as dlsclosed ln Lhe laLesL
balance sheeL of Lhe company afLer deducLlng LherefromŴ
(l) accumulaLed balance of lossŤ
(ll) ueferred revenue expendlLureŤ and
(lll) CLher lnLanglble asseLsŤ and
(b) lurLher reduced by Lhe amounLs represenLlngŴ
(1) lnvesLmenLs of such company ln shares ofŴ
(l) lLs subsldlarlesŤ


(ll) Companles ln Lhe same groupŤ
(lll) All oLher nonŴbanklng flnanclal companlesŤ and
(2) 1he book value of debenLuresţ bondsţ ouLsLandlng loans and advances (lncludlng
hlreŴpurchase and lease flnance) made Loţ and deposlLs wlLhŴ
(l) Subsldlarles of such companyŤ and
(ll) Companles ln Lhe same groupţ Lo Lhe exLenL such amounL exceeds Len per cenLţ of (a)
vlde 88l/2007Ŵ08/369 Ŵun8S (Þu) CŦCŦ noŦ 114 /03Ŧ 02Ŧ039/2007Ŵ08 daLed !une 17ţ 2008
88l has lnsLrucLed all deposlL Laklng n8lCs as followsť
ln order Lo sLrengLhen Lhe flnanclal sysLem ln general and deposlL Laklng enLlLles ln
parLlcular n8lCs accepLlng deposlLs should be adequaLely caplLallzed and aL Lhe same
Llme also have a unlform mlnlmum nClŦ
1o ensure a measured movemenL Lowards sLrengLhenlng Lhe flnanclals of all deposlL
Laklng n8lCs by lncreaslng Lhelr nCl Lo a mlnlmum of 8sŦ200 lakh ln a gradualţ nonŴ
dlsrupLlve and nonŴdlscrlmlnaLory mannerţ lL has been declded Lo prescrlbe LhaLť
(a) As a flrsL sLepţ n8lCs havlng mlnlmum nCl of less Lhan 8sŦ 200 lakh may freeze Lhelr
deposlLs aL Lhe level currenLly held by LhemŦ
(b) lurLherţ AsseL llnance Companles (AlC) havlng mlnlmum lnvesLmenL grade credlL
raLlng and C8A8 of 12Ʒ may brlng down publlc deposlLs Lo a level LhaL ls 1Ŧ3 Llmes Lhelr
nCl whlle all oLher companles may brlng down Lhelr publlc deposlLs Lo a level equal Lo
Lhelr nCl by March 31ţ 2009Ŧ
(c) 1hose companles whlch are presenLly ellglble Lo accepL publlc deposlLs up Lo a cerLaln
levelţ buL haveţ for any reasonţ noL accepLed deposlLs up Lo LhaL level wlll be permlLLed Lo
accepL publlc deposlLs up Lo Lhe revlsed celllng prescrlbed
(d) Companles on aLLalnlng Lhe nCl of 8sŦ200 lakh may submlL sLaLuLory audlLorƌs
cerLlflcaLe cerLlfylng lLs nClŦ
(e) 1he n8lCs falllng Lo achleve Lhe prescrlbed celllng wlLhln Lhe sLlpulaLed Llme perlodţ
may apply Lo Lhe 8eserve 8ank for approprlaLe dlspensaLlon ln Lhls regard whlch may be
consldered on case Lo case basls

TY BFN Page Ÿŷ

,tegory of NBF !resent eiling
on public
Revised eiling on
public deposits
AFs m,int,ining RAR of
without credit r,ting ,nd
NOF more th,n Rs 25 l,h
but less
th,n Rs 200 l,h

AFs with RAR of 12%
h,ving minimum investment
gr,de credit r,ting ,nd
NOF more th,n Rs 25 l,h
but less th,n Rs 200 l,h

Ls/Ìs with RAR of 15%
h,ving minimum investment
gr,de credit r,ting ,nd
NOF more th,n Rs 25 l,h
but less
th,n Rs 200 l,h

1.5 times of
NOF or

Rs 10 crore

whichever is
Equ,l to NOF

4 times of NOF

1.5 times of
Equ,l to NOF

1.5 times of NOF

Equ,l to NOF
AlCs Ŷ AsseL llnance Companles
LCs Ŷ Loan Companles
lCs Ŷ lnvesLmenL Companles



lt0lAt ßAtKS v/S tßFC'S



6Ŧ1Ŧ What |s d|fference between banks Ǝ N8ICs ?
n8lCs are dolng funcLlons asklng Lo LhaL of banksţ however Lhere are a few
O (1) A n8lC cannoL accepL demand deposlLs (demand deposlLs are funds deposlLed aL a
deposlLory lnsLlLuLlon LhaL are payable on demand ŴŴ lmmedlaLely or wlLhln a very shorL
perlod ŴŴ llke your currenL or savlngs accounLs)Ŧ

O (2) lL ls noL a parL of Lhe paymenL and seLLlemenL sysLem and as such cannoL lssue
cheques Lo lLs cusLomersŦ

O (3) ueposlL lnsurance faclllLy of ulCCC ls noL avallable for n8lC deposlLors unllke ln case
of banksŦ

O (4) 1hey are allowed Lo accepL/renew publlc deposlLs for a mlnlmum perlod of 12monLhs
and maxlmum perlod of 60 monLhsŦ

O (3) 1hey cannoL offer lnLeresL raLes hlgher Lhan Lhe celllng raLe prescrlbed by 88l from
Llme Lo LlmeŦ (CurrenLly Lhe celllng raLe ls 12Ŧ3Ʒ)

O (6) 1hey cannoL offer glfLs/ lncenLlves or any oLher addlLlonal beneflL Lo Lhe deposlLorsŦ

O (7) 1hey should have mlnlmum lnvesLmenL grade credlL raLlnd from credlL raLlng agencles


TY BFN Page Ÿź

2008Ŵ09 was a dlfflculL yearţ especlally for Lhe flnanclal segmenL across Lhe globeŦ
Poweverţ lndla's sLrong macroŴeconomlc fundamenLals and flnanclal pollcles have
shlelded lL from Lhe LurmollŦŦ 1he sLudy consldered Lhose banks LhaL have announced
Lhelr resulLs beLween 13Lh Aprll Ŵ20Lh May 2008Ŵ 09 posLed on Lhe webslLe of 8ombay
SLock LxchangeŦ 1he have analyzed ln LoLal 29 banks (boLh publlc Ǝ prlvaLe secLor) and 7
n8lCs 1he) sLudy has examlned and compared Lhe proflLablllLy of banks wlLh n8lCs
durlng Lhe flnanclal year 2008Ŵ09Ŧ Slmple average and proflLablllLy raLlo of Lhe Lwo
segmenLs have been sLudledŦ MeLhodology Ŵ 1he AlÞ analysls of Lhe lndlan commerclal
banks Ǝ n8lCs proflLablllLy ls calculaLed uslng Lwo broad parameLers lncludlng neL proflL
and LoLal lncomeŦ ÞroflLablllLy 8aLlo ls a class of flnanclal meLrlcs LhaL ls used Lo assess a
buslnessƌs ablllLy Lo generaLe earnlngs as compared Lo lLs expenses and oLher relevanL
cosLs lncurred durlng a speclflc perlod of LlmeŦ

ÞroflLablllLy ls calculaLed asť (neL ÞroflL/1oLal lncome)*100

n8lCs more proflLable Lhan commerclal banks desplLe slowdown Lven as Lhe world wlde
flnanclal crlsls and slowdown ln key secLors of Lhe lndlan economy led Lhe non 8anklng
llnanclal Companles Lo face severe cash shorLage durlng Lhe flnanclal year 2008Ŵ09ţ Lhe
overall proflLablllLy of n8lCs has remalned hlgher Lhan Lhe scheduled commerclal banksŦ
uurlng Lhe flnanclal year 2008Ŵ09ţ nonŴ 8anklng llnanclal Companles (n8lCs) average
proflLablllLy sLood hlgher aL 18Ŧ90 per cenL as compared Lo Lhe banks wlLh 10Ŧ08 per cenLŦ
1he n8lCs generally operaLes on Lhe model of lendlng Lo rlskler pro[ecLs wlLh lnLeresL
raLes hlgher Lhan offered by Lhe banklng lnsLlLuLlonsŦ As Lhe flnanclal markeLs faced Lhe
heaL of global crlsls durlng Lhe flnanclal year 2008Ŵ09ţ mosL of Lhe n8lCs faced problems
ln fund ralslngŦ Among Lhe seven n8lCsţ ln 2008Ŵ09 Lhe hlghesL proflLablllLy was reporLed
by lnfrasLrucLure uevelopmenL llnance Company LlmlLed aL 20Ŧ89 per cenLţ wlLh LoLal
lncome sLood aL 8sŦ3626Ŧ38 crore and neL proflL aL 8sŦ737Ŧ73 croreŦ lL was followed by
Pouslng uevelopmenL llnance Companles LlmlLed (PulC) andÞower llnance Companles
LlmlLed (ÞlCL) aL 20Ŧ76 per cenL and 20Ŧ67 per cenL respecLlvelyŦ ź1he 8eserve 8ank of
lndla (88l) moneLary measures by cuLLlng lnLeresL raLes durlng 2008Ŵ09 has beneflLed Lhe
n8lCs slnce many of Lhem flnance Lhelr operaLlons Lhrough markeL borrowlngsȉ sald MrŦ
Sa[[an !lndal ÞresldenLŦ
AggregaLe neL proflL Lo LoLal lncome raLlo of 17 publlc secLor banks and 12 prlvaLe secLor
banks reporLed Lo be 10Ŧ08 per cenL durlng 2008Ŵ09Ŧ


6.2 Top 5 Banks and NBFCs with highest profitabilityťŴ

ln Ʒ
non 8anklng llnanclal
ln Ʒ
13Ŧ83 lnfrasLrucLure
developmenL flnance
company llmlLed
8Ank Cl

13Ŧ30 Pouslng developmenL
flnance companles llmlLed
AxlS 8Ank 13Ŧ22 Þower flnance companles
SLaLe 8ank
12Ŧ94 LlC Pouslng llnance L1u 18Ŧ46
unlon 8ank
12Ŧ91 Manappuram Ceneral
llnance and
Leaslng L1u

Among Lhe 17 publlc secLor banksţ Lhe hlghesL proflLablllLy was reporLed by lndlan 8ank
and 8ank of lndla aL 13Ŧ83 per cenL and 13Ŧ30 per cenL respecLlvelyŦ CuL of Lhe prlvaLe
secLor banks Lhe Lop poslLlons were occupled by Axls 8ank and ?es 8ank aL 13Ŧ22 per cenL
and 12Ŧ46 per cenL respecLlvelyţ among oLhersŦ 1he 7 n8lCsţ aggregaLe LoLal lncome grew
by a whooplng 37Ŧ3 per cenL Lo 8sŦ28ţ208Ŧ72 crore ln l?'09 from 8sŦ17ţ906Ŧ84 crore ln Lhe
prevlous flscalŦ Poweverţ Lhe aggregaLe LoLal lncome of 29 banks have lncreased by 23Ŧ3
per cenL from 8s 2ţ69ţ033 crore ln 2007Ŵ08 Lo 8s 3ţ37ţ206Ŧ9 crore ln 2008Ŵ09Ŧ ?earŴonŴ
year performance of Lhe 29 banks regardlng neL proflL Lo LoLal lncome raLlo aL Lhe
aggregaLe level showed a marglnal decllne durlng l?'09 wlLh 10Ŧ08 per cenL as agalnsL
l?'08 recorded aL 10Ŧ32 per cenLţ whlle ln Lhe case of 7 ma[or n8lCsţ Lhe raLlo decllned
durlng 2008Ŵ09 aL 18Ŧ90 per cenL as agalnsL 21Ŧ80 per cenL ln l?'08Ŧ


TY BFN Page Ÿ8



TY BFN Page Ÿ9



7.1. Functions of or types of assistance to be provided by the ¡DB¡
are as follows:
(|) D|rect I|nanc|a| Ass|stanceť
1he lu8l provldes dlrecL flnanclal asslsLance Lo Lhe lndusLrlal concerns ln Lhe form of %f%
granLlng loans and advancesŤ and %%subscrlblng Loţ purchaslng or underwrlLlng Lhe lssues
of sLocksţ bonds or debenLuresŦ
(||) Ind|rect I|nanc|a| Ass|stanceť
1he lu8l provldes lndlrecL flnanclal asslsLance Lo Lhe small and medlum lndusLrlal
concerns Lhrough oLher flnanclal lnsLlLuLlonţ such asţ SLaLe llnance CorporaLlonsţ SLaLe
lndusLrlal uevelopmenL CorporaLlonsţ CooperaLlve banksţ reglonal rural banksţ
commerclal banksŦ 1he AsslsLance Lo Lhese lnsLlLuLlons lnclude ť%f% reflnanclng of loans
glven by Lhe lnsLlLuLlonsŤ subscrlblng Lo Lhelr shares and bondsŤ (c) redlscounLlng of blllsŦ
(||I) Deve|opment Ass|stanceť
1he creaLlon of Lhe uevelopmenL AsslsLance lund ls Lhe speclal feaLure of Lhe lu8lŦ 1he
lund ls used Lo provlde asslsLance Lo Lhose lndusLrles whlch are noL able Lo obLaln funds
ln Lhe normal course malnly because of heavy lnvesLmenL lnvolved or low expecLed raLe
of reLurnsŦ 1he flnanclal resources of Lhe lund malnly come from conLrlbuLlons made by
Lhe governmenL ln Lhe form of loansţ glfLsţ donaLlonsţ eLcŤ and from oLher sourcesŦ
AsslsLance from Lhe lund requlres Lhe prlor approval by Lhe governmenLŦ
(|v) Þromot|ona| Iunct|onť
8esldes provldlng flnanclal asslsLanceţ Lhe lu8l also underLakes varlous promoLlonal
acLlvlLles such as markeLlng and lnvesLmenL researchţ LechnoŴ economlc surveysŦ lL
provldes Lechnlcal and admlnlsLraLlve advlce for promoLlonţ expanslon and beLLer
managemenL of Lhe lndusLrlal concernsŦ


TY BFN Page Źŵ

7.2. Overview of ¡DB¡:-
lu8l was esLabllshed ln 1964 under an AcL of ÞarllamenL for provldlng credlL and oLher
faclllLles for Lhe developmenL of lndusLryŦ lL also acLs as Lhe prlnclpal flnanclal lnsLlLuLlon
for coordlnaLlng Lhe acLlvlLles of lnsLlLuLlons engaged ln Lhe flnanceţ promoLlonţ or
developmenL of lndusLryŦ 1he CovernmenL of lndla's shareholdlng ln lu8l amounLs Lo
72Ʒţ and Lhe resL of Lhe shares are owned by Lhe general publlcŦ
lu8l has also offered speclallsed schemes for energy conservaLlon vlzŦ LqulpmenL llnance
for Lnergy ConservaLlon and Lnergy AudlL Subsldy SchemeŦ ÞresenLlyţ lu8l provldes rupee
and forelgn currency Lerm loans for Lhe acqulslLlon and lnsLallaLlon of energy
conservaLlon equlpmenLţ and for polluLlon conLrol and prevenLlon pro[ecLs ln hlghly
polluLlng lndusLrlal secLorsţ funded lnLer allaţ ouL of World 8ank's lndusLrlal ÞolluLlon
ÞrevenLlon Þro[ecL (lÞÞÞ) or Lhe uS Agency for lnLernaLlonal uevelopmenLŴfunded
Creenhouse Cas ÞolluLlon ÞrevenLlon (CLÞ) Þro[ecLŦ 8esldesţ flnance ls made avallable for
LL/LM ouL of Lhe onŴgolng lndusLrlal Lnergy Lfflclency Þro[ecL of Lhe Au8 of whlch Lhe 1A
forms a parLŦunder Lhls pro[ecLţ flnance ls glven Lo lndusLrlal unlLs ln rupee as well as ln
forelgn currencyŦ
AddlLlonal fundlng needs lefL unmeL by Lhe Au8 funds are supplemenLed by lu8l's own
funds as wellŦ
7Ŧ2Ŧ1 lu8l lnsLlLuLlonal SLrucLure
lu8l ls governed by a 8oard of ulrecLors and lLs operaLlon ls carrled ouL under Lhe
supervlslon of Lhe Chalrman and Managlng ulrecLor asslsLed by four LxecuLlve ulrecLors
and one AdvlserŦ WlLh lLs head offlce ln Mumbalţ lu8l has 43 addlLlonal offlces
LhroughouL lndlaŦ
As of november 1998ţ lu8l was sLrucLured lnLo 33 deparLmenLsţ whlch are organlzed lnLo
flve groups Lo faclllLaLe proper dlsLrlbuLlon of responslblllLyŦ Among Lhese deparLmenLsţ
Lhe ones relevanL Lo Lhe efflclenL lendlng for ee/em acLlvlLles are brlefly descrlbed belowŦ
7Ŧ2Ŧ2 Þro[ecL appralsal deparLmenLťŴ
1he Þro[ecL Appralsal ueparLmenL (ÞAu) appralses all Lhe lndusLrlal pro[ecL proposalsŦ
ÞAu pro[ecLs consLlLuLe Lhe ma[orlLy of pro[ecLs sancLloned by lu8l ln Lerms of valueŦ
8esldes a number of smaller pro[ecLs are funded aL Lhe branch levelŦ
7Ŧ2Ŧ3 CorporaLe flnance deparLmenLsťŴ
1he Lhree CorporaLe llnance ueparLmenLs (Clus) follow up on Lhe pro[ecLs LhaL have
already been sancLlonedţ ln order Lo ensure Lhelr Llmely lmplemenLaLlon and proper
uLlllzaLlon of fundsŦ ln addlLlonţ a new concepL of a 8elaLlonshlp Manager was lnsLlLuLed


wlLhln Lhe ClusŦ 1hese managers wlll be dedlcaLed Lo manage lu8l's lnLeracLlons wlLh a
ma[or lndusLrlal (ownershlp) groupţ such as 8ellance lndusLrlesţ Lhe 1aLa Croupţ eLcŦ
Whlle Lhe relaLlonshlp manager sysLem works well from Lhe perspecLlve of
consolldaLlng knowledge abouL an lndusLry groupţ lL may noL work as well where Lhe
focus has Lo be on an aspecL of Lechnology wlLhln an lndusLry secLorŦ lor exampleţ a
relaLlonshlp manager cannoL be expecLed Lo be an experL on energy efflclency ln every
lndusLry secLor LhaL forms a parL of Lhe lndusLry group belng dealL wlLh by hlm/herŦ
Penceţ ln order Lo develop some experLlse ln some of Lhe lndusLrlesţ whlch are noL
necessarlly domlnaLed only by a few ma[or lndusLry groupsţ lndusLryŴsecLorŴwlse
approach ls also adopLedŦ 1hus Lhe organlzaLlon of a Clu ls a workable mlx of lndusLry
group and lndusLry subŴsecLorţ wlLh Lhe experLlse of one ueallng group drawn upon by
1he 1reasury and lundlng ulvlslon conLracLsţ decldes on uLlllzaLlon and monlLors all llnes
of credlL from mulLlŴlaLeral lnsLlLuLlons llke Lhe World 8ank (W8) and Lhe Aslan
uevelopmenL 8ank (Au8)Ŧ lL manages Lhe varlous speclallzed loans and granLs for energy
and envlronmenLal Lechnology pro[ecLsţ lncludlng Lhls 1A pro[ecLŦ
7Ŧ2Ŧ4Ŧ CommenLs on CrganlzaLlonal SLrucLureťŴ
lu8l's organlzaLlon sLrucLure ls drlven by lLs buslness ob[ecLlves of offerlng Lhe besL
servlces Lo Lhe ma[or lndusLry groupsŦ AL Lhe same Llme lL ls so organlsed Lo have lndusLry
speclallsLs ln lmporLanL lndusLrlal subŴsecLors as wellŦ 1he organlsaLlonal sLrucLure ls
geared Lo provlde Lhe besL producLs and servlces ln Lhe presenL compeLlLlve envlronmenL
whlle slmulLaneously aLLempLlng Lo meeL lLs developmenLal role governed by ºlssueŴ
based" lendlngŦ
lollowlng flnanclal secLor llberallsaLlonţ Lhe envlronmenL has Lurned hlghly compeLlLlve
compelllng lu8l Lo organlse lLself ln a manner Lo prlorlLlse Lhe ob[ecLlve of offerlng Lhe
besL servlces Lo Lhe ma[or lndusLry groups over focus excluslvely for energy efflclency and
envlronmenLal acLlvlLlesŦ 1here ls a need Lo creaLe a ºhome or cenLer" for energy and
envlronmenLal Lechnlcal acLlvlLlesŦ 1hls cenLer needs Lo be locaLed aL Lhe hlghesL level
lu8l ln order Lo ensure vlslblllLyţ and Lo provlde a resource baseţ whlch could be accessed
by all Lhe concerned deparLmenLs descrlbed aboveŦ lLLÞ and oLher such llnes of credlL are
belng managed by Lhe lSuţ whlch ls noL dlrecLly engaged ln elLher pro[ecL appralsal or ln
lmplemenLaLlonŦ Pence lLs role ls one of belng a faclllLaLor and coŴordlnaLor for glvlng Lhe
needed focus Lo Lhe ee/em acLlvlLlesŦ lL ls qulLe posslble for Lhls SecLlon Lo be upgraded Lo
be Lhe ºhome" suggesLed above wlLh approprlaLe Lechnlcal sLaff for pollcy maklngţ

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faclllLaLlon of Lhe llnes of credlLţ developmenLal acLlvlLlesţ eLcŦ ln ee/em lssuesŦ 1hls wlll
help clarlfy Lhe varled roles of Clu and lSu and avold dupllcaLlon of efforLţ beLLer
coordlnaLlon and communlcaLlon beLween Lhe lSu and Lhe CluŦ
A sysLem of bullLŴln lncenLlves for coŴoperaLlon and coŴordlnaLlon beLween Lhe concerned
deparLmenLs wlll also ald Lhe organlsaLlon ln playlng a more effecLlve role ln ee/em
acLlvlLles relaLlng Lo pollcy formulaLlonţ loan approvals and subsequenL dlsbursemenLŦ
7Ŧ3 lu8l Lendlng ÞrocedureťŴ
1he currenL procedure for lendlng aL lu8l lncludesť
(1) An lnqulry sLageţ
(2) An appllcaLlon sLageţ
(3) SlLe vlslLsţ
(4) ÞreparaLlon of an appralsal noLeţ
(3) An evaluaLlon by lu8l commlLLeeţ
(6) 1he lssuance of a LeLLer of lnLenLţ and
(7) 1reparaLlon of a legal agreemenL for lendlng for sulLable pro[ecLsŦ
lu8l also operaLes speclal credlL llnes for Lhe mlLlgaLlon of polluLlonţ lmplemenLaLlon of
Lhe MonLreal ÞroLocol commlLmenLsţ modernlzaLlon and expanslon of energy lnLenslve
lndusLryţ eLcŦ 1he Lechnlcal norms for Lhese llnes were deLermlned lndlvlduallyţ buL Lhe
lendlng procedure ls Lhe same as LhaL for oLher lu8l pro[ecLsŦ
1he lendlng procedure followed by lu8l ls comprehenslveţ based on accepLed meLhods of
evaluaLlon and collecLlve wlsdomţ and ls LransparenLŦ 1he procedureţ howeverţ does noL
provlde for a serlous aLLempL Lo evaluaLe Lhe energy and envlronmenLal componenLs of
any lendlng proposalŦ AL each sLage of Lhe appllcaLlon for a loanţ a company ls requlred Lo
provlde lnformaLlon on energy consumpLlonţ along wlLh LhaL of oLher uLlllLy servlcesŦ
Lnergy consumpLlon lnformaLlon ls dlsaggregaLed lnLo fuels and elecLrlclLy caLegorlesŦ
1he company ls noL requlred Lo provlde lndlcaLors of energy use Lo lu8lţ whlch makes Lhe
lnformaLlon dlfflculL Lo evaluaLeŦ lndlcaLors could llnk Lhe energy (fuel and elecLrlclLy)
consumpLlon Lo physlcal acLlvlLy levels and permlL comparlson wlLh besL pracLlce ln lndla
and abroadŦ lu8l could also ask for addlLlonal lnformaLlon on Lechnlcal lndlcaLors ln Lhe
loan appllcaLlon LhaL lndusLrles are requlred Lo compleLeŦ



lu8l CaplLal MarkeL Servlcesţ LLdŦ provldes lnvesLmenL banklng and flnanclal servlcesŦ 1he
company's servlces lnclude sLock broklngţ dlsLrlbuLlon of flnanclal producLsţ lnvesLmenL
banklngţ merchanL banklngţ corporaLe advlsoryţ debL arranglng and underwrlLlngţ
managlng cllenL asseLsţ researchţ and onllne lnvesLlng servlcesŦ lL offers mergers and
acqulslLlons servlcesţ lncludlng buslness valuaLlonsţ feaslblllLy sLudlesţ and parLnerlng and
[olnL venLure alllances servlcesţ as well as asslsLs ln ralslng of prlvaLe equlLy and venLure
caplLal by corporaLesŦ 1he company serves lndlvldualţ lnsLlLuLlonalţ and corporaLe cllenLsŦ
lL has a sLraLeglc alllance wlLh unlon 8ank of lndlaŦ 1he company was founded ln 1993
and ls headquarLered ln Mumbalţ lndlaŦ lu8l CaplLal MarkeL Servlcesţ LLdŦ operaLes as a
subsldlary of lndusLrlal uevelopmenL 8ank of lndlaţ LLdŦ
kL? uLvLLCÞMLn1S lC8 lu8l CAÞl1AL MA8kL1 SL8vlCLS L1uŦ
N8CC keported|y kece|ves CCLA Approva|
1he CovernmenL of lndla lnLends Lo sell 10Ʒ sLake ln naLlonal 8ulldlngs ConsLrucLlon
CorporaLlon LLdŦ (n8CC) Lo ralse ln8 2Ŧ3 bllllonŦ ƍ1he CablneL CommlLLee on Lconomlc
Affalrs (CCLA) has cleared 10 per cenL sLake sale proposal of n8CCţƍ sources saldţ buL Lhe
Llmellne has noL yeL been revealedŦ n8CC had hlred Lnam SecurlLles ÞvLŦ LLdŦ and lu8l
CaplLal MarkeL Servlcesţ LLdŦ Lo manage Lhe sLake saleŦ As parL of Lhe lnlLlal publlc
offerlngţ 9 mllllon shares of face value ln8 10 wlll be sold ln Lhe markeLŦ
SƷ Stake In NSL Up Ior Sa|e
A ma[or shareholder of naLlonal SLock Lxchange of lndla LLdŦ (nSL) lnLends Lo dlvesL up Lo
3Ʒ sLakeŦ 1he 3Ʒ sLake ln nSL ls valued abouL ln8 10 bllllonŦ lu8l CaplLal MarkeL Servlces
LLdŦ wlll be handllng Lhe sale process over Lhe nexL one weekŦ lu8l CaplLal sald LhaL lL ls
seeklng blds for ƍsale of equlLy shares noL exceedlng 3Ʒ of Lhe LoLal equlLy share caplLal
of Lhe naLlonal SLock Lxchange of lndla LLdŦƍ 8lds are Lo be submlLLed by March 11Ŧ nSL
lLself ls noL a parLy Lo Lhe proposed LransacLlon and would have a rlghL Lo approve or
re[ecL any Lransfer of sharesŦ lu8l CaplLal sald LhaL Lhe buyer could be a forelgn
lnsLlLuLlonal lnvesLor (lll)ţ a resldenL lndlan lndlvldual lnvesLor or any oLher domesLlc
ID8I Cap|ta| Market Serv|ces LtdŦ Announces Lxecut|ve ChangesťŴ
lu8l CaplLal MarkeL Servlces LLdŦ appolnLed Abhay L 8onglrwar as lLs Managlng ulrecLor
and CLCŦ 8onglrwar was earller servlng as lu8l 8ankƌs Chlef Ceneral Manager and
replaces nagendra 8haLnagar wlLh effecL from uecember 31ţ 2010Ŧ



7.5. R¡8K Management:-

CloballzaLlonţ deregulaLlonţ and llberallzaLlonţ Lhe world overţ are creaLlng opporLunlLles
as also LhreaLsŦ 1he forces unleashed by globallzaLlon have lnLenslfled compeLlLlon from
wlLhln and ouLslde Lhe counLryŦ 8uslness unlLs are Lhus faclng a mulLlLude of rlsksţ some
famlllar buL also some qulLe unfamlllar onesţ and hlgher volaLlllLy ln cash flowsŦ 1he
slgnlflcanL lnfluence LhaL Lhese evenLs have on Lhe flnanclal sysLemţ sLrongly lndlcaLes
Lhe lmperaLlve for a move Lowards a comprehenslve rlsk managemenL sysLem Lo keep ln
Lune wlLh volaLlllLles ln an ever changlng uncerLaln buslness envlronmenLŦ 1hls would
enable lu8l 8ank Lo Lake advanLage of Lhe upsldeţ whlle managlng Lhe downsldeŦ

lu8l 8ank ln Lhe course of lLs operaLlons ls exposed Lo varlous rlsks llke CredlL 8lsk
(malnly on accounL of Lhe borrowers and oLher counLerŴparLles' lnablllLy Lo meeL Lhelr
repaymenL commlLmenLs)ţ MarkeL 8lsk (arlslng ouL of movemenL of markeL
values/lnLeresL raLes lmpacLlng earnlng poLenLlalţ falr valuaLlon or reallzable value of Lhe
porLfollo)ţ LlquldlLy 8lsk (lmpacLs capaclLy Lo ralse necessary funds Lo meeL debL
servlclng requlremenLs and dlsbursemenLs)ţ Lxchange 8lsk (arlslng from movemenL of
exchange raLes of forelgn currency) and CperaLlonal 8lsk (lncludes rlsks arlslng from
operaLlonal processes lncludlng Lechnologyţ manpowerţ proceduresţ eLcŦ)Ŧ

8lsk managemenL ls a key elemenL of lu8l 8ank's buslness sLraLegyŦ Awarenessţ
ldenLlflcaLlonţ measuremenLţ monlLorlng and conLrolllng rlskţ efflclenLly and effecLlvelyţ
ln a manner geared Lowards yleldlng susLalned economlc valueţ ls among Lhe hlghesL
prlorlLles of lu8l 8ankŦ 1he ob[ecLlve of 8lsk ManagemenL ls Lo move lu8l 8ank up Lhe
value chaln by ensurlng susLalned quallLy growLh ln and off Lhe balance sheeL lLems
along wlLh opLlmlzlng Lhe boLLomŴllne compensaLlon Lo adequaLely cover Lhe varlous
rlsks embraced by lu8l 8ank and provlde accreLlon Lo lLs caplLalŦ ln Lhe processţ 8lsk
ManagemenL alms Lo creaLe value Ŷ Langlble and lnLanglble Ŷ for lLs sLakeholders
(lnvesLorsţ cusLomersţ employeesţ regulaLors) Ŷ ln Lhe form of a superlor balance sheeLţ
adequaLe llquldlLyţ healLhy reLurn on caplLalţ LrusL and confldenceţ eLcŦ ln Lhls dlrecLlonţ
8aselŴll guldellnesţ whlch wlll faclllLaLe upŴgradaLlon of rlsk managemenL funcLlonsţ
assume a crlLlcal roleŦ Whlle Lhe 8lsk Croup ls enLrusLed wlLh Lhe key responslblllLy ln
rlsk managemenL funcLlonţ ln pursulL of Lhls enLerprlseŴwlde ob[ecLlveţ lu8l 8ank
conslders every employee of Lhe 8ank a 8lsk ManagerŦ


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Acqu|s|t|on of Un|ted Western 8ankťŴ
ln 2006ţ lu8l 8ank acqulred Un|ted Western 8ank ln a rescueŦ
Annasaheb Chlrmuleţ
who worked for Lhe cause of Swadeshl movemenLţ founded Satara Swadesh|
Commerc|a| 8ank ln 1907ţ and some Lhree decades laLer founded unlLed WesLern 8ankŦ
1he bank was lncorporaLed ln 1936ţ and commenced operaLlons Lhe nexL yearţ wlLh lLs
head offlce ln SaLaraţ ln MaharashLra SLaLeŦ lL became a Scheduled 8ank ln 1931Ŧ ln 1936
lL merged wlLh Un|on 8ank of ko|hapurţ and ln 1961 wlLh Satara Swadesh| Commerc|a|

AL Lhe Llme of Lhe merger wlLh lu8lţ unlLed WesLern had some 230 branches
spread over 47 dlsLrlcLs ln 9 sLaLesţ conLrolled by flve Zonal Cfflces aL Mumbalţ Þuneţ
kolhapurţ !algaon and nagpurŦ



Flt0lt6S & HAtA6FRlAl


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8.1 F¡ND¡NG8:-
1opŴraLed n8lCs have noL only been successful ln managlng Lhelr markeL share buL also ln
proLecLlng Lhelr proflLablllLyŦ A comblnaLlon of Lhe facLors clLed earller had helped Lhese
n8lCs earn beLLer reLurns on Lhelr deploymenLŦ ln facLţ almosL all Lhe LopŴraLed n8lCs
en[oy a reLurn on LoLal asseLs LhaL ls hlgher Lhan PulC 8ankƌsţ one of Lhe beLLerŴrun
banksŦ 1he hlgher reLurn on asseLs was desplLe Lhelr operaLlng cosL raLlo belng slmllar Lo
LhaL of PulC 8ankŦ lor exampleţ operaLlng expenses as a proporLlon of neL margln
worked ouL Lo 68 per cenL for PulC 8ankŦ Cn an averageţ Lhls was noL slgnlflcanLly hlgher
Lhan Lhe raLlo for mosL LopŴraLed n8lCsŦ lf reLurn on asseLs were sLlll superlorţ Lhen lL was
because of Lhe hlgher reLurn on Lhelr fundsŦ lor Lop n8lCsţ Lhe lnLeresL lncome worked
ouL Lo 17Ŵ21 per cenL of Lhelr LoLal asseLs for Lhe year ended l?Ŧ 1he llquldlLy ln Lhe
banklng sysLem also helped Lhese flnance companlesŦ Spreads over governmenL securlLles
for AAA raLed corporaLe secLor debL lnsLrumenL are now only 30 basls polnLsŦ ln oLher
wordsţ lf Lhe cosL of funds for banklng companles has decllned sharplyţ Lhen LopŴraLed
n8lCs have also beneflLed from such a decllne ln lnLeresL raLesŦ Some of Lhese companles
are now ralslng funds aL 7Ŵ8 per cenLŦ

Alsoţ Lhese companles have dlsplayed Lhe ablllLy Lo manage Lhelr porLfollo wlLhouL large
lncldence of nonŴperformlng asseLsŦ lor lnsLanceţ LlC Pouslng llnanceţ lulC and Shrlram
1ransporL llnance boasL of neL nonŴperformlng asseLs Lo neL advances raLlo of less Lhan 1
per cenLŦ 1hls agaln has helped Lhem lower Lhe overall cosL of operaLlons andţ Lherebyţ
proLecL Lhelr proflLablllLyŦ Plgher proflLablllLy and lnnovaLlve flnanclng opLlonsţ such as
securlLlzaLlonţ have also helped ln boosLlng Lhe caplLal adequacy raLlo of Lhese n8lCsŦ
8Ŧ1Ŧ1 ulsbursemenLs Ŵ Sharp fall durlng Lhe crlslsťŴ
ulsbursemenLs were clearly hlL durlng Lhe crlsls as ls vlslble from Þrlmary reason for Lhls
lnlLlal fall was lack of supply of funds afLer Lhe markeL llquldlLy drled upŦ lmpacL however
dlffered dependlng on Lhe caplLal sLrucLure of Lhe companyţ wlLh n8lCs havlng larger
ALM mlsmaLches and Lhose whlch had more dependence on muLual funds for fundlng
were affecLed more severely as muLual funds Lhemselves faced redempLlon pressure on
Lhelr shorL Lerm schemesŦ 1o supporL Lhe secLorţ 88l underLook several measures Lo
lmprove llquldlLy flow Lo Lhe n8lC secLorŦ 1hls was a slgnlflcanL developmenL as Lhe
regulaLor hlghllghLed Lhe sysLemlc lmporLance of Lhe secLorŦ


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8Ŧ2Ŧ 88l measures Lo lmprove llquldlLy of n8lCs
O 1he sysLemlcally lmporLanL nonŴdeposlL Laklng nonŴbanklng flnanclal companles (n8lCsŴ
nuŴSl) were permlLLed Lo ralse shorLŴLerm forelgn currency borrowlngsŦ
O Allowed banks Lo avall llquldlLy supporL under Lhe LAl for Lhe purpose of meeLlng Lhe
fundlng requlremenLs of n8lCs Lhrough relaxaLlon ln Lhe malnLenance of SL8 up Lo 1Ŧ3
per cenL of Lhelr nu1LŦ
O 8lsk welghLs on banks'exposures Lo clalms on n8lCsŴnuSl were reduced Lo 100 per cenL
from 130 per cenLŦ
O SeLLlng up of a speclal purpose vehlcle (SÞv) for addresslng Lhe Lemporary llquldlLy
consLralnLs of sysLemlcally lmporLanL nonŴdeposlL Laklng nonŴbanklng flnanclal companles
O ueferrlng Lhe hlgher CA8 norms for n8lCsŴnuŴSl by 1 yearŦ

Whlle llquldlLy condlLlons sLarLed lmprovlng from C4 l?09ţ dlsbursemenLs growLh
remalned subdued for Lhe secLor Llll Lhe flrsL half of l?10Ŧ Cn a yŴoŴy basls Lhe cumulaLlve
dlsbursemenLs showed a fall durlng C1 l?10 and P1 l?10Ŧ 1hls perlod saw deLerloraLlon
ln asseL quallLy of mosL n8lCsţ whlch was especlally hlgh ln Lhelr unsecured loan
porLfollosŦ Lower dlsbursemenLs were malnly because of Lhe pull back of n8lCs ouL of
unsecured lendlng segmenLsŦ Cn a cumulaLlve basls 9ML l?10 dlsbursemenLs lncreased
by more Lhan 19ƷŦ Lven lf we conslder Lhe low base effecL of C3l?09 dlsbursemenLsţ
Lhere ls clear lndlcaLlon of plck up ln dlsbursemenLs and a poslLlve ouLlook for Lhe secLorŦ
WlLh lmprovemenL ln overall economlc acLlvlLy and hlgher LhrusL on lnfrasLrucLure
flnanclng by Lhe governmenLţ Lhe scenarlo ls expecLed Lo lmprove furLher ln l?11Ŧ


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8Ŧ2Ŧ2 CosL of lundlng Ŵ ShoL up durlng Lhe crlsls due Lo shorL Lenure borrowlngsţ
sLablllzed now Ǝ expecLed Lo be less volaLlle due Lo larger proporLlon of long Lerm
Many n8lCs Look advanLage of Lhe lower lnLeresL raLe reglme aL Lhe shorLer end of Lhe
yleld curve by borrowlng shorL Lerm funds (3monLhs Ŷ 1 year) aL lower raLes and lendlng
for maLurlLles ranglng from 3Ŵ4 years aL hlgher raLesŦ Powever Lhe level of mlsmaLches
dlffered beLween n8lCs and Lhose wlLh hlgher mlsmaLch faced noL only llquldlLy
pressureţ buL Lhelr cosL of fundlng also lncreased durlng Lhls perlod due Lo lnverslng of
Lhe yleld curve and a general rlse ln lnLeresL raLesŦ Average borrowlngs cosLs1 (on an
aggregaLe basls for CA8L raLed n8lCs) lncreased from around 9Ŧ3Ŵ10Ŧ0Ʒ ln l?08 Lo 11Ŧ3Ŵ
12Ŧ0Ʒ ln l?09Ŧ 1hls shows Lhe severlLy of Lhe lmpacL as flnanclal crlsls affecLed fundlng
cosLs ln Lhe second half of l?09 and led Lo a 200 bps lncrease for Lhe enLlre yearŦ 1he
response by n8lCs was Lo gradually replace shorL Lerm fundlng wlLh long Lerm sourcesŦ
1hls ls a slgnlflcanL sLrucLural change ln Lhe borrowlng proflles LhaL wlll brlng more
sLablllLy ln proflLablllLy of Lhe secLorŦ Powever spreads wlll also be lower compared Lo
hlsLorlcal levels due Lo Lhls changeŦ uurlng Lhe 9ML l?10 cosL of borrowlng reduced from
Lhe average of 11Ŧ3Ŵ12Ŧ0Ʒ of l?09 Lo 10Ŧ2 10Ŧ3Ʒ for Lhe 9 monLh perlod and ls expecLed
Lo remaln around Lhese levels for l?10Ŧ 1hls however ls sLlll hlgher Lhan Lhe l?08 levels
due Lo Lhe sLrucLural move Lowards longer Lerm borrowlngsŦ 7Ŧ1Ŧ3 AsseL CuallLy Ŷ
ueLerloraLed more due Lo unsecured loans whlch ls now vlrLually sLopped by mosL
playersţ provlslonlng has lmproved Ǝ asseL quallLy expecLed noL Lo worsen furLherŦ AsseL
quallLy for Lhe secLor deLerloraLed slgnlflcanLly durlng Lhe crlslsŦ AggregaLe Cross nÞA
raLlo Lrended from around 1Ŧ1Ʒ for l?08 Lo around 2Ŧ1Ʒ ln l?09Ŧ Whlle Lhere was
deLerloraLlon ln all asseL classesţ unsecured asseL classes (Þersonal Loansţ unsecured SML
loans) showed Lhe maxlmum deLerloraLlon and were Lhe key drlvers for overall lncrease
ln nÞAsŦ AparL from Lhe asseLŴLype flnancedţ anoLher dlfferenLlaLor beLween asseL
quallLles was Lhe orlglnaLlon Ǝ collecLlon model followedŦ n8lC's whlch orlglnaLed
ma[orlLy of Lhelr porLfollo Lhrough branches Ǝ own employees showed beLLer asseL
quallLy performance Lhan Lhose whlch used Lhe uSA modelŦ AggregaLe Cross nÞA raLlo
has furLher worsened Lo 3Ŧ0Ʒ aL Lhe end of 9M l?10ţ however lL ls close Lo peaklng ouLŦ
ueŴgrowLh ln unsecured porLfollo segmenL has also lowered Lhe porLfollo ouLsLandlng
growLh Lhereby leadlng Lo a _base effecL' on Lhe Cross nÞA raLlo and addlng Lo Lhe rlse ln
reporLed numbersŦ Þrovlslon coverage has lncreased from around 30Ʒ for l?09 Lo around
60Ʒ aL Lhe end of 9Ml?10 as players have become more conservaLlveŦ unsecured lendlng
has vlrLually sLopped for many n8lCs and underwrlLlng norms have also been LlghLened
ln general for oLher asseL classesŦ 1hese developmenLs lndlcaLe poslLlve sLrucLural

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9.1 Recommendation:-
O uomesLlc llnanclal markeLs can be lnLegraLed by maklng n8lC's Channel parLners Lo
8anksŦ lL wlll help ln beLLer allocaLlon and funds avallablllLyŦ lL wlll also help ln beLLer
managemenL of llnanclal servlces secLor ln lndlaŦ
O Lnhanclng Lhe credlL dellvery mechanlsmsť1he credlL dellvery mechanlsm needs Lo be
more LransparenL and hassle freeŦ 1here should be more sLrlngenL norms for Lhe
O SLrengLhenlng Lhe professlonallsm of n8lC secLor Lhrough educaLlon and Lralnlngť n8lC's
are organlzed playersŦ 8egulaLory body needs Lo educaLe people abouL n8lCŦ
O 1o reduce ln lnLeresL cosL and hence beneflL Lhe ulLlmaLe consumerŦ


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9.2. Conclusion:-
lL ls encouraglng LhaL Lhe n8lC secLor's lmporLance ls flnally belng acknowledged across
lS markeL consLlLuenLs as well as Lhe regulaLorŦ Poweverţ Lhe lmporLance aLLached Lo Lhe
secLor ls ofLen Lranscendlng lnLo mlsplaced exuberanceŦ Cver slmpllfled and vague drlvers
for n8lC valuaLlons such as sLraLeglc flL and cusLomer baseţ can never subsLlLuLe
dlspasslonaLe buslness analyLlcsŦ A raLlonal assessmenL of Lhe lnLrlnslc values of n8lCs
facLorlng lssues such as pasL performanceţ sLrucLural weaknesses of Lhe secLor (for
lnsLance fundlng dlsadvanLages)ţ along wlLh an ldenLlflcaLlon of real capablllLles are
essenLlal Lo ensure LhaL Lhe equlllbrlum beLween prlce pald and value reallzed ls reached
Lo Lhe exLenL posslbleŦ ln Lhe absence of Lhlsţ lndla ls sure Lo wlLness Lhe reŴopenlng of
Lhe n8lC horror sLory albelL wlLh a new chapLer on Lhe eroslon of n8lC lnvesLmenL
values affecLlng lnvesLors across caLegorlesŦ 8aLlngs of Lhe n8lCs whose proflLablllLy and
asseL quallLy was affecLed due Lo Lhe crlsls were supporLed by Lhelr sLrong parenLageŦ
8ased on Lhe parenLal sLrengLh some players have ralsed furLher equlLy and also managed
Lo reŴallgn Lhelr buslness models whlle malnLalnlng Lhelr solvencyŦ overall poslLlve
ouLlook on Lhe secLor due Lo Lhe beLLer ALM poslLlonţ focus on relaLlvely safer asseL
classes and Lhe demonsLraLed accepLance of Lhe secLor as sysLemlcally lmporLanL by Lhe
regulaLorŦ 1he crlsls has lmposed an overall sense of _cauLlon' even for Lhe newer
enLranLs ln Lhe markeLŦ Also golng forward hlgher caplLal adequacy norms wlll puL a falrly
conservaLlve cap on Lhe leverage of Lhe secLor Lhereby lmprovlng Lhe credlL proflle of
many enLlLles (n8lCŴnuSl)Ŧ


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