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Shreeya 21
Bhagyashree 22
Sandhya 10
Rupal 20
Navin 23
Jyoti
Bhagyashree
Shweta
Komal
Urvashi

Topics
 Chit funds
 Hire-purchase
 NBFC (Non Banking Financial Companies)

The Chit Fund Department was set up by the Government with the main objective
of controlling the activities of Chit Fund Companies of Delhi through the Madras
Chit Fund Act, 1961 extended to Delhi and Delhi Chit Fund Rules, 1964

Chit Funds
 A Chit Fund is a kind of savings scheme practiced in India. In a chit scheme,
a specific number of individuals come together to pool a specific amount of
money at periodic intervals. Usually the number of individual Chit funds and
the number of periods will be the same.
 At the end of each period, there will be an auction of the money. Members of
the chit will participate in this auction for the pooled money during that
interval. The money will be given to the highest bidder.
 The bid amount will be divided by number of members, and thus
determining per head contribution during that period.
 Usually the discount will continue to decrease over periods. The person
getting money in the last period will receive the full scheme amount.
Example
 This way it goes like an auction with the organizer repeating the bid amount
3 times before closing the deal. Suppose someone bids 1000 rupees and the
deal is closed. Now the bidder would be awarded 19,000 (His bid-amount
would be deducted). The 1000 rupees deducted from the bidder would be
shared equally among the members. So for that month each person will pay
only 950 (20,000-1000/20).This saving can be considered equivalent to the
interest provided by banks.
 Once a member wins a bid he can't participate in future biddings. So after
the first month only 19 members would be eligible for bidding.
 One particular month (typically second month) there would be no bidding, so
the members should pay their share (1000 rupees) in full. That month
collection amount would go the organizer as salary for organizing,
coordinating and bookkeeping the chit-fund.
 And the bidding goes each month comes there would be only 1 person eligible
for bidding. Hence that month’s money would be given in full (20,000 rupees)
to that person.

Special purpose chit funds


 Some chit funds may be conducted as a savings scheme for specific purpose.
An example is the Deepavali sweets fund, which has a specific end date -
about a week before Deepavali. Neighbourhood ladies will get together to
pool their savings each week. This fund will be used to prepare sweets in bulk
just before the Deepavali festival, and the sweets will be distributed to all
members. Preparation of Deepavali sweets may be a time consuming and
costly activity for individuals. Such a chit will reduce the cost, and relieve the
members from excess work from an already tense festival season.
 Nowadays, such special purpose chits are conducted by jewellery shops,
kitchenware shops, etc. to promote their products.

Hire-purchase
 A method of buying goods in which the purchaser takes possession of them as
soon as an initial installment of the price (a deposit) has been paid and
obtains ownership of the goods when all the agreed number of subsequent
installments have been paid. A hire-purchase agreement differs from a credit-
sale agreement and sale by installments because in these transactions
ownership passes when the contract is signed.

The seller and the owner

If the seller has the resources and the legal right to sell the goods on credit (which
usually depends on a licensing system in most countries), the seller and the owner
will be the same person. But most sellers prefer to receive a cash payment
immediately. To achieve this, the seller transfers ownership of the goods to a Finance
Company, usually at a discounted price, and it is this company that hires and sells
the goods to the buyer. This introduction of a third party complicates the
transaction. Suppose that the seller makes false claims as to the quality and
reliability of the goods that induce the buyer to "buy". In a conventional contract of
sale, the seller will be liable to the buyer if these representations prove false. But, in
this instance, the seller who makes the representation is not the owner who sells the
good to the buyer only after all the installments have been paid.


Warranties to protect the hirer
 The extent to which buyers are protected varies from jurisdiction to
jurisdiction, but the following are usually present:
 The hirer will be allowed to enjoy quiet possession of the goods, i.e. no-one
will interfere with the hirer's possession during the term of this contract
 The owner will be able to pass title to, or ownership of, the goods when the
contract requires it
 That the goods are of merchantable quality and fit for their purpose, save
that exclusion clauses may, to a greater or lesser extent, limit the Finance
Company's liability
 Where the goods are let by reference to a description or to a sample, what is
actually supplied must correspond with the description and the sample.
Rights of the hirer
 The hirer usually has the following rights:
 To buy the goods at any time by giving notice to the owner and paying the
balance of the HP price less a rebate (each jurisdiction has a different formula
for calculating the amount of this rebate)
 To return the goods to the owner — this is subject to the payment of a penalty to
reflect the owner's loss of profit but subject to a maximum specified in each
jurisdiction's law to strike a balance between the need for the buyer to minimize
liability and the fact that the owner now has possession of an obsolescent asset of
reduced value
 With the consent of the owner, to assign both the benefit and the burden of the
contract to a third person. The owner cannot unreasonably refuse consent where
the nominated third party has good credit rating
 Where the owner wrongfully repossesses the goods, either to recover the goods
plus damages for loss of quiet possession or to damages representing the value of
the goods lost.
The hirer's obligations
 The hirer usually has the following obligations:
 To pay the hire installments
 To take reasonable care of the goods (if the hirer damages the goods by using
them in a non-standard way, he or she must continue to pay the installments
and, if appropriate, compensate the owner for any loss in asset value)
 To inform the owner where the goods will be kept.

NBFC
A non-banking financial company (NBFC) is a company registered under the
Companies Act, 1956 and is engaged in the business of loans and advances,
acquisition of shares/stock/bonds/debentures/securities issued by government or
local authority or other securities of like marketable nature, leasing, hire-purchase,
insurance business, chit business, but does not include any institution whose
principal business is that of agriculture activity, industrial activity,
sale/purchase/construction of immovable property.

What are the salient features of NBFCs regulation which the depositor may note at
the times of investment?
Some of the important regulations relating to acceptance of deposits by NBFCs are
as under:

• The NBFCs are allowed to accept/renew public deposits for a minimum


period of 12 months and maximum period of 60 months. They cannot accept
deposits repayable on demand.
• NBFCs cannot offer interest rates higher than the ceiling rate prescribed by
RBI from time to time. The present ceiling is 11 per cent per annum. The
interest may be paid or compounded at rests not shorter than monthly rests.
• NBFCs cannot offer gifts/incentives or any other additional benefit to the
depositors.
• NBFCs (except certain AFCs) should have minimum investment grade credit
rating.
• The deposits with NBFCs are not insured.
• The repayment of deposits by NBFCs is not guaranteed by RBI.
• There are certain mandatory disclosures about the company in the
Application Form issued by the company soliciting deposits.

Difference between NBFC and Banks


 NBFCs are doing functions akin to that of banks, however there are a few
differences:
 A NBFC cannot accept demand deposits (demand deposits are funds
deposited at a depository institution that are payable on demand --
immediately or within a very short period -- like your current or savings
accounts.)
 it is not a part of the payment and settlement system and as such cannot issue
cheques to its customers; and
 Deposit insurance facility of DICGC is not available for NBFC depositors
unlike in case of banks.
What are the different types of NBFCs registered with RBI?
 The NBFCs that are registered with RBI are:
 equipment leasing company;
 hire-purchase company;
 loan company;
 Investment Company.
 With effect from December 6, 2006 the above NBFCs registered with RBI
have been reclassified as
 Asset Finance Company (AFC)
 Investment Company (IC)
 Loan Company (LC)