Volume-04 ISSN: 2455-3085 (Online)

Issue-06 RESEARCH REVIEW International Journal of Multidisciplinary

June-2019 www.rrjournals.com[UGC Listed Journal]

Financial Performance of NBFCs – A Comparative Study on Selected Investment

and Assets Finance Companies
Tamal Basu

Assistant Professor, Department of Commerce (UG & PG), Prabhat Kumar College, Contai, Purba Medinipur (India)

ARTICLE DETAILS ABSTRACT

Article History Non-Banking Financial Companies (NBFCs) are the companies involved in financing
Published Online: 12 June 2019 activities such as giving loans, charging interest and lending etc. So far classification of
NBFC is concerned; with effect from December 6, 2006 the above NBFCs, registered with
Keywords RBI have been classified as Asset Finance Company (AFC), Investment Company (IC),
AFC, CR, DE, IC, LC, NBFC, NPR, RBI, and Loan Company (LC). The scope of the study encompasses with two categories of
ROE, ROCE, ROA. NBFCs namely AFCs and ICs.
The principal objective of the study is to make a comparative analysis of the financial
*
Corresponding Author performance of selected investment and assets finance companies. To compare the
Email: tamalbasu.fmt[at]gmail.com
selected performance indicators (ROA, ROCE, ROE, DE RATIO, NPR and CR) separately
between selected ICs (company-wise) and AFCs (company-wise) and to compare selected
performance indicators jointly between selected ICs (company-wise) and AFCs (company-
wise) for each individual year, Kruskal-Wallis test have been employed. The study
concluded that there is no difference between the financial performances of each category
of NBFCs apart from their nature of activities under their respective categories.

1. Introduction So far classification of NBFC is concern, with effect from

Non-Banking Financial Companies (NBFCs) are the
companies involved in financing activities such as giving loans,
charging interest and lending etc . The Reserve Bank of India
(RBI) controls the operations of all NBFCs under the framework
of RBI Act, 1934 and directions issued by it. Every NBFC, in
order to carry out its operations, is required to obtain a license
from RBI. In other words, any establishment desirous of
carrying out the business of NBFCs shall apply to RBI for
obtaining the license to operate as NBFCs and must be
registered with RBI as an NBFC.
Section 45-I (b) of third chapter of Reserve Bank of India
Act 1934, defines Non-Banking Financial Company as:
(a) a financial institution, which is a company,
(b) a financial institution, which is a company and which
has as its principal business of receiving deposits
under any scheme of arrangement or lending in any
manner,
(c) Such other non-banking institution or class of such
institutions that may function as banks with the
previous approval of Central Government and
notification in this regard in the official gazette.
NBFCs are doing functions akin to that of banks; however,
there are a few differences which are as follows:
 an NBFC cannot accept demand deposits;
 an NBFC is not a part of the payment and settlement
system;
 as such an NBFC cannot issue cheques drawn on
itself; and
 deposit insurance facility of Deposit Insurance and
Credit Guarantee Corporation is not available for
NBFC depositors like banks
December 6, 2006 the above NBFCs registered with RBI have
been classified as:
Asset Finance Company (AFC),
Investment Company (IC), and
Loan Company (LC).
Asset Finance Company (AFC): An AFC is a company
which is a financial institution carrying on as its principal
business of financing physical assets supporting
productive/economic activity, such as automobiles, tractors,
lathe machines, generator sets, earth moving and material
handling equipment, moving on own power and general
purpose industrial machines.
Investment Company (IC): IC means any company which
is a financial institution carrying on as its principal business in
the acquisition of securities,
Loan Company (LC): LC means any company which is a
financial institution carrying on as its principal business of
providing finance whether by making loans or advances or
otherwise for any activity other than its own but does not
include an Asset Finance Company.
RBI basically publish the list of the different types of
NBFCs, but unfortunately adequate data is not available
relating to the list of functioning of Loan Companies and even if
they are available, the same is not reliable. This is why Loan
Companies have been kept outside the purview of our study.
Thus, the scope of the present study finally encompasses two
categories of NBFCs namely Asset Finance Companies and
Investment Companies.
2. Review of Literature
Some of the notable studies that are available in this
sector are briefly outlined as follows:

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Volume-04, Issue-06,June-2019
 Jafor, Ali Khan (2010) in his study on “Non-Banking
Financial Companies (NBFCs) in India: Functioning
and Reforms” discussed the financial system in India.
It covered the financial intermediaries including
commercial banks, regional rural banks, cooperative
banks and Non-Banking Financial Companies in India
 Paul, P. (2011) in his study “Financial Performance
Evaluation - A Comparative Study of Some
selected NBFCs” analysed the financial performance
of the selected NBFCs during the period 2004 to
2009. In his study, five listed NBFCs were taken as a
sample for analysing the financial performance of the
NBFCs. He concluded that the selected companies
were significantly different in terms of their financial
performance from one another.
 Vadde, Suresh (2011) in his study “Performance of
Non-Banking Financial Companies in India- An
Evaluation” attempted to analyse the performance of
1211 non-government financial and investment
companies (other than banking, insurance and chit-
fund companies) during the year 2008-09. The study
was based on the audited financial statement of 1,215
companies for the period April 2008 to March 2009.
The study found positive growth trends in total income
(interest income and other income). Though, growth in
total expenditure decreased, but the rate was higher
than the growth in total income. The growth in
expenditure was mainly occurred due to the higher
growth in interest payments. As a result, operating
profits of the select companies declined along with
failing in overall profitability during 2008-09. The study
concluded that the business of selected non-banking
financial and investment companies expanded at a
slower rate during the year 2008-09.
 Sowndharya R. and Shanmugham, R. (2014) in
their study “Analysis of Financial Performance of
Non-Banking Financial Companies in India”
examined the qualitative change in the activities of
NBFCs in respect of the issues like liquidity,
profitability and interest margins etc. during the period
from 2007 to 2012. The study was based on the
secondary data. The study attempted to evaluate the
overall financial performance of NBFCs. Financial
ratios as performance indicator were selected in the
study to examine the profitability, efficiency and
turnover aspects of the NBFCs. The study found that
the overall average of Return on Net worth and Return
on Capital Employed, Earnings Per share and Price
Earnings Ratios showed a improved profitability
position of the NBFCs. The Interest Coverage Ratio
was also observed to be low for the NBFCs. It showed
that the capacity to service the additional debts were
low for the NBFCs. It was also observed that the
selected NBFCs differed significantly in terms of
Profitability and Leverage indicators from one another.
But in respect of the aggregative analysis i.e. all
companies were taken together, it has been found
that there was no significant difference exist for only
two ratios i.e., Price Earnings Ratio and Current Ratio
but difference exists for other ratios selected for the
study.
RRIJM 2015, All Rights Reserved
RESEARCH REVIEW International Journal of Multidisciplinary
3. Objective of the Study
The principal objective of the study is to make a
comparative analysis of the financial performance of selected
investment and assets finance companies.
4. Hypothesis Of The Study
HO: There is no significant difference in the average
financial performance between the selected Investment
Companies and Assets Finance Companies.
HA: HO is not true.
5. Research Methodology
th
Sample Selection: As per the list published by RBI on30
November, 2015 and on the availability of data we have
selected 5 companies belonging to the group of investment
companies and 13 companies belonging to the group of assets
finance companies for our study.
Data Source: The data have been collected mainly from
Secondary sources i.e. from the website of RBI, published
annual reports of the selected companies, some annual reports
collected personally by visiting the office of the companies.
Study Period: The starting year has been selected from
the financial year 2006-07 on the basis of new category of
classification of NBFC by RBI on December, 2006. The study
was carried out for a span of nine years i.e., from 2006-07 to
2014-15.
Tools and Techniques of the study:
Kruskal-Wallis Test (H Test): To compare the selected
performance indicators (ROA, ROCE, ROE, DE RATIO, NPR
and CR) separately between selected investment companies
(company-wise) and selected assets finance companies
(company-wise) and to compare selected performance
indicators (ROA, ROCE, ROE, DE , NPR and CR) jointly
between selected Investment Companies (company-wise) and
selected Assets Finance Companies (company-wise) for each
individual year, we have employed Kruskal-Wallis Test (H
Test). The Kruskal-Wallis test is a non-parametric (distribution
free) test, and is used when the assumptions of one-way
ANOVA are not met. So we first test the normality of the
distribution through Jarque-Bera test statistic and then proceed
for KW Test. Therefore, the Kruskal-Wallis test can be used for
both continuous and ordinal-level dependent variables. The
distribution of the Kruskal-Wallis test statistic approximates a
chi-square distribution, with k-1 degrees of freedom, if the
number of observations in each group is 5 or more. If the
calculated value of the Kruskal-Wallis test is less than the
critical chi-square value, then the null hypothesis cannot be
rejected.
6. Comparison of Performance on the basis of
Performance Indicators between Selected Investment
Companies (Company Wise) and Selected Assets
Finance Companies (Company Wise)
To compare the differences in performance between two
groups (company wise) we have applied the Kruskal-Wallis
Test (H Test) i.e. the test of median which is also a measure of
average performance.
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To apply the Kruskal-Wallis Test (H Test) first we are Ho : The data is normally distributed.
required to test the normality of the data with the following HA : The data is not normally distributed.
hypothesis

Table 1 : Test Statisticsa,b of H Test in respect of ROA between selected Investment Companies(
Company wise) and Assets Finance Companies (Company wise)
Y2014
Y200607 Y200708 Y200809 Y200910 Y201011 Y201112 Y201213 Y201314
15
Chi-Square 0.547 0.010 0.010 0.010 0.411 0.788 0.788 1.906 0.022
df 1 1 1 1 1 1 1 1 1
Asymp. Sig (p value). 0.460 0.921 0.921 0.921 0.522 0.375 0.375 0.167 0.882
a. Kruskal Wallis Test
b. Grouping Variable: GROUP
Source: Computed

Chart 1: Histogram of the Panel Data of Selected Investment Companies (Company Wise) and Selected Assets Finance Companies
(Company Wise)

Source: Computed

From the above it is observed that the Jarque-Bera test
statistical probability value is less than 0.05 so we reject the
null hypothesis (i.e. Ho: The data is normally distributed.) and
conclude that the data is not normally distributed so we can
carry out the Kruskal-Wallis Test (H Test) to make the
comparison in the average performance of selected
performance indicators between selected Investment
Companies (company wise) and selected Assets Finance
Companies (company wise)
Here, we have carried out Kruskal-Wallis Test (H Test) in
respect of the following two categories.
1. Comparison of selected performance indicators (ROA,
ROCE, ROE, DE RATIO, NPR and CR) separately
between selected investment companies (company
wise) and selected assets finance companies
(company wise) during the period under study.
2. Comparison of selected performance indicators (ROA,
ROCE, ROE, DE RATIO, NPR and CR) jointly
between selected Investment Companies (company
wise) and selected Assets Finance Companies
(company wise) for each individual year under study.
6.1 Comparison of selected performance indicators (ROA,
ROCE, ROE, DE RATIO, NPR and CR) separately between
selected investment companies (company wise) and
selected assets finance companies (company wise) during
the period under study.

Table 2: Test Statisticsa,b of H Test in respect of ROCE between selected Investment Companies( Company wise) and
Assets Finance Companies (Company wise)
Y200607 Y200708 Y200809 Y200910 Y201011 Y201112 Y201213 Y201314 Y201415
Chi-Square 0.156 0.156 0.088 1.077 0.977 1.910 2.500 2.188 0.294
df 1 1 1 1 1 1 1 1 1
Asymp. Sig (p value). 0.693 0.693 0.767 0.299 0.323 0.167 0.114 0.139 0.588
a. Kruskal Wallis Test
b. Grouping Variable: GROUP
Source: Computed

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Table 3 : Test Statistics a, b of H Test in respect of ROE between selected Investment Companies
(Company wise) and Assets Finance Companies (Company wise)
Y200607 Y200708 Y200809 Y200910 Y201011 Y201112 Y201213 Y201314 Y201415

Chi-Square 0.411 2.188 1.773 0.002 0.623 1.177 2.490 2.490 1.775
df 1 1 1 1 1 1 1 1 1
Asymp. Sig (p value). 0.521 0.139 0.183 0.961 0.430 0.278 0.115 0.115 0.183
a. Kruskal Wallis Test
b. Grouping Variable: GROUP
Source: Computed

Table 4 : Test Statisticsa,b of H Test in respect of D/E Ratio between selected Investment Companies( Company wise)
and Assets Finance Companies (Company wise)
Y200607 Y200708 Y200809 Y200910 Y201011 Y201112 Y201213 Y201314 Y201415
Chi-Square 1.071 1.285 1.071 2.334 0.022 0.547 0.547 0.022 0.061
df 1 1 1 1 1 1 1 1 1

Asymp. Sig (p value). 0.301 0.257 0.301 0.127 0.882 0.460 0.460 0.882 0.805

a. Kruskal Wallis Test

b. Grouping Variable: GROUP
Source: Computed

Table 5 : Test Statisticsa,b of H Test in respect of NPR Ratio between selected Investment Companies( Company wise) and
Assets Finance Companies (Company wise)
Y200607 Y200708 Y200809 Y200910 Y201011 Y201112 Y201213 Y201314 Y201415

Chi-Square 1.071 1.177 1.906 1.401 1.071 0.156 1.177 1.290 0.002
df 1 1 1 1 1 1 1 1 1
Asymp. Sig (p value). 0.301 0.278 0.167 0.237 0.301 0.693 0.278 0.256 0.961

a. Kruskal Wallis Test

b. Grouping Variable: GROUP
Source: Computed

Table 6 : Test Statisticsa,b of H Test in respect of CR between selected Investment Companies( Company wise) and Assets
Finance Companies (Company wise)
Y200607 Y200708 Y200809 Y200910 Y201011 Y201112 Y201213 Y201314 Y201415

Chi-Square 0.877 1.071 1.518 0.294 1.771 0.411 1.518 3.326 2.043
df 1 1 1 1 1 1 1 1 1
Asymp. Sig (p value). 0.349 0.301 0.218 0.588 0.183 0.522 0.218 0.068 0.153

a. Kruskal Wallis Test

b. Grouping Variable: GROUP
Source: Computed

From Table 1 to 6, it is observed that the p value is more
than 0.05 in all cases. So, we accept the null hypothesis (HO:
There is no significant difference in the average financial
performance between the selected Investment Companies and
Assets Finance Companies) and conclude that there is no
significant difference in respect of all the performance
indicators i.e., ROA, ROCE, ROE, DE RATIO, NPR and CR
between the selected Investment Companies (Company-wise)
and Assets Finance Companies (Company-wise) as a whole
during the period under study.
6.2 Comparison of selected performance indicators (ROA,
ROCE, ROE, DE RATIO, NPR and CR) jointly between
selected Investment Companies (company wise) and
selected Assets Finance Companies (company wise) for
each individual year under study.

Table 7 : Test Statisticsa,b of H Test in respect of performance indicators between selected

Investment Companies( Company wise) and Assets Finance Companies (Company wise) for
the year 2006-07
ROA ROCE ROE DE NPR CR
Chi-Square 0.547 0.156 0.411 1.071 1.071 0.877
df 1 1 1 1 1 1
Asymp. Sig (p value). 0.460 0.693 0.521 0.301 0.301 0.349
a. Kruskal Wallis Test

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b. Grouping Variable: GROUP

Source: Computed

Table 8 : Test Statisticsa,b of H Test in respect of performance indicators between selected

Investment Companies( Company wise) and Assets Finance Companies (Company wise) for
the year 2007-08
ROA ROCE ROE DE NPR CR
Chi-Square 0.010 0.156 2.188 1.285 1.177 1.071
df 1 1 1 1 1 1
Asymp. Sig (p value). 0.921 0.693 0.139 0.257 0.278 0.301
a. Kruskal Wallis Test
b. Grouping Variable: GROUP
Source: Computed

Table 9 : Test Statisticsa,b of H Test in respect of performance indicators between selected

Investment Companies( Company wise) and Assets Finance Companies (Company wise) for
the year 2008-09
ROA ROCE ROE DE NPR CR
Chi-Square 0.010 0.088 1.773 1.071 1.906 1.518
df 1 1 1 1 1 1
Asymp. Sig (p value). 0.921 0.767 0.183 0.301 0.167 0.218
a. Kruskal Wallis Test
b. Grouping Variable: GROUP
Source: Computed

Table 10 : Test Statisticsa,b of H Test in respect of performance indicators between selected

Investment Companies( Company wise) and Assets Finance Companies (Company wise) for the
year 2009-10
ROA ROCE ROE DE NPR CR
Chi-Square 0.010 1.077 0.002 2.334 1.401 0.294
df 1 1 1 1 1 1
Asymp. Sig (p value). 0.921 0.299 0.961 0.127 0.237 0.588
a. Kruskal Wallis Test, b. Grouping Variable: GROUP
Source: Computed

Table 11 : Test Statisticsa,b of H Test in respect of performance indicators between

selected Investment Companies( Company wise) and Assets Finance Companies
(Company wise) for the year 2010-11
ROA ROCE ROE DE NPR CR
Chi-Square 0.411 0.977 0.623 0.022 1.071 1.771
df 1 1 1 1 1 1
Asymp. Sig (p value). 0.522 0.323 0.430 0.882 0.301 0.183
a. Kruskal Wallis Test
b. Grouping Variable: GROUP
Source: Computed

Table 12 : Test Statisticsa,b of H Test in respect of performance indicators between

selected Investment Companies( Company wise) and Assets Finance Companies
(Company wise) for the year 2011-12
ROA ROCE ROE DE NPR CR
Chi-Square 0.788 1.910 1.177 0.547 0.156 0.411
df 1 1 1 1 1 1
Asymp. Sig (p value). 0.375 0.167 0.278 0.460 0.693 0.522
a. Kruskal Wallis Test
b. Grouping Variable: GROUP

Source: Computed

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Table 13 : Test Statisticsa,b of H Test in respect of performance indicators

between selected Investment Companies( Company wise) and Assets Finance
Companies (Company wise) for the year 2012-13

ROA ROCE ROE DE NPR CR

Chi-Square 0.788 2.500 2.490 0.547 1.177 1.518
df 1 1 1 1 1 1
Asymp. Sig (p value). 0.375 0.114 0.115 0.460 0.278 0.218
a. Kruskal Wallis Test
b. Grouping Variable: GROUP
Source: Computed

Table 14 : Test Statisticsa,b of H Test in respect of performance indicators

between selected Investment Companies( Company wise) and Assets Finance
Companies (Company wise) for the year 2013-14

ROA ROCE ROE DE NPR CR

Chi-Square 1.906 2.188 2.490 0.022 1.290 3.326
df 1 1 1 1 1 1
Asymp. Sig (p value). 0.167 0.139 0.115 0.882 0.256 0.068

a. Kruskal Wallis Test

b. Grouping Variable: GROUP
Source: Computed

Table 15 : Test Statisticsa,b of H Test in respect of performance indicators

between selected Investment Companies( Company wise) and Assets
Finance Companies (Company wise) for the year 2014-15
ROA ROCE ROE DE NPR CR
Chi-Square 0.022 0.294 1.775 0.061 0.002 2.043
df 1 1 1 1 1 1
Asymp. Sig (p value). 0.882 0.588 0.183 0.805 0.961 0.153
a. Kruskal Wallis Test
b. Grouping Variable: GROUP
Source: Computed

From Table 7 to 15 it is observed that the p value is more
than 0.05 in all cases. So, we accept the null hypothesis (HO:
There is no significant difference in the average financial
performance between the selected Investment Companies and
Assets Finance Companies) and conclude that there is no
significant variations in respect of selected performance
indicators for the year 2006-07 to 2014-15 between the
Investment Companies (Company-wise) and Assets Finance
Companies (Company-wise) considered for the study.
Table 16: Summary of H Test in respect of comparison
of selected performance indicators between selected
Investment Companies (Company Wise) and selected
Assets Finance Companies (Company Wise)

Between the selected Investment Companies (Company Wise) and selected Assets Finance Companies (Company Wise)
(H Test 1) (H Test: II )
Selected
Interpretation

Interpretation
Hypothesis

Hypothesis

Selected Performance Performance

Indicators separately Indicators jointly
during the period under for each
study individual year
under study
ROA H0 Accepted 2006-07 H0 Accepted
ROCE H0 Accepted 2007-08 H0 Accepted
ROE H0 Accepted No significant 2008-09 H0 Accepted
variations in respect No significant variations in
DE H0 Accepted 2009-10 H0 Accepted
of selected respect of selected
NPR H0 Accepted performance 2010-11 H0 Accepted performance indicators for
indicators as a each individual year under
CR H0 Accepted 2011-12 H0 Accepted
whole during the study
period under study 2012-13 H0 Accepted
2013-14 H0 Accepted
2014-15 H0 Accepted

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7. Conclusion
In relation to the main objective of the study, it can be nature of activities under their respective categories. This is
concluded that there is no difference between the financial further strengthened by the results as obtained from the
performances of each category of NBFCs apart from their Kruskal-Wallis Test (H Test) during the period under study.

References

1. https://www.rbi.org.in 5. Sowndharya R. and Shanmugham, Dr. R. (2014), “Analysis

2. Jafor Ali Akhan (2010), “Non-Banking Financial Companies
in India: Functioning and Reforms”, New Delhi, New Century
Publications, pp 78-89.
3. Panneerselvam, R (2016), Research Methodology, PHI
Learning Private Limited, New Delhi, 2nd Edition, pp.350-353.
4. Paul, P. (2011). “Financial Performance Evaluation - A
Comparative Study of Some selected NBFCs”. Indian
Journal of Finance, 5 (5) pp.13-22.
of Financial Performance of Non-Banking Financial
Companies in India”, Indian Journal of Applied Research,
Volume: 4, Issue: 12, pp 556-558.
6. Suresh Vadde (2011), “Performance of Non-Banking
Financial Companies in India- an Evaluation”, Journal of Arts
Science & Commerce, Vol. II, Issue –1, pp.123-131.

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