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PROJECT REPORT
TITLED ON
A Project submitted to
By
Goregaon (West)
Mumbai-400104
ACADEMIC YEAR
2018-2019
“A STUDY ON NON-BANKING FINANCIAL COMPANIES (NBFCS)”
A Project submitted to
By
Goregaon (West)
Mumbai-400104
ACADEMIC YEAR
2018-2019
DECLARATION
I, the undersigned Miss Ankita Ravi Singh here by, declare that the work embodied in this
project work titled “ A Study on Non-Banking Financial Companies (NBFCs)” , forms my
own contribution to the research work carried out under the guidance of “ Prof Mohan Iyer” is
a result of my own research work and has not been previously submitted to any other university
for any other Degree/Diploma to this or any other University. Wherever reference has been made
to previous work of others, it has been clearly indicated as such and included in the
Bibliography. I hereby further declare that all information of this document has been obtained
and presented in accordance with academic rules and ethical conduct.
Certified By
To list who all have helped me is difficult because there are numerous and the depth is
enormous.
I would like to acknowledge the following as being idealistic channels and fresh dimensions in
the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me chance to do this project.
I Would like to thank my Principal, “Miss. Swati Desai” for providing the necessary facilities
required for completion of this project.
I take this opportunity to thank our Coordinator, “Prof Binu Menon” for her moral support and
guidance.
I would also like to express my sincere gratitude towards my project guide “Prof Mohan Iyer”
whose guidance and care made the project successful.
I would also like to thank my college library, for having provided various reference books and magazines
related to my project.
Lastly, I would like to thank each and every one who directly or indirectly helped me in the completion
of the project especially my peers and my parents who supported me throughout my project.
TABLE OF CONTENT
SR NO. TOPIC PG
NO.
1 Introduction 1
1.1 Non-Banking Financial Institutions (NBFIs) 2
1.2 Historical Background of NBFCs 4
1.3 Definitions of NBFCs 6
1.4 Regulations on NBFCs 7
1.5 Classification of NBFCs 9
1.6 Types of NBFCs 11
1.7 Role of Non-Banking Financial Companies 16
1.8 Functions of NBFCs 18
1.9 List of top 10 NBFCs 19
1.10 Growth and development of NBFCs 24
1.11 Bank and NBFC- A comparison 29
(a) Manappuram Gold Loan 30
(b) HDFC Gold Loan 32
(c) Manappuram Home Loan 34
(d) HDFC home loan 36
(e) Manappuram Forex and Money Transfer 37
(f) HDFC Forex and Money Transfer 39
(g) Manappuram SME loan 39
(h) HDFC business loan 40
2 Research Methodology 42
2.1 Statement of Problem 43
2.2 Objective of the study 43
2.3 Scope of the study 44
2.4 Limitations of the study 44
2.5 Significance of the Study 45
2.6 Hypothesis of the study 45
3 Literature Review 46
4 Sample Design 48
5 Data Analysis 50
6 Findings and Recommendations 57
6.1 Findings 62
6.2 Recommendations 63
6.3 Conclusion 64
6.4 SWOT analysis of NBFCs 65
7 Bibliography 68
8 Annexure 69
8.1 Questionnaire 69
8.2 NBFCs balance sheet grew up to 17.2% to Rs 26 trillion as of sep 72
2018: RBI
8.3 How top NBFCs outpaced biggest Banks by Asset and Profit 73
Growth
8.4 Lakshmi Vilas Bank Merger with NBFCs may open more 75
possibilities
8.5 The decline in cost of NBFCs and HFCs can be indicative of easing 76
of liquidity concerns
8.6 RBI to merge three categories of NBCs to create New category 77
8.7 Over 82% of the NBFCs registered with RBI categorised as High 78
risk by Finance Ministry
8.8 IND AS implementation on NBFCs 79
EXECUTIVE SUMMARY
As the country is all set to grow at a rapid pace and the government has laid a
strong foundation for this, one can strongly say that sufficient liquidity has to be maintained in
the system to enhance credit and economic growth. Non-banking financial companies (NBFC’s)
play an important role in realizing the economic growth.
Net profit of the NBFC sector increased by 16.2 percent during the half year
ended September 2018 as compared to 22.9 percent during the year ended march,2018. Gross
non-performing asset of the NBFC sector as a percentage of total advances rose to 6.1 percent in
September ,2018 from 5.8 percent in March2018.
The global crisis has imposed an overall sense of “caution” as the NBFC
sector faced significant stress on asset quality, liquidity and funding costs and its impact on the
domestic economy. While all the NBFC’s were affected, the impact varied according to the
structural features of each NBFC. The crucial role of the NBFC’s in broadening access to
financial services, and enhancing competition and diversification of the financial sector has been
well recognized.
1 INTRODUCTION
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. NBFC’s have raised a
large amount of resources through deposits from public, shareholders, directors, and other
companies and borrowings by issue of non-convertible debentures. Due to the rapid growth of
NBFC’s and a wide variety of services provided by them, there has been a gradual blurring of
distinction between Banks and NBFC’s except that commercial banks have the exclusive
privilege in the issuance of cheques. NBFC’s supplement the role of the banking sector in
meeting the increasing financial need of the corporate sector, delivering credit to the unorganized
sector and to small local borrowers. As compared to banks, they can take quick decisions,
assume greater risks, tailor-make their services and charges according to the needs of the clients
1
NBFCs have raised large amount of resources through deposits from public,
shareholders, directors and other companies and borrowings by issue of Non-convertible
debentures. NBFCs can be classified as deposit accepting and non-deposit accepting companies.
They are small in size and are owned privately. The NBFCs have grown rapidly since 1990.
They offer attractive rate of return. They are fund based as well as service-oriented companies.
The NBFCs in advanced countries have grown significantly and are now
coming up with a very large way in developed countries like brazil, India and Malaysia etc. The
non-banking companies when compared with commercial and co-operative banks are a
heterogenous (varied) group of finance companies. NBFCs are heterogenous group of companies
means all NBFCs provide different types of financial services. They play a very crucial role in
channelizing the scarce financial resources to capital formation.
2
A non-banking financial institution (NBFI) is a financial institution that does not
have a full banking license or is not supervised by a national or international banking regulatory
agency. Alan greenspan has identified the role of NBFIs in strengthening an economy, as they
provide “multiple alternatives to transform an economy’s savings into capital investment. NBFIs
introduce competition in the provision of financial services. While bank may offer a set of
financial services as a packaged deal. NBFIs unbundle and tailor services to meet the needs of
specific clients.
NBFIs offer most sort of banking services, such as loan and credit facilities, private
education funding, retirement planning, trading in money markets, underwriting stocks and
shares, TFCs (Term Finance Certificate) and other obligations. NBFIs frequently support
investment in property and prepare feasibility, market or industry study from companies. NBFIs
are not providing cheque books nor saving account and current account. It only takes fixed
deposits or time deposits. The types of service offered by NBFC typically fall into the following
categories:
3
1.2 HISTORICAL BACKGROUND
“While the NBFCs have earned respectable place by providing quick and tailor-made
solutions to the financial requirements of different segments of the borrowers, they have an
interesting history, ridden with opportunities and challenges.”
NBFCs in India made a humble way back in the 1960’s to serve the needs of
the investors whose financial requirements were not sufficiently covered by the existing banking
system in India. The NBFCs began to invite fixed deposits from investors and work out leasing
deal for big industrial firms. Initially, they operated on a limited scale and could not make
significant impact on the financial system.
During the first stages of the development, this business of financing was
regulated by the Companies Act. At that time a need was felt that due to unique and complex
nature of operations and also financial companies acting as financial intermediaries, there should
be a separate regulatory mechanism.
4
Accordingly, Chapter III B was included in the Reserve Bank of India Act,
1934, assigning limited authorities to the bank to regulate deposit taking companies. The RBI has
since initiated measures to bring the NBFC sector within the realm of its regulation.
The RBI accepted and implemented the key recommendations of James Raj
study group formed in 1975 that financial companies be allowed to gearing often times. As per
the salient feature of the directions, the hire purchase and leasing companies could accept
deposits to the extent of their net owned funds.
Between 1980’s and 1990’s NBFCs gained good ground and started to attract a
huge number of investors owing to their customer friendly reputation. Since the days of
Liberalization, Privatization and Globalization (LPG started in 1991), there has been a
mushrooming growth of NBFCs
January 1997, witnessed drastic change in the RBI Act,1934, especially the
Chapters III-B, III-C and V of the Act with the objective of putting in place a complete
regulatory and supervisory structure aimed at protecting the interest of customers as well as
ensuring robust functioning of NBFCs.
In last 20 years, the NBFCs have gained much significance by adding depth to
the overall financial sector. In light of the growing significance of NBFCs as a key player in
broadening the financial base of India, it generates paramount academic and research interests, to
delve deep into its onset, growth and performance.
“The development process of the Indian economy shall have to include NBFCs as one of its
major constituents with a very significant role to play”
5
1.3 DEFINITIONS OF NBFC
➢ A non-banking institution, which is a company and which has its principal business the
receiving of deposits under any scheme or lending in any manner.
➢ Such other Non-Banking institutions, as the bank may with the previous approval of the
central government and by notification in the official gazette, specify.
The following NBFCs are not required to obtain any registration with the
Reserve Bank of India namely, core investment companies, Merchant Banking Companies,
Companies which are engaged in the business of Stock-Broking, Housing Finance Companies,
Companies engaged in the business of Venture Capital, Insurance companies holding a
certificate of registration issued by IRDA, Chit fund companies as defined under section 2 clause
(b) of the Chit Fund Act,1982 and Nidhi Companies.
6
1.4 REGULATION OF NBFCs
STATE
RBI NHB SEBI MCA GOVT IRDA
Asset Finance
company Nidhi
Merchant Companies
Equipment Housing banking Chit Fund Insurance
Leasing Company finance Mutual Companies Companies
companies Benefit
companies
Hire purchase Companies
Finance company Venture
capital fund
Investment
companies
company
Infrastructure Collective
Finance company investment
Factoring schemes
Residuary NBFCs
Core investment
company
Infrastructure
Debt fund
7
In India, The Reserve Bank of India regulates the registration of NBFC.
NBFCs functions are supervised and regulated by RBI according to the RBI Act, 1934. NBFC
registration must be done according to rules & regulation given in Section 45-1A of the RBI Act
1934. It must be duly registered as per Companies Act 2013.
❖ NBFC can commence its operations only after obtaining “Certificate of Registration”
❖ The company must be registered as a Public Limited Company or a Private Limited
Company in India
❖ The company must have a minimum net owned fund of Rs.2 crore
Provided that, net owned funds should be calculated according to the last audited balance
sheet of the company.
❖ For a minimum period of 12 months and a maximum period of 60 months, NBFCs are
allowed to accept/renew public deposits.
❖ NBFCs cannot accept deposits repayable on demand.
❖ NBFCs can offer interest rate higher than the ceiling rate prescribed by RBI from time to
time.
❖ There is a requirement of minimum investment grade credit rating.
❖ Repayment of deposits by NBFCs is not guaranteed by RBI.
❖ Furnishing hard copies of the list of documents with the regional office of the RBI.
❖ Offering gifts/incentives or any other additional benefit to the depositors is not allowed.
❖ As per the latest reforms, an NBFC registering as NBFC is required to ensure that atleast
50 percent of its total assets as financial assets.
8
1.5 CLASSIFICATION OF NBFC
NBFCs
NON-DEPOSIT
DEPOSIT
ACCEPTING
ACCEPTING
SYSTEMATICALLY NON-
IMPORTANT SYSTEMATICALLY
NBFCs IMPORTANT
NBFCs
9
NBFCs are classified into two categories such as deposit accepting NBFCs and non-deposit
accepting NBFCs based on their liability structure.
All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a
valid CoR (Certificate of Registration) with authentication to accept pubic deposits can accept /
hold public deposits. Raising public deposits is a popular way by which NBFCs look to raise
capital to meet their own funding requirements. Some of the examples of NBFCs-D
are Bajaj Finance, Mahindra and Mahindra Finance, Fin cap Financial Corporation Limited etc.
The Non-deposit Accepting NBFCs are also known as NBFCs-ND. The Non-
Deposit Accepting NBFCs were subject to minimal regulations until 2006. The NBFCs-ND are
not entitled to accept public deposits as per the regulations of Reserve Bank of India.
Since April 1,2007, non-deposit accepting NBFCs with assets of 1 Billion and above
are being classified as Systematically Important Non-Deposit Accepting NBFCs i.e. (NBFCs-
ND-SI) and prudential regulations such as Capital adequacy requirements and exposure norms
along with reporting requirements, have been made applicable to them. The Asset Liability
Management (ALM) reporting and disclosure norms have also been made applicable to them.
The non-deposit accepting NBFCs also include Non-systematically important Non-Deposit
Accepting NBFCs. They are also known as NBFC-ND-Non-SI.
10
1.6 TYPES OF NBFC’s
11
Depending upon the nature of their major activities, NBFCs can be classified into the following
categories, they are as follows:
The Finance Lease also called as Capital Lease is the long-term arrangement
wherein the lessee is obligated to pay the lease rent until the expiry of the lease contract.
The Operating Lease is for a shorter period duration and is often cancelable at the
option of the lessee with a prior notice.
Hire purchase Finance company is a type of asset finance that allows firms or
individuals to possess and control an asset during an agreed term, while paying rent or
installments covering depreciation of the asset, and interest to cover capital cost. Hire purchase
finance company is a financing solution suitable for businesses wishing to purchase assets
without paying the full value immediately.
Hire Purchase or leasing allows companies to control and deploy assets without
significant drain on working capital. Hire purchase agreements are similar to rent-to-own
transactions which give the lessee the option to buy at any time during the agreement. The
activities performed by NBFCs also include Hire purchase. It is a less risky business as the goods
purchased on hire-purchase basis serve as securities till the installment on the loan is paid.
12
HOUSING FINANCE COMPANY:
A housing finance company means any company which is carrying on its main
business of financing the construction or acquisition of houses or development of land for
housing properties. A Housing Finance Company is a company registered under
the Companies Act, 1956 which primarily transacts or has as one of its principal objects, the
transacting of the business of providing finance for housing, whether directly or indirectly.
For commencing the housing finance business, an HFC is required to have the
following in addition to the requirements under the Companies Act, 1956:
INVESTMENT COMPANY:
As per explanation (a) to section 186, “investment company” means a company
whose principal business is the acquisition of shares, debentures or other securities. The word
‘investment’, no doubt, suggests only the acquisition and holding of shares and securities and
thereby earning income by way of interest or dividend etc.
Investment companies invest money on behalf of their clients who, in return, share
in the profits and losses. Investment companies are designed for long-term investment, not short-
term trading. Investment companies do not include brokerage companies, insurance companies,
or banks. The main aim of investment companies is to protect small investors by collecting their
small savings and investing them in different securities so that the risk can be spread.
13
LOAN COMPANY:
The Mutual Benefit Finance Companies also called as “Nidhi’s”, are the
non-banking finance companies that enable its members to pool their money with a
predetermined investment objective. The main sources of funds are share capital, deposits from
its members, deposits from the general public.
In other words, any company which has been notified by the Central
Government as Nidhi’s under the section 620A of Companies Act, 1956 work as a mutual
benefit finance company. These are one of the oldest forms of non-banking finance companies
wherein the owners of the company are also its clients and pool their resources with the intent to
secure loans at a low interest rate at the time the funds are required.
The company should fulfil all the minimum requirements to register as Nidhi company like:
• . Minimum 7 members
• b. Document requirement
14
CHIT FUND COMPANY:
The Chit Fund Company is a financial institution engaged in the principal business
of managing, conducting and supervising the chit scheme. The operations of the Chit Fund
Company are governed by the Chit Fund Act, 1982, administered by the State Governments.
While the deposit taking activities of, such firm is regulated by the Reserve Bank of India.
The chit scheme is also known by different names, such as Chitty, Kuri, Chit, Chit
Fund, etc. and is either organized by the financial institutions or privately i.e. between friends or
relatives. Organised chit fund schemes are required to register with the Registrar of Firms,
Societies and Chits. A Chit fund company is a company that manages, conducts, or supervises
such a chit fund, as defined in Section of the Chit Funds Act, 1982.
RESIDUARY NBFCs:
▪ A company that accepts deposits in a lump sum or instalments under any scheme or
arrangement such as by way of contributions, or subscriptions, or by a sale of units or
certificates or in any other manner.
The Residuary Non-banking company differs from the other non-banking financial
companies in terms of the methods being used in the mobilization of deposits and the
requirements of depositors with respect to the fund’s deployment.
15
1.7 ROLE OF NON-BANKING FINANCIAL COMPANIES
NBFCs play an important role in promoting the utilization of savings among public. NBFCs are
able to reach certain deposit segments such as unorganized sector and small borrowers where
commercial banks cannot reach.
NBFCs provide easy and timely credit to those who need it. NBFCs provides unusual credit
means the credit which is not usually provided by banks such as credit for marriage expenses,
religious functions, etc.
16
➢ FINANCIAL SUPERMARKET
NBFCs play an important role of a financial supermarket. NBFCs create a financial supermarket
for investors by providing a variety of services. Now, NBFCs are providing a variety of services
such as mutual fund, counseling, merchant banking, etc. apart from their traditional services.
NBFCs invest the small savings in productive purposes. Productive purposes mean they invest
the savings of people in businesses which they have the ability to earn a good amount of return
NBFCs provide housing finance and play an important role in fulfilling the basic human need of
housing finance. NBFCs provide housing finance on easy terms and conditions.
NBFCs, mainly investment companies provide advice relating to wise investment of funds as
well as how to spread the risk by investing in different securities. They protect the small
investors by investing their funds in different securities. They provide valuable s4ervices to
investors by choosing the right kind of securities which will help them in gaining maximum rate
of returns.
NBFCs play an important role in increasing the standard of living in India. People with lesser
means are not sable to take the benefit of goods which were once considered as luxury but now
necessity, such as consumer durables etc. NBFCs also facilitate the improvement in transport
facilities through hire-purchase finance, etc.
17
1.8 FUNCTIONS OF NBFCs
Non-Banking Financial Company also known as NBFC company, functioning as per the Indian
Companies Act, giving loans and advances to the public. There are various functions of NBFCs
they are as follows:
• RECEIVING DEPOSITS
The primary function of NBFCs is receiving deposits from the public in various ways such as
issue of debentures, savings certificate, subscription, unit certification etc. Thus, the deposits of
NBFCs are made up of money received from public by way of deposit or loan or investment or
any other form.
• LENDING MONEY
18
1.9 LIST OF TOP 10 NBFCs
Power Finance Corporation Limited was founded in 1986 and is a Navratna Status
company. Mukesh Kumar Goel is the Chairman & Managing Director of the company. Power
Finance Corporation Limited is known to provide financial assistance to different power projects
in the country. It supports organizations involved in Power generation, transmission
and distribution. The company is also listed in National Stock Exchange (NSE) and Bombay
Stock Exchange (BSE).
Shriram Transport Finance Company Limited focuses on commercial and Business Vehicles,
besides other. The company was founded in 1979 and has been offering funding services for
light duty trucks, mini trucks, passenger vehicles, Construction vehicle and farm equipment’s.
The company’s specialization is in general insurance, mutual funds, common assets, stock
broking and general protection.
19
BAJAJ FINANCE LIMITED
Bajaj Finance Limited was founded in 2007 and is a unit of Bajaj holdings and Investments. It
offers loans to doctors for career enhancement, home loans, gold loans, individual loans,
business and entrepreneur loans and is an extremely popular Finance company. Apart from these,
Bajaj Finserv also provide services like wealth advisory, lending money and general insurance. It
has over 1400 branches across the country with more than 20000 employees.
Mahindra and Mahindra Financial Services Limited (MMFSL) was established in 1991 and has
over 1000 branches, and a customer base of over 3 million all over the country. MMFSL is one
of the most renowned organizations and has two affiliates offering insurance services and Rural
Housing Financial Services. It also specialises in offering gold advances, vehicle advances,
Corporate advances, home credits, working capital advances and more.
20
MUTHOOT FINANCE LIMITED
Muthoot Finance limited is India’s first NBFC tracing its history back to 1888, when it began as
a small lender from a village in Kerala. Muthoot Finance Limited Sanctions loan only against
pledge of gold ornaments. It is a leader in India’s Gold loan and finance market. Muthoot
Finance Limited offers foreign exchange services, travel and tourism services. The company has
its headquarters in Kerala, India, and operates over 4400 branches throughout the country. It is
also the parent company of Muthoot Housing Finance (India) Ltd, which offers home loans
HDF Financial Services is operated by India’s largest private sector HDFC Bank. It offers a
variety of secured and non-secured financial loans through a network of more than 1000,
branches in 22 Indian states and 3 Union Territories. It provides secured and unsecured loans,
including personal loans, auto loans, gold loans, new to credit loans, enterprise business loans,
consumer durable loans, construction equipment loans, new and used car loans, equipment loans
and tractor loans. The company operates through lending business and BPO services segments. It
is considered the fastest growing NBFC in India today.
21
CHOLAMANDALAM
Tata capital financial Services Limited is top of India’s leading NBFCs. Established in 2007, it is
a subsidiary of Tata Sons Limited. TCFS describes itself as a one stop financial service provider
that caters to the diverse needs of retail corporate and institutional customers across businesses.
It is registered with RBI as “Systematically Important Non-Deposit Accepting Non-Banking
Financial Company (NBFC)”. The various products offered by TCFS to individual, families and
businesses, are commercial finance, infrastructure finance, wealth management, consumer loans
and distribution and marketing of Tata Cards.
22
L&T FINANCE LIMITED
L&T Finance Limited is a strong player in the non-banking financial sector and was established
in 1994. Headquartered in Mumbai, L&T offers funding services to different sectors like trade,
industry, agriculture, commercial vehicle loans, individual vehicle loans and corporate and rural
loans. The company caters to more than 10 lakh peoples. In 2010, L&T was awarded the
“company of the year” in the Economic Times awards.
Aditya Birla Finance Limited, a part of the Aditya Birla Financial Services, was incorporated in
1991 and is an ISO 9001:2008 Certified by NBFC. ABFL is registered with RBI as a
“Systematically important Non-Deposit Accepting NBFC” and it ranks among the Top Five
Largest Private Diversified NBFCs in India. It offers precise and customized solutions across a
wide range, from corporate finance to commercial mortgage, and from capital market to
structured finance.
23
1.10 GROWTH AND DEVELOPMENT OF NBFCs
RBI’s financial stability report says NBFC loans expanded 16.6% in the year, twice as
fast as the 8.8% credit growth across the banking sector. Non-banking financial companies
(NBFCs) improved their performance on most metrics in the last fiscal year, as the banking
industry struggled under the weight of a growing pile of bad loans. According to the financial
stability report (FSR) released by the Reserve Bank of India (RBI), NBFC loans expanded 16.6%
in the year, twice as fast as the 8.8% credit growth across the banking sector on an aggregate
level.
AGGREGATED BALANCE SHEET OF THE NBFC SECTOR (Year to Year growth (%)
2016-17 2017-18
Share capital 19.9 8.3
Reserves and Surplus 16.9 19.9
Total borrowings 13.5 19.1
Current Liabilities and Provisions 26.7 15.4
Total Liabilities/Assets 15.2 18.6
Loans and Advances 14.6 18.6
Investments 14.8 13.4
Others 20.8 5.5
Source: Financial Stability Report
There was a deceleration in the share capital growth of NBFCs in 2017-18 whereas grew at 19.1
percent, implying rising leverage in the NBFC sector. Loans and advances of the NBFC sector
increased by 21.2 percent and investments increased by 13.4 percent. Total borrowings of the
NBFC sector increased by 19.1 percent and current liabilities and provisions decreased by 15.4
percent
24
ASSET QUALITY OF NBFCS
There has been a steady deterioration in asset quality of NBFCs till 2016-17. Gross Non-
Performing Asset (GNPA) ratio for NBFCs increased up to 2016-17, but it has been declined in
the year 2017-18. The deterioration in asset quality is due to change in NPA recognition norms
and effects of demonetization.
25
CAPITAL ADEQUACY OF NBFCs (Percent)
Year CRAR
2013-14 27.5
2014-15 26.5
2015-16 23.9
2016-17 22.8
2017-18 22.9
Source: Financial Stability Report
The capital to Risk-Weighted Ratio (CRAR) of NBFCs has declined over the period of five
years. But it was higher than prescribed regulatory level of 15 percent. During the year 2017-18
it has slowly increased from 22.8 percent to 22.9 percent.
ROA
2.5 2.2
2.1
1.9 1.9
2
1.6
1.5
0.5
ROA
0
2013-14 2014-15 2015-16 2016-17 2017-18
Years
26
PROFITABILITY OF NBFCs (Percent)
Returns on ROA of NBFCs declined from 2013 onwards due to asset quality deterioration in the
financial system. But it was 1.9 percent in 2017-18 as compared with 1.6 percent in 2017-18.
However, NBFCs have fairly higher ROA as compared to Banks.
12
10
0
2013-14 2014-15 2015-16 2016-17 2017-18
YEARS
ROA ROE
27
SOURCE OF FUNDING OF NBFCs
NBFCs have been emerged as the largest net receiver of funds from the rest of the
financial system. According to Financial Stability Report, scheduled commercial Banks (SCBs)
have the highest exposure to NBFCs at 1,927 billion INR, followed by Asset Management
Companies managing mutual funds (AMC-MF) at 1,376 billion INR and insurance companies at
1,064 billion INR.
The funding structure of NBFCs is also changing from short-term borrowings to long-
term borrowings. Considering the funding restraints such as to maintain large amount of liquidity
a regulatory architecture may be considered in future which permits large-ticket deposits High
Net worth Individuals (HNIs) to NBFCs. This will act as another source of NBFC funding and
also act as a wealth management instrument for HNIs.
In case of funding, NBFCs majorly rely on various source of funds viz., Owned
Funds, debentures and bonds, mutual funds and commercial papers, Preference shares,
government securities and other investment. As per RBI data, the percentage source of funding
of NBFCs can be explained as follows:
SOURCE OF FUNDS
13%
Govt. Securities
0%
33% Equity shares
Preference Shares
20%
Debentures & Bonds
Units of Mutual Funds
5% Commercial Paper
3% Other investment
20% 6%
28
1.11 BANKS AND NBFCS –A COMPARISON
The major point of difference can be summarized under the following headings.
• Services provided: We can withdraw our deposits from banks on demand. This facility
is not available with NBFC. While banks are integral part of this economy system,
NBFCs are not. Deposits of common people are insured up to a certain value with the
banks. This makes the Banks more dependable. Deposits with NBFCs are not insured.
• Maintenance of Reserve Ratios: It is mandatory for banks, both private and public to
maintain the interest rates that the RBI dictates. NBFCs are under so such obligation.
29
FOR THIS STUDY I HAVE MADE A COMPARISON BETWEEN MANAPPURAM
AND HDFC GOLD LOAN INTEREST RATES
Interest rate will be quoted on annualized basis only. Interest amount will be calculated on the
daily outstanding balance in the loan account at the contracted rate. Interest will be calculated on
the basis of 365 days a year. Compounding, if any, will be provided in specific loan schemes. All
loans carry the fixed contracted rate till closure of account. Assuming all other factors to be the
same a higher LTV loan will attract a correspondingly higher interest rate as compared with a
lower LTV loan. The interest rate applicable will vary from time to time and will be mentioned
against the specific operative schemes / loan products.
30
✓ Maximum rate of interest
When the loan remains outstanding beyond the 'normal' tenure overdue / penal interest will be
charged at 3% pa (i.e. contracted rate plus 300 basis points) on the amount due and payable till
the account is regularized / closed.
• GL-DS Scheme with a loan tenure of 90 days. It has a minimum loan value of Rs.5000/-
and maximum Loan value of Rs.50,000/-
• GL-SY Scheme with a loan tenure of 90 days. It has a maximum loan amount limited to
Rs. 2,00,000
• Express Gold Loan plus with a loan tenure of 180 days.
• Super Loan Plus with a loan tenure of 270 days.
• Samadhan Plus with a loan tenure of 365 days.
31
(B) HDFC GOLD LOAN
HDFC Bank offers gold loan under its Sampoorna Bharosa Gold Loan which is
available instantly from any of the HDFC’s Bank branch. The loan promises cash against gold
which is easy to avail and also easy to pay. The bank charges easy and affordable EMIs,
affordable interest rates and the opportunity to liquidate the gold loan at any time. Moreover, the
Sampoorna Bharosa Gold Loan issued by the bank is completely at the sole discretion of the
bank which reserves the power to even deny the granting or disbursal of the loan if it feels that
the application is not sound enough. The applicant will have no power to question the decision of
the bank because the bank’s decision to grant or not grant the loan is absolute and binding.
HDFC bank offers immediate gold loan sanctioning and disbursal. It can be
availed online and in branch offices. It provides speedy gold loan processing for urgent cash
crisis. The bank has charges such as foreclosure charges, late payment, renewal, part or
prepayment, stamp duty etc.
32
HDFC Gold Loan Interest Rate
Gold Loan Processing Fees : Ranges from Zero to 0.5% of loan sanctioned
HDFC Gold Loan has the added advantage that only the servicing of interest is required to
continue the loan. This can result in a monthly outflow of a minimal amount of Rs.1000 per
lakh calculated at a basic indicative rate of 11.84% per annum.
Documentation Required
To avail a gold loan, the customer needs to submit the following documents:
1. A valid Passport
2. A valid Driving License
3. Voter’s ID Card
4. Aadhar Card
5. PAN Card
Here is the list of the fees and charges levied upon availing the Sampoorna Bharosa Gold Loan
from HDFC Bank:
33
Fee Amount to be paid:
(Service Tax and other Government taxes or levies etc. as applicable as per the prevailing
rate will be charged extra over and above the charges and fess mentioned above.)
34
Home loan can be availed in individual or joint capacity. All owners/ proposed
owners of the property will have to be co-applicants. All applicants to be Indian Residents. NRIs,
PIOs will not be eligible.
Applicants can avail maximum loan of up to 80% of market value of the property
being acquired or of the cost whichever is lower, subject to individual eligibility as assessed by
MAHOFIN.
Rate of Interest
The Rate of Interest will range from 13% to 14.5% per annum
Charges
Application Fee (for all cases) : Rs 2500/- At the time of file login
Processing Fee (Loan Against property) :2.5% of Loan Amount Sanctioned (Less) Rs 2500/-
Processing Fee (Other than Loan Against Property) : 2% of Loan Amount Sanctioned
b) Income Proof
c) Other Documents
d) Business Profile
35
(d) HDFC HOME LOANS
(Take a step closer to your dream home with HDFC home loans.)
Home Loan: Loans for individuals to purchase (fresh/resale) or construct houses. Application
can be made individually or jointly.
Home Improvement Loan (HIL): HIL facilitates internal and external repairs and other
structural improvements like Painting, Waterproofing and Roofing, Plumbing and Electrical
Works, Tiling and Flooring, and much more.
Home Extension Loan (HEL): HEL adds more space to your existing home for meeting the
requirements of your growing family.
36
The following documents are required along with your Home Loan application:
MONEY TRANSFER
37
FOREIGN EXCHANGE
Manappuram Finance Limited provides Domestic Money Transfer (DMTS) Services. Send
Money to any Bank account through Manappuram Finance Limited. Cash to Account transfer
facility through IMPS/NEFT. Amount transfer to beneficiary bank account.
PRE-PAID CARD
38
(f) HDFC FOREX AND MONEY TRANSFER
• Multicurrency
• Forex Plus Card
• Discover the power and convenience of HDFC Bank Multicurrency Forex Plus Card
• Zero cross currency charges on your international shopping
• Emergency Cash assistance.
• Online Currency Management – Shift your balance from one currency to another
• No worries of forgetting your PIN. Set your own now
39
Manappuram provides loans against the collateral security of property to eligible
entities and individuals carrying on an established business where the scope for finance exists
and can be evaluated.
KEY FEATURES
• Higher loan amount available for longer tenure and at attractive rates of interest.
• Loan amount ranging from Rs. 5 lakhs to Rs. 2 Crore.
• Tenure of loan ranging from 24 months up to 60 months.
• Turn-around-time (TAT) is only 10 days.
ACCEPTABLE PROPERTIES
HDFC business loans come with a host of benefits and are tailormade to meet your
unique business needs such as quick Disbursals, Complete Transparency, Competitive Pricing,
No Security Required.
40
The following people are eligible to apply for a Business Loan:
• Self-employed individuals, Proprietors, Private Ltd. Co. and Partnership Firms involved
in the business of Manufacturing, Trading or Services.
• The business should have a minimum turnover of Rs. 40 lakhs
• Individuals who have been in the current business for a minimum of 3 years, with 5 years
total business experience.
• Those whose business has been profit making for the previous 2 years
• The business should have a Minimal Annual Income (ITR) of Rs. 1.5 lakhs per annum
• The applicant should be at least 21 years at the time of applying for the loan, and should
be no older than 65 years at the time of loan maturity.
41
2 RESEARCH METHODOLOGY
Duration of the study: The duration of the study is 40 days from 20th January to 28th February.
Research Methodology
Data Collection
As data is required for any research activity both primary as well as secondary data were
collected for the study. Primary data has been collected through a specially structured
questionnaire also known as survey data. The questionnaire was pre-tested for its reliability of
getting responses from the respondents. The Primary Data mainly were focused on the
perceptions of respondents regarding the operations and various aspects of NBFCs.
The secondary data is collected from different sources available consolidated from book
publication reports, websites etc. The Credit Rating Information Services of India Ltd., simple
Statistical Tools such as percentages, compounded growth is used to analyze the data.
42
2.1 STATEMENT OF THE PROBLELM
This study will help us to know whether people would opt for NBFCs for their financial needs
and services or they’ll choose banking services and facilities. Thus, to ensure that a comparation
between Manappuram Finance Limited and HDFC Bank was made. This Study provided reasons
for the growth and development of NBFCs and what was the reason for emergence of NBFC. It
provided reasons that why would people opt for NBFCS even if there are various Banks
providing Financial Services.
43
2.3 SCOPE OF THE STUDY
❖ To bring into light the new perspective of growth for NBFCs due to the trouble faced by
Indian Banking Sector over past few years due to the burden of Non-Paying Accounts.
❖ To Promote the growth of NBFCs as Government has a strong focus on promoting
entrepreneurship.
❖ To realize full potential and attain greater efficiency while performing various duties of
NBFCs.
❖ To overcome the problems faced by NBFCs and deal with NBFC crisis.
❖ The present study on Non-Banking Financial companies (NBFCs) will help to understand
the implications of various factors on the Financial Service Industry as ultimately this
will be the guiding force for the development of the economy and in turn the subjects of
the society.
2.4 LIMITATIONS OF THE STUDY
• The study was restricted only to Mumbai City. Hence findings may differ from different
parts of the country.
• Many times, the respondents were so busy that they didn’t gave reply on time. The
respondents were biased too.
• The study was time consuming. Hence, the complete study falls short of time.
• Some of the respondents were not even interested to be a part of the survey and provide
their views.
• There are very Few no. of respondents i.e. 50
• Lack of interest and busy life of the respondents may have influenced the response.
• As the study also had some secondary data, the study has gained vulnerability, the
correctness of this project is restricted and limited by the data so collected and with the
sincerity of response
44
2.5 SIGNIFICANCE OF THE STUDY
The contribution of NBFCs is a key to India’s growth, these companies played a crucial
The significance of this study is due to the huge impact of NBFCs on the growth of
Significantly, NBFCs provide an alternative source of funding and liquidity and represent
To define that the role of NBFCs as effective financial intermediaries has been well
recognized as they have inherent ability to take quicker decisions, assume greater risks,
and customize their services and changes more accordingly to the needs of the clients.
There is a difference in the growth factor of various NBFCs, due to stiff competition
faced by NBFC sector through Banks.
It is observed that there is difference in the perception of individuals to opt for loans and
other financial services from NBFCs.
45
3 LITERATURE REVIEW
• Amit Kumar and Anshika Agarwal (2014) published a paper entitled “latest trends in
Non-Banking Financial Institutions” in Academicia: An International
Multidisciplinary Research Journal”. The paper discussed that, The Non-Banking
Financial Institutions play an important role in our country as they provide financial
services on a wide range, they also work to offer enhanced equity and Risk-based
products, along with this they also provide short to long term finance to different sectors
of the economy, and many other functions.
This paper examines the latest trends in Non-Banking Financial Institutions. This paper analyses
the growth and enhanced prosperity of financial institutions in India.
• Balchandher.K. Guru, J. Staunton & B. Shanmugam (2009) studied about the factors
that can influence the profitability of NBFCs in the report “Determinants of
Commercial Bank Profitability” the research focused on the internal and external
factors which can be controlled by the management in the company. Net profit was
taken as the dependent variable and capital, asset base as the internal factors and inflation
rate of the total economy, growth of the industry, interest rates as the external
independent variables.
The report concluded that every variable has a strong relationship with the net profit including
the variables asset base and the expense base variable as the critical factor when It comes to net
profit.
• Shailendra Bhushan Sharma and Lokesh Goel (2012) wrote on “Functioning and
reforms in Non-Banking Financial Companies in India”. Non-Banking Financial
Companies do offer all sort of Banking services, such as loan and credit facilities,
retirement planning, money markets, underwriting and merger activities. Hire purchase
finance is by far the largest activity of NBFCs. The rapid growth of NBFCs has led to a
gradual blurring of dividing lines between Banks and NBFCs, with the exception of the
exclusive privilege that commercial banks exercise in the issuance of cheques.
46
• Subina Syal and Menka Goswami (2012) wrote on “Financial Evaluation of Non-
Banking Financial Institutions an Insight” in ‘Indian Journal of Applied Research’.
Non-Banking Financial Institutions in India are one of the major stakeholders of the
financial system and cater to diversified needs by providing specialized financial services
like investment advisory, leasing, asset management, etc.
The aim of the study was to analyze the financial performance and growth of Non-Banking
Financial Institutions in India. The study is helpful for the potential investors to get the
knowledge about the financial performance of NBFCs and be helpful in taking effective long-
term investment decisions.
• Sornaganesh and Maria Navis Soris (2013) made a research study on “A Fundamental
analysis of NBFCs in India”. The study was made to analyze the performance of five
NBFCs in India. The annual reports of these companies are evaluated so as to ascertain
investments, loan disbursed, growth, return, risk, etc. To sum up, the study is concluded
that the NBFCs are earning good margins on all the loans and their financial efficiency is
good.
47
4 SAMPLE DESIGN
Sample size: There are 50 respondents. Hence, the sample size is 50.
PRIMARY DATA
To gain a fresh, practical insight into NBFCs and the financial services and keeping in
mind the objectives of the research study, the primary data has been collected through preparing
questionnaire and conducting surveys. Further the analysis and interpretation has been done
based on the response of the respondents.
The questionnaire used for the surveys have been attached separately in the annexure.
The questionnaire was used to collect information from various sources. A structured
questionnaire was prepared and administered to various categories of respondents. The
questionnaire was designed keeping in mind the type of information required for research study
and the ability of the questions to generate required data.
SECONDARY DATA
The secondary data for understanding the concept of NBFCs as well as to review the
previous researches undertaken in this area, has been gathered from various sources such as
Books, Journals, Periodicals, Magazines, Newsletter, research reports of previously conducted
studies in this direction, as well as Web.
The sources include published reports from Reserve Bank of India, Trade and Finance
Journals such as Capital markets, Chartered Financial Analyst and the Newspaper. These sources
have been highlighted in the Bibliography at the end of the Research Study.
48
TECHNIQUE OF DATA COLLECTION
METHOD OF SAMPLING
Convenience sampling has been followed for this study. Convenience sampling
method supported to collect information from group of people easy to contact or to reach. To
conduct the research study and generate data through convenience sampling I selected group of
people easy to reach and conducted the survey.
Various factors such as are people aware of the term NBFC, what is the effect of
higher interest rates of NBFCs on individuals and would people choose NBFCs over Banks.
Individual opinion on the same has been collected through the process of convenience sampling.
The convenience sampling method best suited my research study.
SAMPLE CHARACTERISTICS
A range of approaches were used to gather data for conducting research study such as
observation, interview, analysis of records, case study, Questionnaire, etc. Methods and
techniques used in performing research operations such as collection of data, statistical
processing and analysis and evaluate the accuracy of the results obtained. The research has been
conducted for age group of people Below 25 and above 30 years, the populations consists of both
males and females with occupation as employees, students, service-men etc.
Instruments used in research operations are scales, recording tools, gathering of data,
Analysis of data, Data interpretation, Iteration (where necessary), Testing, etc.
49
5 DATA ANALYSIS, INTERPRETATION AND PRESENTATION
SAMPLE SIZE: 50
33%
48% Yes
No
19%
Somewhat
INTERPRETATION:
From the above figure we can understand that, the majority of
respondents that is 48% are above 30 years whereas 36% are between the age group 25-30 and
16% are below 25 years of age.
50
Q (2) No. of respondents according to their gender.
Gender
44%
56%
Male Female
INTERPRETATION:
From the above figure it can be seen that the majority of respondents are
males and rest are females. Thus, it can be understood that comparatively males take larger
interest in investing in NBFCs.
51
Q (3) Do you know about Manappuram Finance Limited- A leading NBFC?
(A) Yes
(B) No
(C) Maybe
(D) To Some Extent
30%
Yes
No
56%
May Be
10%
To some Extent
4%
INTERPRETATION:
According to my study, I came to the conclusion that maximum i.e. 56%
of the respondents knew about Manappuram Finance Limited whereas 30% of the respondents
knew about Manappuram Finance Limited to some Extent. Rest 10% of the respondents
responded that they may have an idea about Manappuram Finance Limited and remaining 4%
have no knowledge about Manappuram Finance Limited.
52
Q (4) From where did you get information about Manappuram Finance Limited?
(A) Advertisement
(B) Newspaper
(C) Educational Institutions
(D) Friends
16
14
12
10
0
ADVERTISMENT NEWSPAPER EDUCATIONAL FRIENDS
INSTITUTION
INTERPRETATION:
According to my study, I came to know that Advertisements are the main source of
communication of the information Manappuram Finance Limited whereas newspaper and friends
are the secondary sources of communication. Repeated Advertisement influence customers to get
information NBFCs.
53
Q (5) Are you aware about the various services provided by Manappuram Finance Limited?
(A) Yes
(B) No
(C) Somewhat
(D) Can’t say
8% Yes
30% 44% No
Somewhat
18%
Can't Say
INTERPRETATION:
From the above data it can be understood that maximum number i.e. 44% of respondents are
aware about the services provided by Manappuram Finance Limited whereas 30% have
somewhat knowledge about the services provided by Manappuram Finance Limited. But I came
to know that 18% respondents were not aware of the services provided by Manappuram Finance
Limited and remaining 8% respondent as can’t’ say.
54
Q (6) Do you think that Manappuram Finance Limited offers better Credit Facilities than that of
HDFC Bank?
(A) Yes
((B) No
(C) May be
(D) No Idea
8%
26% Yes
46%
No
May Be
20% No Idea
INTERPRETATION:
When asked to the respondents that do, they feel that Manappuram
Finance Limited provide better service than that of HDFC Bank, 46% of the respondents
responded “Yes” whereas 26% of the respondents responded as “May be” lagging Surety On the
other hand, 20% of the respondents responded as “No” specifying that services provided by
HDFC Bank are superior than that of Manappuram Finance Limited. Rest 8% of the respondents
had No Idea about the same.
55
Q (7) Would you prefer opting for loan from Manappuram Finance Limited or HDFC Bank?
(C) Both
18 18
16 16
14
13
12
10
3
4
0
MANAPPURAM FINANCE HDFC BANK BOTH NONE OF THESE
LIMITED
INTERPRETATION:
When asked that will respondents prefer opting for loans from
Manappuram Finance Limited or HDFC Bank, majority of respondents chose HDFC bank may
be due to comparatively higher interest rate of Manappuram Finance Limited and 16 no. of
respondents responded that they will opt for Manappuram Finance Limited.
56
Q (8) Do higher interest rates of Manappuram Finance Limited affect your decision making
related to opting for loans?
(A) Yes
(B) No
10%
20% Yes
No
10%
To a Greater Extent
To some Extent
60%
INTERPRETATION:
57
Q (9) According to you, what may be the reason to choose Manappuram Finance Limited over
HDFC Banks?
(D) Others
24% 28%
Quick Processing
INTERPRETATION:
58
Q (10) Do you feel that opting Manappuram Finance Limited is safer than that of HDFC Banks?
(A) Yes
(B) No
(C) Maybe
20
18 19
16 17
14
12
10
6 7 7
0
Yes No May Be Can't say
INTERPRETATION:
59
Q (11) According to you, what may be the reason for the growth of Manappuram Finance
Limited?
(D) Others
INTERPRETATION:
60
Q (12) How would you rate Manappuram Finance Limited on the type of services and Facilities
offered by it?
(A) Good
(C) Average
16%
Good
40%
Very Good
52%
Average
Below Average
32%
12%
INTERPRETATION:
Through this we can conclude that there are some factors on which
Manappuram Finance Limited need to work on such as higher interest ratio.
61
6 FINDINGS AND SUGGESTIONS
6.1 FINDINGS
➢ Most of the NBFCs are in the loans and consumer finances business area and many
NBFCs are in more than one business area, eastern region especially Kolkata which has
the highest number of NBFCs.
➢ Economic (recession), market and political risks are the biggest threats to existing
NBFCs as according to them the business risks are relatively controllable.
➢ NBFCs mobilizing deposits focus for investments more in ongoing concerns as against
green field projects unlike their foreign counterparts and are willing to sacrifice
potentially higher rate of returns due to poor public faith in NBFC deposits.
➢ The flow of public deposits has declined sharply after the changes in the regulatory
environment and increasing caution exercised by investors.
➢ The uncompetitive size, the difficult business both on asset and liability side, declining
performance and the inability to recapitalize has resulted in large number of companies
closing down.
➢ Loans and Finances business are the highest revenue generating business segments
among all the businesses of NBFCs.
➢ The investment objective for NBFCs is periodic returns and overall return on investment
from the project.
➢ The captive NBFCs will enjoy the advantage of manufacturer's brand equity, lower
establishment costs, preferred financier status and asset quality support in various forms.
➢ Customer acquisition as against customer service is the main focus for NBFCs as against
traditional businesses.
62
6.2 RECOMMENDATIONS
The recommendations are both on the micro as well as the macro level. On the micro
level a basic awareness campaign on the need, importance and accessibility of NBFC
deposits has to be put into practice.
This is urgently required among the urban areas where awareness is relatively higher but
technical understanding about product is an area of concern.
Stock markets and mutual funds need to be encouraged to contribute and participate
aggressively in the various NBFC schemes which are very similar to direct equity
investments from the point of view of underlying assets.
There is a urgent need to review the size and composition on adequate board-level
representation particularly for NBFCs.
The issues of limited operational autonomy and inadequate representation for private
NBFCs require attention as part of a recapitalization strategy.
A comprehensive review of the law and organizational set-up in the NBFC sector is
necessary with it being consistent with the broader philosophy of financial sector reforms
as well.
63
6.3 CONCLUSION
In recent years, NBFCs are witnessing strong competition in their traditional areas of
retail lending from Banks and Financial Institutions. To conclude, the concept of investor
security is very essential for the society and it is the responsibility of the Government to provide
the citizens and not only to foreign investors.
NBFCs can vastly improve the savings and investment conditions especially in
growing investment and financial markets awareness scenario with the help of the flexible
financial products and schemes. From the above, it is clear that NBFCs have a unique role to
play in the financial services industry.
In short, NBFCs are vitally needed to give the Indian economy a needed boost by
enabling easier access to credit. The time has come for the RBI to address NBFCs as a class.
They are proven instruments of efficient and customer-friendly outreach in the credit space not
only for consumer durables, but also housing and transport, besides infrastructure. These are also
critical areas in which the Government is vitally interested as part of boosting economic growth
The NBFCs' request to be allowed to continue to accept public deposits deserve to be nurtured,
not restricted by regulators
NBFCs in India have played a useful role in financing various sectors of the
economy, particularly those that have been underserved by the Banks. In fact, many Banks are
forming NBFCs to take advantage of their greater flexibility in dealing with customers.
NBFCs are the perfect or even better alternatives to the conventional Banks to meet
various financial requirements of a Business Enterprise. They provide quick and efficient
services without making one to go through the complex banking formalities. The coming years
will be very challenging for NBFCs and those who will be able to face the challenge will survive
in the long run.
64
6.4 SWOT ANALYSIS OF NBFCs
STRENGTH
The strengths of NBFCs lay in the reputation, experience and interest of the Promoters
directors and strong brand Image and goodwill developed over the years. Companies identify
efficient processing, contemporary technology, skill up gradation and expanded geographical
network as strengths to serve the customer at his doorstep. Dynamically changing its business
mix and developing effective risk management systems to leverage opportunities in the market
place are the strengths of this sector.
WEAKNESS
A problem post-CRB is that the NBFCs are faced with a growing negative public
perception. Investors apart, even banks began shying away from NBFCs. Even good NBFCs are
suffering due to the negative perception and even fundamentally sound NBFCs are finding it
difficult to raise funds at competitive rates.
65
OPPORTUNITIES
Entry into new fields appears to be the best opportunity for majority of companies
about 92 per cent of small companies and 62 per cent of top companies. As NBFCs cater to basic
infrastructure industry the opportunities for the sector are great. Infrastructural activities are
poised to push commercial vehicle sales, growth in sales of smaller goods carriers such as Light
Commercial Vehicles/three Wheelers in metro areas, increasing trend in conversion of cash sales
to financed sales are opportunities for top companies
The concept of NBFCs acting as retailers to the banks is gaining ground and RBI has
been issuing directions to banks to extend lines of credit to strong NBFCs for on-lending to
priority sector areas.
THREATS
66
SWOT FACTORS OF NBFCs
STRENGHTS WEAKNESS
• Government Guarantee • Small Size
• Brand Image • Negative market perception towards
NBFCs
• Performance of the company • Taking time to adjust to changes
because of conservation
• Size • Want of Managerial Staff
• Risk management Strategies • Market Capitalization
• Corporate government policies • Cost of Funds
• Consistent rewarding of Shareholders • Low speed on lending rate
• Depositor’s confidence • High concentration in lending
• Individualized customized Services • Legal Hindrances in recoveries
• High quality assets
• Knowledge of clients
• Product mix
• Low cost of funds
• Experience Staff
• Compliance with regulation
OPPORTUNITIES THREATS
• Entry into new fields/ newer • Competition by Banks.
areas/niche markets
• Competitive rates as compared to • Competitors with low cost funds
interest paid by Banks
• Caters to basic infrastructure industry • Non-Performing Assets (NPA)
• Growth in sales of smaller goods • Investment in small savings
carriers like LCVs/ 3 wheelers in Government Guaranteed Bonds, Tax
metro areas free bonds of RBI by existing and
forth coming depositors.
• Increasing trend in conversion of cash • Competition from various Financial
sales to financed sales institutions in commercial vehicle
financing
• Infrastructure Leasing
• Superior governance
• Consolidation in the NBFC industry
has reduced competitive pressure
67
7 BIBLIOGRAPHY
Websites:
www.rbi.org.in
www.hdfc.com
www.economictimes.com
www.financialexpress.com
www.hindustantimes.com
www.businesstoday.com
www.investopedia.com
Magazines:
Business Today
Business World
Newspaper:
Economic times
Times of India
Mumbai Mirror
Television:
NDTV profit
ZEE Business
Times Now
CNBC AWAAZ
68
8 ANNEXURES
8.1 QUESTIONNAIRE
Personal Detail
Name:
Address:
Contact no.:
o Below 25
o 25-30
o Above 30
o Male
o Female
o Yes
o No
o May Be
o To some Extent
69
Q (4) From where did you get information about Manappuram Finance Limited?
o Advertisement
o Newspaper
o Educational Institutions
o Friends
Q (5) Are you aware about the various credit services offered by Manappuram Finance Limited?
o Yes
o No
o Somewhat
o Can’t Say
Q (6) Do you think that Manappuram Finance Limited provide better services than that of
Banks?
o Yes
o No
o May Be
o No Idea
Q (7) Would you prefer opting for loans from Manappuram Finance Limited or HDFC Bank?
o Manappuram Finance Limited
o HDFC Banks
o Both of these
o Others
Q (8) Do higher interest rates of Manappuram Finance Limited affect your decision making to
opt for loans?
o Yes
o No
o To a large Extent
o To some Extent
70
Q (9) According to you, what may be the reason to choose Manappuram Finance Limited over
HDFC Bank?
o Quick Processing
o Less rules and regulations
o Easy repayment options
o Others
Q (10) Do you feel that opting Manappuram Finance Limited is safer than HDFC Banks?
o Yes
o No
o May Be
o Can’t Say
Q (11) According to you, what may be the reason for growth of Manappuram Finance Limited?
o Value to customer
o Instant Credit Facility
o Customer opting for home loans
o Others
Q (12) How would you rate Manappuram Finance Limited on the type of services and facilities
offered by it?
o Good
o Very Good
o Average
o Below Average
71
8.2 NBFCs balance sheet grew 17.2% to Rs 26 trillion as of Sep 2018: RBI
Gross non-performing assets of the NBFC sector as a percentage of total advances rose
to 6.1 percent in September 2018 from 5.8 per cent in March 2018, the report said.
The balance sheet size of non-bank financial companies (NBFCs) grew by 17.2 per
cent to Rs 26 trillion in September 2018 from Rs 22.2 trillion in September 2017, a Reserve
Bank of India (RBI) report showed.
Net profit of sector increased by 16.2 per cent during the half year ended September
2018 as compared to 22.9 per cent during the year ended March 2018, RBI said in the Financial
Stability Report released Monday.
The sector saw a 5.8 per cent increase in share capital in September 2018 whereas
borrowings grew by 17.2 per cent, it said. Loans and advances of the NBFC sector increased by
16.3 percent and investments increased by 14.1 per cent, the report highlighted.
The sector’s capital to risk-weighted assets ratio (CRAR) decreased to 21 per cent in
September 2018 from 22.8 per cent in March 2018.
NBFCs are required to maintain a minimum capital level consisting of tier-I and tier-II capital, of
not less than 15 per cent of their aggregate risk-weighted assets
The report said various stress test results for individual NBFCs indicate that around
8 per cent of the companies will not be able to comply with the minimum regulatory capital
requirements of 15 per cent.
72
8.3 HOW TOP NBFCS OUTPACED BIGGEST BANKS BY ASSET AND PROFIT
GROWTH
VCCircle drew up two separate lists–one comprising the 10 largest NBFCs by market
capitalization and the other of the top 10 banks. Then, we considered a five-year time horizon
between the financial years 2012-13 and 2017-18, and looked at how their asset books grew on
an annualized basis. In other words, we compared their compound annual growth rates (CAGR).
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An analysis of the data shows that all the NBFCs on our list recorded double-digit
CAGR. However, assets of at least three banks grew by less than 10% and of two others were
barely above that mark. Eight of the 10 NBFCs posted handsome growth in their profits before
tax in the five years. However, at least four banks (all state-run) swung to losses as they
struggled to manage the toxic debt sitting on their books.
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8.4 Lakshmi Vilas Bank's merger with NBFC may open more possibilities
Smaller banks, with low-cost liabilities, are attractive bets for bigger para banks, and a successful
deal involving Lakshmi Vilas could act as the template for Indian financiers.
Lakshmi Vilas is also in discussion with two more NBFCs in the Rs 20,000-crore assets club,
sources said.
The role of two central bank nominees to the board of Lakshmi Vilas Bank would be in focus
when the highest policy-making group at the lender meets to possibly consider a merger with a
non-banking finance company (NBFC).
An approval from the two nominees - Suvendu Pati and Rajnish Kumar – could set the precedent
for the regulatory stance on the subject, as the central bank is unlikely to go against the
recommendation of its own representatives at bank board meetings.
"We have already sounded out the central bank and it seems to be positive about this idea, should
the merger tick all the boxes," a person familiar with the matter said. "We are actively evaluating
the possibility of the merger with Indiabulls Housing Finance. The board would discuss the
issue, and this will be the first firm step toward the merger.”
Indiabulls Housing’s cost of borrowing is around 10.2-10.5% while that for Lakshmi Vilas is
6.7%
Lakshmi Vilas Chief Executive Officer Parthasarathi Mukherjee said the possibility of a merger
is "market speculation, at this point."
Given the challenges NBFCs face by way of access to low-cost financing in a tight liquidity
market, the merger with a bank would bring synergy. This would also address capital concerns at
smaller banks if they were merged with NBFCs that have asset books in excess of Rs 20,000
crore.
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8.5 THE DECLINE IN COST OF BORROWING FOR NBFCS AND HFCS
CAN BE INDICATIVE OF EASING OF LIQUIDITY CONCERNS
The cost of borrowing through debt for AAA-rated NBFCs and non-NBFCs has come down
from the levels seen in November 2018.
Mumbai: Corporate bond issuance declined 13 percent to Rs 4 lakh crore during the first nine
months of the current financial year due to higher cost of borrowing and slowing investment
activity, says a report.
"Higher cost of borrowings aimed liquidity challenges in the NBFC segment (that dominates the
corporate bond with a nearly 70 percent share) as well as limited pick up in investments have
contributed to lower issuances," the agency said in a report.
The report said interest rates in corporate bond market were more competitive than bank loans
but only in the case of AAA category. All the other categories largely faced higher borrowing
costs compared with bank loans.
NBFCs continued to face higher cost of borrowings compared with AIFs, HFCs and non-NBFCs
across all the rating categories.
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8.6 RBI TO MERGE THREE CATEGORIES OF NBFCS TO CREATE
NEW CATEGORY
The Reserve Bank of India (RBI) on February 22 announced that it will merge three categories
of Non-Banking Financial Companies (NBFCs) into a new one.
"On a review, it has been decided that in order to provide NBFCs with greater operational
flexibility, harmonization of different categories of NBFCs into fewer ones shall be carried out
based on the principle of regulation by activity rather than regulation by entity," RBI said in a
statement.
The release also mentioned that a deposit taking NBFC-ICC shall invest in unquoted shares of
another company which is not a subsidiary company or a company in the same group of the
NBFC, not exceeding twenty percent of its owned fund.
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8.7 OVER 82% OF NBFCS REGISTERED WITH RBI CATEGORISED AS
HIGH-RISK BY FINANCE MINISTRY.
As of September 2017, there were 11,469 non-banking financial companies (NBFCs) registered
with the Reserve Bank of India. Over 82% of them have been categorized as high-risk financial
institutions by the Finance Ministry. Under the Prevention of Money Laundering Act (PMLA),
all NBFCs have to appoint a principal officer in the financial institutions and report all
suspicious and cash transactions of over Rs 10 lakh to the Financial Intelligence Unit (FIU). But
these companies have been found flouting these rules as on January 31, 2018.
The list of around 9,500 NBFCs released by the FIU today includes names like Purshottam
Investofin and Shalibhadra Finance Limited, which were Dalal Street darlings last year with their
share prices surging 322% (till Jan 16 this year) and 120% in the past year. Other names on the
list include Moody's Investment Company India Private Limited, Adani Capital Private Limited,
Upasana Finance, Dlf Finvest Limited, Bombay Gas Co Ltd, Srestha Finvest Ltd, The
Kamdhenu Finance Company Private Limited, Tribhuvan Finlease & Developers Pvt Ltd among
several others.
This is not the first time that NBFCs are having a run-in with the authorities. Post-
demonetization, these companies along with several rural and urban cooperative banks had come
under the scanner of the Income Tax Department and the Enforcement Directorate (ED) for
illegally converting banned currency notes. It's worth mentioning here that the RBI launched the
Ombudsman Scheme for NBFCs aimed at grievance redressal. "The scheme will provide a cost-
free and expeditious complaint redressal mechanism relating to deficiency in the services by
NBFCs covered under the Scheme," said the apex bank.
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8.8 IND AS IMPLEMENTATION ON NBFCs
RBI has deferred the implementation of IND AS for banks by a year, while it is
applicable for NBFCs from April 1, 2018. NBFCs will have to compute their first quarter result
this month and it is expected to have an impact on capital due to enhanced provisioning.
Ind AS is a global accounting practice that NBFCs are mandated to adopt, which may
lead to initial credit losses. The practice is on a par with the International Financial Reporting
Standard (IFRS).
PHASES OF ADOPTION
MCA has notified a phase-wise convergence to IND AS from current accounting standards. IND
AS shall be adopted by specific classes of companies based on their Net worth and listing status.
The phases are as follows:
PHASE I
• Net worth is more than or equal to INR 500 crore with effect from 1st April 2018.
PHASE II
All NBFCs whose Net worth is more than or equal to INR 250 crore but less than INR 500 crore
shall have IND AS mandatorily applicable to them with effect from 1st April 2019.
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TABLE 1: NUMBER OF DIFFERENT TYPES OF NBFCS IN INDIA
Shares of NBFCs classified by activities in total assets of the NBFC sector: end-March
position
(Per cent)
Category 2012 2013 2014 2015 2016 2017
1. Loan companies 31.2 28.9 28.6 28.0 33.2 36.2
2. NBFCs-IFC 30.8 32.1 34.0 35.4 27.1 31.5
3. AFCs 12.6 14.2 14.3 13.9 13.2 13.7
4. Investment companies 22.3 21.4 19.7 17.7 22.4 12.6
5. NBFCs-MFI 1.6 1.9 1.9 2.4 2.8 3.0
6. CICs-ND-SI 1.0 1.2 1.2 2.2 0.9 2.2
7. NBFCs-Factor 0.5 0.3 0.3 0.2 0.2 0.1
8. IDF-NBFCs 0.0 0.0 0.0 0.1 0.3 0.6
Total 100.0 100.0 100.0 100.0 100.0 100.0
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TABLE 3: KEY INDICATIONS OF NBFCS
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TABLE 5: GROWTH RATE OF CREDIT OF MAJOR CATEGORIES OF
NBFCS
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