UNIVERISTY OF MUMBAI

PROJECT REPORT

TITLED ON

A STUDY ON NON-BANKING FINANCIAL COMPANIES (NBFCS)

“A STUDY ON NON-BANKING FINANCIAL COMPANIES (NBFCS)”

A Project submitted to

University of Mumbai for Partial Completion of the Degree

of Bachelor of Management Studies

Under the Faculty of Commerce

By

“ANKITA RAVI SINGH”

Under the Guidance of

Prof Mohan Iyer

LORDS UNIVERSAL COLLEGE

Topiwala Marg, Off Station Road, Near Hotel Ratna

Goregaon (West)

Mumbai-400104

ACADEMIC YEAR

2018-2019
“A STUDY ON NON-BANKING FINANCIAL COMPANIES (NBFCS)”

A Project submitted to

University of Mumbai for Partial Completion of the Degree

of Bachelor of Management Studies

Under the Faculty of Commerce

By

“ANKITA RAVI SINGH”

Under the Guidance of

Prof Mohan Iyer

LORDS UNIVERSAL COLLEGE

Topiwala Marg, Off Station Road, Near Hotel Ratna

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.

Signature of the Student: ____________

Name: ANKITA RAVI SINGH

Certified By

Prof Mohan Iyer

 ACKNOWLEDGEMENT

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.

Non-banking financial companies (NBFC’s) have been gaining market share

across major asset classes, despite increasing competition from banks, which have sharpened
focus on retail loans. The balance sheet size of Non-banking financial companies (NBFC’s) grew
by 17.2 percent to Rs 26 trillion in September,2018.

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 sector saw a 5.8 percent increase in share capital in September,2018

whereas borrowings grew by 17.2 percent and the investments increased by 14.1 percent. A
rational assessment of the intrinsic value of NBFC’s factoring issues such as past performance,
structural weakness of the sector (for instance funding disadvantages) along with an
identification of real capabilities are essential to ensure that the equilibrium between price paid
and value realized is reached to possible extent.

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.

1.1 NON-BANKING FINANCIAL INSTITUTION (NBFIs)

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 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:

• RISK POOLING INSTITUTIONS – Organizations such as insurance companies that

spread financial risk among large number of entities.

• INSTITUTIONAL INVESTORS – Organizations such as pension funds and mutual

funds that trade securities in volume that qualify for lower commissions.

• OTHER NON-BANKING FINANCIAL INSTITUTIONS – Organizations that

provide financial services such as leasing of assets, market makers (who provide
liquidity), management companies, financial advisors and securities brokers.

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 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.

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 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

In 1992, RBI formed a committee headed by A.C Shah, former chairman of

the bank of Baroda, to suggest measures for effective regulation of the industry. The Shah
Committee gave its recommendations which ranged from compulsory registration to
prudential norms.

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”

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 1.3 DEFINITIONS OF NBFC

A Non-banking financial company is a company incorporated under the

Companies Act,2013 or 1956 which is engaged in the business of loans and advances,
Acquisition of stocks, equities, debt etc. issued by the government or any local authority. The
main objective of this type of company is to accept deposits under any scheme or manner.

According to section 451(1) of the RBI Act, a Non-Banking company

carrying on the business of a financial institution will be an NBFC. It is governed by the ministry
of Corporate Affairs as well as the Reserve Bank of India.

Non-Banking Financial Company has been defined as:

➢ 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.

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 1.4 REGULATION OF NBFCs

Regulatory Body 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

Loan company Stock Broking

Infrastructure Collective
Finance company investment
Factoring schemes

Residuary NBFCs

Core investment
company

Infrastructure
Debt fund

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 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.

The regulatory requirements of NBFC In India:

❖ 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.

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 1.5 CLASSIFICATION OF NBFC

NBFCs

NON-DEPOSIT
DEPOSIT
ACCEPTING
ACCEPTING

SYSTEMATICALLY NON-
IMPORTANT SYSTEMATICALLY
NBFCs IMPORTANT
NBFCs

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NBFCs are classified into two categories such as deposit accepting NBFCs and non-deposit
accepting NBFCs based on their liability structure.

DEPOSIT ACCEPTING NBFCs:

Deposit Accepting NBFCs are also known as NBFCs-D. NBFCs are subject to
capital adequacy, liquid asset maintenance, exposure norms (including restrictions on exposure
to investments in land, building and unquoted shares), ALM (Asset liability management)
discipline and reporting requirements.

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.

NON-DEPOSIT ACCEPTING DEPOSITS:

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.

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1.6 TYPES OF NBFC’s

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Depending upon the nature of their major activities, NBFCs can be classified into the following
categories, they are as follows:

EQUIPMENT LEASING COMPANY:

The Equipment Leasing Company is a non-banking finance company which is

primarily engaged in the business of leasing of equipment or financing of such activity. The
equipment leasing company leases the asset to other companies either on the operating lease or
finance lease.

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:

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.

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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:

• Certificate of registration from NHB

• Minimum net owned fund of Rs.1000 lakhs

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.

An investment company is a financial institution principally engaged in

investing in securities. The investment company pool the money to invest in securities. These
companies were regulated by the SEC and must be registered under the Investment Company
Act of 1940.

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.

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LOAN COMPANY:

The Loan Company is a financial institution principally engaged in the

business of providing finance to the public, whether by making loans or advances or otherwise,
for any activity other than its own. The loan companies are usually the small partnership firms
that accept deposits from the public at high-interest rates and further give loans to the
wholesalers, retailers, small scale firms, self-employed persons, etc. at a relatively higher rate of
interest. The loan companies offer several kinds of loans based on the individual’s preferences.
Such as demand loan, term loan, secured loan, unsecured loan, industrial loan, commercial loan,
agricultural loan, etc.

MUTUAL BENEFIT FINANCIAL 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

• c. Minimum capital requirement

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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:

The Residuary Non-Banking Company is yet another form of a financial institution

engaged in the principal business of accepting deposits, under any scheme or arrangement or in
any other form and not being asset financing, investment, loan company. Simply, the Residuary
Non-Banking Company primarily deal in accepting deposits in any form and investing these in
the approved securities.

According to the Reserve Bank of India, a residuary non-banking company is:

▪ A financial or a non-banking institution, being a company.

▪ 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.

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 1.7 ROLE OF NON-BANKING FINANCIAL COMPANIES

NBFCs (Non-Banking Financial Companies) play an important role in promoting inclusive

growth in the country, by catering to the diverse financial needs of bank excluded customers.
NBFCs do play a critical role in participating in the development of an economy. Further, the
role of NBFCs can be defined as follows:

➢ PROMOTERS UTILISATION OF SAVINGS

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.

➢ PROVIDES EASY, TIMELY AND UNUSUAL CREDIT

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.

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 ➢ 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.

➢ INVESTING FUNDS IN PRODUCUTIVE PURPOSES

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

➢ PROVIDE HOUSING FINANCE

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.

➢ PROVIDE INVESTMENT ADVICE

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.

➢ INCREASE THE STANDARD OF LIVING

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.

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 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

Another important function of NBFCs is lending money to public. Non-banking finance

companies provide financial assistance through hire purchase finance. Hire purchase finance is
given to help small important operators, professionals and middle-income group people to buy
the equipment on basis of hire purchase.

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 1.9 LIST OF TOP 10 NBFCs

Non-Banking Financial Companies (NBFC) are establishments that provide financial

services and banking facilities without meeting the legal definition of a Bank. There are a huge
number of NBFCs operating in our country but here’s a look at the current Top 10 NBFCs in
India

POWER FINANCE CORPORATION LIMITED

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

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.

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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

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.

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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

HDB FINANCE SERVICES

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.

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CHOLAMANDALAM

Cholamandalam investment and Finance Company Limited (CHOLA), was incorporated in

1978 as the financial services arm of the murugappa Group. Chola started as an equipment
financing company and has surged ahead as a complete financial services provider offering all
kinds of services like- vehicle finance, home loans, home equity loans, SME loans, investment
advisory services, stock broking and a host of other financial services to customers. Chola has
725 branches across India with assets under management above INR 35,000 crores.

TATA CAPITAL FINANCIAL SERVICES LIMITED

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

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.

The aggregate balance sheet of the NBFC sector expanded15.5%compared with

15.7% in the previous year. NBFC have recorded a healthy growth- a compound annual growth
rate (CAGR) of 19% over the past few years- comprising 13% of the total credit and expected to
reach nearly 18% by 2018-2019.

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

Year GNPA ratio NNPA ratio

2013-14 2.7 1.2
2014-15 2.9 1.6
2015-16 4.3 2.4
2016-17 6.1 4.1
2017-18 5.8 3.5
Source Financial Stability Report

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)

Year ROA ROE

2013-14 2.2 9.1
2014-15 1.9 8.7
2015-16 2.1 9.7
2016-17 1.6 6.9
2017-18 1.9 8.4
Source: Financial Stability Report

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%

Source: RBI data

28
 1.11 BANKS AND NBFCS –A COMPARISON

The major point of difference can be summarized under the following headings.

• Incorporation: It is important to know whose purview these financial institutions falls in

case of any irregularities or problems. Banks are incorporated under the Banking
regulation Act, 1949 and NBFCs are incorporated under the companies Act, 1956.

• 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.

• Foreign investment: Foreign investment up to 100% is permitted in case of NBFC this

limit is earmarked at 74% for private Banks.

• 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

(A) MANAPPURAM GOLD LOAN

Mode of calculation of Interest on loan

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

The maximum interest rate chargeable has been fixed at 28 % pa.

✓ Penal / Overdue 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.

Manappuram provides various Gold Loan Operational schemes such as:

• 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.

ONLINE GOLD LOAN SERVICE

MANAPPURAM PROVIDES ONLINE GOLD LOAN SERVICES.

Why Online Gold Loan?

• Access gold loan from anywhere, anytime

• Free insurance cover for your gold
• Easy documentation, instant approval, convenient 24X7 online repayment
• Hassle-free, paper-less transaction from your mobile device
• Free safe custody for your valuable gold
• No hidden charges, fully transparent
• Loans up to Rs.1.5 crore
• Pay interest only for the exact number of days
• 100% safety and security for your gold Jewelry

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

Interest Rate : 11.00% onwards

Repayment Period : 6 months to 4 years

Min./Max. Loan Quantum : Rs. 0.5 lakhs/Rs.10 lakhs

Gold Loan Processing Fees : Ranges from Zero to 0.5% of loan sanctioned

Prepayment Charges : Ranges from Nil to 1 % of loan principal prepaid

Penal Charges : 2% over original loan interest rate on overdue amount

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.

PRODUCT Min IRR Max IRR Average IRR

GROUP
Gold loan 10.17% 15.95% 12.75%

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

Fees and Charges for HDFC Bank Gold Loan

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:

• Loan Processing Charges : Up to 0.5% (Option of nil processing fee)

• Valuation Fees : Rs.250 for loan amounts up to 1.5 lakhs and Rs.500
for loan amounts over and above Rs.1.5 lakhs
• Foreclosure Charges : Up to 1% Option available for nil foreclosure
charges
• Charges for late payment of Loan amount: 2% per annum as penal interest over and
above the applicable rate of interest
• Stamp Duty & other Statutory Charges: As per applicable laws of the state

(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.)

(c)MANAPPURAM HOME LOANS

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.

Maximum period for repayment of loan shall be up to 240 months depending

upon customer's profile, age of customer at time of maturity of loan and age of property at the
time of maturity of loan.

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

Fee payment (Non-refundable) : Amount (plus applicable taxes) On Payment

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

Loan Cancellation Charges : Rs.3000 Plus Applicable Taxes

List of Loan application documents required

a) Identity and Residence Proof

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.

HOME LOAN SALARIED SELF EMPLOYED

Up to 30 lakhs % %
Women 8.80 8.95
Others 8.85 9.00
30.01 lacs-75 Lacs
Women 8.95 9.10
Others 9.00 9.15
75.01 lacs & Above
Women 9.00 9.15
Others 9.05 9.20

36
The following documents are required along with your Home Loan application:

a) Application form with photograph

b) Identity and Residence proof
c) Last 6 months bank statements
d) Processing fee cheque
e) Income Documents
f) Copies of Title Documents of Agricultural Land depicting Land holding
g) Latest Salary Slip
h) Educational Qualifications Certificate and Proof of Business
i) Copies of Title Documents of Agricultural Land depicting crops being cultivated

(e)MANAPPURAM FOREX AND MONEY TRANSFER

MONEY TRANSFER

• Fast, Easy and Safe Money Transfer.

• No service charges to receive.
• No bank account needed for amount up to Rs. 50,000/-.

37
FOREIGN EXCHANGE

• Multicurrency cards at your door step for travel abroad.

• Currency pick up at your door step.
• Facilitate education loan for overseas studies.
• Inward remittance from all countries through all major Money Transfer Agencies.
• Domestic Money Transfers across India.
• NEFT / RTGS / IMPS facility for Money Transfer business.

DOMESTIC MONEY TRANSFER HIGHLIGHTS

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.

Prepaid card and makash digital

PRE-PAID CARD

• Co-branded Prepaid Card in association with YES BANK.

• Card can be Loaded up to Rs.50000.
• Cash withdrawal from any ATM's in India.
• Cash withdrawal from all branches of Manappuram Finance Ltd.
• Accept at all major Merchant Establishments in India.
• Card can purchase from branches of Manappuram Finance Ltd.

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

(g) MANAPPURAM SME LOANS

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.

Manappuram Finance Limited provide SME loans to:

• Self Employed Professionals/

• Non-Professionals Individuals/Proprietorship,
• Partnership & Limited Companies

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

• Self-Occupied Commercial or Residential Properties.

• Land which extends more than 3 Cents in Corporation areas, 5 Cents in Municipal areas
and 10 Cents in Rural areas.
• Vacant Land and Plot with approach roads.

(h) HDFC BUSINESS LOAN

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

Title of the study: A study on Non-Banking Financial Companies (NBFCs).

Duration of the study: The duration of the study is 40 days from 20th January to 28th February.

Research Methodology

Research in common jargon refers to search for Knowledge. It is a process of analyzing

and interpreting information to answer to questions. Research includes any gathering of data,
information and facts for the advancement of knowledge.

Research as a process involves defining of problems, formulating the hypothesis,

organizing and evaluating the data and deriving inference and conclusion after careful testing.
The present study has also been initiated with the basic objective to evaluate the performance of
NBFCs.

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.

2.2 OBJECTIVE OF THE STUDY

The confined objectives of the present study are:

➢ To know the performance of NBFCs in India in terms of Profit and Growth.

➢ To know the reasons for growth of NBFC sector in India.
➢ To obtain information that whether the comparatively higher interest rates of NBFCs
affect the growth of NBFC sector in India.
➢ To obtain the information that emergence of NBFC lead to growth of Indian Economy.
➢ To understand the reasons whether people choose NBFCs over Banks
➢ To understand that in terms of loans will a person choose NBFCs or Banks.
➢ To get a brief knowledge about the services provided by NBFC sector.
➢ To study the financials of NBFCs.
➢ To understand the potential customers attitude towards NBFC industry.
➢ To study the funding sources of NBFCs.
➢ To study the investment strategies of NBFCs.
➢ To make a comparison between Banks and NBFCs in terms of shopping for loans.
➢ To understand why businesses and individuals are turning to NBFCs for their funding
needs.

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

role in the core development of infrastructure, transport and employment generation.

 The significance of this study is due to the huge impact of NBFCs on the growth of

Indian Economy and measures to revive the sector.

 Significantly, NBFCs provide an alternative source of funding and liquidity and represent

a unique story of success in financial innovation and last mile connectivity.

 To understand the effectiveness of a combination of the mid-course corrections by

NBFCs themselves and regulatory changes.

 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.

2.6 HYPOTHESIS OF THE STUDY

 There is a difference in the interest rates charged by different NBFCs for lending various
financial services.

 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.

 There is difference in functioning of various NBFCs as compared to Banks.

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.

• Taxmann’s (2013) published “Statutory Guide for Non-Banking Financial

Companies”. This book is published by Taxmann’s publications, New Delhi. The book
listed the laws relating to Non-Banking Financial Companies such as rules and laws
governing the kinds of business undertaken by different types of NBFCs.

• 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.

• Thilakam and Saravanan (2014) wrote on “CAMEL Analysis of NBFCs” in

International Journal of Business and Administration Research Review”. To
evaluate the soundness of NBFCs over decades, the author has made an attempt of
CAMEL criteria for analysis of selected NBFCs. Based on findings, the suggestions were
offered to overcome the difficulties faced by selected NBFCs in their development.

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.

Method of Primary Data collection:

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

The research design is both exploratory as well as descriptive in Nature. In case of

exploratory design, the information has been obtained through physical and electronic medium
whereas in case of descriptive research, a study consisting sample surveys have been carried out.

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.

Tools used in research operations

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

Q. (1) Number of respondents in terms of their age

Sr. No Age Group No. of Respondents Percentage

1 Below 25 8 16
2 25-30 18 36
3 Above 30 24 48
Total 50 100

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.

So, it is concluded that majority of respondent are above 30 years.

50
Q (2) No. of respondents according to their gender.

Sr. No. Gender No. of respondents Percentage

1 Male 28 56%
2 Female 22 44%
Total 50 100

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?

(A) Manappuram Finance Limited

(B) HDFC Bank

(C) Both

(D) None of these

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

(C) To a greater Extent

(D) To some Extent

10%
20% Yes

No
10%
To a Greater Extent

To some Extent
60%

INTERPRETATION:

From the study carried on by me I came to know that higher interest

rates of Manappuram Finance Limited affect the decision making of the respondents to opt for
loan to a Greater Extent. It came to my knowledge that 60% of the respondents responded that
the higher interest rates of Manappuram Finance Limited affects their decision making to a
greater extent whereas 20% responded as “Yes”. But 5% responded as higher interest rates
somewhat affect their decision making and the higher interest rates of Manappuram Finance
Limited does not affect the remaining 5% of the respondents.

57
Q (9) According to you, what may be the reason to choose Manappuram Finance Limited over
HDFC Banks?

(A) Quick Processing

(B) Less rules and regulations

(C) Easy repayment options

(D) Others

24% 28%
Quick Processing

Less Rules and Regulations

16%
Easy Repayment Option
32%
Others

INTERPRETATION:

When asked what are the reasons to choose Manappuram Finance

Limited over HDFC Bank, 28% of the respondent responded as “Quick Processing” may be the
reason whereas 32% responded as “Less rules and Regulations”. 16% of the respondent
responded as “Easy Repayment Options” and remaining 24% responded as others.

58
Q (10) Do you feel that opting Manappuram Finance Limited is safer than that of HDFC Banks?

(A) Yes

(B) No

(C) Maybe

(D) Can’t Say

20

18 19

16 17

14

12

10

6 7 7

0
Yes No May Be Can't say

INTERPRETATION:

Majority number of the respondents feel safe to opt for Manappuram

Finance Limited rather than HDFC Bank. On the other hand, there were some respondents who
don’t think so i.e. 7 respondents felt that Manappuram is not safe in comparison to HDFC Bank
whereas 17 respondents responded as “May Be” and 7 as “Can’t Say”.

59
Q (11) According to you, what may be the reason for the growth of Manappuram Finance
Limited?

(A) Value to customer

(B) Instant credit Facility

(C) Customer opting for home loans

(D) Others

18% Value to Customer

24%

Instant Credit Facility

Customers opting for home loans

20%
38%
Others

INTERPRETATION:

As nowadays customers are more challenging to take loans to fulfill their

basic necessity of shelter i.e. house, 38% of the respondents responded that home is one of the
main aspects of growth of Manapurram Finance Limited. Whereas, 24% of the respondents felt
that Manapurram Finance Limited value to customers is the reason for growth and 20%
responded as “Instant Credit Facility”. Remaining 18% responded as “Others”.

60
Q (12) How would you rate Manappuram Finance Limited on the type of services and Facilities
offered by it?

(A) Good

(B) Very Good

(C) Average

(D) Below Average

16%

Good
40%
Very Good
52%
Average
Below Average
32%

12%

INTERPRETATION:

. When asked that how respondents would rate Manappuram Finance

Limited on the basis of services and facilities offered by it, majority i.e.40% of the respondents
rated it as “Average” whereas 32% rated it to be “Good” On the other hand,16% rated
Manappuram Finance Limited as “Very Good” and remaining 12% as “Below Average”.

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.

➢ Business Development is measured in terms of number of applications received by

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.

NBFCs place a significant importance on continuous upgrading of human resources for

sustaining highest levels of customer satisfaction and maximizing shareholder value. The “know
your customer” approach and good knowledge of economic activities of the area of operation
and its people are also their strengths

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.

Currently, NBFCs are going through a painful identity crisis.

Recovery of receivables is another area that is keeping the NBFCs worried Structural weakness
includes those factors like taking time to adjust to changes because of conservatism and
dependence on retail resources.

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

The threat is feared by government companies in the other investment opportunities

like investment in small savings in post offices, Government guaranteed bonds, Tax-free bonds
of RBI by existing and forthcoming depositors. Intensified competition leading to squeeze on
spreads, declining margins, undercutting in rates by certain large players, reduction in lending
rates, all have a bearing on profitability. External factors affect the working of NBFC. Thus, it
acts as a threat for the growth and development of NBFC.

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
• Entry into new fields/ newer
areas/niche markets
• Competitive rates as compared to
interest paid by Banks
• Caters to basic infrastructure industry
• Growth in sales of smaller goods
carriers like LCVs/ 3 wheelers in
metro areas
• Increasing trend in conversion of cash
sales to financed sales
• Infrastructure Leasing
• Superior governance
• Consolidation in the NBFC industry
has reduced competitive pressure
THREATS
• Competition by Banks.
• Competitors with low cost funds
• Non-Performing Assets (NPA)
• Investment in small savings
Government Guaranteed Bonds, Tax
free bonds of RBI by existing and
forth coming depositors.
• Competition from various Financial
institutions in commercial vehicle
financing

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

TOPIC: A Research on Non-Banking Financial Institutions.

Personal Detail

Name:

Address:

Contact no.:

Q (1) Age of the respondent

o Below 25
o 25-30
o Above 30

Q (2) No. of respondents according to their gender

o Male
o Female

Q (3) Do you know about Manappuram Finance Limited- A leading NBFC?

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

By Business Today| Monday, December 31, 2018

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).

73
 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.

74
 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.

By Atmadip Ray, ET Bureau | Mar 07, 2019, 10.39 PM IST

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.

75
 8.5 THE DECLINE IN COST OF BORROWING FOR NBFCS AND HFCS
CAN BE INDICATIVE OF EASING OF LIQUIDITY CONCERNS

By PTI | Feb 12, 2019, 07.15 PM IST

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.

Non-banking finance companies (NBFCs) witnessed higher cost of borrowings post-August

2018 across all the rating categories--AAA, AA+, AA, and AA--, according to a report by Care
Ratings Tuesday.

"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.

76
 8.6 RBI TO MERGE THREE CATEGORIES OF NBFCS TO CREATE
NEW CATEGORY

According to a release, NBFCs categorized as Asset Finance Companies (AFC), Loan

Companies (LCs) and Investment Companies (ICs), will be merged into a new category called
NBFC - Investment and Credit Company.

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.

According to a release, NBFCs categorized as Asset Finance Companies (AFC), Loan

Companies (LCs) and Investment Companies (ICs), will be merged into a new category
called NBFC - Investment and Credit Company (NBFC-ICC).

"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.

(First Published on Feb 22, 2019 07:27 pm)

77
8.7 OVER 82% OF NBFCS REGISTERED WITH RBI CATEGORISED AS
HIGH-RISK BY FINANCE MINISTRY.

By Business Today| Monday| February 26, 2018

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.

78
 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

MANDATORY APPLICABILITY OF IND AS TO ALL BANKS, NBFCS, AND INSURANCE COMPANIES

FROM 1ST APRIL 2018, WHOSE:

• 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.

79
 TABLE 1: NUMBER OF DIFFERENT TYPES OF NBFCS IN INDIA

Number of different types of NBFCs in India: end-March position

Year NBFC-D NBFC-ND-SI NBFC-ND Total
2012 273 375 12,010 12,385
2013 254 418 11,553 12,225
2014 241 465 11,323 12,029
2015 220 420 11,202 11,842
2016 202 209 11,271 11,682
2017 (P) 178 218 11,126 11,522

TABLE 2: SHARES OF NBFCS CLASSIFIED BY ACTIVITIES IN TOTAL ASSETS OF

NBFC SECTOR

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

Source: Supervisory returns, RBI.

80
 TABLE 3: KEY INDICATIONS OF NBFCS

Key indicators of NBFCs

(Amount in ₹ billion)
Item 2014 2015 2016 2017
1. Share Capital 737 851 761 921
2. Reserves & Surplus 2,723 3,117 3,033 3,538
3. Public Deposits 131 205 271 306
4. Borrowings 10,142 12,237 12,263 13,748
5. Others 766 875 904 1,159
Total Liabilities/Assets 14,499 17,284 17,231 19,671
(12.9) (13.9) (12.6) (12.9)
1. Loans & Advances 10,782 12,875 13,169 14,846
2. Investments 2,159 2,603 2,253 2,673
3. Cash & Bank Balances 548 668 585 778
4. Others 1,010 1,138 1,225 1,375
Financial Ratios (per cent)
1. Income to total assets 11.8 11.6 12.4 11.7
2. Cost to income ratio 52.9 52.1 50.4 49.4
3. Gross NPA to total advances 3.9 4.1 4.5 5.0
4. Net NPA to total advances 2.5 2.5 2.5 2.3
5. Return on equity 9.0 10.3 7.9 6.8
Source: RBI report

TABLE 4: CREDIT GROWTH OF NBFC AND BANKS

Credit growth of NBFCs and banks

(per cent)
Private Sector Public Sector
Year NBFCs-ND-SI Banks
Banks Banks
2011-12 30.5 16.8 21.8 16.4
2012-13 23.7 14.0 18.5 12.0
2013-14 8.8 14.2 16.1 13.9
2014-15 15.0 9.3 18.6 7.8
2015-16 12.4 10.9 25.7 1.4
2016-17 (P) 13.0 5.4 17.1 0.6
Source: RBI report

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TABLE 5: GROWTH RATE OF CREDIT OF MAJOR CATEGORIES OF
NBFCS

Growth rate of credit of major categories of NBFCs

Category 2012-13 2013-14 2014-15 2015-16 2016-17

Loan Companies 11.3 7.7 20.5 22.7 22.1

NBFCs-IFC 24.4 17.8 24.6 7.6 5.6

NBFCs-MFI 34.3 21.3 47.6 36.3 -3.4

AFCs 30.0 10.4 13.2 23.1 -17.1

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