UNIVERSITY OF MUMBAI

A PROJECT ON

“NON-BANKING FINANCIAL COMPANY”

BACHELOR IN ACCOUNTING AND FINANCE (SEMESTER-VI)

2021-2022

SUBMITTED BY

MS. MANSI JAGDISH FULIYA

ROLL NO: 08

SEAT NO. 1002386

PROJECT GUIDE

PROF. LAXMI VISHWAKARMA

 SHANKAR NARAYAN COLLEGE OF ARTS & COMMERCE
BHAYANDER (EAST), THANE-401105

CERTIFICATE

This is to certify that MS. MANSI FULIYA has worked and duly completed his
Project Work for the degree of Bachelor in Accounting and Finance under the
Faculty of Commerce his project is entitled, “NON-BANKING FINANCIAL
COMPANY” under my supervision.

I further certify that the entire work has been done by the learner under my guidance
and that no part of it has been submitted previously for any Degree of any
University. It is his own work and facts reported by his personal findings and
investigations.

______________________ ______________
Internal Project Guide Principal
Prof. Laxmi Vishwakarma Dr. V.N. Yadav

_________________________________ External Guide Co-Ordinator

Head of Department:
(Prof. Fauziya Patel)

Date of Submission: -
 SHANKAR NARAYAN COLLEGE OF ARTS & COMMERCE
BHAYANDER (EAST), THANE-401105

DECLARATION

I am MS. MANSI FULIYA, student of Shankar Narayan College of Accounting

and Finance (SEMESTER- VI), at University of Mumbai hereby declares that I have
completed this project on “NON-BANKING FINANCIAL COMPANY” for the
academic year 2021 - 2022. The information submitted is true and original to the best
of my knowledge of the subject matter.

Place:
Date: Signature of the student
(MS. MANSI FULIYA)

Certified by,
(Prof. LAXMI VISHWAKARMA)
 ACKNOWLEDGEMENT

It gives me immense pleasure to present my project on the topic “NON-BANKING

FINANCIAL COMPANY” I would firstly like to thank the University of Mumbai
for designing the Finance Program and also to my college Management for providing
me with a Graduation program in the college as well as good infrastructure and
sincerely thank our Principal sir Dr. V.N. Yadav for providing me support and giving
me opportunity to do Graduation in our college and completing the project.
I would also like to express my profound guide Prof. Laxmi Vishwakarma and
Co-Ordinator who as ably guided my research project with her vast fund of
knowledge, advice and constant encouragement without which this project would
have not been possible. I candidly appreciate her implicit and valuable contribution
in drawing up this project work.
I take this opportunity to highlight the valuable contribution of BAF coordinator
Prof. Laxmi Vishwakarma and all my professors, my colleagues and especially
my parents who had always supported and encouraged the success of this project
report to a large extent is also dedicated to them also.
I would also like to thank all those who helped me and whom I have forgotten to
mention in this space.

Thank you
 INDEX

PARTICULARS
Chapter Page
No. No.
1. INTRODUCTION 1
2. LITERATURE REVIEW 14
3. RESEARCH METHODOLOGY 17
4. DATA ANALYSIS AND INTERPRETATIONS 57
5. CONCLUSIONS 59
6 BIBLIOGRAPHY
 CHAPTER-1
INTRODUCTION
 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. A non-banking institution which is a company
and which has its principal business of receiving deposits under any scheme or arrangement or any
other manner, or lending in any manner is also a non-banking financial company (Residuary non-
banking company).

NBFCs are doing functions akin to that of banks; however there are a few differences:
(i)an NBFC cannot accept demand deposits;
(ii) an NBFC is not a part of the payment and settlement system and as such an NBFC cannot issue
cheques drawn on itself;
(iii) deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not
available for NBFC depositors unlike in case of banks.

1.1 TYPESOF NBFC’S:

Originally, NBFCs registered with RBI were classified as:

(I)equipment leasing company;
(ii) hire-purchase company;
(iii) loan company;
(iv) investment company.

However, with effect from December 6, 2006 the above NBFCs registered with RBI have been
reclassified as

(i) Asset Finance Company (AFC)

(ii) Investment Company (IC
1.2 REGULATIONS OF NBFC’S:

• In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be
registered with RBI to commence or carry on any business of non-banking financial institution
as defined in clause (a) of Section 45 I of the RBI Act, 1934. However, to obviate dual
regulation, certain categories of NBFCs which are regulated by other regulators are exempted
from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking
companies/Stock broking companies registered with SEBI, Insurance Company holding a
valid Certificate of Registration issued by IRDA, Nidhi companies as notified under Section
620A of the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the
Chit Funds Act,1982 or Housing Finance Companies regulated by National Housing Bank.

• A company incorporated under the Companies Act, 1956 and desirous of commencing
business of non-banking financial institution as defined under Section 45 IA) of the RBI Act,
1934 should have a minimum net owned fund of Rs 25 lakh (raised to Rs 200 lakh i.e., April
21, 1999). The company is required to submit its application online by accessing RBI ‘s
secured website https://secweb.rbi.org.in/COSMOS/rbilogin.do (the applicant companies do
not need to log on to the COSMOS application and hence user ids for these companies are not
required). The company has to click on ―CLICK‖ for Company Registration on the login
page. A window showing the Excel application forms available for download would be
displayed. The company can then download suitable application form (i.e., NBFC or SC/RC)
from the above website, key in the data and upload the application form. The company may
note to indicate the name of the correct Regional Office in the field ―C - 8‖ of the ―Ann
Identification Particulars‖ worksheet of the Excel application form. The company would then
get a Company Application Reference Number for the Cora application filed on-line.
Thereafter, the company has to submit the hard copy of the application form (indicating the
Company Application Reference Number of its on-line application), along with the supporting
documents, to the concerned Regional Office. The company can then check the status of the
application based on the acknowledgement number. The Bank would issue Certificate of
Registration after satisfying itself that the conditions as enumerated in Section 45-IA of the
RBI Act, 1934 are satisfied.

1.3 GUIDELINES FOR NEW DEPOSITS:

 • Accordingly, the KYC framework should have two-fold objective, (I) to ensure customer
identification and verifying his identity and residential address; and (ii) to monitor
transactions of a suspicious nature.

• NBFCs should ensure that the identity of the customer, including beneficial owner is done
based on disclosures by customers themselves.

• Typically, easy means of establishing identity would be documents such as Permanent

Account Number (PAN), ration card, driving licence, Election Commission's identity card,
passport, et cetera in case of individuals and registration certificate, partnership
deed/agreement, et cetera and other reliable documents in respect of companies, firms and
other bodies.

• Verification through such documents should be in addition to the introduction by a person

known to the NBFC.

Procedures for existing customers

• In respect of existing customers, NBFCs should ensure that gaps and missing information in
compliance of KYC guidelines on customer identification procedure is filled up and
completed before June 30, 2004.

1.4 Ceiling and monitoring of cash transactions

• NBFCs would normally not have large cash withdrawals and deposits.
• However, wherever transactions of Rs 10 lakh (Rs 1 million) and above are undertaken, they
should keep record of these transactions in a separate register maintained at branch, as well as
at Registered Office.
• Such information should be made available to regulatory and investigating authorities, when
demanded.

Guidelines and monitoring procedures

• The board of directors of NBFCs should formulate policies and procedures to operationalise
the guidelines and put in place an effective monitoring system to ensure compliance by their
branches.

• Early computerisation of branch/office reporting will facilitate prompt generation of such

reports and monitoring.

Internal control systems

• Duties and responsibilities should be explicitly allocated among the staff for ensuring that
policies and procedures are managed effectively and that there is full commitment and
compliance to an effective KYC programme in respect of both existing and prospective
customers/clients.

Internal audit/inspection

• Internal auditors must specifically scrutinise and comment on the effectiveness of the
measures taken by branches / offices of NBFC in adoption of KYC norms and steps towards
prevention of money laundering.

• Specific cases of violation should be immediately brought to the notice of head /controlling /
registered office.

Record keeping

• NBFCs should prepare and maintain proper documentation on their customer relationships
and cash transactions of Rs 10 lakh and above.

• The records of all such transactions should be retained for at least ten years after the transaction
has taken place and should be available for perusal and scrutiny by audit
 functionaries as well as regulators and law enforcement authorities; as and when required, at
the branch as well as at registered office.

Training of staff and management

• It is important that all the operating and management staff is made fully aware of the implications
and understand the need for strict adherence to KYC norms.

• NBFCs may take suitable steps to impart training to their operational staff on anti-money laundering
measures

1.5 RESPONSIBILITIES:

• The NBFCs accepting public deposits should furnish to RBI

i. Audited balance sheet of each financial year and an audited profit and loss account in respect

of that year as passed in the annual general meeting together with a copy of the report of the

Board of Directors and a copy of the report and the notes on accounts furnished by its

Auditors; ii. Statutory Annual Return on deposits - NBS 1;

iii.Certificate from the Auditors that the company is in a position to repay the deposits as and

when the claims arise; iv. Quarterly Return on liquid assets;

v. Half-yearly Return on prudential norms;

vi. Half-yearly ALM Returns by companies having public deposits of Rs. 20 crore and above
or with assets of Rs. 100 crore and above irrespective of the size of deposits;

vii. Monthly return on exposure to capital market by companies having public deposits of Rs.
50 crore and above; and

viii. A copy of the Credit Rating obtained once a year along with one of the Half-yearly Returns on
prudential norms as at (v) above.

Page 11
1.6 CURRENT SCENARIO:
Nearly 11 years after the last of the two banking licences were issued by RBI to private sector entities,
the government has again started the process of allowing the better-managed non-banking finance
companies (NBFCs) to graduate to full-fledged banks. FM Pranab Mukherjee ‘s Budget proposal on
Friday was the first step towards the same.

The second step will be enacted on Tuesday morning. A select group of officials from top NBFCs,
under the aegis of the Finance Industry Development Council (FIDC), the trade body for NBFCs in
India, are meeting R Gopalan, the banking secretary in the finance ministry, to present a case for
select NBFCs to be converted into full-fledged banks, sources said. About12-15 NBFCs and corporate
houses having presence in the financial sector are expected to join the race to float a bank.

“The finance minister is convinced that there is a huge need for low - cost financing at the semi -
urban and rural areas in India,” said an industry source. The financial services industry believes the
Budget proposal was a reflection of the same.

In the finance ministry things are moving in the right direction and the banking secretary ‘s meeting
proves the same, ‘‘said the source. FIDC office bearers could not be bearers could not be contacted
during the extended weekend.
The last Union Budget, the FM had announced that RBI is considering giving additional banking
licences to private sector players, including NBFCs. This was ostensibly to further financial inclusion
and also to improve the size and sophistication of the Indian banking system. The announcement set
the financial markets on fire with a lot of conjecturing as to who would be the lucky few. The access

Page 12
to low-cost current account and savings accounts and the ability to offer all financial products under
one roof were cited as major attractions for NBFCs to rush to seek banking licences. It was also
expected that RBI would give new licences to private players very soon. But an analysis reveals a
different picture. Neither is RBI in a hurry to issue fresh licences nor are many NBFCs keen to get
into Irby reasons for this are manifold. RBI rules are stringent for commercial banks as they are the
visible face of the Indian financial system and commercial banks are primarily the custodians of
public money. RBI places restrictions on commercial banks in their lending operations. Out of Rs 100
taken in as deposits, approximately Rs 30 has to be set apart as statutory requirements towards CRR
and SLR. This leaves the banks with Rs 70 to lend. Out of this, 40% has to be statutorily lent towards
the priority sector as defined by RBI. This leaves banks with approximately Rs 42 to lend at their own
discretion. Many NBFCs would definitely find this as restrictive to say the least.

As per the guidelines of 2001, NBFCs seeking a banking licence should have a minimum paid-up
capital of Rs 200 crore, which must be increased to Rs 300 crore within 3 years of conversion into a
bank. Further, banks have to invest large funds in fixed assets and information technology primarily
to facilitate financial inclusion, risk management, antimony laundering, etc. These huge capital
expenditures increase the payback period for the investments made. Also, banking-as-a-business
model is far more people-, process- and product-driven than a simple NBFC model. For example, in
order to adopt universal banking, the staff needs to be multi-skilled in banking functions. So, the
operating expenses will be substantially higher, which, in turn, would reduce the profitability of
operations. Also, there are restrictions on ownership and voting rights. Current stipulations cap voting
rights at 10%; higher rights require the specific approval of.

Page 13
 CHAPTER - 2

LITERATURE REVIEW

NBFCs: Review of Literature

Page 14
Jafor Ali Akhan (2015) writes on “Non-Banking Financial Companies (NBFCs) in India”. The
book discussed the financial system in India. It covers the financial intermediaries including
commercial banks, regional rural banks, cooperative banks and Non-Banking Financial Companies
in India. The book is good source in getting information on businesses, classification, management
of assets, risk coverage, etc of the NBFCs in India.

Shailendra Bhushan Sharma and Lokesh Goel(2016) write on “Functioning and Reforms
in Non-Banking Financial Companies in India”. Non-Banking Financial Companies do offer all sorts
of banking services, such as loans and credit facilities, retirement planning, money markets,
underwriting and merger activities. These companies play an important role in providing credit to the
un-organized sector and to the small borrowers at the local level. 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. This paper pro-videos an exhaustive account of the functioning
of and re-cent reforms pertaining to NBFCs in India.

Maria Navis Soris (2017) B “A Fundamental Analysis of NBFCs in India” in ‘Outreach’. The
study was made to analyse the performance of five NBFCs in India. The annual reports of these
companies are evaluated so as to ascertain investments, loans 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.

Taxman’s (2018) published “Statutory Guide for Non-Banking Financial Companies” is published
by Tax-Mann’s Publications, New Delhi. The book listed the laws relating to Non-Banking Financial
Companies. The rules and laws governing the kinds of businesses undertaken by different types of
NBFCs are also discussed.

Amit Kumar and Anshika Agarwal (2017) published a paper entitled “Latest Trends in
Nonbanking Financial Institutions” in ‘Academician: An International Multidis-ciplinary Research
Journal’. In Indian Economy, there are two major Financial Institutions, one is banking and other is
Non-Banking. The Non-Banking Financial Institutions plays an important role in our economy as
they provide financial ser-vices on wide range, they also work to offer enhanced equity-ty and risk-
based products, along with this they also provide short to long term finance to different sectors of the
Page 15
economy-my, and many other functions. This paper examines the latest trends in Non-Banking
Financial
Institutions. This paper analyse-es the growth and enhanced prosperity of financial institutions in
India.

Page 16
 CHAPTER-3
RESEARCH METHODOLOGY

Page 17
2.1 RESEARCH DESIGN:
Since the research is for industry analysis and it is structured for NBFC ‘S. The research
uses secondary data for analysis and interpretation.

2.2 OBJECTIVE:
The confined objectives of the present study are:

• To analyse the market of NBFC ‘s in India

• To study the financials of NBFC ‘s

2.3 SCOPE OF THE STUDY:

The study was limited to the Financial Service market of India which
included NBFC ‘s mainly from the. The study was completed within the time frame of 60 days (2
months) starting from 1st April, 2010 and ending on 1st June, 2010. The target group of the study
were the NBFC ‘s

2.4 DATA COLLECTION:

There are two methods of data collection that can be considered when collecting data for research
purpose. These data collection types include the following:

1.Primary data2.Secondary data

Both the secondary and primary data collection methods were used in the study.

2.4.1 PRIMARY DATA:

The primary data required for this study was collected by visiting the financial services and analysing
the information provided by them.

2.4.2 SECONDARY DATA:

The secondary data for the research was collected from journals, research articles, books and
internet websites, annual reports etc whose details and references has been given in Chapter-2 and
in ―References‖”. The source of the secondary data was British Library, NBC’s Internet.

Secondary data was the main source in formulating the constructs of ― A comparative study of
NBFC ‘s in India

Page 18
 CHAPTER-4
DATA ANALYSIS
AND
INTERPRETATION

Page 19
4.1 LIC HOUSING FINANCE:
4.1.1 Housing Finance Industry:
India ‘s housing finance industry comprises of banks and housing finance companies. They have
contributed to new residential home loans at a compounded annual growth rate (CAGR)of more than
30 percent during the period 2016-2017. This has been due to the combined effect of a booming
economy and low interest rates. Further, steady prices and continuation of tax concessions to self-
occupied residential home borrowers are contributors to the growth of the industry. The average age
of borrowers has declined over the years, while the number of double income households has grown
significantly enabling them to borrow higher loan amount due to higher repaying capacity. The
scenario of unprecedented growth in housing finance, driven by low interest rates, increasing
purchasing power and attraction of the yield in this sector has begun to show signs of change last
year. There has been a decrease in demand during the last one year. Earlier to that i.e., during 2017
to 2018 home prices increased at a CAGR of 30 to 40 percent against a20 percent increment in salaries
witnessed in metros and large cities. This had affected the buyer ‘s affordability.

As the borrowing cost for banks and housing finance companies steadily increased in line with rising
interest rates in the economy in the past two years up to Q3 of 2017-08, banks and housing finance
companies resorted to hike in interest rates so as to maintain their interest spreads. Interest rates on
new home loan originations have increased significantly by 200basis points during April‗2017 to
September October ‘2018. As a result, a higher proportion of monthly income was being paid out as
home loan equated monthly instalments (EMI). The combined effect of an increase in property prices
and interest rates has meant that home loan buyers, who would have had to borrow less at an interest
rate of 8.75 percent a year ago, now have to borrow more to buy the same property due to higher
property prices at higher interest rates of 10.5 to 11 percent. This trend has resulted in both lower
affordability i.e., an average home at a higher multiple of annual income, and higher debt burden
(meaning that a larger proportion of income gets spent as home loan EMI). Further, the increase in
interest rates on fresh loans to 10.5 to 11 percent from 8.75 percent meant increase in debt result,
instalment to income ratio. Along with, the economic down turn and consequential apprehensions of
job insecurity and income reduction led to slump in the market. However i.e., Higher instalment to
income ratio. Along with, the economic down turn and consequential apprehensions of job insecurity
and income reduction led to slump in the market. However, the scenario has taken the reverse turn in
the last quarter of the financial year 2017-18, which was evident from the higher booking of flats, and
sharp increase in the disbursements. Real-estate developers have taken sensible decision in reducing
or slashing rates in major centres specially Mumbai, Thane, Navi Mumbai, Delhi NCR and Bangalore
to encash on the existing demand in the real estate market. The good deals might be offered for a few
Page 20
weeks or for the first ten properties or for a killer deal for a time-bound two days or similar schemes
but yes, the writing is clear on the wall that the willingness to connect with the ―real‖ pricing has
dawned on the developers to sell at reduced prices to encourage more and more sales. The sales teams
in the builder/ developer offices are at their all-time creative best with sales tactics. They now
understand clearly that with buyers unwilling to relent on unrealistic pricing, there is an even greater
need to price competitively, maybe with a lower profit margin, than holding on to the price and project
as the interest meter runs. These proactive steps should ensure renewed demands and increased
volumes during the current year. The Indian economy, which was on a robust growth path up to 2017-
18, averaging at 8.9 percent during the period 2017-04 to 2018-08, witnessed moderation in 2017-18,
with the deceleration turning out to be somewhat sharper in the third quarter. Industrial growth
experienced a significant downturn and the loss of growth momentum was evident in all categories,
viz., the basic, capital, intermediate and consumer goods. However, the fiscal stimulus packages of
the Government and the monetary easing of the Reserve Bank will, however, arrest the moderation
in growth and revive consumption and investment demand, though with some lag, in the months
ahead. Furthermore, prospects of the agricultural sector also remain bright, and this will continue to
support the rural demand. Finally, in the wake of expected improvement in agricultural production as
well as low international commodity prices, inflationary pressures are also anticipated to remain at a
low-level through the greater part of the 2017-18.

4.1.2 Indian Housing Finance scenario:

India ‘s housing finance industry comprises of banks and housing finance companies. They have
contributed to new residential home loans at a compounded annual growth rate (CAGR)of more than
30 percent during the period 2017-2018. The scenario of unprecedented growth in housing finance,
driven by low interest rates and booming economy, has begun to show signs of change last year.
There has been a decrease in home prices during the last one year. Earlier to that i.e., 2017 to 2018
home prices increased at a CAGR of 30 to 40 percent against 20 percent increment in salaries
witnessed in metros and larger cities. This had affected the buyer ‘s affordability. The average home
buyer spent around 4 times his net annual income for purchasing a new residential home in the 3-4
years till March 2018. (Source Crisler 19th February, 2018) As the borrowing cost for banks and
housing finance companies steadily increased in line with rising interest rates in the economy in the
past two years up to September ‘2018, banks and housing finance companies resorted to hike in
interest rates so as to maintain their interest spreads. Interest rates on new home loan originations had
increased significantly by 200 basis points during April‗ 2018 to August September ‘2018. As a
result, higher proportion of monthly incomes was paid as home loan equated monthly instalments
(EMI). But the scenario has taken the reverse turn in the last quarter of the financial year2018-09
Page 21
which was evident from the higher booking of flats and sharp increase in the disbursements. As
interest rates are heading southward, public sector banks have set the pace. Housing finance
companies would follow the suit. It may be mentioned here that with the decline in interest rates, LIC
Housing Finance has passed on 150 basis points rates cut to the customers i.e., 75 basis points each
on 1st January, 2018 and 1st April, 2018. Our interest rates are among the lowest in the industry. This
has helped our company in retaining customers and maintaining high growth rates even in tough
conditions. And interest rate is just one of the factors. Transparency, hassle-free services, property
prices and buyer ‘s repayment capacity are equally important. The customer would not arrive at a
decision solely based on the reduction in interest rates for one year. LIC Housing Finance is one of
the best players in the industry in terms of
EMI as our company has no hidden costs.

4.1.3 LIC Housing Finance:

LIC Housing Finance Ltd. is one of the largest Housing Finance Company in India. Incorporated on
19th June 1989 under the Companies Act, 1956, the company was promoted by LIC of India and
went public in the year 2018. The Company launched its maiden Reissue in 2004. The Authorized
Capital of the Company is Rs.1500 million (Rs.150 Cores) and its paid-up Capital is Rs.850 million
(Rs.85 Cores). The Company is recognized by National Housing Bank and listed on the National
Stock Exchange (NSE) & Bombay Stock Exchange Limited (BSE) and its shares are traded only in
Demat format. The GDR's are listed on the Luxembourg Stock Exchange.

The main objective of the Company is providing long term finance to individuals for purchase /
construction / repair and renovation of new / existing flats / houses. The Company also\ provides
finance on existing property for business / personal needs and gives loans to professionals for
purchase / construction of Clinics / Nursing Homes / Diagnostic Centres / Office Space and also for
purchase of equipment’s.

The Company possesses one of the industry's most extensive marketing network in India :Registered
and Corporate Office at Mumbai, 6 Regional Offices, 13 Back Offices and 158marketing units across
India. In addition the company has appointed over 1352 Direct Sales Agents (DSAs), 7085 Home
Loan Agents (HLAs) and 777 Customer Relationship Associates(CRAs) to extend its marketing
reach.
Back Offices spread across the country conduct the credit appraisal and administrative functions.

Page 22
The Company has set up a Representative Office in Dubai and Kuwait to cater to the Non-Resident
Indians in the GLCC countries covering Bahrain, Dubai, Kuwait, Qatar and Saudi Arabia. Today the
Company has a proud group of over 10,00,000 prudent house owners who have enjoyed the
Company's financial assistance.

Profile & Progress

• Provides loans for homes, construction activities, and corporate housing schemes.
• Around 91% of the loan portfolio derived from the retail segment and the rest from large
corporate clients

• Formed three new wholly owned subsidiaries in 2017-18 to promote marketing of financial
products and venture capital fund.

• Rated ‗AAA‘ by CRISIL for the 8th consecutive time in 2017-18; maiden Fixed Deposit
• Program received an FAAA/stable rating by CRISIL.
• An offshoot of Life Insurance Corporation of India (LIC), incorporate in 1989.
• Registered & Corporate Office at Mumbai with 6 regional offices, 13 Back Offices and 130
marketing units across the country.

• 1352 Direct Sales Agents (DSAs), 7085 Home Loan Agents (HLAs) and 777 Customer
• Relationship Associates (CRAs) comprise its pan-Indian marketing network.
• Representative overseas presence in Dubai and Kuwait

• Limited and the Luxembourg Stock Exchange.

• More than 10,00,000 satisfied customers across the country since inception.
• Reported a 23.90 percent increase in disbursals in 2018-09.
• Improved return on net worth by 267 basis points to 23.80 percent in 2018-09.
• Reduced net NPA to a record low of 0.21 percent in 2018-09.
• Enhanced PAT 37.30 percent to Rs. 531.62 crore in 2018-09.
• Un-interrupted dividend payment record since 1990.
• Recommended 30 percent increase in dividend over previous year i.e from
• 100 percent to 130 percent

Page 23
4.1.4 Financial Performance :

Interest income from housing loans increased 34.90 percent from Rs. 2036.79 crore in 2017-18 to Rs.
2747.65 crore in 2017-18. The net interest income grew by 31.97 percent from Rs.553.94 crore in
2017-08 to Rs. 731.04 crore in 2017-18. Profit after tax surged 37.30 percentfrom Rs. 387.19 crore
in 2017-18 to Rs. 531.62 crore in 2017-18.
Operations:

• Funds mobilized grew 49.38 percent from Rs. 7489.70 crore in 2017-08 to Rs.11,188.33 crore
in 2017-18.

• Sanctions (Ind.+Proj.) increased 26.46 percent from Rs. 8617.88 crore in 2017-18 toRs.
10898.47 crore in 2017-18.

• Disbursements (Ind.+Proj.) grew 23.90 percent from Rs. 7071.48 crore in 2017-18 toRs.
8762.01 crore in 2017-18.

• Loan portfolio grew 26.18 percent from Rs. 21936.41 crore in 2017-18 to Rs.27679.28 crore
in 2017-18.

• Net interest margin improved by 10 basis points from 2.85 percent in 2017-18 to 2.95percent
in 2017-18.

• Return on equity grew by 267 basis points from 21.13 percent in 2017-18 to 23.80percent in
2017-18.

Page 24
 • Net profit margin improved by 49 basis points from 17.82 percent in 2017-18 to 18.31percent
in 2017-18.

• Asset Quality: Gross NPA declined by 63 basis points from 1.70 percent in 2017-18to 1.07
percent in 2017-18.Net NPA levels declined 43 basis points from 0.64 percentin 2017-18 to
0.21 percent in 2017-18.

On funds On the performance of the Company: In the turbulent times when Housing sector was
passing through rough patch, LIC Housing Finance largely could manage the environment well,
inspite of various global as well as domestic economic challenges and was successful in producing
good business growth by its inherent strength in meeting difficult challenges through unceasing and
untiring efforts. The Company has not only ensured consolidation of the gains achieved in the past
years, but also ensured further growth and increased profitability. The year 2017-18 has been a year
of further containment of defaults and NPAlevels when compared to previous years.

Lending operations :
The main thrust continues on individual loans with a growth of 25 percent as against 20percent in the
previous year. However, project loans were also given due weightage resulting in a modest growth of
20 percent over previous year. During the year, the Company sanctioned 67,886 individual loans for
Rs. 8,186.02 crore and disbursed 67,237 loans for Rs.7,351.09 crore during 2017-18. Individual retail
loans constitute 75.11 percent of the total sanctions and 83.94 percent of the total disbursements for
the year 2018-09 compared to the last year‘s figure of 75.84 percent and 83.47 percent respectively.
The retail (individual) loan portfolio grew by over 22 percent from Rs. 20,618.78 crore as on 31st
March, 2018 to Rs.25,252.87 crore as on 31st March, 2018. The cumulative sanctions and
disbursements since the incorporation, in respect of individual oans are: Amount sanctioned : Rs.
45,624.24 croreAmount disbursed : Rs. 42,993.98 crore

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The amount of gross Non-Performing Assets (NPA) as on 31st March, 2017 was Rs. 297crores, which
is equivalent to 1.07 percent of the housing loan portfolio of the Company, as against Rs. 372.92 crore
i.e., 1.70 percent of the housing loan portfolio as on 31st March,2018. The net NPA as on 31stMarch,
2018 is reduced to Rs. 57 crore i.e. 0.21 percent of the housing loan portfolio vis-à-vis Rs. 140.90
crore i.e., 0.64 percent of the housing loan portfolio as on 31st March, 2018. The total cumulative
provision towards housing loan as on31st March, 2017 is Rs. 240.25 crore. During the year, the
Company has written off Rs. 5.40crore of housing loan portfolio as against Rs. 38.99 crore during the
previous year. Fund raising The Company raised funds aggregating to Rs. 11,188.33 crore through
term loans from banks, Non-Convertible Debenture (NCD), sub-ordinate debts, commercial paper,
Public Deposit and others which were used for fresh disbursements as well as
repayments/prepayments of past borrowings. The Company‘s NCD issue was rated ‗AAA‘and Public
Deposit was rated as FAAA/STABLE by CRISIL.

4.1.5 Macro Economic Analysis :

The Housing Finance Industry is one of the most keenly competitive segments of the Economy, with
the Banking sector having a significant presence. However, Housing Finance Companies with a
dedicated focus on the industry and better understanding of the underlying real estate markets stand
on a better footing when it comes to understanding the needs and requirement of the customers as
also assessing the risks in the industry. It may be mentioned here that with the decline in interest rates,
LIC Housing Finance has passed on 150 basis points rate cut to the customers during the calendar
year 2017 so far 75 basis points each on1st January, 2017 and 1st April, 2018. Our interest rates are
Page 26
among the lowest in the industry. This has helped our company in retaining customers and
maintaining high growth rates evening tough conditions. And interest rate is just one of the factors.
Transparency, hassle-free services, property prices and customer affordability are equally important.
NHB has loweredits interest rates on refinance to housing finance companies. Refinance for rural
housing at concessional rate of 8 percent per annum for seven years has also been provided. Its‘ PLR
has been reduced to 10.75 percent per annum. The refinance facility of Rs. 4,000 crore extended by
RBI to NHB will be on-lent by NHB to housing finance companies with a cap of Rs. 400crore per
housing finance company with the condition that the refinance would be available at an interest of 8
percent, only for loans below Rs. 20 lakh. Housing Finance, the Company, through its competitive
pricing, transparency in operations, wide distribution network and good customer service, has not
only been able to show a good growth in new business, but has shown an improved retention rate,
which is reflected in high growth of loan book.Opportunities
There are many unique characteristics of housing distinguishing it from other goods. It is a universal
necessity. Home ownership is a social goal, bringing social status to the buyer.Housing is also a
relatively expensive asset, often soaking up a lifetime‘s savings. Housing properties have a downward
sloping demand curve, which means that less people would effectively buy when prices are high and
vice versa. At high prices, buyers postpone their buying decisions and opt for rented accommodation.
At low prices, people often purchase more than one house. Disposable incomes determine purchasing
power. Government policies relating to interest rates, mortgage subsidies, tax rebate and other taxes
like stamp duty etc.also impact the housing property market. The housing sector is marked by a
variety of taxes and regulations. These are meant to ensure the safety of houses for occupation and to
conferrights of ownership to enable further transactions. Given that building or acquisition of a house
usually involves several intermediary agents (either statutory like registration of various title
documents or facilitating agents such as brokers, builders or financiers), the finalcost of acquisition
includes not just the price of the property that is paid to the seller (in case the property is purchased)
but also all the intervening transaction costs. As for the housing property market in India, the
residential housing property segment constitutes about 75percent of the real estate market in terms of
value. Real estate development activity has shifted from metros to their suburbs and tier-two cities.
A gradual shift to tier-three cities and rural areas is taking place. Easy availability of finance from the
housing finance companies and commercial banks at lower interest rates, increased salaries and
availability of fiscal and tax benefits are propelling the demand for housing properties. The growth
of the Information Technology Enabled Services (ITES), industry has been a significant contributor
of housing property demand in recent years. ITES firms are moving from traditional centres like
Mumbai, Delhi, Bangalore, Hyderabad and Chennai to the National Capital Region,
Pune,Chandigarh, Jaipur, etc. in order to be cost effective. This is resulting in not only the boom in
Page 27
residential property markets but also in the institutional property markets in these cities.There is great
demand for modern office buildings and commercial spaces in India.

Threats (bottlenecks)
Impact of legal charges and documentation fees There are taxes / duties / fees payable to the state at
the construction stage. There are two aspects of the cost namely: i)monetary cost and; ii)cost in
terms of time devoted in obtaining various permissions and clearances.

The number of permissions and documentation required can be quite large. Further, permissions have
to be taken from different departments and that too sequentially. This delays the process of housing
construction and occupation. The actual fees imposed by the government are not necessarily high but
the time taken to obtain requisite permissions is very long, procedures cumbersome and sometimes
involves extra payments to facilitate the movement of files and getting the transaction through, is
significant vis-à-vis the statutory fees. The delays highlight the sluggishness of the market by
increasing the gap between change in demand and the market response to it.

Future Outlook:
It is estimated that the housing finance industry will be able to maintain a higher growth in fresh
origination of residential home loans over next three to five years mainly due to increased
affordability of the borrower i.e. ratio of average property price to average annual income, on account
of the falling loan interest rates and decrease in property prices. The average age of borrowers has
declined over the years, while the number of double-income house holds has grown significantly
thereby enabling them to borrow higher loan quantum due to increased affordability and repayment
capacity. The growth drivers will continue to increase demand for self-occupied residential housing;
Revival of economy will certainly lead to a steady increase in monthly incomes across key sectors.
Rising proportion of double income households, renewed confidence in higher income generation,
reassurance of job security and availability of variety of financing options should stimulate growth of
the housing sector. All these factors will further boost the impact of increased affordability, leading
to the sector‘s steady and comfortable growth. Looking forward, LIC Housing Finance would like to
remain focused in end-user segment for growth and increased profitability and wish to make the
coming year, a year of further consolidation and progress by crossing greater milestones.

Page 28
4.2 RELIANCE CAPITAL:

4.2.1 Indian Economy:

After several quarters of around 9 per cent GDP growth, the rate moderated to 7.6per centand 5.3 per
cent in the last two quarters of 2018, and is expected to average 7 per cent for Financial Year (FY)
2018. The slowdown has been largely caused by a deceleration in industrial growth from about 8.5
per cent in FY 2018 to 2.4 per cent in the third quarter of FY2018. Surprisingly, the agriculture sector
slowed down from 4.5 per cent in FY 2018 to -2.2per cent in the third quarter of FY 2018. In contrast,
the remarkable service sector success story remained intact as output grew 9.9 per cent in third
quarter, down only slightly from10.8 per cent in 2018. The moderation from previous years was due
to several factors. The financial crisis and global slowdown affected both export growth in goods,
services and hence industrial production as well as corporates‘ access to diverse and low cost funding.
Moreover, high inflation during the first half of FY 2018 forced RBI to pursue a tight monetary policy,
which further dampened investment and consumption. However, the fact that India‘s growth in the
last few years has been fairly broad based (across sectors and regions) and balanced (with
consumption, investment, savings and exports all rising) bodes well for the structural transformation
of the economy as the business cycle enters a recovery phase, in the second half of FY 2018.

RBI cuts rates aggressively: India‘s Wholesale Price Index, which was as high as 12.9 percent in
August 2018 fell to 0.3 per cent by March 2018 resulting in an average inflation of around 8 per cent
for FY18. The sharp fall in inflation was caused by a high base, a significant fall in commodity prices
and various duty cuts announced by the Government. Inflation is expected to remain low and may
even enter the negative territory for a short time before moving up again towards the end of 2018.

Falling inflation and slowing growth gave the Central bank enough room and reason to cut rates
aggressively. From September ‘08 to March ‘09, the RBI has cut Repo, Reverse Repo and CRR by
400, 250 and 400 bps respectively. This easing in monetary policy is likely to translate, with a lag,
into a significant boost for the economy. India‘s Trade Deficit widens, largely due to increasing
import growth: Global demand destruction due to the recent crisis led to a mere 3.4 per cent growth
in exports in FY 2018 while higher commodity prices (including oil) pegged the imports growth at
14.3 per cent.
This resulted in a trade deficit of US$119 billion in FY09 compared to US$88.5 billion in FY 2018.
For the first three quarters in FY 2018, the higher trade deficit, coupled with negative capital flows,
reduced India‘s Balance of Payments (BoP) surplus to a deficit of US$20.4 billion. After 10
consecutive quarters of surpluses, this is the second time in three quarters that BoP has ended in a

Page 29
deficit. The capital a/c balance too turned negative (-US$ 3.7 billion) in third quarter FY 2018mainly
due to net outflows under portfolio investment, banking capital and short-term trade credit. Outflows
under portfolio investment were led by large sales of equities by FIIs and slowdown in net inflows
under ADRs/ GDRs. India‘s foreign exchange reserves declined by about US$59 billion in FY 2018,
but still remained at an impressive US$250 billion in March 2018. The country‘s current foreign
exchange reserves far exceed its total official and private sector external debt making India‘s balance
of payments position quite comfortable.
Import declines more than export in recent months, thereby improving trade deficit: Since
January2018, Imports have declined more than exports due to both lower oil import bills and slowing
domestic investment and consumption. This has helped in narrowing our trade deficit further. The
trade deficit for the month of March narrowed to US$4 billion (4.1 per cent of GDP, annualized)
compared to US$14 billion in August 2018.

4.2.2 Reliance Capital :

(RCL) is a part of the Reliance Anil Dhirubhai Ambani Group and is one of India‘s leading and fastest
growing private sector financial services companies, and ranks among the top 3 private sector
financial services and banking groups, in terms of net worth. It is a constituent of S&P CNX Nifty
and MSCI India. Reliance Anil Dhirubhai Ambani Group is amongst India‘s top 3 business houses
with a market cap of US$ 22 billion, and 150 million customers. It has a strong presence across a
wide array of high growth consumer-facing businesses such as Telecom, Financial Services, Energy,
Power, Infrastructure and Media an Entertainment Reliance Capital has interests in asset management
and mutual funds, life and general insurance, private equity and proprietary investments, stock
broking and depository services, consumer finance, aset reconstruction, institutional broking and
distribution of financial products. Reliance Capital, a constituent of S&P CNX Nifty and MSCI India,
is a part of the Reliance Anil Dhirubhai Ambani Group(www.relianceada.com). It is one of India's
leading, most valuable and fastest growing financial services companies in the private sector.

Reliance Capital has interests in asset management and mutual fund; life and general insurance;
consumer finance and industrial finance; stock broking; depository services; private equity and
proprietary investments; exchanges, asset reconstruction; distribution of financial products and other
activities in financial services.

Reliance Mutual Fund is India's largest Mutual Fund with over seven million investors. Reliance Life
Insurance is one of India's fastest growing life insurance companies and among the top four private

Page 30
sector insurers. Reliance General Insurance is one of India's fastest growing general insurance
companies and among the top three private sector insurers. Reliance Money is one of India‘s leading
retail brokerage houses and distributors of financial products and services.

Reliance Capital has a net worth of Rs. 7,712 crore (US$ 2 billion) and total assets of Rs.26,003 crore
(US$ 6 billion) as on March 31, 2018.

Reliance Consumer Finance offers a wide range of products, which include personal loans, vehicle
loans (car and commercial), home loans, loan against property, and SME loans. The focus in this
business is primarily the asset quality and the profitability of each loan given; not merely growth or
market share gains. In the September to December quarter of the year, there was a steep drop in
liquidity due to the global financial meltdown that had its fallout on India. Consequently we slowed
our disbursals. This naturally resulted in a smaller loan book, which fell from Rs.9,513 crore last year
to Rs.8,576 crore this year Reliance Consumer Finance offers a wide range of products which include
Home loans, Loans against property, Vehicle loans (cars and commercial vehicles), SME loans and
Personal loans. The focus in this business is not just on the growth of credit per se but also on the
quality of credit. Backed by the long-standing conservative approach, we have developed stringent
in-house credit risk management systems to ensure the highest quality of credit. There was reduction
the size of our loan book to Rs.8,576 crore (US$ 2 billion) as on March 31, 2018, as against
Rs.8,902crore at the end of December 31, 2018. Our loan book is spread across 1,19,759 customers
and 23 locations. The loan book as on March 31, 2018 was Rs.7,120 crore. Reliance Consumer
Finance generated revenues of Rs.1,200 crore (US$ 261 million) for the year ended March 31, 2018,
as against Rs.395 crore for the corresponding previous period an increase of 204 per cent. For the
year ended March 2018, it achieved a profit before tax of Rs.91 crore (US$ 20 million) as against
Rs.36 crore an increase of 152 per cent. _ Reliance Capital‘s subsidiaries i.e. Reliance Consumer
Finance Pvt. Ltd. and Reliance Home Finance Pvt. Ltd. have got approvals from RBI as NBFC and
the National Housing Bank for doing the business of retail financing i.e. consumer finance and homes
finance respectively.

Business mix of Reliance Capital

Asset Management : Mutual Fund, Portfolio Management, Offshore Fund.

Insurance : Life Insurance, General Insurance.

Page 31
Consumer Finance & Home Finance : Mortgages, Loans against Property , Business Loans, Loans
forCommercial Vehicles, Loans for Construction Equipment,Auto Loans, Loans against shares,
Business Loans.

Broking and Distribution : Stocks Commodities and Derivatives, Wealth Management Services,
Portfolio Management Services, Investment Banking, Foreign Exchange and Offshore Investment,
Third Party Products.

Other Businesses :Asset Reconstruction, Institutional Broking, Private Equity,Exchanges, Venture

Capital.

4.2.3 Financial Performance :

The Company‘s gross income for the financial year ended March 31, 2018 increased to Rs.3,017.29
crore, from Rs.2,079.79 crore in the previous year, registering a growth of over45.08 per cent. The
operating profit (PBDIT) of the Company increased 46.24 per cent to Rs.2,334.99 crore during the
year, up from Rs.1 596.69 crore in the previous year. Interest expenses for the year increased by
203.02 per cent to Rs.1,236.75 crore, from Rs.408.15crore, in the previous year. Depreciation was at
Rs.21.22 crore as against Rs.17.09 crore inthe previous year. The provision for taxation during the
year was Rs.109 crore. The net profit for the year decreased by over 5.60 per cent to Rs.968.02 crore
from Rs.1,025.45 crore in the previous year. An amount of Rs.193.61 crore was transferred to the
Statutory Reserve Fund pursuant to section 45-IC of the Reserve Bank of India Act, 1934, and an
amount of Rs.96.81 crore was transferred to the General Reserve during the year under review. The
Company‘s Net worth as on March 31, 2018, stood at Rs.6,697.42 crore, as against Rs.5,927.50 Fixed
Deposits The Company has neither accepted nor renewed any fixed deposits during the year. Five
deposit accounts, aggregating to Rs.26,000, remained unclaimed on the due dates as on March 31,
2018. The Company has intimated the deposit holders individually of their unclaimed amount with a
request to return the Fixed Deposit Receipts duly discharged to enable the Company to repay the
amount.

Page 32
4.2.4 Macro Economic Analysis :
Opportunities :

• Low retail penetration of financial services / products in India

• Tremendous brand strength and extensive distribution reach
• Opportunity to cross sell service.
Threats :

• Competition from local and multinational players.

• Execution risk.
• Regulatory changes.
• Attraction and retention of human capital.

Future Outlook :
India has survived one of the worst global crises in history better than most other economies. The
recent recovery in many of the leading macro indicators of economic activity has led many to believe
that the worst is over for the Indian economy and we are on our way to a higher growth trajectory.
There has been a resurgence in sales across a variety of sectors from automobiles to cement, steel and
electricity production. Rail and port traffic too has seen an uptick. The Purchasing Managers‘ Index
(PMI) has shown an improvement from a low of 49.5 for March to 53.3 for April 2018, signifying a
renewed trend of growth in manufacturing. India is the second major economy after China where the
PMI has crossed the baseline 50 mark,indicating the start of an expansionary phase. The growth in
first half of FY 17 is expected to remain soft, with the economy turning around in the second half.
Thedrivers of this turnaround include government‘s fiscal stimulus measures, the collapse in
commodity prices, the coming on stream of significant domestic oil and gas output, the recent infusion
of record levels of FDI, the improvement in trade deficit and the environment for external commercial
borrowing (ECB) the fall in the real exchange rate, the RBI‘s aggressive monetary policy actions and
the expected stabilization of the global economy. India remained the second fastest growing economy
in FY 2018 after China. In the light of the on-going global recession, India will, even at a modest
growth of 6 per cent in FY 2018, be one of the fastest growing in the world.

Page 33
4.3 SHRIRAM TRANSPORT FINANCE :
4.3.1 ECONOMIC OVERVIEW :
The global economic conditions deteriorated sharply during the year 2017-18 with several advanced
economies experiencing their sharpest declines. The associated adverse effects spread across
emerging market economies (EMEs) particularly by the third quarter of the year and accentuated
the synchronized global slowdown. Inflation conditions witnessed sharp volatility during the year as
headline inflation in major advanced economies firmed up considerably up to July 2018, but
declined sharply thereafter. The global financial environment entered a crisis phase in
midSeptember 2018, following the growing distress among large international financial institutions.
India – the third largest economy in Asia is estimated to have grown less than 7 percent in 2018-, after
growing at an average rate of around 9 percent or more in three fiscal years to March 2018.
This was on account of a global economic down turn and a contraction in domestic demand.

Page 34
 4.3.2 COMMERCIAL VEHICLE INDUSTRY OVERVIEW:
The financial year 2017-18 ended with a net decline of 22.3 percent in new commercial vehicle
(CV) sales (domestic and exports) as compared to the previous year. The industry witnessed a
healthy growth during the first-half of 2017-18, post which the CV sales started declining at a high
rate. This can be primarily attributed to the weakening of macro-economic indicators, resulting in
drop in freight availability, and restricted credit availability. However, in the fourth quarter, the
industry witnessed a slight revival in sales, on a month-on-month basis, partly driven by the
stimulus packages provided by the government. The key steps taken include reduction in excise
duty and provision of accelerated depreciation to benefit CV buyers. In addition to this, the
government also undertook measures to improve liquidity for NBFCs and provide financial
assistance to State Transport Undertakings for purchasing buses under the Jawaharlal Nehru
NationalUrban Mission.

MAJOR DEMAND DRIVERS

1. Roadways have remained a dominant transport mode:

Over the last few decades, roadways have dominantly improved their share due to greater coverage,
higher flexibility of door-to-door delivery and lower risk of handling losses. Further, the
government‘s investment in the development of national highways over the last few years has led to
higher demand for road transport. With further improvement in road infrastructure and higher growth
expected in road transport (which are primarily transported through roadways), road freight is
expected to account for 63.5 percent of the total freight movement.
2. Higher replacement demand: Higher CV sales over the last few years were also supported by
replacement demand which stemmed from stricter regulations on overloading and emissions. The
Supreme Court, in November 2017, banned overloading of goods‘ trucks and trailers in excess of
prescribed gross vehicle weight.

To reduce pollution, the Automotive Research OWNERSHIP TREND IN CVS Shriram Transport
caters to small truck operators (STO–owning less than five trucks) and first-time users (FTU),and is
currently the only organised player financing this segment (others are private financiers). STOs and
FTUs control around 75 percent of the total truck fleet; however, they have poor freight origination
skills and are therefore dependent on brokers for a majority of their contracts.

Page 35
4.3.3 Shriram Transport Finance:

We are a part of the "SHRIRAM" conglomerate which has significant presence in financial services
viz., commercial vehicle financing business, consumer finance, life and general insurance, stock
broking, chit funds and distribution of financial products such as life and general insurance products
and units of mutual funds. Apart from these financial services, the group is also present in
nonfinancial services business such as property development, engineering projects and information
technology.
Our Company was incorporated in the year 1979 and is registered as a Deposit taking NBFC with
Reserve Bank of India under Section 45IA of the Reserve Bank of India Act,1934.

STFC decided to finance the much-neglected Small Truck Owner. Shriram understood the power of
'Aspiration' much before marketing based on 'Aspiration' became fashionable.Shriram started lending
to the Small Truck Owner to buy new trucks. But wefound a mismatch between the Aspiration and
Ability. The Truck Operator was honest butthe Equity at his command was not sufficient to support
the credit levels required to buy a new truck.

From Driver to Owner, even if only of a Pre-owned Truck and from Pre-owned Truck to the New
Truck, we have been with him in his journey of Prosperity as he has been our partner inour road to
success and leadership.

4.3.4 Financial Performance :

PUBLICISSUEOFNCDs

To explore and develop additional source of financing and with a view to meet The

Page 36
Company‘s business operations, The Company, pursuant to the Securities and Exchange Board of
India (Issue and Listing of Debt Securities) Regulations, 2018 and subject to thenecessary approvals,
consents and permissions, issued and allotted Secured Non Convertible Debentures, through a public
issue and raised a sum of Rs. 99,999.96 laces.

Considering the potential in raising funds by issue of non convertible debentures (NCDs),The Board,
at its meeting held on January 18, 2018, has decided to offer and allot, subject tothe aforementioned
Regulations and such approvals as may be necessary, secured /unsecured, NCDs not exceeding Rs.
50,000 laces in one or more tranches through another public issue which is expected to open for public
subscriptions in May 2018.

4.3.5 SWOTANALYSIS :
Strengths :

• The pioneer in the pre-owned CVs financing sector

• Knowledge-driven (products as well as local customers) and relationship-basedbusiness
model

• Significant expertise and experience in valuation of pre-owned CVs as well as

inrecovery/collection of monthly payments from customers

• Pan-India presence with 484 branch offices all over the country.
• A well-defined and scalable organisation structure, capable of supporting surging growth Low
delinquency as assets are backed with adequate cover and are easy to repossess with
immediate liquidity.

• Strong financial track record driven by fast growth in AUM with low Non PerformingAssets
(NPAs).

• Experienced and stable management team Strong relationships with public, private aswell as
foreign banks, institutions and investors.

Weaknesses :

• The Company‘s business and its growth are directly linked to the GDP growth of the country.
• Any slowdown in GDP growth may have a negative impact on the business.
Page 37
Opportunities :

• Growth in the CV market driven by the economic growth and the infrastructure development
in the country.

• Strong demand for construction equipment Strong demand for passenger CVs Strongdemand
for pre-owned tractors Loans for working capital requirements of CV users.

• Partnerships with private financiers will enable the Company to enhance its reachwithout
significant investments in building infrastructure.

Threats :

• Maintaining relationships with customers who are mobile and have no properdocumentation.
• Maintaining asset quality.
• Regulatory changes in the Non-Banking Financial Company (NBFC) andtransportation
sectors.

OUTLOOK AND OPPORTUNITIES :

The global financial slump drastically squeezed export demand for our products and services in the
country‘s main US and European markets. The GDP growth for 2017
-18 is now projected to be in the range of 6.5 to 6.7 percent. The Government of India as well as the
Reserve Bank of India did a spleen did task in somewhat insulating the country and its financial
markets from the effects of the world wide crisis. They responded to the challenge quickly and
magnificently, thus minimising the impact of the crisis on India while maintaining comfortable
domestic and foreign exchange liquidity. The Government of India provided three stimulus packages
which, amongst other measures, cut excise duty by four percent across the board and increased
planned expenditure by Rs. 20,000 crores. Easing of monetary curbs and regulatory actions of the
Reserve Bank ensured that our financial markets functioned normally in spite of the disturbances
across the world. These measures, on one hand stimulated consumption and on the other hand
provided enough liquidity in the financial markets. These initiatives, coupled with lower commodity
prices, are expected to soften the downswing by stabilising domestic economic activity. Several
factors, such as increased movement of freight at the leading ports, pick-up in project investments,
increased hiring, and encouraging data from a number of key manufacturing segments could be an
indicator thatthe downtrend has bottomed out and that our economy is poised to regain its lost vigour
Shortly. It is reported that auto, cement, steel and capital goods sectors have started performing
Page 38
strongly which indicates a possible strong turnaround in the economy. Despiteseveral challenges
lying ahead, the Indian economy remains resilient and is widely expected to grow at around 6 percent
in FY 2017-18. The cumulative production data for the Auto industry for 2017–18 recorded a growth
of 2.96 percent over 2017–08. During 2017-18the sales of Commercial Vehicles declined by 21.69
percent when compared to that of last year. Sales of Medium & Heavy Commercial Vehicles
(M&HCV) fell by 33.16 percent and Light Commercial Vehicles (LCV) recorded a negative growth
of 7.10 percent. In spite of the economic slowdown in the country, Your Company was able to once
again post sterling growth in the FY 2017-18 as well. Your Company was, to a large extent, insulated
from the downswing as it operates mainly in the pre-owned commercial vehicle segment, and is the
only organised player in this segment.

4.4IDFC :
4.4.1 Global Financial and Economic Crisis :
THE Y E A R 2 0 0 8 - 0 9 SAW the worst global financial and economic crisis in 60 years. The crisis
had a sev ere knock-on effect on the developing and emerging economies, and caused India to lose
much sheen from the stellar economic performance of the past years. It exacerbated the beginning of
Page 39
a cyclical downturn in India‘s economy and India‘s GDP growth, which was 9% during 2017-18,
slowed to 5.3% in the third quarter of 2017-18. Although Financial Institutions (FIs) in India have
very limited exposure to the ‗toxic‘or‗distressed‘ assets, directly or through
derivatives, and to the failed and stressed global FIs,India has felt a strong impact through trade,
financial markets and moderation in capital flows. The impact has also been felt by the infrastructure
sector in the country, largely through weakening of demand, which was pronounced in the
transportation sector (see Table1), and reduced availability of finances, as external capital dried up
and the equity market On the other hand, the global economic slowdown led to softening of
commodity prices such as crude oil, aluminium, iron ore, copper and steel after July 2018, thereby
reducing the cost of projects albeit with some time lag. Interest rates also started declining in line with
the monetary policy measures adopted by the Reserve Bank of India. Nevertheless, these positive
effects were offset by the weakening rupee, slackening demand and problems faced by developers in
respect of fund raising. Poor infrastructure continues to hamper the prospects of economic growth
and business in the country.

Meet the growing demand for infrastructure services - regulatory framework and private sector
participation. Not with standing such efforts, the progress in capacity expansion in the different
sectors was very limited (see Table 2). The global crisis is only partly to blame as there are continuing
deficiencies in policy and regulatory frameworks, and delays in decision making. The delays in
allocation of 3G spectrum and allegations of favoured treatment tosome operators for 2G spectrum
have done little to strengthen the investment climate in not only the telecom sector, but in
Page 40
infrastructure per se. Similarly, litigation relating to norms laid down in the model bid documents for
the roads sector delayed the much needed impetus for new projects under the National Highways
Development Programme (NHDP). The concession agreements finalized for the award of new
terminals at major ports in 2017-08also underwent several revisions during 2017-018. The award and
execution of projects also faced several problems. These include the large number of clearances
required from various government agencies, delays in land acquisition. changes in scope of projects
during the bidding process, in adequate supply of equipment, delays in award of civil works, and
weak project execution capacity.

While financial markets in the US and Europe were feeling the pressure in the second half of 201718,
other capital markets, especially in emerging economies, did not seem to think that the sub-prime
problem would play out into a full blown crisis of financial confidence. That changed by the first half
of 2017-18, when everyone began to see a clearer picture of the extent of write-downs undertaken by
the major international financial houses on account of heir non-performing assets.

4.4.2 Infrastructure Development Finance :

Company Limited (‗IDFC‘ or ‗the Company‘) was set up in 1997 to act as a financier and catalyst
for the development of private sector sponsored infrastructure projects in India. Over the last 12 years,
and more so since the Initial Public Offering (IPO) in July 2017, IDFC has pursued a focused growth
strategy to evolve rapidly into a ‗one-stop-shop‘ for infrastructure finance in India, capable of
meeting the increasingly complex and ambitious requirements of an expanding client base.
Infrastructure typically involves projects with long gestation periods, with each project going through
different phases of implementation. Broadly speaking, it begins with conceptualizing a project. Then
the full project plan is developed, followed by financial closure. Next comes the execution phase,
where the underlying physical infrastructure is actually created. Finally, the project moves to revenue
generation, when the underlying asset starts getting utilised and generates actual income streams.
Each of the phases has different risk return profiles. IDFC‘s expertise lies in a deep understanding of
the risks and opportunities associated with the different phases of a project‘s lifecycle, and
appropriately packaging differentiated financial solutions that best meet the requirements of investors
and clients at the different stages by progressively expanding the range of its skills, products and
services beyond the traditional project lending to investment banking as well as different types of
asset management. This diversified range of product and service capability has strengthened IDFC‘s
core business model and has propelled the Company into one of India‘s premier financial services
platform leveraging knowledge and talent to span the areas of infrastructure project finance, asset
management and investment banking. Much of IDFC‘s business is about mobilizing international as
Page 41
well as domestic capital. Naturally, like other businesses, it has to deal with demand and supply side
issues. While the demand side issues are domestic in nature and relate largely to the appetite for
private investment especially in the Infrastructure sector, the supply side issues are more global. These
include factors like cost of capital, liquidity and investor confidence that are intrinsic to international
capital flows.

On both fronts there were significant developments in the macro-economic environment and overall
market conditions, which played a key role in defining the Company‘s strategy and progress during
2017-18. In this context, it is important to first analyse the structural changes that took place in the
macroeconomic environment to appreciate the challenges that IDFChad to face and overcome during
2017-18.

THE BUSINESS ENVIRONMENT AND IDFC :

As was reported in last year‘s Annual Report, the fall in housing prices in the US had sparked off the
sub prime lending crisis in the middle of 2017. Credit downgrading by rating agencies and increased
default risk of various housing backed paper, particularly collateralised debt obligations (CDOs) that
were sliced, diced and far removed from the original assets, rapidly spread through out the US, and
then to the European and Asian financial systems. In a matter of months, what had started as a US
housing problem became a major crisis that affected the entire global financial system. Several large
international financial institutions were left tograpple with the consequences of large asset
writedowns. Soon this led to an unprecedented contraction of credit in the system — especially in the
last three and a half months of 2018, after the collapse of Lehman Brothers on 14th September. Thanks
to massive financial, monetary and fiscal interventions by the US as well as major European nations,
the acute financial crisis passed by January 2018. But it scarred the real economy everywhere in the
world. Starting with the US in the third quarter of 2018, every major developed country went into a
recession—which continues till today. At the time of writing this Management Discussion and
Analysis, the global situation remains grim. Indeed, this is the worst economic downturn that the
world has seen since the Great Depression of the 1930s.

• The US has already suffered from three successive quarters of negative GDP growth, with
possibly more to follow. Although it is believed by some that the US economy will bottom
out by the end of the third quarter of 2018, the estimated GDP growth for2018 will be -2.9%.
In April 2018, unemployment was at 8.9%, and rising—the worst since the early 1980s.

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 • Japan is heading for yet another period of long term de-growth. Industrial output has been
falling by more than 30% every month compared to a year earlier; and GDPgrowth for 2018
is being estimated at 6.4%.

• With an estimated 11% to 12% fall in the real value of world trade in 2018, China‘s
growth is expected to reduce to high single digits.

• India‘s growthis down from the 9% plus range of the last three years to 6.7% in2017-
18, with the chances of it being similar in 2017-18.

4.4.3 Financial Performance :

IDFC consolidated net profit at Rs. 750 crore for FY 2018 Highlights of FY 2018.

• Profit After Tax of Rs.750 crore for FY 2018 compared to Rs.742 crore in FY 2018.
• Balance sheet size as on March 31, 2018: Rs. 29,809 crore : an increase of 7%.
• Net NPAs at 0.21% of outstanding loans.
• Capital Adequacy Ratio at 23.75% (Tier I- 20.04%; Tier II – 3.71%).
• Net Interest income (NII) of Rs.922 crore : an increase of 33%.
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 • Non Interest Income of Rs. 613 crore in FY 2018.
Assets under management-USD 4.7 bn.

• Closure of USD 1.0 bn India Infrastructure Fund and USD 0.70 bn IDFC Private.
• Equity Fund III
• At its 72nd Board Meeting held on April 28, 2018, the Board of Directors of
Infrastructure Development Finance Company Limited (IDFC) approved financial
results for the period April 1, 2018 to March 31, 2018 and recommended Dividend at
the rate of Rs. 1.20 per equity share for FY 2018.

INCOME

• Net Interest Income (NII) increased by 33% from Rs. 694 crore in FY 2018 to
• Rs. 922 crore in FY 2018.
• Net Interest Income (NII) from infrastructure loans increased by 34% from
• Rs. 565 crore in FY 2018 to Rs. 758 crore in FY 2018.
• Net Interest Income from treasury operations increased by 27% from Rs. 129
• crore in FY 2017 to Rs. 164 crore in FY 2018.
• Non Interest Income for FY 2018 decreased by 1% from Rs. 618 crore in FY 2017
toRs.613 crore in FY 2018.

• Fees from IDFC‘s asset management business were Rs. 203 crore in FY 2018.
• Income from Investment banking and broking activity of IDFC was Rs. 115 crore inFY
2018.

• Income from principal investments was Rs. 184 crore in FY 2018.

• Other fees was Rs.111 crore in FY 2018.

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PROFITS

• Profit before tax (PBT) increased by 4% from Rs. 1,000 crore in FY 2018 to Rs.
1,036crore in FY 2018.
EPS (diluted) at Rs. 5.78 per share.

• After accounting for Rs. 278 crore for tax, profit in associate company and minority
interest, the profit after tax (PAT) for FY 2018 increased by 1% to Rs. 750 crore fromRs.
742 crore in
FY 2018.

4.4.4 Macro Economic Analysis :

The infrastructure NBFC status, will allow IDFC to improve fund mobilization and ease overall
funding pressure on the firm. the status will give it higher single-party/group exposures, and
borrowing from banks could increase to 20% of net worth. Non-infrastructureNBFCs can currently
raise up to 15% of net worth.

Additionally, the firm‘s plan to raise Rs3,500 crore over the next 12 months is a―pre -emptive‖
bid to raise capital and stay relevant with the ―SBIs of the world‖, Limaye told Mint in an
interview last week. The state-owned State Bank of India is India‘s largest lender.

‘’In the next three years, the opportunity in the infrastructure landscape looks quite attractive so we
think it is a good time to capitalize on the opportunity,‖ he said, estimating that infrastructure
lenders could stand to lend close to Rs3 trillion over the next three-four years, especially in power,
roads and gas distribution.’’

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4.5 INDIAN BANKS V/S NBFC’S :

2017-18 was a difficult year, especially for the financial segment across the globe. However, India‘s
strong macro-economic fundamentals and financial policies have shielded it from the turmoil.. The
study considered those banks that have announced their results between 15thApril -20th May 2017-
18 posted on the website of Bombay Stock Exchange. The have analyzed in total 29 banks (both
public & private sector) and 7 NBFCs The) study has examined and compared the profitability of
banks with NBFCs during the financial year2017-18. Simple average and profitability ratio of the
two segments have been studied. Methodology - The AFP analysis of the Indian commercial banks
& NBFCs profitability is calculated using two broad parameters including net profit and total income.
Profitability Ratio is a class of financial metrics that is used to assess a business's ability to generate
earnings as compared to its expenses and other relevant costs incurred during a specific period of
time.

Profitability is calculated as:

(Net Profit/Total income)*100

NBFCs more profitable than commercial banks despite slowdown Even as the world wide financial
crisis and slowdown in key sectors of the Indian economy led the Non Banking Financial Companies
to face severe cash shortage during the financial year 2017-18, the overall profitability of NBFCs has
remained higher than the scheduled commercial banks. During the financial year 2017-18, Non-
Banking Financial Companies (NBFCs) average profitability stood higher at 18.90 per cent as
compared to the banks with 10.08 per cent. The NBFCs generally operates on the model of lending
to riskier projects with interest rates higher than offered by the banking institutions. As the financial
markets faced the heat of global crisis during the financial year 2017-18, most of the NBFCs faced
problems in fundraising. Among the seven NBFCs, in 2017-18 the highest profitability was reported
by Infrastructure Development Finance Company Limited at 20.89 per cent, with total income stood
at Rs.3626.38 crore and net profit at Rs.757.73 crore. It was followed by Housing Development
Finance Companies Limited (HDFC) and Power Finance Companies Limited(PFCL) at 20.76 per
cent and 20.67 per cent respectively. ―The Reserve Bank of India (RBI)monetary measures by
cutting interest rates during 2017-18 has benefited the NBFCs since many of them finance their
operations through market borrowings‖ said Mr. Sajjan Jindal President. Aggregate net profit to total
income ratio of 17 public sector banks and 12 private sector banks reported to be 10.08 per cent during
2017-18.
Page 46
Top 5 Banks and NBFCs with highest profitability:

Among the 17 public sector banks, the highest profitability was reported by Indian Bank and Bank of
India at 15.83 per cent and 15.50 per cent respectively. Out of the private sector banks the top
positions were occupied by Axis Bank and Yes Bank at 13.22 per cent and 12.46 per cent respectively,
among others. The 7 NBFCs, aggregate total income grew by a whooping 57.3 per cent to
Rs.28,208.72 crore in FY‘09 from Rs.17,906.84 crore in the previous fiscal. However, the aggregate
total income of 29 banks have increased by 25.3 percent from Rs 2,69,055 crore in 2017-18 to Rs
3,37,206.9 crore in 2017-18. Year-on-year performance of the 29 banks regarding net profit to total
income ratio at the aggregate level showed a marginal decline during FY‘09 with 10.08 percent as
against FY‘08 recorded at10.52 percent, while in the case of 7 major NBFCs, the ratio declined during
2017-18 at18.90 percent as against 21.80 percent in FY‘08.

4.6 PORTER‘S FIVE FORCES MODEL OF COMPETITION :

The nature of competition in the industry in large part determines the content of strategy, especially
business level strategy .based it is on the fundamental economics of the industry, the very profit
potential of an industry is determine by competition interaction. Where these interactions are intense,
profit tends to be whittled away by the activities of competing.

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Porter‘s model is based on the insight that a corporate strategy should meet theopportunities and
threats in the organizations external environment. Especially, competitive strategy should base on and
understanding of industry structures and the way they change. Porter has identified five competitive
forces that shape every industry and every market. These forces determine the intensity of competition
and hence the profitability and attractiveness of an industry. The objective of corporate strategy
should be to modify the secompetitive forces in away that improve the position of the organization.
Porter‘s model supports analysis of the driving forces in an industry. Based on the information derived
from the Five Forces Analysis, management can decide how to influence or to exploit particular
characteristics of their industry.

Barriers to entry :

• Product differentiation is very difficult: As most of the NBFC‘s offer similar types of loans
which caters to same market. Innovation of a product plays a very important role in the market.

• Licensing requirement: There are already 13000 registered NBFC. So, the licensing
requirement is also low. The regulations are not that stringent as that of a Bank.

Threat of substitute:

• Banks: Banks are important substitutes. As they are leaders in the markets. They havea quite
strong brand presence and a good credit appraisal method also.

• Money Lenders:Small NBFC‘ sector to the rural areas where there is already a very strong
presence. They dominate the market in the rural areas and its mostly the unorganised market
they tap in.

Bargaining Power of suppliers:

• Many alternatives: The suppliers in this case are the depositors or the NBFC‘s funds. Suppliers
have lots of alternatives to put their money. With the risk they can invest their money. E.g.
Low Risks: Banks, Bonds etc. High Risk: Stocks, Investment.

• RBI rules and regulations: RBI rules and regulations are not as stringent as of Banks.NBFC‘s
are governed by many bodies. E.g. RBI, FIDC, NHB etc.

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Bargaining power of consumer very high :

• Large no. of alternatives

• Low switching costs
• Undifferentiated services
• Full information about the market
• Threat of competitors
• Large no of NBFC‘s
• High market growth rate
• Low switching costs
• Undifferentiated services
• High fixed cost
• High exit barriers

Rivalry among competitors is very fierce in Indian Non Banking Financial Industry. The services
NBFC‘soffer is more of homogeneous which makes the Company to offer the same service at a lower
rate and eat their competitor market‘s share. Market Players use all sorts of aggressive selling
strategies and activities from intensive advertisement campaigns to promotional stuff. Even consumer
switch from one bank to another, if there is a wide spreading the interest. Hence the intensity of rivalry
is very high. The no of factors has contributed to increase rivalry those are.

• A large no of NBFC serving similar loan products: There is so many NBFC‘s and nonfinancial
institution fighting for same pie, which has intensified competition.

• High market growth rate: India is seen as one of the biggest market place and growth rate in
Indian financial industry is also very high. This has ignited the competition.

• Homogeneous product and services: The services banks offer is more of homogeneous which
makes the company to offer the same service at a lower rate and eat their competitor market‘s
share.

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• Undifferentiated services: Almost every NBFC provides similar services. Every bank ries to
copy each other services and technology which increase level of competition.

• High exit barriers: High exit barriers humiliate banks to earn profit and retain customers by
providing world class services.

Page 50
4.7 Findings & Managerial Implications :
4.7.1 FINDINGS:

Top-rated NBFCs have not only been successful in managing their market share but also in
protecting their profitability. A combination of the factors cited earlier had helped these NBFCs earn
better returns on their deployment. In fact, almost all the top-rated NBFCs enjoy a return on total
assets that is higher than HDFC Bank's, one of the better-run banks. The higher return on assets was
despite their operating cost ratio being similar to that of HDFC Bank. For example, operating
expenses as a proportion of net margin worked out to 68 present for HDFC Bank. On an average, this
was not significantly higher than the ratio for most top-rated NBFCs. If return on assets were still
superior, then it was because of the higher return on their funds. For top NBFCs, the interest income
worked out to 17-21 per cent of their total assets for the year ended FY. The liquidity in the banking
system also helped these finance companies. Spreads over government securities for AAA rated
corporate sector debt instrument are now only 50 basis points. In other words, if the cost of funds for
banking companies has declined sharply, then top-rated NBFCs have also benefited from such a
decline in interest rates. Some of these companies are now raising funds at 7-8 per cent.

Also, these companies have displayed the ability to manage their portfolio without large
incidence of non-performing assets. For instance, LIC Housing Finance, IDFC and Shriram Transport
Finance boast of net non-performing assets to net advances ratio of less than 1 per cent. This again
has helped them lower the overall cost of operations and, thereby, protect their profitability. Higher
profitability and innovative financing options, such as securitization, have also helped in boosting the
capital adequacy ratio of these NBFCs. among others, LIC Housing Finance, IDFC and Shriram
Transport Finance, Reliance Capital, boast of capital adequacy ratios upwards of 15 per cent. In other
words, their balance sheets continue to be strong to accommodate further growth in disbursements.

4.7.2 Disbursements - Sharp fall during the crisis :

Disbursements were clearly hit during the crisis as is visible from Primary reason for this
initial fall was lack of supply of funds after the market liquidity dried up. Impact however differed
depending on the capital structure of the company, with NBFCs having larger ALM mismatches and
those which had more dependence on mutual funds for funding were affected more severely as mutual
funds themselves faced redemption pressure on their short term schemes. To support the sector, RBI
undertook several measures to improve Liquidity flow to the NBFC sector. This was a significant
development as the regulator highlighted the systemic importance of the sector.

RBI measures to improve liquidity of NBFCs:

• The systemically important non-deposit taking non-banking financial companies(NBFCsND-

SI) were permitted to raise short-term foreign currency borrowings.
• Allowed banks to avail liquidity support under the LAF for the purpose of meeting the funding
requirements of NBFCs through relaxation in the maintenance of SLR up to1.5 per cent of
their NDTL.

Page 51
 • Risk weights on banks‘ exposures to claims on NBFCs-NDSI were reduced to 100 per cent
from 150 per cent.
• Setting up of a special purpose vehicle (SPV) for addressing the temporary liquidity constraints
of systemically important non-deposit taking non-banking financia lcompanies (NBFCs-ND-
SI).
• Deferring the higher CAR norms for NBFCs-ND-SI by 1 year.

While liquidity conditions started improving from Q4 FY09, disbursements growth remained subdued
for the sector till the first half of FY10. On a y-o-y basis the cumulative disbursements showed a fall
during Q1 FY10 and H1 FY10. This period saw deterioration in asset quality of most NBFCs, which
was especially high in their unsecured loan portfolios. Lower disbursements were mainly because of
the pull back of NBFCs out of unsecured lending segments. On a cumulative basis 9ME FY10
disbursements increased by more than19%. Even if we consider the low base effect of Q3FY09
disbursements, there is clear indication of pick up in disbursements and a positive outlook for the
sector. With improvement in overall economic activity and higher thrust on infrastructure financing
by the government, the scenario is expected to improve further in FY11.

4.7.3 Cost of Funding - Shot up during the crisis due to short tenure borrowings,
stabilized now & expected to be less volatile due to larger proportion of long term
funding:

Many NBFCs took advantage of the lower interest rate regime at the shorter end of the yield curve by
borrowing short term funds (3months – 1 year) at lower rates and lending for maturities ranging from
3-4 years at higher rates. However the level of mismatches differed between NBFCs and those with
higher mismatch faced not only liquidity pressure, but their cost of funding also increased during this
period due to inversing of the yield curve and a general rise in interest rates. Average borrowings
costs1 (on an aggregate basis for CARE rated NBFCs) increased from around 9.5-10.0% in FY08 to
11.5-12.0% in FY09. This shows the severity of the impact as financial crisis affected funding costs
in the second half of FY09and led to a 200 bps increase for the entire year. The response by NBFCs
was to gradually replace short term funding with long term sources. This is a significant structural
change in the borrowing profiles that will bring more stability in profitability of the sector. However
spreads will also be lower compared to historical levels due to this change. During the 9MEFY10
cost of borrowing reduced from the average of 11.5-12.0% of FY09 to 10.2 10.5% for the 9 month
period and is expected to remain around these levels for FY10. This however is still higher than the
FY08 levels due to the structural move towards longer term borrowings.

4.7.4 Asset Quality – Deteriorated more due to unsecured loans which is now virtually
stopped by most players, provisioning has improved & asset quality expected not to
worsen further.

Asset quality for the sector deteriorated significantly during the crisis. Aggregate Gross NPA
ratio trended from around 1.1% for FY08 to around 2.1% in FY09. While there was deterioration in
all asset classes, unsecured asset classes (Personal Loans, Unsecured SME loans) showed the
maximum deterioration and were the key drivers for overall increase in NPAs. Apart from the
assettype financed, another differentiator between asset qualities was the origination & collection
Page 52
model followed. NBFC‘s which originated majority of their portfolio through branches & own
employees showed better asset quality performance than those which used the DSA model. Aggregate
Gross NPA ratio has further worsened to 3.0%at the end of 9M FY10, however it is close to peaking
out. De-growth in unsecured portfolio segment has also lowered the portfolio outstanding growth
thereby leading to a ‗base effect ‘on the Gross NPA ratio and adding to the rise in reported numbers.
Provision coverage has increased from around 50% for FY09 to around 60% at the end of 9MFY10
as players have become more conservative. Unsecured lending has virtually stopped for many NBFCs
and underwriting norms have also been tightened in general for other asset classes. These
developments indicate positive structural changes.

4.8 Banking versus NBFC regulatory arbitrage in India :

Page 53
 4.9 SWOTANALYSIS :

Strengths :
• The pioneer in the pre-owned CVs financing sector Knowledge-driven (products as well as
local customers) and relationship-based business model.
• Significant expertise and experience in valuation of pre-owned CVs as well as in
recovery/collection of monthly payments from customers.
• Pan-India presence with 484 branch offices all over the country.
• A well-defined and scalable organisation structure, capable of supporting surging growth Low
delinquency as assets are backed with adequate cover and are easy to repossess with immediate
liquidity.
• Strong financial track record driven by fast growth in AUM with low Non Performing Assets
(NPAs).
• Experienced and stable management team Strong relationships with public, private as well as
foreign banks, institutions and investors

Page 54
Weaknesses :

• The Company‘s business and its growth are directly linked to the GDP growth of the country.
• Any slowdown in GDP growth may have a negative impact on the business.

Opportunities :
• Growth in the CV market driven by the economic growth and the infrastructure development
in the country.
• Strong demand for construction equipment Strong demand for passenger CVs Strong demand
for pre-owned tractors Loans for working capital requirements of CV users.
• Partnerships with private financiers will enable the Company to enhance its reach without
significant investments in building infrastructure.

Threats :

• Maintaining relationships with customers who are mobile and have no proper documentation.
• Maintaining asset quality
• Regulatory changes in the Non-Banking Financial Company (NBFC) and transportation
sectors.

OUTLOOK AND OPPORTUNITIES :

The global financial slump drastically squeezed export demand for our products and services in the
country‘s main US and European markets. The GDP growth for 2017-18 is now projected to be in
the range of 6.5 to 6.7 per cent. The Government of India as well as the Reserve Bank of India did a
splendid task in somewhat insulating the country and its financial markets from the effects of the
world wide crisis. They responded to the challenge quickly and magnificently, thus minimising the
impact of the crisis on India while maintaining comfortable domestic and foreign exchange liquidity.
The Government of India provided three stimulus packages which, amongst other measures, cut
excise duty by four percent across the board and increased planned expenditure by Rs. 20,000 crores.
Easing of monetary curbs and regulatory actions of the Reserve Bank ensured that our financial
markets functioned normally in spite of the disturbances across the world. These measures, on one
hand stimulated consumption and on the other hand provided enough liquidity in the financial
markets. These initiatives, coupled with lower commodity prices, are expected to soften the
Page 55
downswing by stabilising domestic economic activity. Several factors, such as increased movement
of freight at the leading ports, pick-up in project investments, increased hiring, and encouraging data
from a number of key manufacturing segments could be an indicator that the downtrend has bottomed
out and that our economy is poised to regain its lost vigour shortly. It is reported that auto, cement,
steel and capital goods sectors have started performing strongly which indicates a possible strong
turnaround in the economy. Despite several challenges lying ahead, the Indian economy remains
resilient and is widely expected to grow at around 6 percent in FY 2017-18. The cumulative
production data for the Auto industry for 2008 – 09 recorded a growth of 2.96 percent over 2017 –
88. During 2008-09 the sales of Commercial Vehicles declined by 21.69 percent when compared to
that of last year. Sales of Medium & Heavy Commercial Vehicles (M&HCV) fell by 33.16 percent
and Light Commercial Vehicles (LCV) recorded a negative growth of 7.10 percent. In spite of the
economic slowdown in the country, Your Company was able to once again post sterling growth in
the FY 2017-18 as well. Your Company was, to a large extent, insulated from the downswing as it
operates mainly in the preowned commercial vehicle segment, and is the only organised player in this
segment.

Page 56
CHAPTER- 5
CONCLUSION

Page 57
 Conclusion :
It is encouraging that the NBFC sector‘s importance is finally being acknowledged
across FS market constituents as well as the regulator. However, the importance attached to
the sector is often transcending into misplaced exuberance. Over simplified and vague drivers
for NBFC valuations such as strategic fit and customer base, can never substitute
dispassionate business analytics. A rational assessment of the intrinsic values of NBFCs
factoring issues such as past performance, structural weaknesses 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 the extent possible.
In the absence of this, India issure to witness the re-opening of the NBFC horror story albeit
with a new chapter on theerosion of NBFC investment values affecting investors across
categories.

Ratings of the NBFCs whose profitability and asset quality was affected due to the crisis
were supported by their strong parentage. Based on the parental strength some players have
raised further equity and also managed to re-align their business models while maintaining
their solvency. overall positive outlook on the sector due to the better ALM position, focuson
relatively safer asset classes and the demonstrated acceptance of the sector as systemically
important by the regulator. The crisis has imposed an overall sense of ‘caution’ even for the
newer entrants in the market. Also going forward higher capital adequacy norms will put a
fairly conservative cap on the leverage of the sector there by improving the credit profile of
many entities (NBFC-NDSI).

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 BIBLIOGRAPHY
http://www.rediff.com/money/2004/jan/07rbi.htm

http://www.scribd.com/doc/22498809/Porter‘s-Five-Forces-Model-of-Competition

http://www.financialexpress.com/news/Column---Why-NBFCs-may-not-want-to-
bebanks/614492/

http://www.stockwatch.in/nbfcs-offering-high-dividends-yet-again-25964

http://www.livemint.com/2010/04/30204917/IDFC-seeks-infrastructure-NBFC.html

http://www.encyclopedia.com/doc/1G1-143176307.html

http://mba-bba-dissertations.blogspot.com/2010/05/capital-structure-of-
indiabullsnbfc.html

http://www.nbfc.rbi.org.in

http://www.rediff.com/money/2017/jul/20nbfc.htm

http://www.thehindubusinessline.com/2018/11/14stories2018111451870100.htm

http://indiabudget.nic.in/es98-99/chap35.pdf

http://www.banknetindia.com/finance/fbanking.htm
http://www.mydigitalfc.com/news/nbfcs-again-doling-out-higher-dividend-fy10-732

Page 59
www.livemint.com/2018/.../The-multiplicity-of-regulation.html

http://www.coolavenues.com/know/finsvs_nbfc_1.php3

www.thehindubusinessline.com/.../2005022800330800.htm

Annual Reports:

1) LIC Housing Finance

2) IDFC
3) Reliance Capital
4) Shriram Transport Finance

Research Papers:

• India Vantage by KPMG

• Indian Banks v/s NBFC’s

• NBFC Research by CARE

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