UNIVERSITY OF MUMBAI

PROJECT REPORT ON
“A STUDY ON NON-BANKING FINANCIAL COMPANIES WITH A LEAD
EXAMPLE OF BAJAJ FINSERV LIMITED”

T.Y.B.M.S (SEMESTER VI)

ACADEMIC YEAR 2019-20

SUBMITTED BY

HARSHIL KOTHARI

THIRD YEAR BACHELOR OF MANAGEMENT STUDIES

ROLL NO – 171801194

PROJECT GUIDE

PROF. CA PRITI PARIKH

LALA LAJPATRAI COLLEGE OF COMMERCE AND ECONOMICS

LALA LAJPATRAI MARG,

MAHALAXMI, MUMBAI – 400 034

2019-2020
i
 PROJECT REPORT ON

“A STUDY ON NON-BANKING FINANCIAL COMPANIES WITH A

LEAD EXAMPLE OF BAJAJ FINSERV LIMITED”

SUBMITTED

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

THE AWARD OF DEGREE THIRD YEAR OF BACHELOR OF

MANAGEMENT STUDIES

BY

NAME: HARSHIL KOTHARI

ROLL NO.: 171801194

T.Y.B.M.S (SEMESTER VI)

LALA LAJPATRAI COLLEGE OF COMMERCE AND ECONOMICS

LALA LAJPATRAI MARG,

MAHALAXMI, MUMBAI – 400 034

2019-2020

ii
LALA LAJPATRAI COLLEGE OF COMMERCE AND ECONOMICS

CERTIFICATE

This is to certify that Master Harshil Kothari has worked and duly completed his
Project Work for the degree of Bachelor of Management Studies under the
Faculty of Commerce and his project is entitled “A Study on Non-Banking
Financial Companies with a Lead Example of Bajaj FinServ Limited”
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 or
Diploma of any University.

It is his own work and facts reported by his personal findings and investigations.

________________ ________________

Signature of Project Guide Signature of Principal

Name of Project Guide: Name of Principal:

Prof. CA Priti Parikh Dr. Neelam Arora

________________ ________________

Signature of Internal Examiner Signature of External Examiner

Name of Internal Examiner: Name of External Examiner:

Prof. CA Priti Parikh

Date of Submission: _____ 2020

iii
 DECLARATION

I the undersigned Master Harshil Kothari here by, declare that the work
embodied in this project work titled “A Study on Non-Banking Financial
Companies with a lead example of Bajaj FinServ Limited” forms my own
contribution to the research work carried out under the guidance of
Prof. CA Priti Parikh is a result of my own research work and has not
been previously submitted to any other University for any other
Degree/Diploma to this or any other University.
Wherever reference has been made to previous works of others, it has been
clearly indicated as such and included in the bibliography.
I, here by further declare that all information of this document has been obtained
and presented in accordance with academic rules and ethical conduct.

Name of the Learner: Harshil Kothari

Signature of the Learner:

Certified by:
Name of the Guiding Teacher:
Prof. CA Priti Parikh

iv
 ACKNOWLEDGMENT

To list who all have helped me is difficult because they are so numerous and the
depth is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I would like to thank my Principal, Dr. Neelam Arora for providing the
necessary facilities required for completion of this project.

I take this opportunity to thank our Coordinator and my Project Guide, Prof.
CA Priti Parikh, for her moral support and guidance.

I would like to thank my College Library, for having provided various

reference books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly
helped me in the completion of the project especially My Parents and Peers
who supported me throughout my project.

v
 INDEX

NO. TOPIC PAGE NO.

1. INTRODUCTION 2
Historical Background 3
Definition of NBFCs 6
Types of NBFCs 7
Regulations of NBFCs 8
2. RESEARCH METHODOLOGY 10
Objectives, Scope and Limitations 11
Sample Design 12
Hypothesis 12
Data Collection Used 13
3. REVIEW OF LITERATURE 14
4. DATA ANALYSIS AND
REPRESENTATION 16
Tabulation of Data and Analysis 16
Banks vs NBFCs 31
Porter’s Five Forces Model of
Competition 37
Bajaj FinServ Limited 39
Major Players of NBFC Market and
SWOT analysis 48
Responsibilities towards RBI 68
Importance of NBFCs 69
Guidelines for Deposits 70
5. FINDINGS AND CONCLUSION 72
6. BIBLIOGRAPHY 75
7. ANNEXURES 76

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 EXECUTIVE SUMMARY
Satisfaction is a word with a lot of emotions. Any customer, be it a customer to a shop, a
bank or an NBFC, looks for satisfaction. Thus, we will discuss how successful NBFCs
have been. Initially we will look at the definitions and meanings and try to establish how
it works and how it was formed in the first place. We will also look at the different types
of NBFCs.

Then through the collected primary data of people’s responses to a survey, it becomes
easier to conclude why people prefer banks or NBFCs and what are the pros and cons.
Also, there are few major differences between banks and NBFCs which determines what
people choose and why.

There are the direct comparisons between the top five banks and NBFCs too. The
guidelines and regulations regarding NBFCs are also very informative. A few major
players of the NBFC markets have been discusses with a SWOT analysis on them. The
efficiency of NBFCs have been further analyzed through the Porter’s Five forces model
and detailed information on a few other topics. Overall, the NBFCs have a good market
and are efficient. A large number of people prefer NBFCs over banks because of its
advantages.

1
 CHAPTER 1: INTRODUCTION

WHAT IS A NON-BANKING FINANCIAL COMPANY?

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
stock/shares/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 agricultural activity,
industrial activity, sale/ purchase/ construction of immovable activity. A non-banking
institution which is a company and 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.

Non-banking Financial Companies constitute an important segment of the financial system.

NBFCs are the intermediaries engaged in the business of accepting deposits and delivering
credit. They play a very crucial role in channelizing the scarce financial resources to capital
formation.

NBFCs supplement the role of the banking sector in meeting the increasing financial need of
the corporate sector, delivering credit to the unorganized sector and to small local borrowers.
NBFCs have a more flexible structure then banks. As compared to banks they can take quick
decisions, assume greater risks and tailor-make their services and charge according to the
needs of the clients. Their flexible structure helps in broadening the market by providing the
saver and investor a bundle of services on a competitive basis.

2
HISTORICAL BACKGROUND

The Reserve Bank of India Act, 1934 was amended on 1st December, 1964 by the Reserve
Bank Amendment Act 1963 which included provisions relating to non-banking companies
receiving deposits and financial institutions. It was observed that the existing legislative and
regulatory framework required further changes and improvement because of the increasing
number of defaulting NBFCs and the need for an efficient and quick system for solving of
grievances of individual depositors. Due to the need for continued existence and growth of
NBFCs, the need to develop a framework of careful legislations and a supervisory system was
felt especially
to encourage the growth of healthy NBFCs and remove out the inefficient ones. With the
opinion to review the existing framework and review these shortcomings, various committees
were formed and reports were submitted by them. Some of the committees and their
recommendations are given under:

James Raj Committee (1974):

The James Raj Committee was formed by the Reserve Bank of India in 1974. After going
through the various money circulation schemes which were used in the country during that
time and taking into consideration the effect of such schemes on the economy, the Committee
after detailed research and analysis had suggested for a ban on Prize chit and other schemes
which were causing a great loss to the economy. Based on these suggestions, the Prize Chits
and Money Circulation Schemes (Banning) Act, 1978 was brought into action.

Dr. A.C. Shah Committee (1992):

The group that was working on Financial Companies constituted in April 1992 i.e. the Shah
Committee decided to formed a list of items to be discussed for reforms in the NBFC sector.
This committee made a lot of suggestions and advices covering, among other entry point
norms, mandatory registration of large sized NBFCs, instruction of careful norms for NBFCs
on the lines of banks, specification of credit rating for acceptance of public deposits and more
statutory powers to Reserve Bank for better regulation of NBFCs.

3
 Khan Committee (1995):

This Group was set up with the objective of forming a comprehensive and effective
supervisory framework for the non-banking firms’ section of the financial system. The crucial
recommendations of this committee are as follows:

1. Introduction of an efficient rating system for the registered NBFCs. The ratings provided to
NBFCs would primarily be the tool for triggering on-site inspections at various intervals.
2. Supervisory attention and focus of the Reserve Bank to be directed in a comprehensive
manner only to those NBFCs having owned funds of Rs.100 lakhs and above
3. Supervision of NBFCs that are unregistered to be exercised through the off-site CCTV
surveillance mechanism and their inspection on the site to be conducted selectively as and
when felt necessary depending on circumstances.
4. There was a need to plan of a suitable system for co-coordinating the on-site inspection of
the NBFCs by the Reserve Bank in coordination with other regulatory authorities so that
they were subjected to examination of one-shot by different regulatory authorities.
5. Some of the non-banking non-financial companies like industrial units, manufacturing were
also committing financial activities such as investment related operations, accepting of
deposits, rent purposes etc. to a great extent. The committee put a great pressure on the
need for identifying an appropriate authority to control the activities of these companies,
including companies of plantation and animal husbandry that do not fall under either of the
department of company affairs or the reserve bank, as far as their mobilization of public
deposit was concerned.
6. Establishment of a system in which the names of the NBFCs which had not adjusted with
the regulatory framework, directions of the Bank or had failed to submit the return on the
prescribed date continuously for two years could be published in regional newspapers.

Narasimhan Committee (1991):

This committee was formulated to examine all aspects relating to the structure, organization &
functioning of the financial system.
The non-banking financial companies were founded by these committees.

4
A Non-banking Financial Company (NBFC) is a company registered under the Companies
Act, 1956 and operates within the business of advances and loans, it also purchases securities,
debentures, bonds, shares and stock issued by Government or any of its authority, and
marketable nature securities, insurance business as well, rent, but does not include any
institution with agriculture related business, industrial related business, construction of a
activity which is immovable, any kind of sale or purchases. A non-banking institution which
is a company and its primary business is to receive deposits under any procedure or any kind
of specific format, or lending in any manner is also a non-banking financial company.

Non-banking Financial institutions form an important segment of the financial system.

NBFCs are the intermediaries involved in the business of accepting deposits and providing
credit. They play a very vital role in providing scarce financial resources in a proper
sequential way to capital formation.

NBFCs complete the role of the banking sector in meeting the constantly rising financial
needs of the corporate sector, providing credit to the non-organized sector and to small local
borrowers. Banks don’t have a flexible structure as NBFCs do. As compared to NBFC’s they
lack in taking quick decisions, incur lesser risks and tailor-make their services and charge
according to the needs of the clients. The NBFC’s flexible structure helps in widening the
market by making a bundle of services on a competitive basis available to the saver and
investors.

5
DEFINITION OF NON-BANKING FINANCIAL COMPANY

Non-Banking Financial Company has been defined as:

A non-banking institution, which is a company and which has its primary business of
receiving of deposits under any scheme or lending in any manner.

Several other non-banking institutions, as the bank may with the previous permission of the
central government and by notification in the official legal document of government of India,
specify.

NBFCS provide a variety of services such as hire purchase finance, equipment lease finance,
loans, and investments. NBFCS have raised large amount of income with the help of deposits
from public, directors, shareholders, and other several firms and borrowing by issue of non-
convertible debentures and so on.

Non-banking Financial Institutions has its function of financing activities but their resources
are not directly obtained from the savers as debt. Instead, these Institutions assemble the
public savings for financing their other financial services including investment. All such
Institutions are financial mediator or negotiator and when they lend, they are known as Non-
Banking Financial Intermediaries (NBFIs) or Investment Institutions:

 UNIT TRUST OF INDIA.

 LIFE INSURANCE CORPORATION (LIC).

 GENERAL INSURANCE CORPORATION (GIC).

6
TYPES OF NON-BANKING FINANCIAL COMPANIES

Asset Finance Company

An AFC is a company which is a financial institution carrying on as its principal business the
financing of physical assets supporting productive/economic, such as automobiles, tractors,
earth moving and material handling equipment’s and general-purpose industrial machines.
Principal business for this purpose is defined as aggregate of financing real/physical assets
supporting economic activity and income arising there from is not less than 60% of its total
assets and total income respectively.

Investment Company
IC means any company which is a financial institution carrying on as its principal business
the acquisition of securities.

Loan Company
LC means any company which is a financial institution carrying on as its principal business
the providing of finance whether by making loans or advances or otherwise for any activity
other than its own but does not include an Asset Finance Company.

Infrastructure Finance Company

IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets
in infrastructure loans, b) has a minimum Net Owned Funds of ₹ 300 crores, c) has a
minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.

Gold Loans NBFC

Over the years, gold loan NBFCs witnessed an upsurge in Indian financial market, owing
mainly to the recent period of appreciation in gold price and consequent increase in the
demand for gold loan by all sections of society, especially the poor and middle class to make
ends meet.

Residuary NBFCs
Residuary Non-Banking Company is a class of NBFC which is a company and has as its
principal business the receiving of deposits, under any scheme or arrangement or in any other

7
 manner and not being Investment, Asset Financing, Loan Company. These companies are
required to maintain investments as per directions of RBI, in addition to liquid assets.

REGULATIONS OF NBFCS

1. In terms of Section 45-1A of the RBI Act, 1934, it is mandatory that every NBFC should be
registered with RBI to commence or carry out any business of non-banking financial
institution as defined in clause(a) of Section 45 1 of the RBI Act, 1934. However to obviate
dual regulation, certain categories of NBFCs which are regulated by other regulators are
exempted from the requirements 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.

2. A company registered under the Companies Act, 1956 and desirous of commencing business
of non-banking financial institution as defined under Section 45I(a) of the RBI Act, 1934
should have a minimum net owned fund of Rs 25 lakh (raised to Rs 200 lakh w.e.f 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 ― “Annx - Identification Particulars” worksheet of the Excel application form. The
company would then get a Company Application Reference Number for the CoR 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.

8
3. All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid
Certificate of Registration with authorization to accept public deposits can accept/hold public
deposits. NBFCs authorized to accept/hold public deposits besides having minimum
stipulated Net Owned Fund should also comply with the Directions such as investing part of
the funds in liquid assets, maintain reserves, rating etc. issued by the Bank.

4. Presently, the maximum rate of interest an NBFC can offer is 12.5%. The interest may be
paid or compounded at rates not shorter than monthly rates.

5. The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months
and maximum period of 60 months. They cannot accept deposits repayable on demand.

6. NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors. It has a
few restrictions on those terms

7. The deposits with NBFCs are not insured.

8. The repayment of deposits is not guaranteed by the RBI.

9
 CHAPTER 2: RESEARCH METHODOLOGY

Research Methodology is a set of various methods to be followed to find out various

information regarding market strata of different products. Research Methodology is required
in every industry for acquiring knowledge of their products.

PRIMARY RESEARCH:
Is defined as factual, first-hand accounts of the study written by a person who was part of the
study. The methods vary on how researchers run an experiment or study, but it typically
follows the scientific method. One way you can think of primary research is that it is typically
original research.

SECONDARY RESEARCH:

Is defined as an analysis and interpretation of primary research. The method of writing

secondary research is to collect primary research that is relevant to a writing topic and
interpret what the primary research found. For instance, secondary research often takes the
form of the results from two or more primary research articles and explains what the two
separate findings are telling us. Or, the author may have a specific topic to write about and
will find many pieces of primary research and use them as information in their next article or
textbook chapter.

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OBJECTIVES

1. To study the responsibilities of NBFCs towards the Reserve Bank of India and importance
of NBFCs.
2. The scope of NBFCs today and its current scenario.

3. To study financial performances of NBFCs.

4. To study the social responsibilities of NBFCs.

5. To study how successful and effective have NBFCs been.

6. Differences between banks and NBFCs.

7. What is more preferred amongst banks and NBFCs.

8. To study why people, prefer NBFCs over banks or banks over NBFCs.

9. To do an analysis on the major players of NBFCS.

SCOPE OF STUDY
1. Types of NBFCs with examples.

2. Different rules and regulations regarding NBFCS.

3. A consumer survey to prove people’s preferences amongst banks and NBFCS and reason

for the same.

4. SWOT analysis of the major players and companies with graphs.

5. State comparisons between banks and NBFCs.

6. Findings to prove the success of NBFCs.

LIMITATIONS OF THE STUDY

1. The study focuses on a sample size of 50 people due to cost and time constraints.

2. This study has geographical limitations because the targeted respondents are taken only

from the city of Mumbai. Hence, this study does not have the overall impact.

11
3. The choices majorly depend on the ages of people thus the averages can vary from the

number of people of a particular age in a particular sample.

SAMPLE DESIGN:

Sample size:

The sample size for my research is 50 and within the area of Mumbai.

PARAMETER OF INTEREST:

Parameter of interest is the subgroups of people who take loans and accept deposits from
banks and NBFCs.

HYPOTHESIS:

Hypothesis is a proposed explanation for a phenomenon. There are two types of hypothesis:
Alternative (H1), the one which shows a positive relation and Null (H0), which shows a
negative relation. In the end of a research, our research will either prove to be Null hypothesis
or Alternative hypothesis.

HO:

Non-banking Financial Companies are not efficient.

Non-banking Financial Companies are not at par with banks

H1:

Non-banking Financial Companies are efficient.

Non-banking Financial Companies are at par with banks.

12
DATA COLLECTION TOOL USED:

QUESTIONNAIRE

The data collection tool used for this particular research is QUESTIONNAIRES to get the
PRIMARY DATA to conclude if people prefer NBFCs or not and the reasons for the same.

INTERNET

The data collection tool used for this particular research is also INTERNET to get the
SECONDARY DATA of the various major players in the NBFCs sectors to determine their
standings in the market

13
 CHAPTER 3: REVIEW OF LITERATURE

Amit Kumar and Anshika Agarwal (2014) published a paper entitled “Latest Trends in
Non-banking Financial Institutions” in ‘Academicia: An International Multidisciplinary
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 services on wide range, they also work to offer enhanced
equity and risk-based products, along with this they also provide short to long term finance to
different sectors of the economy, and many other functions. This paper examines the latest
trends in Non-Banking Financial Institutions. This paper analyzes the growth and enhanced
prosperity of financial institutions in India.
Jafor Ali Akhan (2010) 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.
R.V.S. Rao, past Executive Director of HDFC Ltd., in his report on housing finance has said
that an impetus to the housing sector is essential for a sustainable growth of the economy and
for the housing the country's homeless millions.
P. S. Balsubramainyam (2006), in his article “Awaiting Due Recognition”, emphasizes on
the Problems of non-banking finance companies (NBFCs).
He opines that though at present, there are a few non-banking finance companies operating in
India, they are functioning effectively and the industry also seems to have benefited greatly.
Nevertheless, these companies are not keen on accepting deposits from the public and most of
them look for alternative sources of funding. He states that NBFCS have been facing
numerous problems, such as lack of funds, interest tax, service tax uncertainties, recovery
disparity, etc., to quote some of the significant ones. In addition to these, contradictory views
are taken by the Department of Company Affairs (DCA), Reserve Bank of India (RBI) and
the Central Board of Direct 20 Taxes (CBDT), while framing regulations for NBFCS. This
calls for a proper coordination among these regulations before enacting lows. He also points
out that in a populous country like India, there is a need for micro-financing and this can be

14
fulfilled only through NBFCs which have provided efficient services of the customers for
many years and also have personal contracts with them.
According to RBI, Non-banking financial companies is a constituent of the institutional
structure of the organized financial system in India. NBFCs perform a significant and
important role in our financial system. They facilitate the process of channelizing of public
savings and provide better returns to depositors.

ANALYSIS
Global credit crisis followed by increase in interest rates in October and November 2008
resulted in widespread crisis of confidence. Chain of events after the collapse of Lehman
Brothers is still fresh in the minds of investors. Non-Banking Finance Companies (NBFCs) in
India were severely impacted due to economic slowdown coupled with fall in demand for
financing as several businesses deferred their expansion plan. Stock prices of NBFCs crashed
on the back of rising non-performing assets and several companies closed their operations.
The operating environment for non-banking financial companies (NBFCs) seems to be
improving. With the economy on the mend, loan disbursements have picked up in most
segments, funding costs are coming down, and several banks are facing capital constraints,
giving these lenders a foot in the door.
So far, non-banking finance companies (NBFCs) have scripted a great success story. Their
contribution to the economy has grown in leaps and bounds from 8.4% in 2006 to above 14%
in March 2015. In terms of financial assets, NBFCs have recorded a healthy growth—a
compound annual growth rate (CAGR) of 19% over the past few years—comprising 13% of
the total credit and expected to reach nearly 18% by 2018–19.
With the ongoing stress in the public sector banks due to mounting bad debt, their appetite to
lend (especially in rural areas) is only going to deteriorate, thereby providing NBFCs with the
opportunity to increase their presence. The success of NBFCs can be clearly attributed to their
better product lines, lower cost, wider and effective reach, strong risk management
capabilities to check and control bad debts, and better understanding of their customer
segments. Not only have they shown success in their traditional bastions (passenger and
commercial vehicle finance) but they have also managed to build substantial assets under
management (AUM) in the personal loan and housing finance sector which have been the
bread and butter for retail banks. Going forward, the latent credit demand of an emerging
India will allow NBFCs to fill the gap, especially where traditional banks have been wary to
serve. Additionally, improving macroeconomic conditions, higher credit penetration,
increased consumption and disruptive digital trends will allow NBFC’s credit to grow at a

15
healthy rate of 7–10% (real growth rate) 3 over the next five years. Clearly, NBFCs are here
to stay.

CHAPTER 4: DATA ANALYSIS AND REPRESENTATION

DATA ANALYSIS AND TABULATION OF DATA

MALES 29

FEMALES 21

ANALYSIS:

Out of the total responses, there are slightly a greater number of responses from males than
women. 58% males and 42% females are involved with either banks or NBFCs.

16
18-29 YEARS 10

30-39 YEARS 13

40-49 YEARS 17

50-59 YEARS 9

60 AND ABOVE 1

ANALYSIS:

17
Out of the total responses, it is clearly seen that most of the people taking loans and accepting
deposits fall in the age of 30-50 and then a few of them in the age of 50-60 also. And then
there are a few in the age of 18-30.

YES 46

NO 4

ANALYSIS:

Out of the total responses, most of the respondents are from metropolitan cities i.e. around
92% of them and 8% are from non-metropolitan cities.

18
 INCOME FROM BUSINESS 30

INCOME FROM SALARY 19

OTHERS 11

ANALYSIS:

Out of the total responses, 60% people earn through business and 38% from salary. The other
sources of income may include income from capital gains, rent etc. This clearly shows
business and income are the prime sources of income in metropolitan cities.

19
 UNDER 500000 9
500000 - 2000000 17
2000000 - 3500000 13
3500000 - 5000000 9
ABOVE 5000000 2

ANALYSIS:

The responses in the above pie chart show the income range of people who have submitted
the responses. Majority of them fall in the category of 5,00,000 to 35,00,000. This would be
the general average of most of the people. A few others below 5,00,000 and a very few of
them above 50,00,000.

20
 1 EARNING MEMBER 19

2 EARNING MEMBERS 20

3 EARNING MEMBERS 9

MORE THAN 3 2

ANALYSIS:

The responses clearly show that majority people have one or two earning members in family
and this will affect the total income of the family or the loan they are willing to take.

21
 NON-BANKING 30
FINANCIAL COMPANIES
BANKS 20

ANALYSIS:

From the respondents, it is clear 60% people prefer to take loans from NBFCs and 40%
people prefer to take loans from banks. This shows the gap between NBFCs and banks is
bridged and people have started preferring NBFCs as well.

22
ANALYSIS:

Out of the people who chose banks, most of them have stated the reason to be trustworthy in
different words. A few of them also choose banks because they share long term relations with
them and continue doing do since they have been doing it for quite a long time.

23
ANALYSIS:

Out of all the people who chose NBFCs, the reason stated by a majority of them is leniency or
lesser government interventions and formalities. It is also convenient according to a few
people.

24
 YES 28

NO 22

ANALYSIS:

44% people out of total respondents have taken a loan from NBFCs proving to the above
stated reasons. Other 56% haven’t taken a loan from NBFCs.

25
ANALYSIS:

Out of the 56% who haven’t taken a loan from NBFCs yet, very few are on the lower scale
i.e. people who are not willing to take loans from NBFCs. Most of them fall in the category of
3 and 4 that is likely to take loans from NBFCs.

26
 UNDER 30 LAKHS 14

30 – 50 LAKHS 14

50 LAKHS – 1 CRORE 12

ABOVE 1 CRORE 1

ANALYSIS:

Out of the 44% who have taken a loan from NBFCs, we have taken a look at the amounts
they have borrowed from NBFCs. The responses depend on the family income, choices and
reasons and there are almost equal answers for the three categories of under 30 lakhs, 30-50
lakhs and 50 lakhs to 1 crore. Very few people opt for amounts higher than 1 crore.

27
ANALYSIS:

These parameters are considered by people before applying for loans and the deals in
following parameters decide from where they opt to take loans. In this answer, multiple
answer selection was possible. Most of them have marked EMI and interests. Long terms
customer and tax exemption have also been selected at an average level.

28
ANALYSIS:

In this question as well, multiple responses were permitted. Out of the following, LIC housing
capital has been selected the majority times. We will discuss a few from the above in the
following chapter.

29
THROUGH THIS QUESTIONNAIRE (PRIMARY DATA),
We looked at the differences between the choices of people regarding banks and NBFCs and
why they choose one over the other. Also, we spoke about how likely the people who haven’t
taken loans from NBFCs are willing to take loans. The parameters considered by people also
make a huge difference in what they choose, thus those parameters are also discusses. We
also discussed the major players of the NBFC market.

FURTHER THROUGH THE SECONDARY DATA,

We will look at the actual differences between banks and NBFCs, and Porter’s Five Model
analysis on NBFCs. Also, we will discuss the standing of the major players of NBFC market
through SWOT analysis and graphical presentations of the companies.

30
BANKS VS NON-BANKING FINANCIAL COMPANIES

Banks and Non-Banking Financial Companies (NBFCs) are the two major types of financial
intermediaries in any financial system. The NBFCs are often private owned entities and when
the government owned entities are added, they are classified as NBFIs (Non-Banking
Financial Intermediaries).

NBFCs are mostly private owned financial institutions regulated by the RBI and other
government entities. Both of them perform exceptional role in their respective domains. A
comparison between the two is always important from the angle of monetary policy as well as
the interest of depositors and investors.

In recent years, the RBI is putting high regulations on NBFCs. Some of the regulations are as
hard as that of banks. Extension of SARFAESI clause and putting more capital requirements
are some of them. Actually, there is a trend of imposing almost all regulatory requirements of
banks on the NBFC sector. This is because failure of big NBFCs is dangerous to the economy
as well. The NBFCs are nicknamed as shadow banking sector.

NBFCs are regulated by the RBI under the RBI Act of 1935 from 1997 onward. They have
to: register with the RBI, keep minimum capital, some of them have to maintain SLR and still
some of them have to keep the CRAR (Capital to Risky Asset Ratio) etc. Other strict norms
are also detailed by the RBI. Important NBFCs are identified by the RBI by categorizing
them into systemically important NBFCs, deposit taking NBFCs, NBFC- MFI etc.

Why demand deposits acceptance is an important factor separating banks and NBFCs?

Demand deposit is a bank account which allows the account holder to withdraw his money
from the account at his will and by any means without a notice to the bank. Demand deposits
are unique because of two features: (i) Liquidity and (ii) Accessibility.

Liquidity

The demand deposits balances are like ready to use money of the account holders in banks.
Hence, they are usually considered as money and form the greater part of the narrowly
defined money supply of a country. In the definition of Narrow Money, the demand deposits
come as a main component.

M1 = Currency with the Public + Demand Deposits with the Banking System + ‘Other’
Deposits with RBI

31
 There are M0, M1, M2, M3 and M4. The degree of ‘moneyness’ decreases from M0 to M4.
M0 is the reserve money which is constituted mainly by currency supply in the economy.

Here, from the monetary policy angle, demand deposit becomes very important. An
institution that accepts demand deposits should be strictly controlled and regulated by the
RBI. Hence, NBFCs which are nick named as shadow banks are not permitted to accept it.

Similarly, when commercial banks issue cheques, it will lead to multiplier effect on money
supply. Such power is absent for NBFCs as they can’t issue cheques.

Accessibility

The demand deposits can be accessible through any form (ATM, direct banking etc.). Hence
the banks have to discharge them as soon and on the spot. Here also the NBFCs as a financial
intermediary has limitations.

Differences between NBFCs and Banks can be drawn clearly on the following grounds:

1. A government authorised financial intermediary that aims at providing banking services to

the general public is called the bank. An NBFC is a company that provides banking
services to people without holding a bank license.
2. An NBFC is incorporated under the Indian Companies Act, 1956 whereas a bank is
registered under Banking Regulation Act, 1949.
3. NBFC is not allowed to accept such deposits which are repayable on demand. Unlike
banks, which accepts demand deposits.
4. Foreign Investments up to 100% is allowed in NBFC. On the other hand, only banks of the
private sector are eligible for foreign investment, and that would be not more than 74%.
5. Banks are an integral part of payment and settlement cycle while NBFC, is not a part of the
system.
6. It is mandatory for bank maintain reserve ratios like CRR or SLR. As opposed to NBFC,
which does not require to maintain reserve ratios.
7. The deposit insurance facility is allowed to the depositors of banks by Deposit Insurance
and Credit Guarantee Corporation (DICGC). Such facility is unavailable in the case of
NBFC.
8. Banks create credit, whereas NBFC is not involved in the creation of credit.

32
9. Banks provide transaction services to the customers, such as providing overdraft facility,
the issue of traveller’s cheque, transfer of funds, etc. Such services are not provided by
NBFC

33
REGULATORY ARBITRAGE OF INDIA

34
 Banks NBFCs

1. Functional Restrictions.
Carrying on,
1.checking
Ownership structure/ Change inNot
Permitted ownership
Permitted
accounts, Not more than 10% While prior
remittance
Indian Ownership of capital in a bank intimation of
functions and may be acquired takeover is
retail without the required, there
banking approval of the is no need for
Acceptance RBI. subject Permitted
Permitted, express
subject to
of term to permission
term limitations but the termfor a
deposits restrictions. change
of deposit is at least in
1
yr. voting control.
Up to 74% capital 100% capital
Foreign Ownership in banking may be held by
Trusteeship Permitted No express bar is there
companies may be foreign owners
function,
acquired for foreign subject to
nominee
owners. minimum
Leasing and Allowed to a limit No Limit
capital
hire purchase of 10% of their requirements
assets under FDI
norms
Operating Treated as a non- Permitted
2. Credit Control
Lease and Sectoral
financial business, Asset Restrictions
not permitted
Substantial part of Only 15% of
Securitization Permitted subject Permitted subject to
assets of banks is the deposit
to capital norms capital norms and other
blocked due to SLR liabilities of
SLR/CRR Normsand other limitations.
and CRR. These NBFCs is to be
limitations.
are periodically held in certain
changed to control permitted
2. Licensing restrictions
the expansion of securities.
Need for a Any M3 new bank in It theis comparatively
license. needs economy.
a license. much easier to get a
Licensing norms registration
Periodic Very as scanty an
are regulations
Sectoral Exposures tightly NBFC. Besides, there
place limitations have
controlled
limits onand are 30000
the extent NBFCs
been placed on
generally, it is already
to which banks assets registered
of
perceived to be many of which are 35
quite difficult to available for sale.
get a license.
may invest in NBFCs.
capital market and Investment in
other specific real estate and
segments. There unquoted equity
are certain shares are
segments in which controlled.
banks need to Capital market
allocate minimum exposure is only
% of their assets. required to be
reported.

36
 PORTER’S FIVE FORCES MODEL OF COMPETITON

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 determined by competition interaction. Where these
interactions are intense, profit tends to be whittled away by the activities of competing.

Porter’s model is based on the insight that a corporate strategy should meet the opportunities
and threats in the organization’s 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 these competitive forces in
a way 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’s. 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 have a quite
strong brand presence and a good credit appraisal method
 Money Lenders: Small NBFC’s cater to the rural areas where there is already a very strong
presence. They dominate the market in the rural areas and its mostly the unorganized market
they tap in.

Bargaining Power of Suppliers

37
 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.

Bargaining Power of Consumer

 Large no. of alternatives
 Low switching costs
 Undifferentiated services
 Full information about the market
 Threat of competitors
 Large number of NBFC’s
 High market growth rate
 Low switching costs
 Undifferentiated services
 High fixed cost
 High exit barriers.

Rivalry among Competitors

The services NBFC’s 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. 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 spread
in the interest. Hence the intensity of rivalry is very high. The number of factors has
contributed to increase rivalry those are.

 Large no. of NBFC’s serving similar loan products: There are 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.

38
 Undifferentiated services: Almost every NBFC provides similar services. Every bank tries 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.
BAJAJ FINSERV LIMITED

Introduction
Bajaj FinServ Ltd., incorporated in the year 2007, is a Large Cap company (having a market
cap of Rs 144160.88 Crores) operating in NBFC sector.

Bajaj FinServ Ltd. key Products/Revenue Segments include Dividend which contributed Rs
286.76 Crores to Sales Value (67.78 % of Total Sales), Interest which contributed Rs 59.31
Crores to Sales Value (14.01 % of Total Sales), Power Generation which contributed Rs
59.11 Crores to Sales Value (13.97 % of Total Sales), Renewable Energy Certificates which
contributed Rs 11.99 Crores to Sales Value (2.83 % of Total Sales), Income From Sale Of
Share & Securities which contributed Rs 3.83 Crores to Sales Value (0.90 % of Total Sales)
and Rental Income which contributed Rs 2.05 Crores to Sales Value (0.48 % of Total
Sales)for the year ending 31-Mar-2019.

For the quarter ended 31-12-2019, the company has reported a Consolidated sale of Rs
14558.92 Crores, up 2.37 % from last quarter Sales of Rs 14221.86 Crores and up 30.68 %
from last year same quarter Sales of Rs 11141.05 Crores Company has reported net profit
after tax of Rs 1977.86 Crores in latest quarter.

The company’s top management includes Dr. Gita Piramal, Mr. D J Balaji Rao, Mr. Madhur
Bajaj, Mr. Nanoo Pamnani, Mr. Rahul Bajaj, Mr. Rajiv Bajaj, Mr. Sanjiv Bajaj. Company has
SRBC & Co LLP as its auditors as on 31-12-2019, the company has a total of 158,296,624
shares outstanding.

History
Bajaj FinServ Limited (BFS) is the holding company for the various financial services
businesses under the Bajaj Group. It serves millions of customers in the financial services
space by providing solutions for asset acquisition through financing asset protection through
general insurance family protection and income protection in the form of life and health
insurance and retirement and savings solutions. BFS holds 55.13% stake in Bajaj Finance
Limited (BFL) and 74% stake each in Bajaj Allianz General Insurance Company Limited
(BAGIC) and Bajaj Allianz Life Insurance Company Limited (BALIC). Apart from financial
services BFS is also active in wind energy generation. Bajaj Finance Ltd (formerly known as
Bajaj Auto Finance Ltd) is a Non-Banking Finance Company engaged in consumer finance
SME finance commercial lending and wealth management. BAGIC is a general insurance
joint venture between BFS and Allianz SE Germany. The Allianz Group is one of the world's
leading insurers and asset managers with more than 88 million retail and corporate customers.

39
BFS holds 74% stake and Allianz SE holds 26% stake in BAGIC. BALIC is life insurance
joint venture between BFS and Allianz SE. BFS holds 74% stake and Allianz SE holds 26%
stake in BALIC. Bajaj FinServ was formed in April 30 2007 as a result of its demerger from
Bajaj Auto Limited as a separate entity to focus purely on the financial services business of
the group. The process of demerger was completed in February 2008. The wind power project
the stakes in the life and general insurance companies and consumer finance along with their
respective assets and liabilities got vested in Bajaj FinServ Limited. In addition to that cash
and cash equivalent of Rs 800 crores (then market value) was also transferred to the
company. The demerger has enabled investors to hold separate focused stocks and also
facilitated transparent benchmarking of the companies to their peers in their respective
industries. On 20 April 2009 Bajaj FinServ and Allianz Global Investors AG (Allianz GI) the
asset management subsidiary of Allianz SE signed an agreement to set up as asset
management Joint Venture Company in India. Allianz GI and Bajaj FinServ will hold a 51%
and 49% state respectively in the equally managed proposed venture. On 10 November 2009
Bajaj FinServ announced that the Reserve Bank of India has issued to the company a
Certificate of Registration dated 30 October 2009 under section 45-IA of the RBI Act 1934 to
carry on the business of a Non-Banking Financial Institution (NBFC) (non-deposit taking).On
5 May 2010 Bajaj FinServ announced that Bajaj Auto Finance (BAFL) has launched its
Construction Equipment (CE) financing and Retail Loan against Securities (LAS) business in
the month of April 2010. 04 March 2011 Bajaj FinServ said in a clarification to the stock
exchanges that the company does not have any plan at present or in the foreseeable future to
sell its equity to Berkshire Hathaway group of companies. Berkshire Hathaway will enter
Indian insurance business as a corporate agent for Bajaj Allianz General Insurance Company
Ltd (BAGIC) a 74% subsidiary of Bajaj FinServ Ltd. The tie up will help BAGIC expand its
customer base. BAGIC has about 40 corporate agents. On 17 October 2012 Bajaj FinServ
successfully allotted 1.44 crores equity shares to existing eligible shareholders on a rights
basis in the ratio of 1 equity share for every 10 equity shares held on the record date. The
rights issue was priced at Rs 650 per share. The company raised Rs 939 crores from the issue.
The rights shares were listed on BSE and NSE on 22 October 2012. On 27 June 2013 Bajaj
FinServ announced that it has submitted its application to Reserve Bank of India on 26 June
2013 for a licence to commence banking business in terms of section 22 of the Banking
Companies Act 1949. It is proposed to do this by converting its subsidiary Bajaj Finance Ltd
into a bank in terms of RBI Guidelines for Licensing of New Banks in the Private Sector
dated 22 February 2013.On 1 November 2014 Bajaj FinServ transferred by way of sale of
100% shares of Bajaj Financial Solutions Ltd. (together with its wholly-owned subsidiary
Bajaj Financial Securities Ltd.) for a consideration of Rs 17 crores on an arm's length basis to
its subsidiary company Bajaj Finance Ltd to facilitate Bajaj Finance Ltd promote the business
of housing finance. The transaction was approved by the Company's Board of Directors at its
meeting held on 14 October 2014. On 3 November 2015 Bajaj FinServ announced that the
Reserve Bank of India has accorded its approval for conversion of the company into a Core
Investment Company not requiring registration with RBI and has accordingly cancelled the
Certificate of Registration as NBFC earlier issued to the company. On 23 November 2016
Bajaj FinServ exercised its right to convert 92.5 lakh warrants of Bajaj Finance Limited into
equity shares upon payment of balance 75% amount aggregating to Rs 306.08 crores.
Consequently, the company's shareholding in Bajaj Finance increased from 57.28% to 58%.
The paid-up equity share capital as on 31 March 2017 was Rs 79.57 crores. During the Rights
Issue of equity shares made by the Company in 2012 certain shares had been kept in
40
abeyance as required by law. With resolution of a few cases during the year 2017 the
Company has allotted 327 equity shares of the face value of Rs 5 each at the original Rights
Issue price of Rs 650 per share to the eligible shareholders. During the year BFL divided its
equity shares of face value of Rs 10 each to Rs 2 each and also issued one fully paid bonus
equity share of the face value of Rs 2 against one equity share of the face value of Rs 2. As on
31 March 2017 Bajaj FinServ held 74% of the equity capital in its joint ventures BAGIC and
BALIC the balance being held by Allianz. The paid-up equity share capital as on 31 March
2018 was Rs.79.57 crores consisting of 159135097 fully paid-up equity shares of face value
of Rs.5 each. During the Rights Issue of equity shares made by the Company in 2012 certain
shares had been kept in abeyance as required by law. With resolution of a few cases during
the year under review the Company has allotted 3317 equity shares of the face value of Rs.5
each at the original Rights Issue price of Rs.650 per share to the eligible shareholders. During
the year under review Bajaj Financial Holdings Ltd. a wholly-owned subsidiary has firmed up
new business plans for undertaking activities on digital and online platform to augment the
business of the Company's subsidiaries and has changed its name to Bajaj FinServ Direct Ltd.
with effect from 27 February 2018.During FY 2017-18 BFL raised approximately Rs.4500
crores through Qualified Institutional Placement (QIP) route by issuing 26627218 equity
shares of face value of Rs.2 each and a premium of Rs.1688 per share. This was the largest
QIP of equity shares by an NBFC in India. After this the shareholding of Bajaj FinServ in
BFL stood at 54.99% as at the end of the reporting year. From 2 April 2018 Bajaj FinServ
along with BFL was included in the benchmark Nifty Fifty index.

2009 - Bajaj Financial Solutions, a fully-owned subsidiary of Bajaj FinServ, has appointed
Mr Arpit Agarwal as CEO while earlier, Mr Agarwal was the Managing Director and Group
Chief Executive Officer at Dawnay Day AV.

2010 -Bajaj FinServ - Bajaj FinServ (BF) announces new brand identity and new businesses.
-Bajaj FinServ -recommended a dividend of Re. 1 per share (20%)

2011 -Bajaj FinServ -recommended a dividend of Rs. 1.25 per share (25%)

2012 -Launch of 0% interest Lifestyle Finance -Bajaj FinServ Lending, Extended Warranty
will provide additional 1 year coverage for products after the expiry of the manufacturer
warranty Period -Flexisaver launches another innovative product for Small and Medium
Enterprise customers -Bajaj FinServ Lending launches online personal loan service - Tie up
with CPP India for card protection services -Bajaj FinServ Ltd Issues Rights in the Ratio of
1:10

2013 -Bajaj has recommend a dividend of Rs. 1.50 per share.

2014 -Bajaj has recommended a dividend of Rs. 1.75 per share.

2015 -Bajaj FinServ Ltd - Tata power solar partners with Bajaj FinServ to make solar more
accessible -Bajaj FinServ Ltd - Proud to be ranked amongst the top 25 workplaces in Asia by
GPTW (Grate Place To Work)

2017 -Bajaj has recommended a dividend of Rs. 1.75 per share.

41
Bajaj FinServ Consolidated December 2019 Net Sales at Rs 14,558.92
crores, up 30.68% Y-o-Y
Net Sales at Rs 14,558.92 crores in December 2019 up 30.68% from Rs. 11,141.05 crores in
December 2018.

Quarterly Net Profit at Rs. 1,125.64 crores in December 2019 up 32.35% from Rs. 850.52
crores in December 2018.

EBITDA stands at Rs. 5,162.57 crores in December 2019 up 26.99% from Rs. 4,065.42
crores in December 2018. Bajaj FinServ EPS has increased to Rs. 70.70 in December 2019
from Rs. 53.40 in December 2018. Bajaj FinServ shares closed at 9,639.65 on January 30,
2020 (NSE) and has given 36.19% returns over the last 6 months and 54.30% over the last 12
months.

INCOME STATEMENT

42
43
44
45
Dividend
Bajaj FinServ Ltd has informed BSE that the Board of Directors of the Company at its
meeting held on May 16, 2019, has recommend dividend at the rate of Rs. 2.50 per share
(50%) of face value of Rs. 5 each on equity shares of the Company for the financial year
ended March 31, 2019. The said dividend, if declared, by the shareholders at the ensuing
Annual General Meeting, will be credited/dispatched on 30 and/or July 31, 2019.

Auditors Report
To the Members of Bajaj FinServ Ltd.

Report on the audit of the standalone Ind AS financial statements Opinion

We have audited the accompanying standalone Ind AS financial statements of Bajaj FinServ
Ltd. (the Company), which comprise the Balance Sheet as at 31 March 2019, the Statement of
Profit and Loss, including the statement of Other Comprehensive Income, the Cash Flow
Statement and the Statement of Changes in Equity for the year then ended, and notes to the
financial statements, including a summary of significant accounting policies and other
explanatory information.

In our opinion and to the best of our information and according to the explanations given to
us, the aforesaid standalone Ind AS financial statements give the information required by the
Companies Act, 2013, as amended (the Act) in the manner so required and give a true and fair
view in conformity with the accounting principles generally accepted in India, of the state of
affairs of the Company as at 31 March 2019, its profit including other comprehensive income,
its cash flows and the changes in equity for the year ended on that date.

Basis for opinion

We conducted our audit of the standalone Ind AS financial statements in accordance with the
Standards on Auditing (SAs), as specified under section 143(10) of the Act. Our
responsibilities under those standards are further described in the Auditors Responsibilities
for the Audit of the Standalone Ind AS Financial Statements section of our report. We are
independent of the Company in accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical requirements that are relevant to our
audit of the financial statements under the provisions of the Act and the Rules thereunder, and
we have fulfilled our other ethical responsibilities in accordance with these requirements and
the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion on the standalone Ind AS financial
statements.

Key audit matters

46
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the standalone Ind AS financial statements for the financial year
ended 31 March 2019. These matters were addressed in the context of our audit of the
standalone Ind AS financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters. For each matter below, our description
of how our audit addressed the matter is provided in that context.

We have determined the matters described below to be the key audit matters to be
communicated in our report.

We have fulfilled the responsibilities described in the Auditors responsibilities for the audit of
the standalone Ind AS financial statements section of our report, including in relation to these
matters. Accordingly, our audit included the performance of procedures designed to respond
to our assessment of the risks of material misstatement of the standalone Ind AS financial
statements. The results of our audit procedures, including the procedures performed to
address the matters below, provide the basis for our audit opinion on the accompanying
standalone Ind AS financial statements.

RBI cancels license of 56 NBFCs, Bajaj FinServ gives away license:

MUMBAI: The Reserve Bank of India has cancelled a bulk of non-banking financial
companies as those mostly little-known local lenders may have either violated regulatory
norms or surrendered licence of their own.
The Central bank has taken away "the certificate of registration of the 56 non-banking
financial companies (NBFCs), in exercise of the powers conferred on it."
"Following the cancelation of registration certificate, these companies cannot transact the
business of a non-banking financial institution," it said. Interestingly, Pune-based Bajaj
FinServ has given away its licence.

"We now come under a classification "core investment company", said Rajagopalan,
President (Legal), Bajaj FinServ NSE -1.51 %. "Since we do not have any public funds
including deposits/borrowings as per the RBI regulations applicable to NBFC we are not
required to be registered with RBI."

"RBI do not regulate such companies and hence as required by RBI we have submitted the
Registration certificate for cancellation," he said.

Bajaj FinServ continues to be an investment holding company without public

deposits/borrowings. Its subsidiary Bajaj Finance, a deposit-taking listed non-banking
company, continues to exist with usual lending business.

Out of total cancelled NBFCs, 16 are from Kolkata while more than 10 are Mumbai-based.
Some of them include Vapi Investments, Croton Trading Private, Sears Securities &
Investments Private, Future Ventures India NSE 2.85 %.

In the wake of Sarada scam, which robbed of poor people life savings the Reserve Bank has
been on high alert. Authorities are trying to tighten regulations especially for such tiny
companies.
47
48
MAJOR PLAYERS OF THE NBFC MARKET

1) Indian 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 2012-2017. 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 2016 to 2017 home prices increased at a CAGR of 30 to 40 percent against a
20 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 2018-19, 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 2018 to September-October 2018. As a result a higher proportion of
monthly income was being paid out as home loan equated monthly installments (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 burden i.e. higher
installment 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 2018-19, 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 centers

49
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 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 2013-14 to 2017-18, witnessed moderation in 2018-19, 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.
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, a higher proportion of
monthly incomes was paid as home loan equated monthly installments (EMI). But the
scenario has taken the reverse turn in the last quarter of the financial year 2018-19 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 rate cut to the customers i.e.
75 basis points each on 1st January, 2019 and 1st April, 2019. Their interest rates are among
the lowest in the industry. This has helped the 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
50
 reduction in interest rates for one year. LIC Housing Finance is one of the best players in the
industry in terms of EMI as it has no hidden costs.

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 1994. The Company launched its maiden GDR
issue in 2004. The Authorized Capital of the Company is Rs 1500 Million (Rs150 crores) and
its paid-up capital is Rs 850 Million (Rs. 85 crores). The Company is recognized by National
Housing Bank and listed on the National Stock Exchange (NSE) and Bombay Stock
Exchange Limited (BSE) and its shares are traded only in Demat format. The GDRs are listed
on the Luxemburg 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
Centers / Office Space and also for purchase of equipment’s.
The Company possesses one of the industry's most extensive marketing networks in India:
Registered and Corporate Office at Mumbai, 6 Regional Offices, 13 Back Offices and 158
marketing 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. 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.

Profile and 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 2007-08 to promote marketing of financial
products and venture capital fund.
 Rated ‘AAA’ by CRISIL for the 8th consecutive time in 2008-09; maiden Fixed Deposit
 An offshoot of Life Insurance Corporation of India (LIC), incorporate in 1989.

51
 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 777Customer
 Reported a 23.90 percent increase in disbursals in 2018-19.
 Improved return on net worth by 267 basis points to 23.80 percent in 2018-19.
 Reduced net NPA to a record low of 0.21 percent in 2018-19.
 Enhanced PAT 37.30 percent to Rs. 531.62 crores in 2018-19.
 Un-interrupted dividend payment record since 1990.
 Recommended 30 percent increase in dividend over previous year i.e. from
100% to 130%.

FINANCIAL PERFORMANCE
2012-13
 Profit before tax and after tax stood at ` 1373.57 crores and ` 1023.21 crores respectively as
against ` 1230.91 crores and ` 914.20 crores, respectively, for the previous year. Profit before
tax increased by 12 per cent over the previous year while profit after tax showed same growth
of 12 percent as compared to that of previous year.
 The Company earned total revenue of ` 7658.88 crores, registering an increase of 23.23 per
cent. The percentage of administrative expenses to the housing loans, which was 0.38 per cent
in the previous year, has decreased to 0.36 per cent during the year 2012-13.
 The project loan which had shown a negative growth of 62.10 per cent in the previous year
has achieved a growth of 24.03 per cent in the year under review. During the year, the
Company sanctioned 143811 individual housing loans for ` 24,842.84 crores and disbursed
144480 loans for ` 23,230.27 crores.
 More than 15.56 lakh customers have been serviced by the Company up to 31st March, 2013
since its inception.
 The net NPA as on 31st March 2013 was ` 275.94 crores i.e.0.36 per cent of the housing loan
portfolio vis-à-vis ` 84.85 crores i.e. 0.14 per cent of the housing loan portfolio as on 31st
March, 2012.

2013-14
 For the year ended 31st March, 2014, the Company’s total income from operations was `
9,181.38 crores as against ` 7,575.92 crores of previous year. Net profit for year ended 31st
March, 2014 was ` 1,317.18 crores when compared to ` 1,023.21 crores of the previous year,
showing a growth of 29 percent.
52
 During the year, the Company sanctioned ` 26,708.30 crores and disbursed ` 25,271.23 crores
registering a growth of 0.87 percent in sanctions and growth of 3.75 percent in disbursements
over the last year.
 For the year ended March 31st March 2014 dividend @ 225 percent (including silver jubilee
dividend @ 25 percent) is being recommended as against dividend @ 190 percent in the
previous year.
 Net NPAs excluding provision on standard assets as per NHB norms as at 31st March, 2014
stood at 0.39 percent (` 353.58 crores) as against 0.36 percent (` 275.94 crores) on the
corresponding dates last year.
 The Company has dedicated staff strength of 1514 persons who have been contributing to the
progress and growth of the Company.
 Loan assets per employee as at 31st March, 2014 was ` 60.33 crores and net profit per
employee ` 87 lakh.

2014-15
 For the year ended 31st March, 2015, the Company’s total income from operations was
Rs.10669.34 crores as against Rs.9181.38 crores of previous year. Net profit for the year
ended 31st March, 2015 was Rs.1386.19 crores as compared to Rs.1,317.19 crores of the
previous year, showing a growth of 5.24 percent.
 During the year, the Company sanctioned Rs.31712.90 crores and disbursed Rs.30327.32
crores registering a growth of 18.74 percent in sanctions and growth of 20 percent in
disbursements over the last year.
 For the year ended 31st March, 2015 dividend @ 250 percent is being recommended as
against dividend @ 225 percent in the previous year.
 Net NPAs excluding provision on standard assets as per NHB norms as at 31st March, 2015
stood at 0.22 percent (Rs.234.43 crores) as against 0.39 percent (Rs.353.58 crores) on the
corresponding dates last year.
 The Company has staff strength of 1,588 employees who have been contributing to the
progress and growth.
 Loan assets per employee as at 31st March, 2015 was Rs. 68.24 crores and net profit per
employee Rs. 87.29 lakh.

2015-16
 For the year ended 31st March, 2016, the Company’s total income from operations was
`12,396.15 crores as against `10,669.34 crores of previous year. Net profit for year ended

53
 March, 2016 was `1,660.79 crores when compared to `1,386.19 crores of the previous year,
showing a growth of 19.81 percent.
 During the year, the Company sanctioned `39,100.07 crores and disbursed `36,150.93 crores
registering a growth of 23.29 percent in sanctions and growth of 19.20 percent in
disbursements over the last year.
 For the year ended 31st March 2016 dividend @ 275 percent is being recommended as
against dividend @ 250 percent in the previous year.
 The gross NPA ratio of the company stood at 0.45 percent as on 31st March, 2016 as against
0.46 percent as on 31st March, 2015. Net NPAs excluding provision on standard assets as per
NHB norms as at 31st March, 2016 stood at 0.22 percent (`270.48 crores) as against 0.22
percent (`234.43 crores) on the corresponding dates last year.
 The Company has staff strength of 1726 employees who have been contributing to the
progress and growth of the Company.
 Loan assets per employee as at 31st March, 2016 was `72.52 crores and net profit per
employee `96.23 lakh.

Revenue (in crores)

14000
12000
10000
8000 Revenue (in crores)
6000
4000
2000
0
2012-13 2013-14 2014-15 2015-16

54
 Net Profit (in crores)
1800
1600
1400
1200
1000 Net Profit (in crores)

800
600
400
200
0
2012-13 2013-14 2014-15 2015-16

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
households 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.
The initiatives taken by the Company during the previous financial years are expected to
improve its operational and financial performance. 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.

2) Indian Economy
After several quarters of around 9 per cent GDP growth, the rate moderated to 7.6 percent and
5.3 per cent in the last two quarters of 2018, and is expected to average 7 percent for
Financial Year (FY) 2019. 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 FY
2019. Surprisingly, the agriculture sector slowed down from 4.5 per cent in FY 2018 to -
2.2per cent in the third quarter of FY 2019. In contrast, the remarkable service sector success
55
story remained intact as output grew 9.9 per cent in third quarter, down only slightly from
10.8 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 corporate’s access to diverse and low-cost funding.
Moreover, high inflation during the first half of FY 2019 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 2019.

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 and
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, asset reconstruction, institutional broking and distribution
of financial products.
Reliance Capital has a net worth of Rs. 7,712 crores (US$ 2 billion) and total assets of
Rs.26,003 crores (US$ 6 billion) as on March 31, 2010.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. 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.

56
 The Business Mix of Reliance Capital:

Asset Management Mutual Fund, Portfolio Management, Offshore

Fund etc.
Insurance Life Insurance, General Insurance

Consumer Finance and Mortgages, Loans against Property, Business

Home Finance Loans, Loans for Commercial Vehicles, Loans
for Construction Equipment, Auto Loans, Loans
against Shares, Business Loans
Broking and Stocks, Commodities and Derivatives, Wealth
Distribution 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.

FINANCIAL PERFORMANCE
2012-13
 The total turnover of Reliance Capital for the year ended 31 st March, 2013 was Rs.3868cr as
against 3317cr in the previous year.
 The profit after paying the tax for the company was around Rs. 662cr compared to 519cr in
2012. The Net-Profit margin was 17%
 The Company paid out an equity dividend of 80% compared to 75% in the previous year,
bringing up the total dividend paid equal to Rs. 212cr. A special Interim Dividend @ 50%
was also paid amounting to 144cr during 2012-13.
 The Net Worth of the Company rose to Rs. 11346cr from Rs 10910cr in the past year. The
Market Capitalization reduced to Rs. 7681cr from Rs. 9625cr in 2012.
 The Assets which Reliance Capital had in 2013 were worth Rs. 33557cr as compared to Rs.
30183cr in the previous year.

57
 2013-14
 The total turnover of Reliance Capital for the year ended 31 st March, 2014 was Rs.3254cr as
against 3868cr in the previous year.
 The profit after paying the tax for the company was around Rs. 409cr compared to 662cr in
2013. The Net-Profit margin was 13%
 The Company paid out an equity dividend of 85% compared to 80% in the previous year,
bringing up the total dividend paid equal to Rs. 225cr.
 The Net Worth of the Company rose to Rs. 11458cr from Rs 11346cr in the past year. The
Market Capitalization increased to Rs. 8496cr from Rs. 7681cr in 2013.
 The Assets which Reliance Capital had in 2014 were worth Rs. 36515cr as compared to Rs.
33557cr in the previous year.

2014-15
 The total turnover of Reliance Capital for the year ended 31 st March, 2015 was Rs.3988cr as
against 3254cr in the previous year.
 The profit after paying the tax for the company was around Rs.757cr compared to 409cr in
2014. The Net-Profit margin was 19%
 The Company paid out an equity dividend of 90% compared to 85% in the previous year,
bringing up the total dividend paid equal to Rs. 257cr.
 The Net Worth of the Company rose to Rs. 12387cr from Rs 11458cr in the past year. The
Market Capitalization increased to Rs. 10726cr from Rs. 8496cr in 2014.
 The Assets which Reliance Capital had in 2015 were worth Rs. 35702cr as compared to Rs.
33557cr in the previous year.

2015-16
 The total turnover of Reliance Capital for the year ended 31 st March, 2016 was Rs.4145cr as
against 3988cr in the previous year.
 The profit after paying the tax for the company was around Rs. 977cr compared to 757cr in
2015. The Net-Profit margin was 24%
 The Company paid out an equity dividend of 100% compared to 90% in the previous year,
bringing up the total dividend paid equal to Rs. 279cr.
 The Net Worth of the Company rose to Rs. 13131cr from Rs 12387cr in the past year. The
Market Capitalization reduced to Rs.9306cr from Rs. 10726cr in 2015.
 The Assets which Reliance Capital had in 2016 were worth Rs. 36354cr as compared to Rs.
35702cr in the previous year.
58
 Turnover (in crores)
4500
4000
3500
3000
2500 Turnover (in crores)
2000
1500
1000
500
0
2012-13 2013-14 2014-15 2015-16

Net Profit (in crores)

1200

1000

800
Net Profit (in crores)
600

400

200

0
2012-13 2013-14 201-15 2015-16

59
 Net Worth (in crores)
13500
13000
12500
12000 Net Worth (in crores)
11500
11000
10500
10000
2012- 2013- 2014- 2015-
13 14 15 16

SWOT ANALYSIS
STRENGTHS
 Reduced labor costs
 High profitability and revenue
 High growth rate
 Existing distribution and sales networks

WEAKNESSES
 High investment in research and development

OPPORTUNITIES
 Low retail penetration of financial services / products in India
 Tremendous brand strength and extensive distribution reach
 Opportunity to cross sell services
 Increasing per-capita GDP
 Changing demographic profile of the country in favor of the young

THREATS

60
 Competition from local and multinational players.
 Execution risk.
 Regulatory changes.

3) Business environment
The year 2018 -19 Saw the worst global financial and economic crisis in 60 years. The crisis
had a severe 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 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 2018-19. 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, 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, aluminum, 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.
The fall in housing prices in the US had sparked off the subprime lending crisis in the middle
of 2017. Credit downgrading by rating agencies and increased default risk of various housing
backed paper, particularly collateralized debt obligations (CDOs) that were sliced, diced and
far removed from the original assets, rapidly spread throughout 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 to grapple with the consequences of
large asset write-downs. 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
2019. But it scarred the real economy everywhere in the world.

61
 IDFC
Infrastructure Development Finance Company Ltd. 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 2005, 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 utilized 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 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

FINANCIAL PERFORMANCE
2012-13
 The total income for the year ended 31 st March 2013 earned by the company was Rs.
7776.49cr as compared to Rs. 6196.01cr in the previous year. A rise in income by 25.51%
was observed.

62
 The Profit gained by the Company in the year after paying the taxes was Rs. 1764.98cr as
against Rs. 1602.96cr in the past year. An increase in the profits by 10.11% was seen.
 A dividend of 26% was declared by the Directors of the Company for the FY13.
 Balance Sheet grew by 15% Year on Year (YoY) to reach Rs. 69,994 crores and Net Loans at
Rs. 55,736 crores witnessed an increase of 16% YoY.
 As on March 31, 2013, IDFC’s total exposure was Rs. 72,597 crores, of which Energy was
highest at 41%, followed by Transportation 25%, Telecommunication 23% and others 11%.

2013-14
 The total income for the year ended 31 st March 2014 earned by the company was Rs.
8231.93cr as compared to Rs. 7776.49cr in the previous year. A rise in income by 5.86% was
observed.
 The Profit gained by the Company in the year after paying the taxes was Rs. 1701.12cr as
against Rs. 1764.98cr in the past year. A decrease in the profits by 3.6% was seen.
 A dividend of 26% was declared by the Directors of the Company for the FY14.
 Balance Sheet grew by 5.4% Year on Year (YoY) to reach Rs. 73,764 crores and Net Loans
at Rs. 58,545 crores witnessed an increase of 5% YoY.
 As on March 31, 2014, IDFC’s total exposure was C 77,621 crores, of which Energy was
highest at 37%, followed by Telecommunication 28%, Transportation 22% and others 13%.

2014-15

 The total income for the year ended 31 st March 2014 earned by the company was Rs.
9212.63cr as compared to Rs. 8231.93cr in the previous year. A rise in income by 11.91%
was observed.
 The Profit gained by the Company in the year after paying the taxes was Rs. 1685.49cr as
against Rs. 1701.12cr in the past year. A decrease in the profits by 1% was seen.
 A dividend of 26% was declared by the Directors of the Company for the FY14.
 Balance Sheet grew by 17% Year on Year (YoY) to reach Rs. 86,520 crores and Net Loans at
Rs. 52,427 crores witnessed a reduction of 10% YoY
 As on March 31, 2015, IDFC’s total exposure was Rs. 75,573 crores, of which Energy was
highest at 37%, followed by Telecommunication 24%, Transportation 24%, and others 15%.

2015-16
 The net loss for the year was ` 1,162.14 crores as compared to profit of ` 1,685.49 crores in
previous year.
63
 In view of losses incurred during the year, the Directors did not recommend any dividend for
FY16.
 Balance Sheet size reduced from ` 86,520 crores as at March 31, 2015 to ` 9,620 crores as at
March 31, 2016 on account of transfer of all assets and liabilities pertaining to Financing
Undertaking to IDFC Bank.

Revenue (in crores)

9500

9000

8500
Revenue (in crores)
8000

7500

7000
2012- 2013- 2014- 2015-
13 14 15 16

Net Profit (in crores)

2000
1500
1000
500 Net Profit (in crores)

0
2012-13 2013-14 2014-15 2015-16
-500
-1000
-1500

64
 SWOT ANALYSIS
STRENGTHS
 Experienced business units
 High growth rate
 Existing distribution and sales networks.

WEAKNESSES
 Small Business Units
 Future Cost Structure

OPPORTUNITIES
 Growing Demand.

THREATS
 Rising cost of raw materials
 Increasing rates of interest
 External Business Risk.

4) Commercial Vehicle Industry

The financial year 2018-19 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 2018-19, 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
65
NBFCs and provide financial assistance to State Transport Undertakings for purchasing buses
under the Jawaharlal Nehru National Urban Mission.

SHRIRAM TRANSPORT FINANCE

STFC is 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 non-financial services business such as property development,
engineering projects and information technology.
The 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 we found a
mismatch between the Aspiration and Ability. The Truck Operator was honest but the Equity
at his command was not sufficient to support the credit levels required to buy a new truck.
We did not have the heart to send the Truck Operator back empty handed; we decided to fund
Pre-owned Trucks. This was the most momentous decision that the company made. 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 in our
road to success and leadership.
At Shriram, credit-worthiness of the Small Truck Owner has always been an article of faith.
This faith has guided our journey from our pioneering days in financing Small Truck Owners
to the present-day leadership. Today we are not only the leader in Truck Finance; we are also
India's largest Asset Based Non-Banking Finance Company. The inability of the economists
to capture data relating to the economic activity of the informal sector has resulted in its
neglect at the policy-making levels in the government. The distribution of Truck Ownership
being scattered among a large number of individuals has resulted in this very important group
being missed by the institutional radar. It is estimated that 80% of trucks in the country are in
the hands of individuals.

VISION
66
 STFC was set up with the objective of offering the common man a host of products and
services that would be helpful to him on his path to prosperity. Over the decades, the
company has achieved significant success in reaching this objective, and has created a
tremendous sense of loyalty amongst its customer.
 Operational efficiency, integrity and a strong focus on catering to the needs of the common
man by offering him high quality and cost-effective products & services are the values
driving STFC. These core values are deep-rooted within the organization and have been
strongly adhered to over the decades.
 STFC prides itself on a perfect understanding of the customer. Each product or service is
tailor-made to perfectly suit customer needs. It is this guiding philosophy of putting people
first that has brought the company closer to the grassroots, and made it the preferred choice
for all the truck financing requirements amongst customers.

FINANCIAL PERFORMANCE
2012-13

 The total annual income for the financial year 2012-13 rose to Rs. 6563.59 crores. It was up
by 11.37% as compared to the previous year.
 The net profit for the year was Rs. 1360 crores. It increased by 8.1% as against the previous
year.
 The Earnings Per Share was Rs. 59.98 and it rose by 7.9% than the previous year.
 The Assets Under Management crossed the Rs. 50000 crores mark.

2013-14
 The total annual income for the financial year 2013-14 rose to Rs. 7888.26 crores. It was up
by 20.18% as compared to the previous year.
 The net profit for the year was Rs. 1264 crores. It decreased by 7.1% as against the previous
year.
 The Earnings Per Share was Rs. 55.72 and it fell by 7.1% than the previous year.
 The Assets Under Management crossed the Rs. 53000 crores mark.

2014-15
 The total annual income for the financial year 2014-15 rose to Rs. 8644.72 crores. It was up
by 9.6% as compared to the previous year.
 The net profit for the year was Rs. 1238 crores. It decreased by 2.1% as against the previous
year.

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 The Earnings Per Share was Rs. 54.56 and it fell by 2.08% than the previous year.
 The Assets Under Management crossed the Rs. 59000 crores mark.

2015-16
 The total annual income for the financial year 2015-16 rose to Rs. 10245 crores. It was up by
18.52% as compared to the previous year.
 The net profit for the year was Rs. 1178.20 crores. It decreased by 5.31% as against the
previous year.
 The Earnings Per Share was Rs. 51.93 and it fell by 4.82% than the previous year.
 The Assets Under Management crossed the Rs. 70000 crores mark.

Total Income (in crores)

12000
10000
8000
Total Income (in
6000 crores)
4000
2000
0
2012- 2013- 2014- 2015-
13 14 15 16

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 Profit (in crores)
1400
1350
1300
1250 Profit (in crores)
1200
1150
1100
1050
2012-13 2013-14 2014-15 2015-16

SWOT ANALYSIS

STRENGTHS
 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

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.
 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.
 Regulatory changes in the Non-Banking Financial Company (NBFC) and transportation
sectors.
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 RESPONSIBILITIES OF NBFCS TOWARDS RBI

All the NBFCs accepting public deposits should furnish to the RBI-

1. Audited balance sheet 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.
2. Statutory Annual Return on deposits- NBS 1
3. Certificate from the Auditors that the company is in a position to repay the deposits as and
when the claims rise.
4. Quarterly return on liquid assets.
5. Half-yearly Return on prudential norms.
6. Half-yearly ALM Returns by companies having public deposits of Rs. 20 crores and above or
with assets of Rs. 100 crores and above.
7. Monthly return on exposure to capital market by companies having public deposits of Rs. 50
crores and above.
8. A copy of the Credit Rating obtained once a year along with one of the Half-yearly Returns
on prudential norms as at (5.) above.

IMPORTANCE OF NON-BANKING FINANCIAL COMPANIES

We are aware that due to liberalization and globalization, banking industry and financial
sector has gone through many reforms. In the present economic environment, it is very
difficult to cater need of society by Banks alone so role of NBFCs and Micro Finance
Companies becomes indispensable.

The activities of NBFCs in India have undergone qualitative changes over the years through
functional specialization. The role of NBFCs as effective financial intermediaries has been
well recognized as they have inherent ability to take quicker decisions, assume greater risks,
and customize their services and charges more according to the needs of their clients. While
these features, as compared to the banks, have contributed to the proliferation of the NBFCs,
their flexible structures allow them to unbundle services provided by the banks and market
the components on a competitive basis

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 The distinction between banks and non-banks has been gradually getting blurred since both
the segments of the financial system engage themselves in many similar types of activities. At
present, in India, NBFCs have become more prominent in a wide range of activities like hire-
purchase finance, equipment lease finance, loans, investments, etc. By employing innovative
marketing strategies and devising tailor-made products, NBFCs have also been able to build
up a clientele base among the depositors, mop up public savings and command large
resources as reflected in the growth of their deposits from public, shareholders, directors and
their companies, and borrowings by issue of non-convertible debentures, etc.

According to KPMG survey, the Indian NBFC sector has often been relegated to the
shadows, in most discussions on the Indian Financial Services industry. Banks, insurance
companies and capital market players take center stage and invariably, NBFCs attract public
attention only during times of crises. Little attention has been paid to the silent but effective
manner in which the NBFCs have spread their operations across the country. NBFCs have
provided financial solutions to sections of society who hitherto were at the mercy of
unorganized players for credit and savings products, which were delivered on economically
and socially usurious terms.

In recent times, NBFCs are once again in the spotlight for their perceived strengths and
capabilities rather than their problems. While this re-rating ought to bring cheer to a much-
maligned sector, a degree of caution needs to be installed within potential investors in
NBFCs, who need to clearly understand the true drivers of value for finance companies. This
understanding is imperative to enable a better judgment of the intrinsic worth of NBFCs.

Today the NBFC sector is as financially sound as it has ever been. To an extent, this can be
attributed to the very problems affecting the sector which have resulted in the purging of
several players, leaving the fittest few to dominate the landscape. At present, NBFCs in
general are well-capitalized with strong parent support. A majority of active NBFCs reported
capital adequacy ratios exceeding 12%.

GUIDELINES FOR NEW DEPOSITS

1. Customer Identification: ‘Know the Customer’ (KYC) should be the key guiding principle for
identification of an individual/corporate customer (depositor or borrower).
2. 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.
71
3. NBFCs should ensure that the identity of the customer, including beneficial owner is done
based on disclosures by customers themselves.
4. Typically, easy means of establishing identity would be documents such as Permanent
Account Number (PAN), ration card, driving license, Election Commission's identity card,
passport, etc. in case of individuals and registration certificate, partnership deed/agreement,
etc. and other reliable documents in respect of companies, firms and other bodies.
5. 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.

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 operationalize
the guidelines and put in place an effective monitoring system to ensure compliance by their
branches.
 Early computerization 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 program in respect of both existing and prospective
customers/clients.

Internal Audit/Inspection
72
 Internal auditors must specifically scrutinize 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.

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.

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 CHAPTER 5: FINDINGS AND CONCLUSIONS

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
percent 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 boast of net
non-performing assets to net advances ratio of less than 1 percent. 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 Reliance Capital, boast of capital adequacy ratios upwards of 15 per cent.

74
 MEASURES BY RBI TO IMPROVE LIQUIDUTY OF NBFCS

 The systemically important non-deposit taking non-banking financial companies (NBFCs-

ND-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.
 Risk weights on banks ‘exposures to claims on NBFCs-NDSI were reduced to 100 percent
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 financial companies
(NBFCs-ND-SI).
 Deferring the higher CAR norms for NBFCs-ND-SI by 1 year.
 Domestic Financial markets can be integrated by making NBFC’s Channel partners to Banks.
It will help in better allocation and funds availability. It will also help in better management
of Financial services sector in India.
 Enhancing the credit delivery mechanisms: The credit delivery mechanism needs to be more
transparent and hassle free. There should be more stringent norms for the defaulters.
 Strengthening the professionalism of NBFC sector through education and training: NBFC’s
are organized players. Regulatory body needs to educate people about NBFC.
 To reduce in interest cost and hence benefit the ultimate consumer.

75
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 is
sure to witness the re-opening of the NBFC horror story albeit with a new chapter on the
erosion of NBFC investment values affecting investors across categories.

Thus, H1 i.e. the alternative hypothesis which states that NBFCs are efficient and at par and
even better than banks according to what people have preferred and has been theoretically
proven. NBFCs are playing a vital role in developing the financial system of our country.
The Banking sector is financing only 40% to the trading sector and rest is coming from the
NBFCs and private money lenders. At the same line, 50% of the credit requirement of the
manufacturing is provided by NBFCs. 65% of the private construction activities were also
financed by NBFCs. Now they are also financing second hand vehicles.

The future seems to be very crucial for NBFCs and only those who will be able to face the
challenge will be standing the test of time and will survive in the long run. However, to
survive and to constantly grow, NBFCs have to focus on their core strengths while improving
on weaknesses. Besides, they will have to be very dynamic and constantly endeavor to search
for new products and services in this ever-competitive financial market.

76
 CHAPTER 6: BIBLIOGRAPHY

 www.wikipedia.org
 www.scribd.com
 www.lichousing.com
 www.reliancecapital.co.in
 www.idfc.com
 www.stfc.in
 www.slideshare.net
 www.keydifferences.com/difference-between-nbfc-and-bank.html
 www.economictimes.indiatimes.com
 www.bajajfinserv.in
 www.moneycontrol.in

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 CHAPTER 7: ANNEXURES

Q1. What is your gender?

Male

Female

Others

Q2. What age group do you belong to?

18-29 years

30-39 years

40-49 years

50-59 years

Above 60

Q3. Do you stay in a metropolitan city?

Yes

No

Q4. What is your main source of income?

Income from business

Income from salary

Others

Q5. What is your income age?

Under 500000

500000-2000000
78
2000000-3500000

3500000-5000000

Above 5000000

Q6. How many earning members are there in your family?

More

Q7. Where would you prefer to take loans from?

Banks

NBFCs

Q8. If banks, why?

Q9. If NBFCs, why?

Q10. Have you taken a loan from NBFC before?

Yes

No

Q11. If no, how likely are you to take a loan from NBFC?

1- Not likely
2- Less likely
3- Neutral

79
4- Likely
5- Very likely

Q12. If yes, what is the amount of the loan?

Under 30 lakhs

30-50 lakhs

50 lakhs- 1 crore

Above 1 crore

Q13. Which parameter would you consider while applying for loans?

Interest rates

Long term customer

EMI

Tax exemption

Others

Q14. Which financial institution had you chosen/ will you choose?

LIC housing finance

Reliance capital

Aditya Birla Finance

Bajaj FinServ

DHFL

IDFC

Tata capital financial services

Shriram Transport Finance Company limited

Others

80