A PROJECT REPORT

ON

“A STUDY ON HIRE PURCHASE IN FINANCIAL

INSTITUTIONS”

SUBMITTED BY:
____________
ENROLLMENT NO.: _____________

UNDER THE GUIDANCE OF:

___________________

LOGO
COLLAGE / UNIVERSITY NAME
 DECLARATION

I, ______________, certify that the Project Report entitled “A Study on Hire Purchase

in Financial Institutions” is an original one and has not been submitted to any other

Institution for the fulfillment of the requirement of a course of Management Programme

(MBA).

Place: ______________
Date: Regn. No. : _________

ii
 CERTIF ICATE

This is to certify that Mr/Ms _____________________, a student of

______________ has completed project work on “A Study on Hire
Purchase in Financial Institutions” under my guidance and supervision.

I certify that this is an original work and has not been copied from any
source.

Name of Project Guide ------------------------------------------

Date ----------------------

iii
 ACKNOWLEDGEMENT

In pursuing and completion of my MBA and other commitments, I undertook the task of
completing my project on “A Study on Hire Purchase in Financial Institutions”.

I am fortunate in having sought and secured valuable guidance, continuous encouragement

and strong support at every stage of my guide and supervisor Mr. _____________ and
I’m deeply grateful to him.

I want to acknowledge the help provided by guide and friends. The precious inputs
provided by them have helped in compiling this report. As well as I want to thank my
friends and colleagues who helped me in this working.

I express my deep- hearted thanks and gratitude to all of those who helped me in this
Project.

___________

iv
 ABSTRACT

In a hire buy arrangement, the owner rents out the products to the hirer with the option
for the hirer to acquire the items. On the other hand, under a hire purchase arrangement,
when a person borrows money and pays it to the vendor, the transaction between the
client and the lender will be a loan transaction, and the hirer is not required to p urchase.
When a consumer engages into a hire buy agreement to fund a purchase even if they are
the owners themselves, this constitutes a loan transaction. The label of such an
arrangement is not binding, and a hire buy agreement may really be a loan transaction in
fact. Whether a given arrangement is a loan transaction or a hire buy agreement is a
matter for the court to decide.

Each nation's ability to expand its economy depends on the presence of a sound financial
system. The financial system is responsible for providing the required financial resources
for the production of products and services, which in turn help to improve the welfare and
standard of life of a nation's citizens.

Without money, the heart and brain of a company organisation cannot operate, meaning
that it would naturally die. Finance is the lifeblood of business. Finance is necessary from
the moment a business idea is conceived until it is liquidated.

Finance is the only way to make inputs available. Even management aptitude may be
acquired with just money. Hence, finance serves as the hub around which all corporate
operations revolve.

Thus, it is essential to handle a company's finances effectively.

Indeed, there are situations when a business's failure isn't due to a lack of funding; rat her,
it results from improper resource management. The fundamental secret to every business'
success is sound financial management. No firm can thrive , grow and modernise without
enough funding.

v
 CONTENT

Sl. No. Contents Page No.

ABSTRACT ....................................................................... v
1. INTRODUCTION......................................................... 1-11
1.1 Introduction to the topic .................................................. 2
1.2 Company Profile ............................................................ 7
2. LITERATURE REVIEW ........................................... 12-29
3. RESEARCH METHODOLOGY................................ 30-33
3.1 Need for the study ........................................................ 31
3.2 Objectives of the study ................................................. 31
3.3 Hypothesis ................................................................... 31
3.4 Scope of the study ........................................................ 31
3.5 Research Design ........................................................... 32
3.6 Limitation of the study.................................................. 33
4. DATA ANALYSIS & INTERPRETATION ............... 34-44
5. FINDINGS, SUGGESTIONS & CONCLUSION ....... 45-48
5.1 Findings ....................................................................... 46
5.2 Suggestions .................................................................. 47
5.3 Conclusion ................................................................... 48
6. ANNEXURE ............................................................... 49-54
Questionnaire..................................................................... 50
Bibliography/References .................................................... 52

vi
 CHAPTER 1
INTRODUCTION

1
1.1 INTRODUCTION TO THE TOPIC
Yet, India has used the Hire Purchase System, a British invention, for more than 60 years.
It is said that Commercial Credit Corporation, which took over from Auto Supply
Company, was the first hire buy company. The Motor and General Financing and
Installment Supply Company was founded in North India while the company's
headquarters were in Madras. In the 1920s and 1930s, these businesses were established.
Vehicles and consumer durables were the two areas where the Hire Purchase Scheme was
developed.

Dealers for the relevant equipment encouraged consumer durable rental purchases. As a
result, retailers such as Singer Sewing Machine Corporation or Murphy Radio would
offer their consumers hire buy system-based payment options.

The Hire Purchase Scheme for Commercial Vehicles was the opposite side that evolved
extremely quickly. Commercial car dealers and pure lending businesses both emerged.
While recently the majority of the automotive finance company was in the hands of
family held businesses, this segment of financing activities developed quickly due to the
asset's high value and ease of repossession.

MEANING OF HIRE PURCHASE:

A method of financing the cost of the items that will be sold at a later time is the hire
purchase system. In a hire purchase transaction, the products are rented out for a certain
amount of time, the purchase price is divided into payments, and the hirer has the
opportunity to buy the things outright by making all of the installment payments.
According to the definition of a hire buy agreement, it is a particular type of transaction
in which the products are rented with the option for the hirer to acquire them, subject to
the following conditions.

A tried-and-true way for firms to finance the acquisition of assets is through hire
purchase (HP). In accordance with the terms of the HP contract, the client will make an
initial down payment and then pay the remaining balance as well as interes t over time.

2
The "creditor" is the financial institution that extends credit. On behalf of the client, also
known as the "hirer," it will buy the asset. Until the last payment is made on the asset, the
loan business owns it.

Some of the key finance functions are:

 Planning and estimating the organization's financial needs, as well as mobilising

the necessary financial resources

 Making sure the money is accessible in sufficient amounts, at the right times, and
for a reasonable price

 Managing investments made outside of the commercial operation in other

businesses

 Managing funds within the firm through the cash flow statement

Above functions with some examples.

 Financial planning and estimating the amount of funding the organisation

will need

Every commercial enterprise operation requires preparation to ensure proper execution on

schedule. Financial planning is the primary function of "Finance" because money is
needed for each endeavor, at least in the beginning. This entails a thorough examination
of any project, beginning with an awareness of the total amount of finances necessary, as
well as the timing and amount of cash needed at various phases. For a new firm, all of the
resources must come from outside (externally); for an established corporation, at least a
portion of the resources will come from previous earnings that were kept in the company
after dividends were paid out.

Example No. 1:

200 lacs are needed for a project. Let's see how it impacts a current business. Let's
imagine there are Rs. 60 lacs in earnings accessible. So, we merely need additional

3
resources totaling Rs. 140 lacs. Here is how a new business differs from an old one.
Planning for finances will take this into consideration.

 Mobilisation of financial resources:

Adequacy (availability in enough amount) (availability in adequate quantity)

Timely (available in time) (availability in time)

At a reasonable price

 Adequate supply in time etc.

This has been explained in the paragraph above. For reinforcement, the goal of
maximising company profits is brought to the student's notice as one of the financial
management's goals, at least in the short term. The earnings that are thusly increased
improve the Earnings Per Share (EPS – for formula please refer to Chapter no. 9).

 Management of cash in the organisation

This involves the following steps:

 Determining the typical cash requirement by examining historical data

and, for a new business, projecting this sum.

 Producing the cash flow statement for a certain period, incorporating all
cash inflows and outflows to ascertain if the period ends with a surplus or
deficit.

 Arranging for outside funding, particularly through a bank that the

business has loan facilities with, in the event that the cash flow statement
shows a deficit; if, on the other hand, the cash flow statement shows a
surplus, handling this surplus appropriately (For more information, please
refer to chapter no. 7 on "working capital management").

4
  Management of investme nt outside the organisation

Over time, the company reinvests a portion of its income to support corporate expansion
in the future. If the parent company does not immediately need them, the finance
manager may invest such money in other businesses outside the company. Cash flow
statement data that indicates a short-term excess is also invested for a little period of time.
Thus, investing outside of one's own company becomes the Finance Manager's
responsibility.

 Management of risk in foreign exchange etc.

A corporate company could both need and conduct imports and exports. Every time this
is done, a foreign currency invoice is issued. The corporate firm needs foreign currency
for imports, whereas it receives it for exports. Whether you are importing or exporting,
there is danger involved. The possibility exists that the foreign currency's value in terms
of Indian Rupees will fluctuate. We'll provide an illustration to clarify this.

Short-term and long-term objectives of Financial Management

Short-term objective

Obtaining financial resources at a reasonable price will increase the return to shareholders
in the form of earnings per share, which is the short-term goal of financial management
(EPS). Dividend per share (DPS) and retained earnings per share (REPS) are the two
components that make up EPS (REPS or Reserves per share). Profit maximisation is a
common term used to describe this goal. Since that it is carried out continuously from
year to year, this is referred to as the short-term aim. To do this, one or more of the
following steps can be taken:

 Budgets for ongoing cost monitoring

 Appropriate cost-reduction strategies when expenses are excessive

 Financial discipline to reduce the cost of external borrowing of capital.

5
  The right balance of equity and debt (known as financial leverage; see
Operational and financial leverages for further information)

 Management of the organization's available liquidity to reduce the expense of

carrying too much cash, etc.

Long-term objective

The long-term goal of financial management is to boost shareholders' wealth. The phrase
"wealth" describes a company's different debt-free corporate assets. Thus, the equity
stockholders are the rightful owners of this riches. It frequently appears in the share's
"book value" as shown on the balance sheet. Indian financial system

We must comprehend India's "Financial System" in order to comprehend financial

management more fully. Each nation requires a system to oversee, monitor, and govern
the participants in the financial markets, such as investors, middlemen, and players. By
coordinating system advances with national goals, an efficient system may also guarantee
that the country's "Economic" national aim is accomplished. Infrastructure development
and the demand for longer duration financial resources are two examples of national
priorities dictating financial market growth. To address these needs, "deep discounted
bonds" have been developed.

6
1.2 COMPANY PROFILE

Shriram Capital Ltd.

An Indian conglomerate known as the Shriram Group was established on April 5, 1974,
by Ramamurthy Thyagarajan, AVS Raja, and T. Jayaraman. Chennai, Tamil Nadu, India
serves as its corporate headquarters. The firm started out in the chit fund industry be fore
branching out into lending through Shriram General Insurance Co. Ltd., Shriram City
Union Finance, and Shriram Transport Finance (commercial vehicle finance) (General
insurance). By establishing a facility in Odisha, the business entered the metallurgy
market in 2018.

The Shriram Group's Financial Services and Insurance firms are collectively held under
Shriram Capital Limited (SCL), a holding company that was established with the main
goal of maximising synergies across Group entities.

SCL and its subsidiary companies have a combined client base of more than 12 million,
77,000 people working in 3,850 offices, a net profit of INR 22 billion, and AUM of more
than INR 1,500 billion.

SCL is in a good position to move the Group to the next strategic level b y solidifying its
position in some of the major industries, such as transport finance and SME financing,
and by giving its retail finance companies the required push to expand.

SCL assists the Group's Life and General Insurance businesses in expanding while
making the most profit possible. The strategic reorientation of SCL would assist Shriram

7
Group in becoming a big and successful company in several Financial Services industry
sectors in India and beyond.

Board of Directors

Mr. D V Ravi, Managing Director

D V Ravi received his degree in commerce from the University of

Bangalore and his postgraduate management diploma from the
Institute of Rural Management, Anand (IRMA). He is Shriram Capital
Ltd.'s managing director. Also, he serves on the boards of other Group
firms. His portfolio expanded over time to encompass important
components of Corporate Strategy and Services, Corporate Finance,
Information Technology, and Group Process Activities.

In 1987, he began his career in finance and strategy at Bangalore's Karnataka Oil Seeds
Federation. In 1992, he began working for Shriram Group's Commercial Vehicle
Financing division as Head of Investment Servicing. He served as the Non-Executive
Director and Co-Founder of the international supplier of technology solutions and
services known as TAKE Solutions Ltd. Also, Mr. Ravi has successfully led a number of
mergers and acquisitions for TAKE.

Corporate Strategy, Synergy Creation, Risk Management Efforts, Leadership

Development, and Corporate Finance are some of his specialties in this position.

Mr. Duruvasan, Whole Time Director

Shriram Capital Ltd.'s Permanent Director is Duruvasan. Before

joining Shriram Life Insurance Company Ltd., he had begun his career
in 1982 with Shriram Chits in Chennai and served as the CEO of
Shriram Chits Pvt. Ltd. in Hyderabad. He played a crucial ro le in the
company's expansion, which led to its success as the biggest chit fund
company in the nation. His assistance made it possible for the Shriram

8
Group to diversify its portfolio of non-convertible debt securities and deposits.
Prior to joining Shriram City Union Finance Ltd., he had been the Managing Director and
Principal Officer of M/s Shriram Life Insurance Company Ltd (SLIC) since its founding
in December 2005 until June 2012. SLIC has expanded steadily under his direction and
was the only private life insurer in India to turn a profit in its first year of operation.

For nine years, he was the managing director and chief executive officer of Shriram City
Union Finance Ltd, where he worked to develop the SME sector, which accounts for
about 60% of the AUM. He continues to serve in a non-executive position as a director of
Shriram City Union Finance Ltd and Shriram Life Insurance Company Ltd.

Mr. Umesh Revankar, Non Executive Director

Umesh Revankar has an MBA in Finance in addition to a Bachelor of

Business Management from Mangalore University. He had taken the
Harvard Business School's Advance Management Program. In 1987,
Mr. Revankar began working for the Shriram Group as an executive
trainee. He has been with the Shriram Group for the last 28 years and
has a wealth of knowledge about the financial services sector. He has
held a variety of positions of responsibility during his time with the Group and has
participated in numerous crucial areas of company operations. He formerly held the
position of Deputy Managing Director before taking over as Managing Director and CEO
of Shriram Transport Finance Company Ltd (STFC).

Mr. Jasmit Singh Gujral , Non Executive Director

Shriram Capital Limited's Non-Executive Director is Jasmit Singh

Gujral. He was once the Managing Director & CEO of Shriram
General Insurance Co. Ltd. and is currently its Executive Vice
Chairman. Mr. Gujral graduated from Aligarh Muslim University with
a bachelor's degree in business and management. He has also
completed advanced management programmes at Kellogg Business

9
School in Chicago, the Indian School of Business in Hyderabad, and the Indian Institute
of Management (IIM) Ahmedabad.

In the fields of marketing, general business management, and financial services, he has
more than 23 years of expertise. He has worked with Shriram for more than 20 years. He
was the MD of Shriram Overseas Finance Ltd. before becoming the MD and CEO of
Shriram General Insurance.

VISION

Serving the under-served and creating prosperity at the bottom of the Pyramid

PEOPLE FIRST

The Shriram Group was founded with the intention of pro viding the general public with a
variety of goods and services that would aid them on their journey towards success.

The company's guiding principle of putting people first has gotten it closer to the general
public and made it a favoured option for clients looking for Financial Services and
Insurance.

The ideals that guide the Shriram Group include honesty, operational effectiveness, and a
strong commitment to meeting the needs of the average person. These guiding principles
have been firmly upheld for decades and are deeply ingrained in the organisation.

GOING FORWARD

Shriram is currently a Financial Services conglomerate that is well-positioned to reach

greater heights in the near future. It has an enviable growth record, an excellent
assortment of satisfied investors, a brand that resonates trust and reliability, a workforce
of over 70,000, an ever-growing customer base of 11 million, a strong and successful
low-cost delivery model, and more.

10
The organisation understands that in order to maintain growth rates and their superior
customer service to their target market across businesses, they must continue to do things
differently. At Shriram Capital, a powerful think tank has been established at the holding
company level to supervise and give the operating CEOs significant feedback in the
crucial areas of synergy creation, risk management, and leadership development. So
much going for the group internally and in the market place, Shriram has become every
Shareholder’s pride.

11
 CHAPTER 2
LITERATURE REVIEW

12
The Association of Leasing & Financial Services Cos (ALFS) recently requested the
Reserve Bank Governor in a Credit Policy representation that the deposit acceptance limit
of unrated Hire Purchase and Leasing Companies (HPLCs) be increased from the current
one and a half times to at least three times their Net Owned Funds (NOF).

More specifically, when it was an option only, rating shouldn't be utilised as a regulatory
instrument, it is advised.

According to Mr. Mahesh Thakkar, Executive Director of ALFS, the deposit acceptance
limit for unrated HPLCs was established in 1998 as a result of the Task Force on NBFCs'
recommendations, with the understanding that it would be reassessed in light of the
businesses' regulatory experience.

He asserts that HPLCs now have a far higher degree of confidence than they did in 1998.
He emphasised that it is past time for the RBI to provide some comfort to the well-
managed HPLCs, which have endured the upheaval in this sector over the past three
years.

According to ALFS, the only source of funding left is the public deposits earned by these
businesses thanks to their sterling reputations and attentive customer care.

The association has argued that even in a country like Pakistan, delayed tax accounting
was necessary for everyone except leasing firms. It has been noted that the Deferred Tax
Accounting Standard, under AS-22, now declared mandatory by ICAI, has had a negative
impact on leasing companies. ALFS has requested that the RBI give NBFCs at least five
years to adjust to the impact of this regulation on their net owned funds.

The association has cited issues with re-possession of assets given under HP/Lease, in
case of default, with the police authorities as a reason for the need to take steps to create a
suitable recovery mechanism for HPLCs, which is seen as a prerequisite for payment of
liabilities and public deposits like DRTs for the NBFC sector. Authorities, it is noted, are
fairly explicit about the fact that they cannot assist the police in seizing property in the
absence of a clear legislation.

13
On the grounds that these were "title retention contracts and do not involve security
interest creation," it is suggested that the committee headed by Mr. M.R. Umarji (which
drafted the Bill) exclude HP/Leasing activities from the proposed amendments to the
proposed creation and enforcement of security interests by banks and FIs.

"Hire purchase/leasing contracts being title retention contracts, allow complete authority
to HPLCs to repossess any asset delivered under HP/Lease agreement, in event of
default," the association has requested the addition of a new section in the Bill.

While the recommendations have been accepted by the Ministry of Finance and the RBI,
ALFS has stated that commercial banks have yet to begin putting them into practise. The
report was produced by the Indian Bank Association (IBS) Working Group on Financing
for Purchase of Vehicles through HPLCs, which was led by Mr. R.V. Shastri.

It has been requested that the top bank provide instructions to banks to begin taking into
account proposals from the NBFC industry for on-lending to the commercial vehicle
sector.

What is a Hire or Leasing?

A Hire is an agreement between the lessor (the asset's owner) and the lessee (the asset's
user), wherein the lessor buys an asset for the lessee and grants him access to it in return
for recurring payments known as Hire rents or minimum Hire payments (MLP). Both
parties can take advantage of leasing to take advantage of tax benefits or to plan their
taxes. Without another clause in the contract requiring the lessee to purchase the item, the
asset returns to the lessor (the owner) at the end of the hire time (the user). Once the
leasing agreement expires, four potential scenarios are available.

 The lease is renewed by the lessee perpetually or for a definite period of time.

 The asset goes back to the lessor.

 The asset comes back to the lessor and he sells it off to a third party.

 Lessor sells to the lessee.

14
FEATURES OF HIRE PURCHASE SYSTEM:

➢ Payments must be made over a predetermined length of time in

installments.

➢ At the moment of signing the contract, the possession is given to the hirer.

➢ After the last installment is paid, the hirer becomes the legal owner of the
items.

➢ The hirer/purchaser is free to return the items without being obligated to

pay any more installments that become due after the return since each
installment is viewed as a hire fee, and if any installment is unpaid, the
seller is then allowed to take the things away.

PARTIES TO HIRE PURCHASE CONTRACT

In the Hire Purchase Contract, there are essentially two parties: the intending seller and
the intending buyer, also known as the Hirer. Three parties are often involved in a hire
buy agreement today: the seller, the financier, and the hirer. The selling component of the
Hire Purchase Contract has been separated from the financing component with the advent
of finance as a distinct economic activity and the rapid expansion of finance
organisations in recent years. Nowadays, a transaction usually invo lves the consumer and
a financing firm to create a hire purchase agreement. Hence, it is a trilateral agreement.

The following mechanisms are used to set up a tripartite hire purchase contract.

1. In order to fund the hire buy deals he submits, the dealer hires a financing
firm. They engage into a contract outlining the period warranties that the
dealer provides with each transaction for this reason, etc.

2. The consumer chooses the items and indicates that he wants to buy them.
The dealer makes arrangements for him to complete the entire set of
paperwork necessary to create the hire buy contract. Typically, the
financing business prints the documentation.

15
 3. After completing the proposal form, the consumer pays a cash down
payment. Typically, the dealer keeps the down payment as a payment on
account of the amount that the buyer is expected to pay.

4. The dealer asks the loan firm to approve the Hire purchase Transaction and
acquire the products by sending them the necessary paperwork.

5. The financing business signs the agreement and provides a copy to the
hirer along with instructions on how to pay the installments if it decides to
approve the transaction. If the dealer has not previously delivered the
items, the loan firm also notifies him of this and asks him to do so.

6. The dealer delivers the products to the hirer in exchange for payment, and
the loan firm now owns the things.

7. The hirer periodically pays the hire purchase installment.

8. On the completion of the term, the hirer pays the last installment and the
property in the goods passes to him on the issue of a completion certificate
by the finance company.

RIGHTS AND OBLIGATIONS OF THE PARTIES TO HIRE PURCHASE

SYSTEM:

RIGHTS OF THE HIRER:

To purchase with rebate:

Anytime throughout the term of the contract, the hirer has the option to purchase the
products covered by the agreement by paying the owner the remaining hire purchase
price after subtracting the rebate, computed as follows:

Rest of the Hire Purchase Rebate = 2/38 * price that isn't yet due / Hire purchase price*
Hire purchase price - Cash price

16
A conflicting agreement cannot be used to restrict the hirer's rights. Nonetheless, the hirer
is entitled to a bigger reimbursement when the agreement so stipulates.

To terminate the agreement:

Before the last hire purchase installment is due, the hirer has the ability to end the
contract at any moment. When intending to cancel the contract, the hirer must inform the
owner at least 14 days in advance. The hirer must deliver the products back to the owner
and pay any installments that have accrued interest up to the date of termination.

To appropriate payme nts

When the hirer must pay several hire purchase installments to the same owner according
to two or more agreements and makes payments that are insufficient to satisfy the whole
amount when due under all agreements, he may designate the payment to such
agreements.

To Assign and Transmit:

With the owner's permission, the hirer has the right to assign the right, title, and interest
under the agreement. The hirer may assign without the owner's permission if he
withholds it unreasonably.

OBLIGATION OF THE HIRER:

To Comply With the Agreement

The Hirer is responsible for making the agreed- upon installment payments for
any hired goods damaged by his carelessness.

To Not Utilize Unauthorizedly

The Hirer is responsible for any loss or damage to the items if he uses them for
a purpose that is not permitted by the agreement.

17
RIGHTS OF THE OWNER

The following situations give the owner the right to end the agreement:

If the hirer fails to pay more than one installment of the hire, the owner may
end the agreement after giving the hirer written notice. When the hire purchase
installment is due at weekly or less frequent intervals, the notice period shall
not be shorter than one week, and it should always be two weeks.

Any unlawful use of the items by the hirer or a violation of a stated condition
of the agreement, which gives the owner the right to cancel the contract. By
providing written notice to the hirer, the owner may end the contract.

To retain hire:

The owner has the right to keep the already-paid hire and to recoup any unpaid monies up
to the date of termination. Nevertheless, this is contingent on the hirer's entitlement to a
return in the event that the items are seized.

To forfeit the initial deposit:

The owner has right to forfeit the initial deposit if the agreement so permits.

OBLIGATION OF THE OWNER:

The owner has the following obligations:

 To give the hirer a true copy of the contract that he signed without
charge as soon as it is executed;

 To give the surety a copy of the contract upon request.

 To provide the following information upon request from the employer:

The amount paid on the employer's behalf;

 The amount due and unpaid, the date each unpaid installment becomes
due, and the amount of each such installment;

18
  The amount which becomes payable, the date each installment are to
become due, and the amount of each such installments.

BENEFITS OF HIRE PURCHASE

 The assets may be utilised right away, and staggered payments enable for
improved cash flow for businesses.

 The assets may be utilised right away, and staggered payments enable for
improved cash flow for businesses.

 To boost business productivity and efficiency, recruit and use the most recent
technologies.

 There is a clearly stated financial commitment from the beginning. Security is

on the transaction that has been funded, requiring no further commitment from
the consumer.

COMPARISON OF HIRE PURCHASE SYSTEM TO OTHER FORMS OF

FINANCING:

HIRE PURCHASE SYSTEM V/S LEASING

Businesses often employ leasing and hire purchase to purchase machinery and equipment
for use in generating cash flow for the company. Vehicles, vehicles, machinery, office
supplies, computer hardware, office furnishings, and other plant and equipment that the
firm views as physical assets may be purchased with business asset financing.

The key distinction between a lease purchase and an HP is the terms and makeup of the
repayment schedule. When a client wants to delay payment of a sizable portion of the
asset cost until the conclusion of the agreement, some financing providers use Lease
Purchase to distinguish it from Hire Buy. A hire-buy agreement operates very similarly to
a lease and is also referred to as a lease purchase. Ownership of the item does transfer to
the client, but payments are made at a predetermined rate and for a certain period of time.
The charges are a little bit more due to the somewhat increased risk to the hirer.

19
Yet, leasing, a decade-old invention, was most commonly used for equipment and
machinery. Historical justifications for this association between leasing and the
machinery segment and hire purchase and the cars segment have vanished with time, and
in actuality, the lines between the two are frequently blurred.

While the hirer may do so, the lessee is not permitted to claim depreciation and
investment allowance.

HIRE PURCHASE SYSTEM V/S LOAN AGREEMENT

The most typical kind of credit arrangement is this one. With a credit transaction, you pay
the cash price for the products. Although some merchants provide credit without interest,
you often must pay interest. Installments are used for repayment. As soon as the contract
is signed, you become the legal owner of the items, and you cannot get a refund if you
change your mind. If you are late with payments, the vendor cannot seize the products
but may use the courts to attempt to reclaim the money owing. It's crucial to distinguish
between credit sale/loan agreements and hire buy agreements because the former are
currently more prevalent.

You are technically renting products under a hire purchase (HP) arrangement until you
make the final payment. Until then, the items are not yours. This implies that you are free
to cancel the contracts and return the items whenever you choose. But, if less than half of
the entire amount has been paid, you can also be required to make up the gap in addition
to any past-due installments.

NON BANKING FINANCIAL COMPANIES ( NBFCs)

A non-banking financial company is a legal body, whether or not it is formed under the
Companies Act of 1956, that dedicates its resources to offering the public financial
services of various kinds that are not similar to those offered by traditional banks.
NBFCs mostly engage in leasing and hire-purchase transactions and also benefit from
fee-based operations. Some of the NBFCs' fund-based operations include:

➢ Hire purchase

20
 ➢ Leasing

➢ Bill discounting

➢ Promoter funding

➢ Bridge financing

➢ Inter corporate deposits

➢ Public deposits

There are some non-fund/ fee based activities of NBFCs. They are:

➢ Merchant banking

➢ Corporate advisory

➢ Stock broking

➢ Syndication of loans

➢ Underwriting of shares and debentures

The Companies Act regulates the registration of NBFCs. They are controlled by the
RBI's regulations.

Individuals who engage in merchant banking operations are also under the SEBI's
inspection. With a rise in economic activity and challenges in obtaining resources without
being required to produce collateral security substantially larger than the amount of
borrowed money, NBFCs first emerged in the 1950s and 1960s.

The guidelines of the RBI:

➢ Credit rating

➢ Reporting to RBI

21
 ➢ Furnishing of half yearly return

➢ Prohibition of loan against it own shares

➢ Concentration on credit and investments

OPERATIONAL DEFINITION OF THE STUDY:

When referring to any Hire Purchase agreement, the term "CONTRACT OF

GUARANTEE" refers to a contract under which a person (referred to as the surety in
this Act) guarantees the fulfilment of all or any of the hirer's duties under the Hire
Purchase agreement.

HIRE "means the amount that the Hirer must pay on a regular basis under the Hire
Purchase Agreement.

ARRANGEMENT FOR HIRE PURCHASED "means a contract that stipulates that

things will be rented out with the option for the hirer to purchase the goods at a later time
and includes contracts that:

 The owner of the goods grants a person possession of the goods in exchange for
periodic payments of the agreed- upon amount

 Possession of the goods is given to a person by the owner of the goods under the
condition that the person pays the agreed- upon sum in recurring installments.

 The property in the goods passes to the person upon payment of the last of these
installments, and the person has the right to end the agreement at any time prior to
the property doing so.

HIRE PURCHASE PRICE" means the total amount payable by the hirer under a Hire
Purchase agreement in order to complete the purchase of, or the acquisition of property
in, the goods to which the agreement relates. This amount includes any sums paid by the
hirer under the agreement as a deposit or other initial payment, or credited or to be
credited to him under the agreement on account of any such deposit or payment, whether

22
that sum is yet to be paid or has already been paid but does not include any sum payable
as a penalty or as compensation or damages for a breach of the agreement.

o HIRER" denotes the person who, according to an HIRE PURCHASE

agreement, acquires or has taken possession of goods from an owner, and
includes a person to whom the hirer's rights or obligations under the agreement
have been assigned or transferred by operation of law.

o "OWNER" denotes the person who grants a hirer custody of goods under an
HIRE PURCHASE agreement, including anybody to whom the owner's
interest in the goods or any of the owner's rights or obligations under the
agreement have been assigned or otherwise transferred.

o “DEMAND PROMISSORY NOTE (DNP)” is a form of collateral security

that the hirer uses to assert his right to get payment in full from the owner,
who may then use this DNP to sue the hirer if payment is not received.

o OVERDUE COMPENSATION” According to the contract, the hirer may

owe the owner compensation for past-due HP payments as well as other
amounts like as taxes, fees, repairs, and suppliers.

o “SALE LETTER” is a letter that the owner may use to sale the car in order to
recoup the lost money at the moment the contract is terminated due to the
hirer's default.

O “DEAL FORWARDING SHEETS” is used to have complete information

about the transaction, including branch, contract number, information about the
transaction itself, such as anticipated value, advance amount, interest rate, period of
agreement, insurance, and agreement conditions.

23
TERMS AND CONDITIONS OF HIRE PURCHASE

24
GUARANTEE

The crucial third party to the arrangement is the guarantor. He serves as a guarantee for
the hirer or the contract.

According to the agreement, in the event that the owner rents the vehicle to the hirer, the
guarantor consents to complete any duties or responsibilities that are expected of the hirer
in the event that he does not do so.

As soon as the owner gets all sums due, owing, and payable to the owner in accordance
with the agreement, the guarantor shall be released from his duties.

He acknowledges that he will remain in full force and effect until the hirer has fully
satisfied all of its obligations under this agreement.

SCHEDULE OF PAYMENT

Hire purchase installments are the equal payments made by the hirer towards the agreed-
upon price. which are referred to as hire purchase payments, with a final payment of Rs.
1 and the opportunity to purchase the car.

RIGHTS OF THE COMPANY AS A FINANCIER

Whenever throughout the duration of the contract, the owner or a representative

designated by the owner may inspect the car. Under the terms of the hire purchase
contract, the owner shall have the total right and complete power to sell, assign, or
otherwise transfer his rights to any third party of his choosing, and the hirer shall accept
such third party as a creditor.

A blank transfer letter, which the hirer would also sign, would aid the owner in
reclaiming the car and changing registration into his name at the time of termination,
allowing him to utilise it as needed.

HIRE PURCHASE AGREEMENT

25
According to the contract, both the hirer and the owner consent to taking the car from the
vehicle in accordance with the rental schedule.

TITLE AND OWNERSHIP

In terms of ownership, the hirer retains the car as the owner's bailee and is not granted
any rights to, titles to, or interests in the vehicle.

RIGHT AND OBLIGATIONS OF THE HIRER

Without the owner's permission, the hirer is not permitted to provide the vehicle to a third
party, sell it, transfer it, assign it, sublease it, pledge it, or hypothecate it. The hirer shall
be entitled to the manufacturer's warranty benefits, and in the event that the vehicle has a
flaw, he may take legal action directly against the manufacturer in accordance with the
manufacturer's guarantee. Notwithstanding the fact that the owner is the legal owner of
the MV, the owner shall not be held liable for any repairs, services, or faults in the MV or
its functioning.

TERMINATION BY DEFAULT

The owner may end the contract if the hirer behaves in a default- like manner.

• The Hirer misses the deadline for making the installment payments.

• If the hirer is using the vehicle for any purpose other than that specified in the
agreement or for any illegal purpose

• If the hirer fails to notify the owner of an accident that occurred for more than 48 hours
and could have resulted in damage to the motor vehicle itself or to another person or
piece of property.

Upon termination of the contract, the owner has the right to reclaim the vehicle, and the
hirer is responsible for paying any outstanding HP installments, additional fees, late
payment penalties, charges associated with the owner's repossession, and costs associated
with placing the car in paid.

26
In order to finance these small business owners, the corporation has financial ties to
several banking institutions.

The plan looks like this:

THE SCHEME:

Banks can manage their vehicle portfolio through the Shriram Group.

Banks are free to meet the quota for the priority sector if they so want. In the event that
the bank declines the priority quota option, the plan gives the truck operator credit on
extremely affordable terms. When they start to seem like they could become NPAs, the
Shriram group will take over the portfolio.

The credit is valid for five years. The process is continued in the same way as before,
except this time the bank finances the customer, and the business handles all of their
business dealings.

Collection and Payment details

The operator will pay Shriram Investments Ltd on a monthly basis. It should be permitted
for the bank to issue receipts to the operator through Shriram Investments Ltd. With an
average delay of 15 days, The Shriram Investments Ltd would transfer monthly
collections to the bank.

Accounting

27
The individual operator's accounts will be maintained by Shriram Investments Ltd. If the
bank requests them, The Shriram Investments Ltd will provide monthly statements to the
bank.

Documentation

The operator and the bank will exchange the paperwork. Nevertheless, the bank will need
to provide the Shriram Investments Ltd power of attorney to cover the following:

• Receipt collection and issuance

• Vehicle repossession in the event of defaults

• If necessary, formalities with RTO Custodian for documents can be appointed to

monitor account status and security at the bank's expense.

NPAs

Contracts having more than four unfinished EMIS will be regarded as NPAS. Within a
month, Shriram Investments Ltd will take over the NPA contracts and execute an early
resolution with regard to them.

DOCUMENTS TO BE SIGNED

The following paperwork needs to be properly signed by both the hirer and the guarantor.

• Demand Promissory Note: This document outlines the entire sum owed, as well as any
interest that the hirer must pay the owner in accordance with the contract.

• Sale Letter: A letter that the owner may use to resell the car in order to recoup the lost
money at the time of termination due to the hirer's default.

• The hire purchase cum guarantee agreement, which outlines all of the rules and terms of
the contract that the hirer and the guarantor must agree to in order to join the
arrangement.

28
The hirer has to sign the following RTO forms for the respective reasons

Form 20: This form is used to register a vehicle in accordance with Rule 47.

Form 29: Request for name change

Form 30: Application for notification of transfer of motor vehicle ownership.

Form 35: Notification of HP's intent to terminate an agreement in accordance with Rule
61 (1)

Form 26: Request for issuance of a duplicate certificate of registration in accordance with
Rule 53

Form ACC: Application for the surrender of the permit and clearance certificate in
accordance with Rule 204.

Form 27: Application to apply a new registration mark to a motor vehicle (as per rule 54)

Form 33: Notification of Address Change Recorded in RC and Office Records (as per
rule 59)

NOTE : If the car is being held under HP's agreement, all of the aforementioned
paperwork must be completed twice, with the second copy having the registration
authority's approval and being delivered to the financier.

29
 CHAPTER 3
RESEARCH METHODOLOGY

30
3.1 Need for the study

There is a need for the study since hire purchase is a commonly utilised form of financing
for commercial vehicles and the study will analyse hire purchase in NBFCs.

should be aware of the specifics of the hire buy transaction's process with relation to the
project's issue statement.

3.2 Objectives of the study

 To examine the hire purchase process in an NBFC

 To assess the efficiency of hire purchase for commercial vehicles.

 To research the laws and regulations governing hire purchase

 To examine the funding source for hiring purchases

3.3 Hypothesis
Null Hypothesis

H0 : There is a Hire Purchase System in Financial Institutions.

H1 : There is No Hire Purchase System in Financial Institutions.

3.4 Scope of the study

In essence, this study illustrates the applicability of hire buy in the transportation sector
by financing the acquisition of commercial vehicles.

 To apply the study's theoretical components to real-world situations.

 To advocate the use of hire purchase as a significant source of fund ing in

place of other types of financing.

31
3.5 Research Design
Meaning of Research:-

Research is defined as "the ideas of symbols for the aim of extending, correcting, or
verifying information, whether that knowledge assists in the building of theo ry or in the
practise of an art."

Exploratory and Descriptive stages make up the majority of the research methodology
used for subsequent work.

The researcher will gather both primary and secondary data for this study's in-depth
analysis of hire buy in financial institutions.

Primary Data: The researcher will use the questionnaire method for collecting primary
data.

Primary data:

 Questionnaire – Structured

 Interview

Secondary data collection

The following websites will provide the pertinent information that will be gathered
through secondary research:

 Books and essays that have been published in periodicals

 newspapers and magazines

 Browsing websites(Internet)

Tool Used:

 Bar diagram, Pie chart.

Sampling method:

 Random Sampling chosen by the gathering of data

32
Sample size:

 50

Target audience:

 Executive and Employees

3.6 Limitation of the study

For a seamless research process, some of these limits can be solved, while others can be
disregarded. The following are some of the limitations that I encountered when
conducting my research:

 Due to time constraints, it was not feasible to cover all topics of study.

 The study's narrow scope makes it impossible to say that it accurately represents
the firm.

 This data analysis does not allow us to predict the market's future state.

 A sample size of 50 respondents is insufficient to get reliable data.

 The study is founded on the respondents' replies, which could or might not be
biassed.

33
 CHAPTER 4
DATA ANALYSIS
&
INTERPRETATION

34
Q1. Age

Figure 1: Age of the Respondents

Inte rpretation:

17% of respondents were in the 20–24 age group, whereas 27% were in the 35–44 age
group.

Q2. Gender

35
 Figure 2: Gender of the Respondents

Inte rpretation:

84% of responders were men, while 16% were women.

36
Q3. Under hire purchase system, the agreement can be terminated anytime.

Inte rpretation:

49% of respondents agreed with the statement that the agreement can be ended at any
moment, compared to 26% of respondents who strongly agreed with it.

37
Q4. When an asset is acquired on hire purchase system, the asset account is debited
with cash price of the assets in the books of the hire purchaser.

Inte rpretation:

9% of respondents disagreed with the aforementioned statement, compared to 32% who

strongly agreed.

38
Q5. What you think, Cost less depreciation to date less Balance in hire vendor’s
account.

Inte rpretation:

18% of respondents disagreed with the aforementioned statement, compared to 27% who
strongly agreed.

39
Q6. Hire purchase, the act of buying an asset without having to make full payment
in the imme diate future is known as:

Inte rpretation:

17% of respondents disagreed with the aforementioned statement, compared to 22% who
stronglyagreed.

40
Q7. Cash price hirer charges depreclation is calculated and sgown in the books of
hire r/vendee.

Inte rpretation:

20% of respondents strongly agreed with the aforementioned statement, while 20%
disagreed.

41
Q8. Possession of asset is transferred to Hirer under the hire purchase system.

Inte rpretation:

18% of respondents disagreed with the aforementioned statement, compared to 27% who
strongly agreed.

42
Q9. Most preferred in case of installation for a ne w rice plant in case of milling
machinery by hire purchase system.

Inte rpretation:

In comparison, 22% of respondents said Savco Sales Pvt Ltd is most preferred in case of
installation for a new rice plant in the machineries listed below, while 35% of
respondents said Satake International Bangkok Co. Ltd is most chosen in such situation.

43
Q10. The reason for the above selected machine ry is

Inte rpretation:

18% of respondents said choosing the machine was motivated by the need for minimal
maintenance, while 33% said it was because of the equipment's lengthy lifespan.

44
 CHAPTER 5
FINDINGS, SUGGESTIONS
&
CONCLUSION

45
5.1 FINDINGS

 While 27% of respondents were in the 35- to 44-year-old age range, just 17% of
respondents were in that age range.

 Despite the fact that 49% of respondents agreed with the statement that the
agreement can be ended at any moment, only 26% of respondents strongly agreed
with it.

 32% of respondents strongly agreed with the aforementioned statement, while 9%

disagreed.

 27% of respondents strongly agreed with the aforementioned statement, while

18% disagreed.

 22% of respondents strongly agreed with the aforementioned statement, while

17% disagreed.

 20% of respondents strongly agreed with the aforementioned statement, while

20% disagreed.

 27% of respondents strongly agreed with the aforementioned statement, while

18% disagreed.

 35% of respondents indicated that Satake International Bangkok Co. Ltd is their
top choice when installing the machines listed below; meanwhile, 22% of
respondents indicated that Savco Sales Pvt Ltd is their top choice when installing
the machines listed below.

 18% of respondents said choosing the machine was motivated by the need for
minimal maintenance, whereas 33% said it was because of the equipment's
lengthy lifespan.

46
  5.2 CONCLUSION

One of the key methods of financing the acquisition of commercial vehicles is hire
purchase. With its benefits over other varieties, it is the most desired method of funding.

By making the facility lucrative and cost-effective, several NBFCs are developing the
hire buy system to finance commercial cars and raise economic standards.

Shriram Investments Ltd, one of the leading participants in the hire purchase market,
offers truck financing to small business owners all throughout the nation.

The following is revealed via a research of hires at an NBFC called "Shriram Investment
Limited":

➢ NBFCs provide the public a range of financial services that are separate
from those offered by traditional banks, such as hire-purchase.
➢ The most popular form of financing for commercial vehicles compared
to leasing and hypothecation is hire purchase.
➢ Shriram uses its own capital for old cars, but exclusively provides
financing for small truck owners.
➢ Shriram also has financing agreements with significant financial
institutions to finance both new and old cars.

47
 5.3 RECOMMENDATION

➢ The public should have easy access to the hire buy facility.
➢ The consumer should have better payment provisions so that they do not feel
burdened by the hire purchase installments.
➢ The business should assist the consumer in purchasing cutting-edge autos.
➢ Given the state of the economy in the society, loan rates ought to be fair.

48
ANNEXURES

49
 QUESTIONNAIRE
Q. Age
20-25
25-34
35-44
45or more

Q2. Gender
Male
Female

Q3. Under hire purchase system, the agreement can be terminated anytime.
Strongly agree
Agree
Neutral
Disagree

Q4. When an asset is acquired on hire purchase system, the asset account is debited with
cash price of the assets in the books of the hire purchaser.
Strongly Agree
Agree
Neutral
Disagree
Strongly Disagree

Q5. What you think, Cost less depreciation to date less Balance in hire vendor’s account.
Strongly Agree
Agree
Neutral
Disagree
Strongly Disagree

50
Q6. Hire purchase, the act of buying an asset without having to make full payment in the
immediate future is known as:
Strongly Agree
Agree
Neutral
Disagree
Strongly Disagree

Q7. Cash price hirer charges depreclation is calculated and sgown in the books of
hirer/vendee.
Strongly Agree
Agree
Neutral
Disagree
Strongly Disagree

Q8. Possession of asset is transferred to Hirer under the hire purchase system.
Strongly Agree
Agree
Neutral
Disagree
Strongly Disagree

Q9. Most preferred in case of installation for a new rice plant in case of milling
machinery by hire purchase system.
Sona foods pvt.ltd.
Satake international bangkok co. ltd.
Savco sales pvt. Ltd.
Bhullerspvt.ltd.

Q10. The reason for the above selected machinery is

Less maintenance
Long life
Cost effective
Easy installation

51
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