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lC8 1PL A81lAL luLllLLMLn1 lC8
CuALll?lnC 8lM A811 LxAMlnA1lCn
8ACPLC8 ln llnAnClAL MA8kL1S 8lM
(8A1CP 201120012)
Su8Ml11Lu 8?
nLL8Av SPlvkuMA8 1PAkkL8
8CLL no 34

1op|c NCN 8ANkING IINANCIAL CCMANILS WI1n
keference 1C ID8I

IACUL1 GUIDL Mrs SP8u1l CPAvA8kA8

kCILC1 GUIDL Mr A8unkuMA8 uu8PL?

UNDLk1AkLN A1 SkSCMAIA CCLLLGL
CI Ak1S SCILNCL AND CCMMLkCL
VIDAVInAk (L)
MUMBAI-400077
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ACKNOWLEDGMENT

8efore we geL lnLo Lhlck of Lhlngs l would llke Lo add a few words of
appreclaLlon for Lhe people who have been a parL of Lhls pro[ecL rlghL from
lLs lncepLlon 1he wrlLlng of Lhls pro[ecL has been one of Lhe slgnlflcanL
academlc challenges l Lake Lhls apporLunlLy Lo presenL before you Lhls
pro[ecL on non banklng llnanclal Companles (n8lCs) wlLh reference Lo
lu8l" 1he success of Lhls pro[ecL ls a resulL of sheer hard work and
deLermlnaLlon puL ln by me wlLh Lhe help of my pro[ecL gulde
l hereby Lake Lhls opporLunlLy Lo add a speclal noLe of Lhanks for
Mr nlLln awer who underLook Lo acL as my menLor desplLe hls many oLher
academlc and professlonal commlLmenLs Pls wlsdom knowledge and
commlLmenL Lo Lhe hlghesL sLandards lnsplred and moLlvaLed me WlLhouL
hls lnslghL supporL and energy Lhls pro[ecL wouldnL have klcksLarLed and
nelLher would have reached frulLfulness
l am greaLly Lhankful Lo Mrs ShruLl Chavarkar course coordlnaLor
(8lM) for provldlng an apporLunlLy Lo presenL a creaLlve ouLpuL ln Lhe form
of Lhls pro[ecL
l also feel hearLlesL sense of obllgaLlon Lo my llbrary sLaff members
senlors who helped me ln collecLlon of daLa resource maLerlal also ln lLs
processlng as well as ln drafLlng manuscrlpL 1he pro[ecL ls dedlcaLed Lo all
Lhose people who helped me whlle dolng Lhls pro[ecL LasL buL noL Lhe leasL
we Lhank our famlly our parenLs for glvlng us llfe ln Lhe flrsL place for
educaLlng us wlLh aspecLs

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NDEX PG NO.
EXECUTVE 8UMMARY 3
CHAPTER-1NTRODUCTON 8
11 Definition Cf n8lC's 9
12 8egulaLlons of n8lC's 10
13 Culdellnes for new deposlLs 12
14 8esponslblllLles 14
13 CurrenL Scenarlo 13
CHAPTER-2 Roles & mportance of NBFC 17
21 leaLures of n8lC 18
22 8ole Cf n8lC' 19
23 lmporLance of n8lC's 20
24 Cn Clobal Crlsls 22
CHAPTER-3 8tructure of NBFCs 23
31 AccepL ueposlLs from n8ls 24
32 Symbols of 8aLlng 23
33 8esponslblllLles of AccepLlng ubllc ueposlLs 26
34 ClasslflcaLlon of n8lC daLa 27
CHAPTER- 4 Historical Background 30
CHAPTER-5 PRE-REOU8TE FOR CARRYNG ON BU8NE88
OF NBFC. 37
31 8eglsLraLlon 8equlremenLs 38
32 Mlnlmum neLowned lund 41
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CHAPTER-6 NDAN BANK8 V/8 NBFC'8 44
61 ulfference 8eLween 8AnkS n8lC'S 43
62 1op 3 8anks and n8lCs wlLh hlghesL proflLablllLy 47
CHAPTER-7 DB 48
71 luncLlons of lu8l 30
72 Cvervlew of lu8l 31
73 lu8l Lendlng rocedure 33
74 CaplLal MarkeL 34
73 8lsk ManagemenL 33
CHAPTER-8 Funding & Managerial mplications 37
81 lundlngs 38
82 88l Measures 39
CHAPTER-9 RECOMMENDATON8 AND CONClU8ON 61
91 8ecommendaLlon 62
92 Concluslon 63
Bibliography 64







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EXECUTVE 8UMMARY:-

1he sLudy presenLs a comparaLlve sLudy of n8lC's ln lndla 1here are almosL
13000 reglsLered n8lC's ln lndla 1he sLudy ls almed Lo provlde an hollsLlc
vlew of Lhe n8lC lndusLry n8lC fulfllls Lhe flnanclal gap by provldlng loan aL
a lower raLe of lnLeresL
1he sLudy also compared Lhe lndlan 8anks v/s n8lC lL was found LhaL aL
even aL Lhe Llme of Lhe economlc slowdown n8lC was more proflLable 1he
lndusLry ls noL LlghLly regulaLed as Lhere are many regulaLory bodles Pence
Lhere was an lmporLanL need Lo sLudy Lhe n8lC as Lhe lndusLry plays an
lmporLanL role ln Lhe flnanclal Servlces markeL of lnulA
lL ls encouraglng LhaL Lhe n8lC secLor's lmporLance ls flnally belng
acknowledged across lS markeL consLlLuenLs as well as Lhe regulaLor
Powever Lhe lmporLance aLLached Lo Lhe secLor ls ofLen Lranscendlng lnLo
mlsplaced exuberance Cver slmpllfled and vague drlvers for n8lC valuaLlons
such as sLraLeglc flL and cusLomer base can never subsLlLuLe dlspasslonaLe
buslness analyLlcs
A raLlonal assessmenL of Lhe lnLrlnslc values of n8lCs facLorlng lssues such
as pasL performance sLrucLural weaknesses of Lhe secLor (for lnsLance
fundlng dlsadvanLages) along wlLh an ldenLlflcaLlon of real capablllLles are
essenLlal Lo ensure LhaL Lhe equlllbrlum beLween prlce pald and value
reallzed ls reached Lo Lhe exLenL posslble ln Lhe absence of Lhls lndla ls sure
Lo wlLness Lhe reopenlng of Lhe n8lC horror sLory albelL wlLh a new chapLer
on Lhe eroslon of n8lC lnvesLmenL values affecLlng lnvesLors across
caLegorles



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CHAPTFR-1
ltTR00uCTl0t












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NTRODUCTON:-
A non8anklng llnanclal Company (n8lC) ls a company reglsLered under Lhe Companles
AcL 1936 and ls engaged ln Lhe buslness of loans and advances acqulslLlon of
shares/sLock/bonds/debenLures/securlLles lssued by CovernmenL or local auLhorlLy or
oLher securlLles of llke markeLable naLure leaslng hlrepurchase lnsurance buslness chlL
buslness buL does noL lnclude any lnsLlLuLlon whose prlnclpal buslness ls LhaL of
agrlculLure acLlvlLy lndusLrlal acLlvlLy sale/purchase/consLrucLlon of lmmovable properLy
A nonbanklng lnsLlLuLlon whlch ls a company and whlch has lLs prlnclpal buslness of
recelvlng deposlLs under any scheme or arrangemenL or any oLher manner or lendlng ln
any manner ls also a nonbanklng flnanclal company (8eslduary nonbanklng company)
n8lCs are dolng funcLlons akln Lo LhaL of banks however Lhere are a few dlfferences
(l) An n8lC cannoL accepL demand deposlLs
(ll) An n8lC ls noL a parL of Lhe paymenL and seLLlemenL sysLem and as such an n8lC
cannoL lssue cheques drawn on lLself and
(lll) ueposlL lnsurance faclllLy of ueposlL lnsurance and CredlL CuaranLee CorporaLlon ls
noL avallable for n8lC deposlLors unllke ln case of banks
lor Lhls purpose Lhe deflnlLlon of 'rlnclpal 8uslness' glven vldes ress 8elease 1998
99/1269 daLed Aprll 8 1999 may be followed
1he company wlll be LreaLed as a nonbanklng flnanclal company (n8lC) lf lLs flnanclal
asseLs are more Lhan 30 per cenL of lLs LoLal asseLs (neLLed off by lnLanglble asseLs) and
lncome from flnanclal asseLs ls more Lhan 30 per cenL of Lhe gross lncome 8oLh Lhese
LesLs are requlred Lo be saLlsfled as Lhe deLermlnanL facLor for prlnclpal buslness of a
company"







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1.1 Definitions of NBFC:-
Whereas Lhe '8eserve bank of lndla AcL 1934' lLself deflnes Lhe Lerm n8lC Lhere ls a
dlfferenL deflnlLlon of Lhe same Lerm vlz n8lC ln Lhe 'non8anklng llnanclal Companles
AccepLance of ubllc ueposlLs (8eserve 8ank) ulrecLlons 1988' LhaL Lhe 88l lLself has
lssued under Lhe aforesald AcL of 1934
A n8lC under Lhe 88l AcL
'n8lC' lLself ls deflned under sec 43l(f) of Lhe AcL as under
Sec 43l (f) ) nonbanklng flnanclal company means
(l) A flnanclal lnsLlLuLlon whlch ls a company
(ll) A non banklng lnsLlLuLlon whlch ls a company and whlch has as lLs prlnclpal buslness
Lhe recelvlng of deposlLs under any scheme or arrangemenL or ln any oLher manner or
lendlng ln any manner
(lll) Such oLher nonbanklng lnsLlLuLlon or class of such lnsLlLuLlons as Lhe bank may wlLh
Lhe prevlous approval of Lhe CenLral CovernmenL and by noLlflcaLlon ln Lhe Cfflclal
CazeLLe speclfy












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1.2 REGULATON8 OF NBFC'8:-
1 ln Lerms of SecLlon 43lA of Lhe 88l AcL 1934 lL ls mandaLory LhaL every n8lC should be
reglsLered wlLh 88l Lo commence or carry on any buslness of nonbanklng flnanclal
lnsLlLuLlon as deflned ln clause (a) of SecLlon 43 l of Lhe 88l AcL 1934 Powever Lo
obvlaLe dual regulaLlon cerLaln caLegorles of n8lCs whlch are regulaLed by oLher
regulaLors are exempLed from Lhe requlremenL of reglsLraLlon wlLh 88l vlz venLure
CaplLal lund/MerchanL 8anklng companles/SLock broklng companles reglsLered wlLh
SL8l lnsurance Company holdlng a valld CerLlflcaLe of 8eglsLraLlon lssued by l8uA nldhl
companles as noLlfled under SecLlon 620A of Lhe Companles AcL 1936 ChlL companles as
deflned ln clause (b) of SecLlon 2 of Lhe ChlL lunds AcL 1982 or Pouslng llnance
Companles regulaLed by naLlonal Pouslng 8ank
2 A company lncorporaLed under Lhe Companles AcL 1936 and deslrous of commenclng
buslness of nonbanklng flnanclal lnsLlLuLlon as deflned under SecLlon 43 l(a) of Lhe 88l
AcL 1934 should have a mlnlmum neL owned fund of 8s 23 lakh (ralsed Lo 8s 200 lakh
wef Aprll 21 1999) 1he company ls requlred Lo submlL lLs appllcaLlon onllne by
accesslng 88l's secured webslLe hLLps//secwebrblorgln/CCSMCS/rblloglndo (Lhe
appllcanL companles do noL need Lo log on Lo Lhe CCSMCS appllcaLlon and hence user lds
for Lhese companles are noL requlred) 1he company has Lo cllck on CLlCk for
Company 8eglsLraLlon on Lhe logln page A wlndow showlng Lhe Lxcel appllcaLlon forms
avallable for download would be dlsplayed 1he company can Lhen download sulLable
appllcaLlon form (le n8lC or SC/8C) from Lhe above webslLe key ln Lhe daLa and upload
Lhe appllcaLlon form 1he company may noLe Lo lndlcaLe Lhe name of Lhe correcL 8eglonal
Cfflce ln Lhe fleld C8 of Lhe AnnexldenLlflcaLlon arLlculars worksheeL of Lhe Lxcel
appllcaLlon form 1he company would Lhen geL a Company AppllcaLlon 8eference number
for Lhe Co8 appllcaLlon flled onllne 1hereafLer Lhe company has Lo submlL Lhe hard copy
of Lhe appllcaLlon form (lndlcaLlng Lhe Company AppllcaLlon 8eference number of lLs on
llne appllcaLlon) along wlLh Lhe supporLlng documenLs Lo Lhe concerned 8eglonal Cfflce
1he company can Lhen check Lhe sLaLus of Lhe appllcaLlon based on Lhe
acknowledgemenL number 1he 8ank would lssue CerLlflcaLe of 8eglsLraLlon afLer
saLlsfylng lLself LhaL Lhe condlLlons as enumeraLed ln SecLlon 43lA of Lhe 88l AcL 1934
are saLlsfled


7
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3 resenLly Lhe maxlmum raLe of lnLeresL an n8lC can offer ls 123 1he lnLeresL may be
pald or compounded aL resLs noL shorLer Lhan monLhly resLs 1he n8lCs are allowed Lo
accepL/renew publlc deposlLs for a mlnlmum perlod of 12 monLhs and maxlmum perlod
of 60 monLhs 1hey cannoL accepL deposlLs repayable on demand
4 1he n8lCs are allowed Lo accepL/renew publlc deposlLs for a mlnlmum perlod of 12
monLhs and maxlmum perlod of 60 monLhs 1hey cannoL accepL deposlLs repayable on
demand r
3 n8lCs cannoL offer lnLeresL raLes hlgher Lhan Lhe celllng raLe prescrlbed by 88l from Llme
Lo Llme 1he presenL celllng ls 123 per cenL per annum 1he lnLeresL may be pald or
compounded aL resLs noL shorLer Lhan monLhly resLs
6 n8lCs cannoL offer glfLs/lncenLlves or any oLher addlLlonal beneflL Lo Lhe deposlLors
n8lCs (excepL cerLaln AlCs) should have mlnlmum lnvesLmenL grade credlL raLlng
7 1he deposlLs wlLh n8lCs are noL lnsured
8 1he repaymenL of deposlLs by n8lCs ls noL guaranLeed by 88l
9 CerLaln mandaLory dlsclosures are Lo be made abouL Lhe company ln Lhe AppllcaLlon
lorm lssued by Lhe company sollclLlng deposlLs
10 LffecLlve from Aprll 24 2004 n8lCs cannoL accepL deposlLs from n8ls excepL deposlLs by
deblL Lo n8C accounL of n8l provlded such amounL does noL represenL lnward remlLLance
or Lransfer from n8L/lCn8 (8) accounL Powever Lhe exlsLlng n8l deposlLs can be
renewed











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1.3 GUDELNE8 FOR NEW DEPO8T8:-

1 CusLomer ldenLlflcaLlon know 1he CusLomer (k?C) should be Lhe key guldlng prlnclple
for ldenLlflcaLlon of an lndlvldual / corporaLe cusLomer (deposlLor or borrower)

2 Accordlngly Lhe k?C framework should have Lwofold ob[ecLlve (l) Lo ensure cusLomer
ldenLlflcaLlon and verlfylng hls ldenLlLy and resldenLlal address and (ll) Lo monlLor
LransacLlons of a susplclous naLure

3 n8lCs should ensure LhaL Lhe ldenLlLy of Lhe cusLomer lncludlng beneflclal owner ls done
based on dlsclosures by cusLomers Lhemselves

4 1yplcally easy means of esLabllshlng ldenLlLy would be documenLs such as ermanenL
AccounL number (An) raLlon card drlvlng llcence LlecLlon Commlsslons ldenLlLy card
passporL eL ceLera ln case of lndlvlduals and reglsLraLlon cerLlflcaLe parLnershlp
deed/agreemenL eL ceLera and oLher rellable documenLs ln respecL of companles flrms
and oLher bodles

3 verlflcaLlon Lhrough such documenLs should be ln addlLlon Lo Lhe lnLroducLlon by a
person known Lo Lhe n8lC

6 rocedures for exlsLlng cusLomers

1 ln respecL of exlsLlng cusLomers n8lCs should ensure LhaL gaps and mlsslng lnformaLlon
ln compllance of k?C guldellnes on cusLomer ldenLlflcaLlon procedure ls fllled up and
compleLed before !une 30 2004

7 Celllng and monlLorlng of cash LransacLlons
1 n8lCs would normally noL have large cash wlLhdrawals and deposlLs

2 Powever wherever LransacLlons of 8s 10 lakh (8s 1 mllllon) and above are underLaken
Lhey should keep record of Lhese LransacLlons ln a separaLe reglsLer malnLalned aL
branch as well as aL 8eglsLered Cfflce

3 Such lnformaLlon should be made avallable Lo regulaLory and lnvesLlgaLlng auLhorlLles
when demanded
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8 Culdellnes and monlLorlng procedures
1 1he board of dlrecLors of n8lCs should formulaLe pollcles and procedures Lo
operaLlonallse Lhe guldellnes and puL ln place an effecLlve monlLorlng sysLem Lo ensure
compllance by Lhelr branches
2 Larly compuLerlsaLlon of branch/offlce reporLlng wlll faclllLaLe prompL generaLlon of such
reporLs and monlLorlng
9 lnLernal conLrol sysLems
1 uuLles and responslblllLles should be expllclLly allocaLed among Lhe sLaff for ensurlng LhaL
pollcles and procedures are managed effecLlvely and LhaL Lhere ls full commlLmenL and
compllance Lo an effecLlve k?C programme ln respecL of boLh exlsLlng and prospecLlve
cusLomers/cllenLs
10 lnLernal audlL/lnspecLlon
1 lnLernal audlLors musL speclflcally scruLlnlse and commenL on Lhe effecLlveness of Lhe
measures Laken by branches / offlces of n8lC ln adopLlon of k?C norms and sLeps
Lowards prevenLlon of money launderlng

2 Speclflc cases of vlolaLlon should be lmmedlaLely broughL Lo Lhe noLlce of head /
conLrolllng / reglsLered offlce
11 8ecord keeplng
1 n8lCs should prepare and malnLaln proper documenLaLlon on Lhelr cusLomer
relaLlonshlps and cash LransacLlons of 8s 10 lakh and above

2 1he records of all such LransacLlons should be reLalned for aL leasL Len years afLer Lhe
LransacLlon has Laken place and should be avallable for perusal and scruLlny by audlL
funcLlonarles as well as regulaLors and law enforcemenL auLhorlLles as and when
requlred aL Lhe branch as well as aL reglsLered offlce
12 1ralnlng of sLaff and managemen
1 lL ls lmporLanL LhaL all Lhe operaLlng and managemenL sLaff ls made fully aware of Lhe
lmpllcaLlons and undersLand Lhe need for sLrlcL adherence Lo k?C norms

2 n8lCs may Lake sulLable sLeps Lo lmparL Lralnlng Lo Lhelr operaLlonal sLaff on anLlmoney
launderlng measures
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1.4 RE8PON8BLTE8:-
1he n8lCs accepLlng publlc deposlLs should furnlsh Lo 88
l AudlLed balance sheeL of each flnanclal year and an audlLed proflL and loss accounL ln
respecL of LhaL year as passed ln Lhe annual general meeLlng LogeLher wlLh a copy of Lhe
reporL of Lhe 8oard of ulrecLors and a copy of Lhe reporL and Lhe noLes on accounLs
furnlshed by lLs AudlLors

ll SLaLuLory Annual 8eLurn on deposlLs n8S
lll CerLlflcaLe from Lhe AudlLors LhaL Lhe company ls ln a poslLlon Lo repay Lhe deposlLs
as and when Lhe clalms arlse
lv CuarLerly 8eLurn on llquld asseLs
v Palfyearly 8eLurn on prudenLlal norms
vl Palfyearly ALM 8eLurns by companles havlng publlc deposlLs of 8s 20 crore and
above or wlLh asseLs of 8s 100 crore and above lrrespecLlve of Lhe slze of deposlLs
vll MonLhly reLurn on exposure Lo caplLal markeL by companles havlng publlc deposlLs of
8s 30 crore and above and vlll
vlll A copy of Lhe CredlL 8aLlng obLalned once a year along wlLh one of Lhe Palfyearly
8eLurns on prudenLlal norms as aL (v) above









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1.5 CURRENT 8CENARO:-

nearly 11 years afLer Lhe lasL of Lhe Lwo banklng llcences were lssued by 88l Lo prlvaLe
secLor enLlLles Lhe governmenL has agaln sLarLed Lhe process of allowlng Lhe beLLer
managed nonbanklng flnance companles (n8lCs) Lo graduaLe Lo fullfledged banks lM
ranab Mukher[ee's 8udgeL proposal on lrlday was Lhe flrsL sLep Lowards Lhe same
1he second sLep wlll be enacLed on 1uesday mornlng A selecL group of offlclals from Lop
n8lCs under Lhe aegls of Lhe llnance lndusLry uevelopmenL Councll (lluC) Lhe Lrade
body for n8lCs ln lndla are meeLlng 8 Copalan Lhe banklng secreLary ln Lhe flnance
mlnlsLry Lo presenL a case for selecL n8lCs Lo be converLed lnLo fullfledged banks
sources sald AbouL 1213 n8lCs and corporaLe houses havlng presence ln Lhe flnanclal
secLor are expecLed Lo [oln Lhe race Lo floaL a bank
1he flnance mlnlsLer ls convlnced LhaL Lhere ls a huge need for lowcosL flnanclng aL Lhe
semlurban and rural areas ln lndla'' sald a lndusLry source 1he flnanclal servlces
lndusLry belleves Lhe 8udgeL proposal was a reflecLlon of Lhe same __ln Lhe flnance
mlnlsLry Lhlngs are movlng ln Lhe rlghL dlrecLlon and Lhe banklng secreLary's meeLlng
proves Lhe same'' sald Lhe source lluC offlce bearers could noL be conLacLed durlng Lhe
exLended weekend ln Lhe lasL unlon 8udgeL Lhe lM had announced LhaL 88l ls
conslderlng glvlng addlLlonal banklng llcences Lo prlvaLe secLor players lncludlng n8lCs
1hls was osLenslbly Lo furLher flnanclal lncluslon and also Lo lmprove Lhe slze and
sophlsLlcaLlon of Lhe lndlan banklng sysLem 1he announcemenL seL Lhe flnanclal markeLs
on flre wlLh a loL of con[ecLurlng as Lo who would be Lhe lucky few 1he access Lo lowcosL
currenL accounL and savlngs accounLs and Lhe ablllLy Lo offer all flnanclal producLs under
one roof were clLed as ma[or aLLracLlons for n8lCs Lo rush Lo seek banklng llcences lL was
also expecLed LhaL 88l would glve new llcences Lo prlvaLe players very soon 8uL an
analysls reveals a dlfferenL plcLure nelLher ls 88l ln a hurry Lo lssue fresh llcences nor are
many n8lCs keen Lo geL lnLo commerclal banklng
1he reasons for Lhls are manlfold 88l rules are sLrlngenL for commerclal banks as Lhey
are Lhe vlslble face of Lhe lndlan flnanclal sysLem and commerclal banks are prlmarlly Lhe
cusLodlans of publlc money 88l places resLrlcLlons on commerclal banks ln Lhelr lendlng
operaLlons CuL of 8s 100 Laken ln as deposlLs approxlmaLely 8s 30 has Lo be seL aparL as
sLaLuLory requlremenLs Lowards C88 and SL8 1hls leaves Lhe banks wlLh 8s 70 Lo lend
CuL of Lhls 40 has Lo be sLaLuLorlly lenL Lowards Lhe prlorlLy secLor as deflned by 88l
1hls leaves banks wlLh approxlmaLely 8s 42 Lo lend aL Lhelr own dlscreLlon Many n8lCs
would deflnlLely flnd Lhls as resLrlcLlve Lo say Lhe leasL As per Lhe guldellnes of 2001
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n8lCs seeklng a banklng llcence should have a mlnlmum paldup caplLal of 8s 200 crore
whlch musL be lncreased Lo 8s 300 crore wlLhln 3 years of converslon lnLo a bank
lurLher banks have Lo lnvesL large funds ln flxed asseLs and lnformaLlon Lechnology
prlmarlly Lo faclllLaLe flnanclal lncluslon rlsk managemenL anLl money launderlng eLc
1hese huge caplLal expendlLures lncrease Lhe payback perlod for Lhe lnvesLmenLs made
Also banklngasabuslness model ls far more people process and producLdrlven Lhan
a slmple n8lC model lor example ln order Lo adopL unlversal banklng Lhe sLaff needs Lo
be mulLlskllled ln banklng funcLlons So Lhe operaLlng expenses wlll be subsLanLlally
hlgher whlch ln Lurn would reduce Lhe proflLablllLy of operaLlons Also Lhere are
resLrlcLlons on ownershlp and voLlng rlghLs CurrenL sLlpulaLlons cap voLlng rlghLs aL 10
hlgher rlghLs requlre Lhe speclflc approval of



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CHAPTFR-2
R0lF & lHP0RTAtCF
0F tFC









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2.1. 8alient features of NBFCs:-

a 1he n8lCs are allowed Lo accepL/renew publlc deposlLs for a mlnlmum perlod of 12
monLhs and maxlmum perlod of 60 monLhs 1hey cannoL accepL deposlLs repayable on
demand
b n8lCs cannoL offer lnLeresL raLes hlgher Lhan Lhe celllng raLe
prescrlbed by 88l from Llme Lo Llme 1he presenL celllng ls 11 per cenL
per annum 1he lnLeresL may be pald or compounded aL resLs noL shorLer Lhan monLhly
resLs
c n8lCs cannoL offer glfLs/lncenLlves or any oLher addlLlonal beneflL Lo Lhe deposlLors
d n8lCs (excepL cerLaln AlCs) should have mlnlmum lnvesLmenL grade credlL raLlng
e 1he deposlLs wlLh n8lCs are noL lnsured
f 1he repaymenL of deposlLs by n8lCs ls noL guaranLeed by 88l
g 1here are cerLaln mandaLory dlsclosures abouL Lhe company ln Lhe AppllcaLlon lorm
lssued by Lhe company sollclLlng deposlLs













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2.2 ROLE OF NBFC'8:-
Accordlng Lo LW 8esearch loundaLlon (LW8l1he lndlan economy ls golng Lhrough a
perlod of rapld `flnanclal llberallsaLlon 1oday Lhe `lnLermedlaLlon ls belng conducLed by
a wlde range of flnanclal lnsLlLuLlon Lhrough a pleLhora of cusLomer frlendly flnanclal
producLs 1he segmenL conslsLlng of non8anklng llnanclal Companles (n8lCs) such as
equlpmenL leaslng/hlre purchase flnance loan and lnvesLmenL companles eLc have
made greaL sLrldes ln recenL years and are meeLlng Lhe dlverse flnanclal needs of Lhe
economy ln Lhls process Lhey have lnfluenced Lhe dlrecLlon of savlngs and lnvesLmenL
1he resulLanL caplLal formaLlon ls lmporLanL for our economlc growLh and developmenL
1hus from boLh Lhe macroeconomlc perspecLlve and Lhe sLrucLure of Lhe lndlan flnanclal
sysLem Lhe role of n8lCs has become lncreaslngly lmporLanL 1he cruclal role of non
8anklng llnance lnsLlLuLlons (n8lls) ln broadenlng access Lo flnanclal servlces and
enhanclng compeLlLlon and dlverslflcaLlon of Lhe flnanclal secLor has been well
recognlzed 1he maln advanLages of Lhese companles lle ln Lhelr ablllLy Lo lower
LransacLlons cosLs of Lhelr operaLlons Lhelr qulck declslonmaklng ablllLy cusLomer
orlenLaLlon and prompL provlslon of servlces Whlle n8lls are someLlmes seen as akln Lo
banks ln Lerms of Lhe producLs and servlces offered Lhls ls sLrlcLly noL accuraLe as more
ofLen n8lls play a range of roles LhaL complemenL banks lurLher SLaLus noLe on n8lCs
n8lls can add Lo economlc sLrengLh Lo Lhe exLenL Lhey enhance Lhe reslllence of Lhe
flnanclal sysLem Lo economlc shocks A well developed and properly regulaLed n8ll
secLor ls Lhus an lmporLanL componenL of broad balanced efflclenL flnanclal sysLem LhaL
spreads rlsks and provldes a sound base for economlc growLh and prosperlLy









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2.3 MPORTANCE OF NBFC'8:-
Accordlng Lo 88l non 8anklng llnance Companles (n8lCs) ls a consLlLuenL of Lhe
lnsLlLuLlonal sLrucLure of Lhe organlzed flnanclal sysLem ln lndla n8lCs perform a
slgnlflcanL and lmporLanL role ln our flnanclal sysLem 1hey faclllLaLe Lhe process of
channellslng of publlc savlngs and provlde beLLer reLurn Lo Lhe deposlLors We are aware
LhaL due Lo llberallzaLlon and globallsaLlon banklng lndusLry and flnanclal secLor has gone
Lhrough many reforms ln Lhe presenL economlc envlronmenL lL ls very dlfflculL Lo caLer
need of socleLy by 8anks alone so role of non 8anklng llnance Companles and Mlcro
llnance Companles become lndlspensable 1he acLlvlLles of nonbanklng flnanclal
companles (n8lCs) ln lndla have undergone quallLaLlve changes over Lhe years Lhrough
funcLlonal speclallsaLlon 1he role of n8lCs as effecLlve flnanclal lnLermedlarles has been
well recognlsed as Lhey have lnherenL ablllLy Lo Lake qulcker declslons assume greaLer
rlsks and cusLomlse Lhelr servlces and charges more accordlng Lo Lhe needs of Lhe cllenLs
Whlle Lhese feaLures as compared Lo Lhe banks have conLrlbuLed Lo Lhe prollferaLlon of
n8lCs Lhelr flexlble sLrucLures allow Lhem Lo unbundle servlces provlded by banks and
markeL Lhe componenLs on a compeLlLlve basls

1he dlsLlncLlon beLween banks and nonbanks has been gradually geLLlng blurred slnce
boLh Lhe segmenLs of Lhe flnanclal sysLem engage Lhemselves ln many slmllar Lypes of
acLlvlLlesAL presenL n8lCs ln lndla have become promlnenL ln a wlde range of acLlvlLles
llke hlrepurchase flnance equlpmenL lease flnance loans lnvesLmenLs eLc 8y
employlng lnnovaLlve markeLlng sLraLegles and devlslng Lallormade producLs n8lCs
have also been able Lo bulld up a cllenLele base among Lhe deposlLors mop up publlc
savlngs and command large resources as reflecLed ln Lhe growLh of Lhelr deposlLs from
publlc shareholders dlrecLors and Lhelr companles and borrowlngs by lssue of
nonconverLlble debenLures eLc

Accordlng Lo kMC survery 1he lndlan non 8anklng llnance Company (n8lC) secLor has
ofLen been relegaLed Lo Lhe shadows ln mosL dlscusslons on Lhe lndlan llnanclal Servlces
(lS) lndusLry 8anks lnsurance companles and caplLal markeL players Lake cenLre sLage
and lnvarlably n8lCs aLLracL publlc aLLenLlon only durlng Llmes of crlsls LlLLle aLLenLlon
has been pald Lo Lhe sllenL buL effecLlve manner ln whlch n8lCs have spread Lhelr
operaLlons across Lhe counLry n8lCs have provlded flnanclal soluLlons Lo secLlons of
socleLy who hlLherLo were aL Lhe mercy of unorganlzed players for credlL and savlngs
producLs whlch were dellvered on economlcally and soclally usurlous Lerms ronlcally ln
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recenL Llmes n8lCs are once agaln ln Lhe spoLllghL for Lhelr percelved sLrengLhs and
capablllLles raLher Lhan Lhelr problem
Whlle Lhls reraLlng oughL Lo brlng cheer Lo a much mallgned secLor a degree of cauLlon
needs Lo be lnsLllled wlLhln poLenLlal lnvesLors ln n8lCs who need Lo clearly undersLand
Lhe Lrue drlvers of value for flnance companles 1hls undersLandlng ls lmperaLlve Lo
enable a beLLer [udgmenL of Lhe lnLrlnslc worLh of n8lCs 1hls arLlcle proceeds Lo
lllusLraLe Lhe key facLors responslble for Lhe sLrong reraLlng of Lhe n8lC secLor as well as
dlscuss Lhe valldlLy of each of Lhese facLors as acLual drlvers of value 1oday Lhe n8lC
secLor ls as flnanclally sound as lL has ever been 1o an exLenL Lhls can be aLLrlbuLed Lo
Lhe very problems affecLlng Lhe secLor whlch have resulLed ln Lhe purglng of several
players leavlng Lhe flLLesL few Lo domlnaLe Lhe landscape 1aklng Lhe 8eserve 8ank of
lndla's (88l) deflnlLlon of _reporLlng n8lCs' as a proxy for nondormanL players a mere
24 n8lCs held 927 percenL of Lhe LoLal asseLs of all n8lCs ln 20032006 1he balance
asseLs amounLlng Lo less Lhan 8 percenL of Lhe LoLal were fragmenLed across 439 n8lCs
ln addlLlon Lo Lhls consolldaLlon aL presenL n8lCs ln general are wellcaplLallzed wlLh
sLrong parenL supporL A ma[orlLy of acLlve n8lCs reporLed caplLal adequacy raLlos
exceedlng 12 percenL













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2.3 ON GLOBAL CR88:-

Accordlng Lo CA8L
n8lC secLor faced slgnlflcanL sLresses on asseL quallLy llquldlLy and fundlng
cosLs due Lo Lhe global economlc slowdown lLs lmpacL on Lhe domesLlc economy Whlle
all Lhe n8lCs were affecLed Lhe lmpacL varled accordlng Lo Lhe sLrucLural feaLures of
each n8lC AsseLllablllLy maLurlLy (ALM) proflles Lype of asseLs flnanced and orlglnaLlon
/ collecLlon models followed were Lhe prlmary dlfferenLlaLors wlLhln n8lCs 1he supporL
provlded by Lhe 8eserve 8ank of lndla (88l) hlghllghLed Lhe expllclL accepLance of Lhe
sysLemlc lmporLance of Lhe secLor l?10 was marked by reallgnlng of Lhe llablllLy proflles
LlghLenlng of lendlng norms coupled wlLh closlng down of many of Lhe unsecured loan
segmenLs Cn a sLrucLural basls Lhe secLor ls now more robusL due Lo Lhe lessons learned
by n8lCs from Lhls crlsls roflLablllLy ls expecLed Lo be lower Lhan hlsLorlcal levels due Lo
conservaLlve ALM managemenL hlgher provlslonlng and avoldance of hlgh yleldlng
unsecured loan segmenLs Powever proflLs are aL Lhe same Llme expecLed Lo be much
more sLable less suscepLlble










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CHAPTFR-3
STRuCTuRF 0F
tFCS








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Whether N8ICs can accept depos|ts from NkIs?
LffecLlve from Aprll 24 2004 n8lCs cannoL accepL deposlLs from n8l excepL
deposlLs by deblL Lo n8C accounL of n8l provlded such amounL do noL represenL lnward
remlLLance or Lransfer from n8L/lCn8 (8) accounL
Powever Lhe exlsLlng n8l deposlLs can be renewed
Is nom|nat|on fac|||ty ava||ab|e to the Depos|tors of N8ICs?
?es nomlnaLlon faclllLy ls avallable Lo Lhe deposlLors of n8lCs 1he 8ules for nomlnaLlon
faclllLy are provlded for ln secLlon 43C8 of Lhe 8eserve 8ank of lndla AcL 1934 non
8anklng llnanclal Companles have been advlsed Lo adopL Lhe 8anklng Companles
(nomlnaLlon) 8ules 1983 made under SecLlon 43ZA of Lhe 8anklng 8egulaLlon AcL 1949
Accordlngly deposlLor/s of n8lCs are permlLLed Lo nomlnaLe one person Lo whom
Lhe n8lC can reLurn Lhe deposlL ln Lhe evenL of Lhe deaLh of Lhe deposlLor/s n8lCs are
advlsed Lo accepL nomlnaLlons made by Lhe deposlLors ln Lhe form slmllar Lo one
speclfled under Lhe sald rules vlz lorm uA 1 for Lhe purpose of nomlnaLlon and lorm
uA2 and uA3 for cancellaLlon of nomlnaLlon and varlaLlon of nomlnaLlon respecLlvely
What e|se shou|d a depos|tor bear |n m|nd wh||e depos|t|ng money w|th N8ICs?
Whlle maklng deposlLs wlLh a n8lC Lhe followlng aspecLs should be borne ln mlnd
O (l) ubllc deposlLs are unsecured
O (ll) A proper deposlL recelpL whlch should besldes Lhe name of Lhe deposlLor/s sLaLe Lhe
daLe of deposlL Lhe amounL ln words and flgures raLe of lnLeresL payable and Lhe daLe of
maLurlLy should be lnslsLed 1he recelpL shall be duly slgned by an offlcer auLhorlsed by
Lhe company ln LhaL behalf
O (lll) 1he 8eserve 8ank of lndla does noL accepL any responslblllLy or guaranLee abouL Lhe
presenL poslLlon as Lo Lhe flnanclal soundness of Lhe company or for Lhe correcLness of
any of Lhe sLaLemenLs or represenLaLlons made or oplnlons expressed by Lhe company
and for repaymenL of deposlLs/dlscharge of Lhe llablllLles by Lhe company
It |s sa|d that rat|ng of N8ICs |s necessary before |t accepts depos|t? Is |t true? Who
rates them?
An unraLed n8lC excepL cerLaln AsseL llnance companles (AlC) cannoL accepL publlc
deposlLs An excepLlon ls made ln case of unraLed AlC companles wlLh C8A8 of 13
whlch can accepL publlc deposlL up Lo 13 Llmes of Lhe nCl or 8s 10 crore whlchever ls
lower wlLhouL havlng a credlL raLlng A n8lC may geL lLself raLed by any of Lhe four raLlng
agencles namely C8lSlL CA8L lC8A and ll1CP 8aLlngs lndla vL LLd
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What are the symbo|s of m|n|mum |nvestment grade rat|ng of d|fferent compan|es?
1he symbols of mlnlmum lnvesLmenL grade raLlng of Lhe CredlL raLlng agencles are
name of raLlng agencles Level of mlnlmum lnvesLmenL grade credlL raLlng (MlC8)
O C8lSlL lA (lA MlnuS)
O lC8A MA (MA MlnuS)
O CA8L CA8L 888 (lu)
O ll1CP 8aLlngs lndla vL LLd LA(lnd)(lu)
O lL may be added LhaL A ls noL equlvalenL Lo A AA ls noL equlvalenL Lo AA and AAA ls noL
equlvalenL Lo AAA
Can a N8IC wh|ch |s yet to be rated accept pub||c depos|t?
no a n8lC cannoL accepL deposlL wlLhouL raLlng excepL an LL/P company
complylng wlLh prudenLlal norms and havlng C8A8 of 13 Lhough noL raLed may accepL
publlc deposlL up Lo 13 Llmes of nCl or 8s 10 crore whlchever ls less
What are the respons|b|||t|es of the N8ICs accept|ng]ho|d|ng pub||c depos|ts w|th
regard to subm|ss|on of keturns and other |nformat|on to k8I?
1he n8lCs accepLlng publlc deposlLs should furnlsh Lo 88l
O l AudlLed balance sheeL of each flnanclal year and an audlLed proflL and loss accounL ln
respecL of LhaL year as passed ln Lhe general meeLlng LogeLher wlLh a copy of Lhe reporL
of Lhe 8oard of ulrecLors and a copy of Lhe reporL and Lhe noLes on accounLs furnlshed by
lLs AudlLors
O ll SLaLuLory Annual 8eLurn on deposlLs n8S 1
O lll CerLlflcaLe from Lhe AudlLors LhaL Lhe company ls ln a poslLlon Lo repay Lhe deposlLs as
and when Lhe clalms arlse
O lv CuarLerly 8eLurn on llquld asseLs
O v Palfyearly 8eLurn on prudenLlal norms
O vll Palfyearly ALM 8eLurns by companles havlng publlc deposlLs of 8s 20 crore and
above or wlLh asseLs of 8s 100 crore and above lrrespecLlve of Lhe slze of deposlLs
O vlll MonLhly reLurn on exposure Lo caplLal markeL by companles havlng publlc deposlLs of
8s 30 crore and above and
O lx A copy of Lhe CredlL 8aLlng obLalned once a year along wlLh one of Lhe Palfyearly
8eLurns on prudenLlal norms as aL (v) above



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What are the documents or the comp||ance requ|red to be subm|tted to the keserve 8ank of
Ind|a by the N8ICs not accept|ng]ho|d|ng pub||c depos|ts?
1he n8lCs havlng asseLs slze of 8s 100 crore and above buL noL accepLlng publlc deposlLs
are requlred Lo submlL a MonLhly 8eLurn on lmporLanL flnanclal parameLers of Lhe
company All companles noL accepLlng publlc deposlLs have Lo pass a board resoluLlon Lo
Lhe effecL LhaL Lhey have nelLher accepLed publlc deposlL nor would accepL any publlc
deposlL durlng Lhe year
Powever all Lhe n8lCs (oLher Lhan Lhose exempLed) are requlred Lo be reglsLered wlLh
88l and also make sure LhaL Lhey conLlnue Lo be ellglble Lo remaln 8eglsLered lurLher all
n8lCs (lncludlng nondeposlL Laklng) should submlL a cerLlflcaLe from Lhelr SLaLuLory
AudlLors every year Lo Lhe effecL LhaL Lhey conLlnue Lo underLake Lhe buslness of n8ll
requlrlng holdlng of Co8 under SecLlon 43lA of Lhe 88l AcL 1934
88l has powers Lo cause lnspecLlon of Lhe books of any company and call for any oLher
lnformaLlon abouL lLs buslness acLlvlLles
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lor Lhls purpose Lhe n8lC ls requlred Lo furnlsh Lhe lnformaLlon ln respecL of any change
ln Lhe composlLlon of lLs board of dlrecLors address of Lhe company and lLs dlrecLors and
Lhe name/s and offlclal deslgnaLlons of lLs prlnclpal offlcers and Lhe name and offlce
address of lLs audlLors WlLh effecL from Aprll 1 2007 nondeposlL Laklng n8lCs wlLh
asseLs slze of 8s 100 crore and above have been advlsed Lo malnLaln mlnlmum C8A8 of
10 and shall also be sub[ecL Lo slngle/group exposure norms



34 1ypes of n8lC'S 8eglsLered wlLh 88l
Crlglnally n8lC'S reglsLered wlLh 88l were Classlfled

n8lC's ln lndla





1 lnvesLmenL Company
2 LqulpmenL Leaslng
Company
3 Loan Company
4 Plre urchase Leaslng
Company



n8ll n8lC lnSu8AnCL Mu1uAL
lunuS
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8eserve 8ank of lndla 8eCrouped Lhe AsseLflnanclng nonbanklng flnanclal companles
(n8lCs) engaged ln flnanclng real and physlcal asseL supporLlng economy acLlvlLysuch as
auLomoblles and general purpose lndusLrlal machlnery as asseL flnanclng companles
(AlCs) 1he remalnlng companles wlll conLlnue Lo be called as loan and lnvesLmenL
companles le wlLh effecL from uecember 6 2006 Lhe above n8lCs reglsLered wlLh 88l
have been reclasslfled as
l AsseL llnance Company (AlC)
ll Loan Company (LC)
lll lnvesLmenL company (lC)

l AsseL flnance Companles (AlC)
AlC are flnanclal lnsLlLuLlons whose prlnclpal buslness ls of flnanclng physlcal
asseLs such as auLomoblles LracLors consLrucLlon equlpmenLs maLerlal handllng
equlpmenLs and oLher machlnes
Lg 8a[a[ AuLo llnance corp lullerLon lndla eLc

ll lnvesLmenL Companles (lC)
lCs generally are lnvolved ln Lhe buslness of shares sLocks bonds
debenLures lssued by governmenL or local auLhorlLy LhaL are markeLable ln naLure
Lg SLock 8roklng Companles CllL flrms

lll Loan Companles (LC)
LCs are loan glvlng companles whlch operaLe ln Lhe buslness of provldlng
loans 1hese can be houslng loans gold loans eLc
Lg Mannapuram Cold llnance PulC
Investment Compan|es are further d|v|ded |nto fo||ow|ng subcategor|es
% Core Investment Compan|es
1he 8eserve 8ank of lndla vlde lLs noLlflcaLlon no un8S(u)CCno
197/0310001/201011 daLed AugusL 12 2010 a new class of n8lCs by Lhe name of
'Core lnvesLmenL Companles' (ClC) was added
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Core lnvesLmenL Companles ln Lerms of 88l's noLlflcaLlon means
A nonbanklng flnanclal company carrylng on Lhe buslness of acqulslLlon of shares
and securlLles and whlch saLlsfles Lhe followlng condlLlons as on Lhe daLe of Lhe lasL
audlLed balance sheeL
(l) lL holds noL less Lhan 90 of lLs neL asseLs ln Lhe form of lnvesLmenL ln equlLy shares
preference shares bonds debenLures debL or loans ln group companles
(ll) lLs lnvesLmenLs ln Lhe equlLy shares (lncludlng lnsLrumenLs compulsorlly converLlble
lnLo equlLy shares wlLhln a perlod noL exceedlng 10 years from Lhe daLe of lssue) ln group
companles consLlLuLes noL less Lhan 60 of lLs neL asseLs
neL asseLs for Lhe purpose of Lhls provlslon would mean LoLal asseLs excludlng
% Cash and bank balances
% lnvesLmenL ln money markeL lnsLrumenLs and money markeL muLual funds
% advance paymenLs of Laxes and
% deferred Lax paymenL
(lll) lL does noL Lrade ln lLs lnvesLmenLs ln shares bonds debenLures debL or loans ln
group companles excepL Lhrough block sale for Lhe purpose of dlluLlon or dlslnvesLmenL
(lv) lL does noL carry on any oLher flnanclal acLlvlLy referred Lo ln SecLlon 43 l (c) and 43 l
(v) Cf Lhe 8eserve 8ank of lndla AcL 1934 excepL
a lnvesLmenL ln
l 8ank deposlLs
ll Money markeL lnsLrumenLs lncludlng money markeL muLual funds
lll CovernmenL securlLles and
lv 8onds or debenLures lssued by group companles
b) CranLlng of loans Lo group companles and
c) lssulng guaranLees on behalf of group companles

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CHAPTFR-4
HlST0RlCAl
ACK6R0ut0















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4.1. H8TORCAL BACKGROUND:-

1he 8eserve 8ank of lndla AcL 1934 was amended on 1sL uecember 1964
by Lhe 8eserve 8ank AmendmenL AcL 1963 Lo lnclude provlslons relaLlng Lo nonbanklng
lnsLlLuLlons recelvlng deposlLs and flnanclal lnsLlLuLlons lL was observed LhaL Lhe exlsLlng
leglslaLlve and regulaLory framework requlred furLher reflnemenL and lmprovemenL
because of Lhe rlslng number of defaulLlng n8lCs and Lhe need for an efflclenL and qulck
sysLem for redressal of grlevances of lndlvldual deposlLors Clven Lhe need for conLlnued
exlsLence and growLh of n8lCs Lhe need Lo develop a framework of prudenLlal
leglslaLlons and a supervlsory sysLem was felL especlally Lo encourage Lhe growLh of
healLhy n8lCs and weed ouL Lhe lnefflclenL ones WlLh a vlew Lo revlew Lhe exlsLlng
framework and address Lhese shorLcomlngs varlous commlLLees were formed and
reporLs were submlLLed by Lhem Some of Lhe commlLLees and lLs recommendaLlons are
glven hereunder

1 !ames 8a[ CommlLLee (1974)
1he !ames 8a[ CommlLLee was consLlLuLed by Lhe 8eserve 8ank of lndla ln 1974
AfLer sLudylng Lhe varlous money clrculaLlon schemes whlch were floaLed ln Lhe counLry
durlng LhaL Llme and Laklng lnLo conslderaLlon Lhe lmpacL of such schemes on Lhe
economy Lhe CommlLLee afLer exLenslve research and analysls had suggesLed for a ban
on rlze chlL and oLher schemes whlch were causlng a greaL loss Lo Lhe economy 8ased
on Lhese suggesLlons Lhe rlze ChlLs and Money ClrculaLlon Schemes (8annlng) AcL 1978
was enacLed

2 ChakravarLhy CommlLLee (1984)
1hls CommlLLee headed by Shrl Sukhamoy ChakravarLy was formed Lo revlew Lhe Worklng
of Lhe MoneLary SysLem lL made several recommendaLlons for Lhe developmenL of
money markeL

3 vaghul CommlLLee (1987)
As a followup Lo Lhe ChakravarLy commlLLee Lhe 88l seL up a Worklng Croup
on MoneyMarkeL under Lhe Chalrmanshlp of Shrl n vaghul whlch submlLLed lLs 8eporL ln
1987conLalnlng number of measures Lo wlden and deepen Lhe money markeL

4 naraslmhan CommlLLee (1991)
1hls commlLLee was formed Lo examlne all aspecLs relaLlng Lo Lhe sLrucLure organlzaLlon
funcLlonlng of Lhe flnanclal sysLem

3 urACShah CommlLLee (1992)
1he Worklng Croup on llnanclal Companles consLlLuLed ln Aprll 1992 le Lhe Shah
CommlLLee seL ouL Lhe agenda for reforms ln Lhe n8lC secLor 1hls commlLLee made wlde
ranglng recommendaLlons coverlng lnLeralla enLry polnL norms compulsory reglsLraLlon
n8lC

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of large slzed n8lCs prescrlpLlon of prudenLlal norms for n8lCs on Lhe llnes of banks
sLlpulaLlon of credlL raLlng for accepLance of publlc deposlLs and more sLaLuLory powers
Lo 8eserve 8ank for beLLer regulaLlon of n8lCs

6 khanna CommlLLee (1993)
1hls Croup was seL up wlLh Lhe ob[ecLlve of deslgnlng a comprehenslve and
effecLlve supervlsory framework for Lhe nonbanklng companles segmenL of Lhe flnanclal
sysLem
1he lmporLanL recommendaLlons of Lhls commlLLee are as follows
l lnLroducLlon of a supervlsory raLlng sysLem for Lhe reglsLered n8lCs 1he raLlngs
asslgned Lo n8lCs would prlmarlly be Lhe Lool for Lrlggerlng onslLe lnspecLlons aL varlous
lnLervals
ll Supervlsory aLLenLlon and focus of Lhe 8eserve 8ank Lo be dlrecLed ln a comprehenslve
manner only Lo Lhose n8lCs havlng neL owned funds of 8s100 lakhs and above
lll Supervlslon over unreglsLered n8lCs Lo be exerclsed Lhrough Lhe offslLe survelllance
mechanlsm and Lhelr onslLe lnspecLlon Lo be conducLed selecLlvely as deemed necessary
dependlng on clrcumsLances
lv need Lo devlse a sulLable sysLem for coordlnaLlng Lhe onslLe lnspecLlon of Lhe n8lCs
by Lhe 8eserve 8ank ln Landem wlLh oLher regulaLory auLhorlLles so LhaL Lhey were
sub[ecLed Lo oneshoL examlnaLlon by dlfferenL regulaLory auLhorlLles
v Some of Lhe nonbanklng nonflnanclal companles llke lndusLrlal/manufacLurlng unlLs
were also underLaklng flnanclal acLlvlLles lncludlng accepLance of deposlLs lnvesLmenL
operaLlons leaslng eLc Lo a greaL exLenL 1he commlLLee sLressed Lhe need for ldenLlfylng
an approprlaLe auLhorlLy Lo regulaLe Lhe acLlvlLles of Lhese companles lncludlng
planLaLlon and anlmal husbandry companles noL falllng under Lhe regulaLory conLrol of
elLher ueparLmenL of Company Affalrs or Lhe 8eserve 8ank as far as Lhelr moblllzaLlon of
publlc deposlL was concerned
vl lnLroducLlon of a sysLem whereby Lhe names of Lhe n8lCs whlch had noL complled
wlLh Lhe regulaLory framework / dlrecLlons of Lhe 8ank or had falled Lo submlL Lhe
prescrlbed reLurns consecuLlvely for Lwo years could be publlshed ln reglonal
newspapers
MosL of Lhe recommendaLlons of Lhe CommlLLee were accepLed by Lhe 8eserve 8ank
afLer an ln depLh analysls and Lhe revlsed framework for effecLlve supervlslon of Lhe
n8lCs lncludlng off slLe monlLorlng of n8lCs ls belng puL ln place

7 vasudev CommlLLee (1998)
1hls commlLLee emphaslsed Lhe need for sLrengLhenlng of Lhe n8lC secLor lncludlng
enLry norms and prudenLlal norms and dealL wlLh framework for accepLance of publlc
deposlLs lssues concernlng unlncorporaLed flnanclal lnLermedlarles and addresses lssues
of supervlslon of n8lCs
1he lmporLanL recommendaLlons of Lhls commlLLee are as follows
l resenL mlnlmum capLlal requlremenL of 8s23 lakhs Lo be revlewed upwards keeplng ln
vlew Lhe need Lo lmparL greaLer flnanclal soundness and achleve economles of scale ln
Lerms of efflclency of operaLlons and managerlal skllls
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ll As operaLlons of n8lCs are concenLraLed ln remoLe areas Lhe 88l may apprlse Lhe
SLaLe CovernmenLs of Lhe companles whlch have been granLed reglsLraLlon as well as Lhe
companles whose appllcaLlons have been re[ecLed
lll 1he presenL caplLal adequacy raLlo requlremenL may be malnLalned aL 12 for all
raLed n8lCs hlgher raLe of abouL 13 need Lo be prescrlbed by 88l for Lhose n8lCs
whlch seek publlc deposlL wlLhouL credlL raLlng
lv 88l may sLlpulaLe LhaL Lhe n8lCs should lnvesL aL leasL 23 of Lhelr reserves ln
markeLable securlLles aparL from Lhe SL8 securlLles already held by Lhe n8lCs
v Llnklng of quanLum of publlc deposlLs wlLh credlL raLlng because aparL from havlng Lhe
effecL of conferrlng regulaLory funcLlons on Lhe raLlng agencles lL also exposes Lhe n8lCs
Lo frequenL asseL llablllLy mlsmaLches arlslng ouL of changes ln credlL raLlng

vl 88l should conslder measures for easlng Lhe flow of credlL from banks Lo n8lCs and
Lhen conslder prescrlblng a sulLable raLlo as beLween secured and unsecured deposlLs for
n8lCs
vll AppolnLmenL of deposlLors' grlevance 8edressal auLhorlLles wlLh speclfled LerrlLorlal
[urlsdlcLlon
vlll 1he procedure for llquldaLlon of n8lCs Lo be subsLanLlally ln llne wlLh Lhose avallable
for banks
lx A separaLe lnsLrumenLallLy for regulaLlon and supervlslon of n8lCs under Lhe aegls of
Lhe 88l should be seL up so LhaL Lhere ls a greaL focus ln regulaLlon and supervlslon of Lhe
n8lC secLor
x 1he CommlLLee felL lL was noL [udlclous Lo lnLroduce a deposlL lnsurance scheme for Lhe
deposlLors ln n8lCs because of Lhe moral hazard lssues llkellhood of asseLs sLrlpplng and
llkely negaLlve lmpacL on Lhe growLh of a healLhy n8lC secLor
xl 8eserve 8ank could use Lhe servlces of charLered accounLanLs wlLh sulLable experlence
and capablllLles Lo carry ouL lnspecLlon of Lhe smaller n8lCs
1he nonbanklng flnanclal companles (n8lCs) flourlshed ln lndla ln Lhe decade of Lhe
1980s agalnsL Lhe backdrop of a hlghly regulaLed banklng secLor 1he slmpllfled sancLlon
procedures and low enLry barrlers encouraged Lhe enLry of a hosL of n8lCs Powever ln
many cases mlsmanagemenL / lack of efflclenL managemenL resulLed ln problems arlslng
ouL of adverse porLfollo selecLlon unprudenL operaLlons lnablllLy Lo manage rlsk boLh on
asseL and llablllLy slde ln many cases due Lo non avallablllLy of adequaLe credlL from Lhe
banklng secLor n8lCs had Lo rely excesslvely on unsecured publlc deposlLs for Lhelr
exlsLence / survlval by paylng hlgher raLe of lnLeresL 1o servlce such hlgh cosL deposlLs
some n8lCs were forced Lo deploy Lhelr funds whlch carrled hlgh reLurn coupled wlLh
hlgh rlsk 1hls ulLlmaLely resulLed ln hlgher rlsks for Lhelr deposlLors whlch ln some cases
had culmlnaLed ln Lhe crlsls of confldence and credlblllLy
under Lhls scenarlo lL was felL necessary Lo lnlLlaLe lmmedlaLe acLlon for Lhe proLecLlon
of deposlLors' lnLeresL 88l lssued Lhe non 8anklng Companles (8eserve 8ank) ulrecLlons
1977 guldellnes on prudenLlal norms and varlous oLher ulrecLlons and clarlflcaLlons from
Llme Lo Llme for governlng Lhe acLlvlLles of n8lCs CenLral CovernmenL durlng 1974
lnLroduced 38A ln Lhe Companles AcL 1936 whlch empowered CenLral CovernmenL Lo
n8lC

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regulaLe accepLance and renewal of deposlLs and Lo frame rules ln consulLaLlon wlLh
8eserve 8ank of lndla (88l) prescrlblng
(a) Lhe llmlL up Lo
(b) Lhe manner and
(c) Lhe condlLlons sub[ecL Lo whlch deposlLs may be lnvlLed or accepLed / renewed by
companles
1he CenLral CovernmenL ln consulLaLlon wlLh 88l framed Companles (AccepLance of
ueposlLs) 8ules 1973 ConLlnulng Lhls process 88l AcL 1934 was amended ln 1997 whlch
auLhorlsed Lhe 8eserve 8ank Lo deLermlne pollcles and lssue dlrecLlons Lo n8lCs
regardlng lncome recognlLlon accounLlng sLandards nAs caplLal adequacy eLc 1he
amended AcL lnLer alla provlded for compulsory reglsLraLlon of all n8lCs lnLo Lhree
broad caLegorles vlz
(l) n8lCs accepLlng publlc deposlL
(ll) n8lCs noL accepLlng/holdlng publlc deposlL and
(lll) core lnvesLmenL companles (le Lhose acqulrlng shares/securlLles of Lhelr group/
holdlng/subsldlary companles Lo Lhe exLenL of noL less Lhan 90 per cenL of LoLal asseLs
and whlch do noL accepL publlc deposlL)
unLll some years back Lhe prudenLlal norms appllcable Lo banklng and non
banklng flnanclal companles were noL unlform Moreover wlLhln Lhe n8lC group Lhe
prudenLlal norms appllcable Lo deposlL Laklng n8lCs (n8lCsu) were more sLrlngenL Lhan
Lhose for nondeposlL Laklng n8lCs (n8lCsnu) Slnce Lhe n8lCsnu were noL sub[ecLed
Lo any exposure norms Lhey could Lake large exposures 1he absence of caplLal adequacy
requlremenLs resulLed ln hlgh leverage by Lhe n8lCs Slnce 2000 however Lhe 8eserve
8ank has lnlLlaLed measures Lo reduce Lhe scope of 'regulaLory arblLrage' beLween banks
n8lCsu and n8lCsnu

Some of Lhe recenL measures lnclude
1 Advlslng n8lC on AdverLlsemenL ln LlecLronlc Medlaln order Lo ensure Lransparency ln
Lhe lnLeresL of deposlLors ln Lhe conLexL of such adverLlsemenLs a provlslon was
lncorporaLed ln Lhe non8anklng llnanclal Companles AccepLance of ubllc ueposlLs
(8eserve 8ank) ulrecLlons 1998 ln Lerms of whlch companles are requlred Lo sLaLe LhaL
Lhey have a valld CerLlflcaLe of 8eglsLraLlon lssued by Lhe 8eserve 8ank Powever Lhe
8eserve 8ank does noL accepL any responslblllLy or guaranLee abouL Lhe presenL poslLlon
as Lo Lhe flnanclal soundness of Lhe company or for Lhe correcLness of any of Lhe
sLaLemenLs or represenLaLlons made or oplnlons expressed by Lhe company and for
repaymenL of deposlLs/dlscharge of Lhe llablllLles by Lhe company
2 CorporaLe Covernance LlsLed n8lCs whlch are requlred Lo adhere Lo llsLlng agreemenL
and rules framed by SL8l on CorporaLe Covernance are already requlred Lo comply wlLh
SL8l prescrlpLlons on CorporaLe Covernance
As per Lhe 88l Clrcular 88l/20062007/383 un8Su/CC 94/0310042/200607 daLed
8032007 guldellnes for corporaLe governance have been proposed for
1 All ueposlL Laklng n8lCs wlLh deposlL slze of 8s 20 crore and above
2 All nondeposlL Laklng n8lCs wlLh asseL slze of 8s 100 crore and above (n8lCnuSl)
Some of Lhe guldellnes lnclude
n8lC

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a) ConsLlLuLlon of AudlL CommlLLee ln case of n8lCu wlLh deposlL slze of 8s 20 crore
b) ConsLlLuLlon of nomlnaLlon commlLLee 1he guldellnes sLaLe LhaL lL would be deslrable
LhaL
n8lCu wlLh deposlL slze of 8s 20 crore and above and n8lCnuSl may form a
nomlnaLlon
CommlLLee Lo ensure 'flL and proper' sLaLus of proposed/exlsLlng ulrecLors

c) ConsLlLuLlon of 8lsk ManagemenL CommlLLee1o manage Lhe lnLegraLed rlsk a rlsk
managemenL commlLLee may be formed ln addlLlon Lo Lhe ALCC (AsseL LlablllLy
ManagemenL CommlLLee) ln case of Lhe above caLegory of n8lCs
d) ulsclosure 1ransparency CerLaln lnformaLlon should be puL up by Lhe n8lC Lo Lhe
8oard of ulrecLors aL regular lnLervals as may be prescrlbed by Lhe 8oard ln Lhls regard
e) Compllance wlLh lnsLrucLlons on connecLed lendlng relaLlonshlps

3 8evlslng 8aLe of lnLeresL
1he maxlmum lnLeresL raLe payable on publlc deposlLs by n8lCs was
revlsed Lo 123 per cenL per annum on and from Aprll 24 2007

4 Advlslng n8lCs for
(a) noL engaglng LelemarkeLers who do noL have any valld reglsLraLlon CerLlflcaLe from
ueparLmenL of 1elecommunlcaLlons (uo1) CovernmenL of lndla as 1elemarkeLers
(b) lurnlshlng llsL of LelemarkeLers engaged by Lhem alongwlLh Lhe reglsLered
1elnos belng used by Lhem for maklng LelemarkeLlng calls Lo 18Al and
(c) ensurlng LhaL all Lhe agenLs presenLly engaged by Lhem reglsLer Lhemselves wlLh uo1
LelemarkeLers ln pursuance Lo Lhe 1elecom 8egulaLory AuLhorlLy of lndla (18Al) havlng
framed 1elecom unsollclLed Commerclal CommunlcaLlons (uCC) 8egulaLlons for curblng
uCC Lo Lhe subscrlbers who do noL wanL Lo recelve uCC

3 8eporLlng of Secondary MarkeL 1ransacLlons
All n8lCs were advlsed Lo reporL Lhelr secondary markeL LransacLlons ln corporaLe bonds
done ln C1C markeL on 1he llxed lncome Money MarkeL and uerlvaLlves AssoclaLlon of
lndla's (llMMuA's) reporLlng plaLform wlLh effecL from SepLember 1 2007
llMMuA ls an AssoclaLlon of Commerclal 8anks llnanclal lnsLlLuLlons and rlmary
uealers llMMuA ls a volunLary markeL body for Lhe bond Money And uerlvaLlves
MarkeLs

6 MonlLorlng of lrauds ln n8lCs
ln March 2008 all deposlL Laklng n8lCs (lncludlng 8n8Cs) were advlsed LhaL Lhe exLanL
lnsLrucLlons wlLh regard Lo monlLorlng of frauds were revlsed and as such cases of
'negllgence and cash shorLages' and 'lrregularlLles ln forelgn exchange LransacLlons' were
Lo be reporLed as fraud lf Lhe lnLenLlon Lo cheaL/defraud was suspecLed/proved
Powever ln cases where fraudulenL lnLenLlon was noL suspecLed/ proved aL Lhe Llme of
deLecLlon buL lnvolve cash shorLages of more Lhan Len Lhousand rupees and cases where
cash shorLages more Lhan flve Lhousand rupees were deLecLed by
n8lC

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managemenL/audlLor/lnspecLlng offlcer and noL reporLed on Lhe occurrence by Lhe
persons handllng cash Lhen such cases may also be LreaLed as fraud and reporLed
accordlngly

7 lssulng Culdellnes on 8eglsLraLlon CperaLlons rudenLlal norms and lnvesLmenL
ulrecLlons for MorLgage CuaranLee Companles

8 lssulng guldellnes on 1reaLmenL of ueferred 1ax AsseLs (u1A) and ueferred 1ax
LlablllLles (u1L) for CompuLaLlon of CaplLal
As creaLlon of deferred Lax asseLs (u1A) or u1L glves rlse Lo cerLaln lssues lmpacLlng Lhe
balance sheeL of Lhe company n8lCs were advlsed on !uly 31 2008 regardlng Lhe
regulaLory LreaLmenL Lo be glven Lo Lhese lssues As per Lhese guldellnes Lhe balance ln
u1L accounL wlll noL be ellglble for lncluslon ln 1ler l or 1ler ll caplLal for caplLal adequacy
purpose as lL ls noL an ellglble lLem of caplLal u1A wlll be LreaLed as an lnLanglble asseL
and should be deducLed from 1ler l caplLal n8lCs were advlsed Lo ensure compllance
wlLh Lhese guldellnes from Lhe accounLlng year endlng March 31 2009

9 lnsLrucLlng on Lhe obllgaLlons of n8lC under MLA AcL2002
Cash LransacLlon reporLlng by branches/offlces of n8lCs Lo Lhelr rlnclpal Cfflcer should
be submlLLed on a monLhly basls and Lhe rlnclpal Cfflcer ln Lurn should ensure Lo
submlL cash LransacLlon reporL (C18) for every monLh Lo Lhe llnanclal lnLelllgence unlL
lndla (llulnu) wlLhln Lhe prescrlbed Llme schedule

10 underLaklng varlous ollcy lnlLlaLlves for n8lCsnuSl ln 200708 such as Culdellnes
on
CaplLal Adequacy LlquldlLy and ulsclosure norms lssuance of erpeLual uebL
lnsLrumenLs and Access Lo ShorL1erm lorelgn Currency 8orrowlngs

11 lnsLrucLlons on CaplLal adequecy norms for non deposlL Laklng n8lC
1he 8eserve 8ank of lndla (88l) on 2nd !une 2008 asked nondeposlL Laklng n8lCs Lo ralse
Lhe mlnlmum CaplLal Lo 8lskwelghLed AsseLs 8aLlo (C8A8) from 10 now Lo 12 wlLh
lmmedlaLe effecL and furLher Lo 13 wlLh effecL from Aprll 1 2009

n8lC

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CHAPTFR-5.
PRF-RF0ulSlTF F0R
CARRYlt6 0t uSltFSS
0F tFC










n8lC

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5.1 Registration Requirements:-
ln Lerms of SecLlon 43lA of Lhe 88l AcL 1934 lL ls mandaLory LhaL every n8lC should be
reglsLered wlLh 88l Lo commence or carry on any buslness of nonbanklng flnanclal
lnsLlLuLlon as deflned ln clause (a) of SecLlon 43 l of Lhe 88l AcL 1934
LxempLlons from Lhe provlslons of 88l AcL 1934 As lald down ln MasLer Clrcular Lhe
followlng are some exempLlons from Lhe provlslons of 88l AcL 1934 daLed !uly 1 2008
buL sub[ecL Lo cerLaln condlLlons
(l) A Pouslng llnance lnsLlLuLlons has been exempLed from provlslons of ChapLer lll 8 of
Lhe 88l AcL 1934
(ll) A merchanL banklng company has been exempLed from Lhe provlslons of SecLlon 43lA
8equlremenL of reglsLraLlon and neL owned fund
SecLlon 43l8 MalnLenance of llquld asseLs and 43lC CreaLlon of 8eserve lund of Lhe
88l AcL 1934 non8anklng llnanclal Companles AccepLance of ubllc ueposlLs (8eserve
8ank) ulrecLlons 1998 and non8anklng llnanclal Companles rudenLlal norms (8eserve
8ank) ulrecLlons 1998
(lll) ln Lhe case of Mlcro llnance Companles and MuLual 8eneflL Companles SecLlons 43
lA 43l8 and 43lC of Lhe 8eserve 8ank of lndla AcL 1934 shall noL apply
(lv) ln Lhe case of CovernmenL Companles SecLlons 43l8 and 43lC of Lhe 8eserve 8ank
of lndla AcL 1934 paragraphs 4 Lo 7 of Lhe non8anklng llnanclal Companles AccepLance
of ubllc ueposlLs ( 8eserve 8ank) ulrecLlons 1998 and non8anklng llnanclal Companles
rudenLlal norms (8eserve 8ank) ulrecLlons 1998 excepL paragraph 13 A of Lhe sald
dlrecLlons relaLlng Lo submlsslon of lnformaLlon Lo 8eserve 8ank ln regard Lo change of
address dlrecLors audlLors eLc shall noL apply
(v) ln Lhe case of venLure CaplLal lund Companles SecLlon 43lA and SecLlon 43lC of Lhe
8eserve 8ank of lndla AcL 1934 shall noL apply
(vl) ln Lhe case of lnsurance/SLock Lxchange/SLock 8roker/Sub8roker1he provlslons of
SecLlon 43lA 43l8 43lC 43M8 and 43MC of Lhe 8eserve 8ank of lndla AcL 1934 and
provlslons of non8anklng llnanclal Companles AccepLance of ubllc ueposlL (8eserve
8ank) ulrecLlons conLalned ln noLlflcaLlon no ulC118 / uC(S1)98 daLed !anuary 31
1998 Lhe non8anklng llnanclal Companles rudenLlal norms (8eserve 8ank) ulrecLlons
1998 daLed !anuary 31 1998 shall noL apply
n8lC

TY BFN Page 9

(vll) ln Lhe case of nldhl Companles Lhe provlslons of SecLlons 43lA 43l8 and 43lC of
Lhe 8eserve 8ank of lndla AcL 1934 shall noL apply
(vlll) ChlL Companles dolng Lhe buslness of chlLs excluslvely are exempLed
1he n8lC ls requlred Lo submlL lLs appllcaLlon for reglsLraLlon ln Lhe prescrlbed formaL
along wlLh necessary documenLs for 8ank's conslderaLlon 1he 8ank lssues CerLlflcaLe of
8eglsLraLlon afLer saLlsfylng lLself LhaL Lhe condlLlons as enumeraLed ln SecLlon 43lA of
Lhe 88l AcL 1934 are saLlsfled
An lndlcaLlve llsL of documenLs/lnformaLlon Lo be furnlshed along wlLh Lhe appllcaLlon
All documenLs/lnformaLlon ls Lo be submlLLed ln dupllcaLe
1 Mlnlmum nCl requlremenL 8s 200 lakh

2 AppllcaLlon Lo be submlLLed ln Lwo separaLe seLs Lled up properly ln Lwo
separaLe flles
3 Annex ll Lo be submlLLed duly slgned by Lhe dlrecLor/AuLhorlzed slgnaLory
and cerLlfled by Lhe sLaLuLory audlLors
4 Annex lll (dlrecLors' proflle) Lo be separaLely fllled up for each dlrecLor
Care should be Laken Lo glve deLalls of bankers ln respecL of
flrms/companles/enLlLles ln whlch dlrecLors have subsLanLlal lnLeresL
3 ln case Lhe dlrecLors are assoclaLed or have subsLanLlal lnLeresL ln oLher
companles lndlcaLe clearly Lhe acLlvlLy of Lhe companles (wheLher n8lC
or noL)
6 8oard 8esoluLlon speclflcally approvlng Lhe submlsslon of Lhe appllcaLlon
and lLs conLenLs and auLhorlslng slgnaLory
7 8oard 8esoluLlon Lo Lhe effecL LhaL Lhe company has noL accepLed any
publlc deposlL ln Lhe pasL (speclfy perlod)/does noL hold any publlc deposlL
as on Lhe daLe and wlll noL accepL Lhe same ln fuLure wlLhouL Lhe prlor
approval of 8eserve 8ank of lndla ln wrlLlng
8 8oard resoluLlon sLaLlng LhaL Lhe company ls noL carrylng on any n8lC
acLlvlLy/sLopped n8lC acLlvlLy and wlll noL carry on/commence Lhe same
before geLLlng reglsLraLlon from 88l
9 AudlLors CerLlflcaLe cerLlfylng LhaL Lhe company ls/does noL accepL/ls noL
holdlng ubllc ueposlL
10 AudlLors CerLlflcaLe cerLlfylng LhaL Lhe company ls noL carrylng on any
n8lC acLlvlLy
11 neL owned fund as on daLe
12 CerLlfylng compllance wlLh secLlon 43S of ChapLer lllC of Lhe 88l AcL
1934 ln whlch dlrecLor/s of Lhe company has subsLanLlal lnLeresL
13 ueLalls of changes ln Lhe Memorandum and ArLlcles of AssoclaLlon duly
cerLlfled
n8lC

TY BFN Page

14 LasL Lhree years AudlLed balance sheeL along wlLh dlrecLors audlLors
reporL
13 ueLalls of clauses ln Lhe memorandum relaLlng Lo flnanclal buslness
16 ueLalls of change ln Lhe managemenL of Lhe company durlng lasL flnanclal
year Llll daLe lf any and reasons Lhereof
17 ueLalls of acqulslLlons mergers of oLher companles lf any LogeLher wlLh
supporLlng documenLs
18 ueLalls of group companles/assoclaLe concerns/subsldlarles/holdlng
companles
19 ueLalls of lnfuslon of caplLal lf any durlng lasL flnanclal year LogeLher wlLh
Lhe copy of reLurn of alloLmenL flled wlLh 8eglsLrar of Companles
20 ueLalls of Lhe bank balances/bank accounLs/compleLe posLal address of Lhe
branch/bank loan/credlL faclllLles eLc avalled
21 8uslness plan for nexL Lhree years lndlcaLlng markeL segmenL Lo be covered
wlLhouL any elemenL of publlc deposlLs
22 Cash flow sLaLemenL asseL/lncome paLLern sLaLemenL for nexL Lhree years
23 8rlef background noLe on Lhe acLlvlLles of Lhe company durlng Lhe lasL
Lhree years and Lhe reasons for applylng for n8lC reglsLraLlon
24 ll (b) ls Lhe company engaged ln any caplLal markeL acLlvlLy? lf so wheLher
Lhere has been any noncompllance wlLh SL8l 8egulaLlons?
(SLaLemenL Lo be cerLlfled by AudlLors)
23 WheLher any prohlblLory order was lssued ln Lhe pasL Lo Lhe company or
any oLher n8lC/8n8C wlLh whlch Lhe dlrecLors/promoLers eLc were
assoclaLed? lf yes deLalls Lhere of

26 WheLher Lhe company or any of lLs dlrecLors was/ls lnvolved ln any crlmlnal
case lncludlng under secLlon 138(1) of Lhe negoLlable lnsLrumenLs AcL? lf
yes deLalls Lhereof
27 WheLher Lhe company was granLed any permlsslon by LCu Lo funcLlon as
lullfledged Money Changers?
28 WheLher Lhe company was/ls auLhorlsed by LCu Lo accepL deposlLs from
n8ls
29 WheLher llL and roper" norms for ulrecLors have been fulfllled
1 Annex l ldenLlflcaLlon parLlculars
2 Annex ll SLaLemenL on prudenLlal norms
3 Annex lll lnformaLlon abouL Lhe managemenL
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All n8lCs reglsLered wlLh 88l should make sure LhaL Lhey conLlnue Lo be ellglble Lo reLaln
Lhe 88l 8eglsLraLlon
5.2 Minimum Net-owned Fund:-
A company lncorporaLed under Lhe Companles AcL 1936 and deslrous of
commenclng buslness of nonbanklng flnanclal lnsLlLuLlon as deflned under SecLlon 43 l(a)
of Lhe 88l AcL 1934 should have a mlnlmum neL owned fund of 8s 23 lakh (ralsed Lo 8s
200 lakh wef Aprll 21 1999)
neL Cwned lund ls deflned ln Lhe LxplanaLlon Lo SecLlon 43lA of Lhe 88l AcL 1934 as
follows
(a) 1he aggregaLe of Lhe paldup equlLy caplLal and free reserves as dlsclosed ln Lhe laLesL
balance sheeL of Lhe company afLer deducLlng Lherefrom
(l) accumulaLed balance of loss
(ll) ueferred revenue expendlLure and
(lll) CLher lnLanglble asseLs and
(b) lurLher reduced by Lhe amounLs represenLlng
(1) lnvesLmenLs of such company ln shares of
(l) lLs subsldlarles
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(ll) Companles ln Lhe same group
(lll) All oLher nonbanklng flnanclal companles and
(2) 1he book value of debenLures bonds ouLsLandlng loans and advances (lncludlng
hlrepurchase and lease flnance) made Lo and deposlLs wlLh
(l) Subsldlarles of such company and
(ll) Companles ln Lhe same group Lo Lhe exLenL such amounL exceeds Len per cenL of (a)
above
vlde 88l/200708/369 un8S (u) CC no 114 /03 02039/200708 daLed !une 17 2008
88l has lnsLrucLed all deposlL Laklng n8lCs as follows
ln order Lo sLrengLhen Lhe flnanclal sysLem ln general and deposlL Laklng enLlLles ln
parLlcular n8lCs accepLlng deposlLs should be adequaLely caplLallzed and aL Lhe same
Llme also have a unlform mlnlmum nCl
1o ensure a measured movemenL Lowards sLrengLhenlng Lhe flnanclals of all deposlL
Laklng n8lCs by lncreaslng Lhelr nCl Lo a mlnlmum of 8s200 lakh ln a gradual non
dlsrupLlve and nondlscrlmlnaLory manner lL has been declded Lo prescrlbe LhaL
(a) As a flrsL sLep n8lCs havlng mlnlmum nCl of less Lhan 8s 200 lakh may freeze Lhelr
deposlLs aL Lhe level currenLly held by Lhem
(b) lurLher AsseL llnance Companles (AlC) havlng mlnlmum lnvesLmenL grade credlL
raLlng and C8A8 of 12 may brlng down publlc deposlLs Lo a level LhaL ls 13 Llmes Lhelr
nCl whlle all oLher companles may brlng down Lhelr publlc deposlLs Lo a level equal Lo
Lhelr nCl by March 31 2009
(c) 1hose companles whlch are presenLly ellglble Lo accepL publlc deposlLs up Lo a cerLaln
level buL have for any reason noL accepLed deposlLs up Lo LhaL level wlll be permlLLed Lo
accepL publlc deposlLs up Lo Lhe revlsed celllng prescrlbed
(d) Companles on aLLalnlng Lhe nCl of 8s200 lakh may submlL sLaLuLory audlLors
cerLlflcaLe cerLlfylng lLs nCl
(e) 1he n8lCs falllng Lo achleve Lhe prescrlbed celllng wlLhln Lhe sLlpulaLed Llme perlod
may apply Lo Lhe 8eserve 8ank for approprlaLe dlspensaLlon ln Lhls regard whlch may be
consldered on case Lo case basls
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,tegory of NBF !resent eiling
on public
deposits
Revised eiling on
public deposits
AFs m,int,ining RAR of
15%
without credit r,ting ,nd
h,ving
NOF more th,n Rs 25 l,h
but less
th,n Rs 200 l,h



AFs with RAR of 12%
,nd
h,ving minimum investment
gr,de credit r,ting ,nd
h,ving
NOF more th,n Rs 25 l,h
but less th,n Rs 200 l,h



Ls/s with RAR of 15%
,nd
h,ving minimum investment
gr,de credit r,ting ,nd
h,ving
NOF more th,n Rs 25 l,h
but less
th,n Rs 200 l,h

1.5 times of
NOF or

Rs 10 crore

whichever is
less
Equ,l to NOF



4 times of NOF




1.5 times of
NOF
Equ,l to NOF








1.5 times of NOF





Equ,l to NOF
AlCs AsseL llnance Companles
LCs Loan Companles
lCs lnvesLmenL Companles




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CHAPTFR-6
lt0lAt AtKS v/S tFC'S











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61 What |s d|fference between banks N8ICs ?
n8lCs are dolng funcLlons asklng Lo LhaL of banks however Lhere are a few
dlfferences
O (1) A n8lC cannoL accepL demand deposlLs (demand deposlLs are funds deposlLed aL a
deposlLory lnsLlLuLlon LhaL are payable on demand lmmedlaLely or wlLhln a very shorL
perlod llke your currenL or savlngs accounLs)

O (2) lL ls noL a parL of Lhe paymenL and seLLlemenL sysLem and as such cannoL lssue
cheques Lo lLs cusLomers

O (3) ueposlL lnsurance faclllLy of ulCCC ls noL avallable for n8lC deposlLors unllke ln case
of banks

O (4) 1hey are allowed Lo accepL/renew publlc deposlLs for a mlnlmum perlod of 12monLhs
and maxlmum perlod of 60 monLhs

O (3) 1hey cannoL offer lnLeresL raLes hlgher Lhan Lhe celllng raLe prescrlbed by 88l from
Llme Lo Llme (CurrenLly Lhe celllng raLe ls 123)

O (6) 1hey cannoL offer glfLs/ lncenLlves or any oLher addlLlonal beneflL Lo Lhe deposlLors

O (7) 1hey should have mlnlmum lnvesLmenL grade credlL raLlnd from credlL raLlng agencles







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200809 was a dlfflculL year especlally for Lhe flnanclal segmenL across Lhe globe
Powever lndla's sLrong macroeconomlc fundamenLals and flnanclal pollcles have
shlelded lL from Lhe Lurmoll 1he sLudy consldered Lhose banks LhaL have announced
Lhelr resulLs beLween 13Lh Aprll 20Lh May 2008 09 posLed on Lhe webslLe of 8ombay
SLock Lxchange 1he have analyzed ln LoLal 29 banks (boLh publlc prlvaLe secLor) and 7
n8lCs 1he) sLudy has examlned and compared Lhe proflLablllLy of banks wlLh n8lCs
durlng Lhe flnanclal year 200809 Slmple average and proflLablllLy raLlo of Lhe Lwo
segmenLs have been sLudled MeLhodology 1he Al analysls of Lhe lndlan commerclal
banks n8lCs proflLablllLy ls calculaLed uslng Lwo broad parameLers lncludlng neL proflL
and LoLal lncome roflLablllLy 8aLlo ls a class of flnanclal meLrlcs LhaL ls used Lo assess a
buslnesss ablllLy Lo generaLe earnlngs as compared Lo lLs expenses and oLher relevanL
cosLs lncurred durlng a speclflc perlod of Llme

roflLablllLy ls calculaLed as (neL roflL/1oLal lncome)*100

n8lCs more proflLable Lhan commerclal banks desplLe slowdown Lven as Lhe world wlde
flnanclal crlsls and slowdown ln key secLors of Lhe lndlan economy led Lhe non 8anklng
llnanclal Companles Lo face severe cash shorLage durlng Lhe flnanclal year 200809 Lhe
overall proflLablllLy of n8lCs has remalned hlgher Lhan Lhe scheduled commerclal banks
uurlng Lhe flnanclal year 200809 non 8anklng llnanclal Companles (n8lCs) average
proflLablllLy sLood hlgher aL 1890 per cenL as compared Lo Lhe banks wlLh 1008 per cenL
1he n8lCs generally operaLes on Lhe model of lendlng Lo rlskler pro[ecLs wlLh lnLeresL
raLes hlgher Lhan offered by Lhe banklng lnsLlLuLlons As Lhe flnanclal markeLs faced Lhe
heaL of global crlsls durlng Lhe flnanclal year 200809 mosL of Lhe n8lCs faced problems
ln fund ralslng Among Lhe seven n8lCs ln 200809 Lhe hlghesL proflLablllLy was reporLed
by lnfrasLrucLure uevelopmenL llnance Company LlmlLed aL 2089 per cenL wlLh LoLal
lncome sLood aL 8s362638 crore and neL proflL aL 8s73773 crore lL was followed by
Pouslng uevelopmenL llnance Companles LlmlLed (PulC) andower llnance Companles
LlmlLed (lCL) aL 2076 per cenL and 2067 per cenL respecLlvely 1he 8eserve 8ank of
lndla (88l) moneLary measures by cuLLlng lnLeresL raLes durlng 200809 has beneflLed Lhe
n8lCs slnce many of Lhem flnance Lhelr operaLlons Lhrough markeL borrowlngs sald Mr
Sa[[an !lndal resldenL
AggregaLe neL proflL Lo LoLal lncome raLlo of 17 publlc secLor banks and 12 prlvaLe secLor
banks reporLed Lo be 1008 per cenL durlng 200809
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6.2 Top 5 Banks and NBFCs with highest profitability


8AnkS
roflLablllLy
8aLlo
(200809)
ln
non 8anklng llnanclal
Companles
(n8lC)
roflLablllLy
8aLlo
(200809)
ln
lnulAn
8Ank
1383 lnfrasLrucLure
developmenL flnance
company llmlLed
2089
8Ank Cl
lnulA

1330 Pouslng developmenL
flnance companles llmlLed
(PulC)
2076
AxlS 8Ank 1322 ower flnance companles
llmlLed
2067
SLaLe 8ank
Cf
Lravancore
1294 LlC Pouslng llnance L1u 1846
unlon 8ank
Cf
lndla
1291 Manappuram Ceneral
llnance and
Leaslng L1u
1786

Among Lhe 17 publlc secLor banks Lhe hlghesL proflLablllLy was reporLed by lndlan 8ank
and 8ank of lndla aL 1383 per cenL and 1330 per cenL respecLlvely CuL of Lhe prlvaLe
secLor banks Lhe Lop poslLlons were occupled by Axls 8ank and ?es 8ank aL 1322 per cenL
and 1246 per cenL respecLlvely among oLhers 1he 7 n8lCs aggregaLe LoLal lncome grew
by a whooplng 373 per cenL Lo 8s2820872 crore ln l?'09 from 8s1790684 crore ln Lhe
prevlous flscal Powever Lhe aggregaLe LoLal lncome of 29 banks have lncreased by 233
per cenL from 8s 269033 crore ln 200708 Lo 8s 3372069 crore ln 200809 ?earon
year performance of Lhe 29 banks regardlng neL proflL Lo LoLal lncome raLlo aL Lhe
aggregaLe level showed a marglnal decllne durlng l?'09 wlLh 1008 per cenL as agalnsL
l?'08 recorded aL 1032 per cenL whlle ln Lhe case of 7 ma[or n8lCs Lhe raLlo decllned
durlng 200809 aL 1890 per cenL as agalnsL 2180 per cenL ln l?'08


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CHAPTFR- 7
l0l



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7.1. Functions of or types of assistance to be provided by the DB
are as follows:
(|) D|rect I|nanc|a| Ass|stance
1he lu8l provldes dlrecL flnanclal asslsLance Lo Lhe lndusLrlal concerns ln Lhe form of %f%
granLlng loans and advances and %%subscrlblng Lo purchaslng or underwrlLlng Lhe lssues
of sLocks bonds or debenLures
(||) Ind|rect I|nanc|a| Ass|stance
1he lu8l provldes lndlrecL flnanclal asslsLance Lo Lhe small and medlum lndusLrlal
concerns Lhrough oLher flnanclal lnsLlLuLlon such as SLaLe llnance CorporaLlons SLaLe
lndusLrlal uevelopmenL CorporaLlons CooperaLlve banks reglonal rural banks
commerclal banks 1he AsslsLance Lo Lhese lnsLlLuLlons lnclude %f% reflnanclng of loans
glven by Lhe lnsLlLuLlons subscrlblng Lo Lhelr shares and bonds (c) redlscounLlng of bllls
(||I) Deve|opment Ass|stance
1he creaLlon of Lhe uevelopmenL AsslsLance lund ls Lhe speclal feaLure of Lhe lu8l 1he
lund ls used Lo provlde asslsLance Lo Lhose lndusLrles whlch are noL able Lo obLaln funds
ln Lhe normal course malnly because of heavy lnvesLmenL lnvolved or low expecLed raLe
of reLurns 1he flnanclal resources of Lhe lund malnly come from conLrlbuLlons made by
Lhe governmenL ln Lhe form of loans glfLs donaLlons eLc and from oLher sources
AsslsLance from Lhe lund requlres Lhe prlor approval by Lhe governmenL
(|v) romot|ona| Iunct|on
8esldes provldlng flnanclal asslsLance Lhe lu8l also underLakes varlous promoLlonal
acLlvlLles such as markeLlng and lnvesLmenL research Lechno economlc surveys lL
provldes Lechnlcal and admlnlsLraLlve advlce for promoLlon expanslon and beLLer
managemenL of Lhe lndusLrlal concerns





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7.2. Overview of DB:-
lu8l was esLabllshed ln 1964 under an AcL of arllamenL for provldlng credlL and oLher
faclllLles for Lhe developmenL of lndusLry lL also acLs as Lhe prlnclpal flnanclal lnsLlLuLlon
for coordlnaLlng Lhe acLlvlLles of lnsLlLuLlons engaged ln Lhe flnance promoLlon or
developmenL of lndusLry 1he CovernmenL of lndla's shareholdlng ln lu8l amounLs Lo
72 and Lhe resL of Lhe shares are owned by Lhe general publlc
lu8l has also offered speclallsed schemes for energy conservaLlon vlz LqulpmenL llnance
for Lnergy ConservaLlon and Lnergy AudlL Subsldy Scheme resenLly lu8l provldes rupee
and forelgn currency Lerm loans for Lhe acqulslLlon and lnsLallaLlon of energy
conservaLlon equlpmenL and for polluLlon conLrol and prevenLlon pro[ecLs ln hlghly
polluLlng lndusLrlal secLors funded lnLer alla ouL of World 8ank's lndusLrlal olluLlon
revenLlon ro[ecL (l) or Lhe uS Agency for lnLernaLlonal uevelopmenLfunded
Creenhouse Cas olluLlon revenLlon (CL) ro[ecL 8esldes flnance ls made avallable for
LL/LM ouL of Lhe ongolng lndusLrlal Lnergy Lfflclency ro[ecL of Lhe Au8 of whlch Lhe 1A
forms a parLunder Lhls pro[ecL flnance ls glven Lo lndusLrlal unlLs ln rupee as well as ln
forelgn currency
AddlLlonal fundlng needs lefL unmeL by Lhe Au8 funds are supplemenLed by lu8l's own
funds as well
721 lu8l lnsLlLuLlonal SLrucLure
lu8l ls governed by a 8oard of ulrecLors and lLs operaLlon ls carrled ouL under Lhe
supervlslon of Lhe Chalrman and Managlng ulrecLor asslsLed by four LxecuLlve ulrecLors
and one Advlser WlLh lLs head offlce ln Mumbal lu8l has 43 addlLlonal offlces
LhroughouL lndla
As of november 1998 lu8l was sLrucLured lnLo 33 deparLmenLs whlch are organlzed lnLo
flve groups Lo faclllLaLe proper dlsLrlbuLlon of responslblllLy Among Lhese deparLmenLs
Lhe ones relevanL Lo Lhe efflclenL lendlng for ee/em acLlvlLles are brlefly descrlbed below
722 ro[ecL appralsal deparLmenL
1he ro[ecL Appralsal ueparLmenL (Au) appralses all Lhe lndusLrlal pro[ecL proposals
Au pro[ecLs consLlLuLe Lhe ma[orlLy of pro[ecLs sancLloned by lu8l ln Lerms of value
8esldes a number of smaller pro[ecLs are funded aL Lhe branch level
723 CorporaLe flnance deparLmenLs
1he Lhree CorporaLe llnance ueparLmenLs (Clus) follow up on Lhe pro[ecLs LhaL have
already been sancLloned ln order Lo ensure Lhelr Llmely lmplemenLaLlon and proper
uLlllzaLlon of funds ln addlLlon a new concepL of a 8elaLlonshlp Manager was lnsLlLuLed
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wlLhln Lhe Clus 1hese managers wlll be dedlcaLed Lo manage lu8l's lnLeracLlons wlLh a
ma[or lndusLrlal (ownershlp) group such as 8ellance lndusLrles Lhe 1aLa Croup eLc
Whlle Lhe relaLlonshlp manager sysLem works well from Lhe perspecLlve of
consolldaLlng knowledge abouL an lndusLry group lL may noL work as well where Lhe
focus has Lo be on an aspecL of Lechnology wlLhln an lndusLry secLor lor example a
relaLlonshlp manager cannoL be expecLed Lo be an experL on energy efflclency ln every
lndusLry secLor LhaL forms a parL of Lhe lndusLry group belng dealL wlLh by hlm/her
Pence ln order Lo develop some experLlse ln some of Lhe lndusLrles whlch are noL
necessarlly domlnaLed only by a few ma[or lndusLry groups lndusLrysecLorwlse
approach ls also adopLed 1hus Lhe organlzaLlon of a Clu ls a workable mlx of lndusLry
group and lndusLry subsecLor wlLh Lhe experLlse of one ueallng group drawn upon by
anoLher
1he 1reasury and lundlng ulvlslon conLracLs decldes on uLlllzaLlon and monlLors all llnes
of credlL from mulLllaLeral lnsLlLuLlons llke Lhe World 8ank (W8) and Lhe Aslan
uevelopmenL 8ank (Au8) lL manages Lhe varlous speclallzed loans and granLs for energy
and envlronmenLal Lechnology pro[ecLs lncludlng Lhls 1A pro[ecL
724 CommenLs on CrganlzaLlonal SLrucLure
lu8l's organlzaLlon sLrucLure ls drlven by lLs buslness ob[ecLlves of offerlng Lhe besL
servlces Lo Lhe ma[or lndusLry groups AL Lhe same Llme lL ls so organlsed Lo have lndusLry
speclallsLs ln lmporLanL lndusLrlal subsecLors as well 1he organlsaLlonal sLrucLure ls
geared Lo provlde Lhe besL producLs and servlces ln Lhe presenL compeLlLlve envlronmenL
whlle slmulLaneously aLLempLlng Lo meeL lLs developmenLal role governed by lssue
based" lendlng
lollowlng flnanclal secLor llberallsaLlon Lhe envlronmenL has Lurned hlghly compeLlLlve
compelllng lu8l Lo organlse lLself ln a manner Lo prlorlLlse Lhe ob[ecLlve of offerlng Lhe
besL servlces Lo Lhe ma[or lndusLry groups over focus excluslvely for energy efflclency and
envlronmenLal acLlvlLles 1here ls a need Lo creaLe a home or cenLer" for energy and
envlronmenLal Lechnlcal acLlvlLles 1hls cenLer needs Lo be locaLed aL Lhe hlghesL level
wlLhln
lu8l ln order Lo ensure vlslblllLy and Lo provlde a resource base whlch could be accessed
by all Lhe concerned deparLmenLs descrlbed above lLL and oLher such llnes of credlL are
belng managed by Lhe lSu whlch ls noL dlrecLly engaged ln elLher pro[ecL appralsal or ln
lmplemenLaLlon Pence lLs role ls one of belng a faclllLaLor and coordlnaLor for glvlng Lhe
needed focus Lo Lhe ee/em acLlvlLles lL ls qulLe posslble for Lhls SecLlon Lo be upgraded Lo
be Lhe home" suggesLed above wlLh approprlaLe Lechnlcal sLaff for pollcy maklng
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faclllLaLlon of Lhe llnes of credlL developmenLal acLlvlLles eLc ln ee/em lssues 1hls wlll
help clarlfy Lhe varled roles of Clu and lSu and avold dupllcaLlon of efforL beLLer
coordlnaLlon and communlcaLlon beLween Lhe lSu and Lhe Clu
A sysLem of bullLln lncenLlves for cooperaLlon and coordlnaLlon beLween Lhe concerned
deparLmenLs wlll also ald Lhe organlsaLlon ln playlng a more effecLlve role ln ee/em
acLlvlLles relaLlng Lo pollcy formulaLlon loan approvals and subsequenL dlsbursemenL
73 lu8l Lendlng rocedure
1he currenL procedure for lendlng aL lu8l lncludes
(1) An lnqulry sLage
(2) An appllcaLlon sLage
(3) SlLe vlslLs
(4) reparaLlon of an appralsal noLe
(3) An evaluaLlon by lu8l commlLLee
(6) 1he lssuance of a LeLLer of lnLenL and
(7) 1reparaLlon of a legal agreemenL for lendlng for sulLable pro[ecLs
lu8l also operaLes speclal credlL llnes for Lhe mlLlgaLlon of polluLlon lmplemenLaLlon of
Lhe MonLreal roLocol commlLmenLs modernlzaLlon and expanslon of energy lnLenslve
lndusLry eLc 1he Lechnlcal norms for Lhese llnes were deLermlned lndlvldually buL Lhe
lendlng procedure ls Lhe same as LhaL for oLher lu8l pro[ecLs
1he lendlng procedure followed by lu8l ls comprehenslve based on accepLed meLhods of
evaluaLlon and collecLlve wlsdom and ls LransparenL 1he procedure however does noL
provlde for a serlous aLLempL Lo evaluaLe Lhe energy and envlronmenLal componenLs of
any lendlng proposal AL each sLage of Lhe appllcaLlon for a loan a company ls requlred Lo
provlde lnformaLlon on energy consumpLlon along wlLh LhaL of oLher uLlllLy servlces
Lnergy consumpLlon lnformaLlon ls dlsaggregaLed lnLo fuels and elecLrlclLy caLegorles
1he company ls noL requlred Lo provlde lndlcaLors of energy use Lo lu8l whlch makes Lhe
lnformaLlon dlfflculL Lo evaluaLe lndlcaLors could llnk Lhe energy (fuel and elecLrlclLy)
consumpLlon Lo physlcal acLlvlLy levels and permlL comparlson wlLh besL pracLlce ln lndla
and abroad lu8l could also ask for addlLlonal lnformaLlon on Lechnlcal lndlcaLors ln Lhe
loan appllcaLlon LhaL lndusLrles are requlred Lo compleLe


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7.4. CAPTAL MARKET:-
lu8l CaplLal MarkeL Servlces LLd provldes lnvesLmenL banklng and flnanclal servlces 1he
company's servlces lnclude sLock broklng dlsLrlbuLlon of flnanclal producLs lnvesLmenL
banklng merchanL banklng corporaLe advlsory debL arranglng and underwrlLlng
managlng cllenL asseLs research and onllne lnvesLlng servlces lL offers mergers and
acqulslLlons servlces lncludlng buslness valuaLlons feaslblllLy sLudles and parLnerlng and
[olnL venLure alllances servlces as well as asslsLs ln ralslng of prlvaLe equlLy and venLure
caplLal by corporaLes 1he company serves lndlvldual lnsLlLuLlonal and corporaLe cllenLs
lL has a sLraLeglc alllance wlLh unlon 8ank of lndla 1he company was founded ln 1993
and ls headquarLered ln Mumbal lndla lu8l CaplLal MarkeL Servlces LLd operaLes as a
subsldlary of lndusLrlal uevelopmenL 8ank of lndla LLd
kL? uLvLLCMLn1S lC8 lu8l CAl1AL MA8kL1 SL8vlCLS L1u
N8CC keported|y kece|ves CCLA Approva|
1he CovernmenL of lndla lnLends Lo sell 10 sLake ln naLlonal 8ulldlngs ConsLrucLlon
CorporaLlon LLd (n8CC) Lo ralse ln8 23 bllllon 1he CablneL CommlLLee on Lconomlc
Affalrs (CCLA) has cleared 10 per cenL sLake sale proposal of n8CC sources sald buL Lhe
Llmellne has noL yeL been revealed n8CC had hlred Lnam SecurlLles vL LLd and lu8l
CaplLal MarkeL Servlces LLd Lo manage Lhe sLake sale As parL of Lhe lnlLlal publlc
offerlng 9 mllllon shares of face value ln8 10 wlll be sold ln Lhe markeL
S Stake In NSL Up Ior Sa|e
A ma[or shareholder of naLlonal SLock Lxchange of lndla LLd (nSL) lnLends Lo dlvesL up Lo
3 sLake 1he 3 sLake ln nSL ls valued abouL ln8 10 bllllon lu8l CaplLal MarkeL Servlces
LLd wlll be handllng Lhe sale process over Lhe nexL one week lu8l CaplLal sald LhaL lL ls
seeklng blds for sale of equlLy shares noL exceedlng 3 of Lhe LoLal equlLy share caplLal
of Lhe naLlonal SLock Lxchange of lndla LLd 8lds are Lo be submlLLed by March 11 nSL
lLself ls noL a parLy Lo Lhe proposed LransacLlon and would have a rlghL Lo approve or
re[ecL any Lransfer of shares lu8l CaplLal sald LhaL Lhe buyer could be a forelgn
lnsLlLuLlonal lnvesLor (lll) a resldenL lndlan lndlvldual lnvesLor or any oLher domesLlc
enLlLy
ID8I Cap|ta| Market Serv|ces Ltd Announces Lxecut|ve Changes
lu8l CaplLal MarkeL Servlces LLd appolnLed Abhay L 8onglrwar as lLs Managlng ulrecLor
and CLC 8onglrwar was earller servlng as lu8l 8anks Chlef Ceneral Manager and
replaces nagendra 8haLnagar wlLh effecL from uecember 31 2010

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7.5. R8K Management:-

CloballzaLlon deregulaLlon and llberallzaLlon Lhe world over are creaLlng opporLunlLles
as also LhreaLs 1he forces unleashed by globallzaLlon have lnLenslfled compeLlLlon from
wlLhln and ouLslde Lhe counLry 8uslness unlLs are Lhus faclng a mulLlLude of rlsks some
famlllar buL also some qulLe unfamlllar ones and hlgher volaLlllLy ln cash flows 1he
slgnlflcanL lnfluence LhaL Lhese evenLs have on Lhe flnanclal sysLem sLrongly lndlcaLes
Lhe lmperaLlve for a move Lowards a comprehenslve rlsk managemenL sysLem Lo keep ln
Lune wlLh volaLlllLles ln an ever changlng uncerLaln buslness envlronmenL 1hls would
enable lu8l 8ank Lo Lake advanLage of Lhe upslde whlle managlng Lhe downslde

lu8l 8ank ln Lhe course of lLs operaLlons ls exposed Lo varlous rlsks llke CredlL 8lsk
(malnly on accounL of Lhe borrowers and oLher counLerparLles' lnablllLy Lo meeL Lhelr
repaymenL commlLmenLs) MarkeL 8lsk (arlslng ouL of movemenL of markeL
values/lnLeresL raLes lmpacLlng earnlng poLenLlal falr valuaLlon or reallzable value of Lhe
porLfollo) LlquldlLy 8lsk (lmpacLs capaclLy Lo ralse necessary funds Lo meeL debL
servlclng requlremenLs and dlsbursemenLs) Lxchange 8lsk (arlslng from movemenL of
exchange raLes of forelgn currency) and CperaLlonal 8lsk (lncludes rlsks arlslng from
operaLlonal processes lncludlng Lechnology manpower procedures eLc)

8lsk managemenL ls a key elemenL of lu8l 8ank's buslness sLraLegy Awareness
ldenLlflcaLlon measuremenL monlLorlng and conLrolllng rlsk efflclenLly and effecLlvely
ln a manner geared Lowards yleldlng susLalned economlc value ls among Lhe hlghesL
prlorlLles of lu8l 8ank 1he ob[ecLlve of 8lsk ManagemenL ls Lo move lu8l 8ank up Lhe
value chaln by ensurlng susLalned quallLy growLh ln and off Lhe balance sheeL lLems
along wlLh opLlmlzlng Lhe boLLomllne compensaLlon Lo adequaLely cover Lhe varlous
rlsks embraced by lu8l 8ank and provlde accreLlon Lo lLs caplLal ln Lhe process 8lsk
ManagemenL alms Lo creaLe value Langlble and lnLanglble for lLs sLakeholders
(lnvesLors cusLomers employees regulaLors) ln Lhe form of a superlor balance sheeL
adequaLe llquldlLy healLhy reLurn on caplLal LrusL and confldence eLc ln Lhls dlrecLlon
8aselll guldellnes whlch wlll faclllLaLe upgradaLlon of rlsk managemenL funcLlons
assume a crlLlcal role Whlle Lhe 8lsk Croup ls enLrusLed wlLh Lhe key responslblllLy ln
rlsk managemenL funcLlon ln pursulL of Lhls enLerprlsewlde ob[ecLlve lu8l 8ank
conslders every employee of Lhe 8ank a 8lsk Manager





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Acqu|s|t|on of Un|ted Western 8ank
ln 2006 lu8l 8ank acqulred Un|ted Western 8ank ln a rescue

Annasaheb Chlrmule
who worked for Lhe cause of Swadeshl movemenL founded Satara Swadesh|
Commerc|a| 8ank ln 1907 and some Lhree decades laLer founded unlLed WesLern 8ank
1he bank was lncorporaLed ln 1936 and commenced operaLlons Lhe nexL year wlLh lLs
head offlce ln SaLara ln MaharashLra SLaLe lL became a Scheduled 8ank ln 1931 ln 1936
lL merged wlLh Un|on 8ank of ko|hapur and ln 1961 wlLh Satara Swadesh| Commerc|a|
8ank

AL Lhe Llme of Lhe merger wlLh lu8l unlLed WesLern had some 230 branches
spread over 47 dlsLrlcLs ln 9 sLaLes conLrolled by flve Zonal Cfflces aL Mumbal une
kolhapur !algaon and nagpur















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CHAPTFR-8
Flt0lt6S & HAtA6FRlAl
lHPllCATl0tS











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8.1 FNDNG8:-
1opraLed n8lCs have noL only been successful ln managlng Lhelr markeL share buL also ln
proLecLlng Lhelr proflLablllLy A comblnaLlon of Lhe facLors clLed earller had helped Lhese
n8lCs earn beLLer reLurns on Lhelr deploymenL ln facL almosL all Lhe LopraLed n8lCs
en[oy a reLurn on LoLal asseLs LhaL ls hlgher Lhan PulC 8anks one of Lhe beLLerrun
banks 1he hlgher reLurn on asseLs was desplLe Lhelr operaLlng cosL raLlo belng slmllar Lo
LhaL of PulC 8ank lor example operaLlng expenses as a proporLlon of neL margln
worked ouL Lo 68 per cenL for PulC 8ank Cn an average Lhls was noL slgnlflcanLly hlgher
Lhan Lhe raLlo for mosL LopraLed n8lCs lf reLurn on asseLs were sLlll superlor Lhen lL was
because of Lhe hlgher reLurn on Lhelr funds lor Lop n8lCs Lhe lnLeresL lncome worked
ouL Lo 1721 per cenL of Lhelr LoLal asseLs for Lhe year ended l? 1he llquldlLy ln Lhe
banklng sysLem also helped Lhese flnance companles Spreads over governmenL securlLles
for AAA raLed corporaLe secLor debL lnsLrumenL are now only 30 basls polnLs ln oLher
words lf Lhe cosL of funds for banklng companles has decllned sharply Lhen LopraLed
n8lCs have also beneflLed from such a decllne ln lnLeresL raLes Some of Lhese companles
are now ralslng funds aL 78 per cenL

Also Lhese companles have dlsplayed Lhe ablllLy Lo manage Lhelr porLfollo wlLhouL large
lncldence of nonperformlng asseLs lor lnsLance LlC Pouslng llnance lulC and Shrlram
1ransporL llnance boasL of neL nonperformlng asseLs Lo neL advances raLlo of less Lhan 1
per cenL 1hls agaln has helped Lhem lower Lhe overall cosL of operaLlons and Lhereby
proLecL Lhelr proflLablllLy Plgher proflLablllLy and lnnovaLlve flnanclng opLlons such as
securlLlzaLlon have also helped ln boosLlng Lhe caplLal adequacy raLlo of Lhese n8lCs
811 ulsbursemenLs Sharp fall durlng Lhe crlsls
ulsbursemenLs were clearly hlL durlng Lhe crlsls as ls vlslble from rlmary reason for Lhls
lnlLlal fall was lack of supply of funds afLer Lhe markeL llquldlLy drled up lmpacL however
dlffered dependlng on Lhe caplLal sLrucLure of Lhe company wlLh n8lCs havlng larger
ALM mlsmaLches and Lhose whlch had more dependence on muLual funds for fundlng
were affecLed more severely as muLual funds Lhemselves faced redempLlon pressure on
Lhelr shorL Lerm schemes 1o supporL Lhe secLor 88l underLook several measures Lo
lmprove llquldlLy flow Lo Lhe n8lC secLor 1hls was a slgnlflcanL developmenL as Lhe
regulaLor hlghllghLed Lhe sysLemlc lmporLance of Lhe secLor


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82 88l measures Lo lmprove llquldlLy of n8lCs
O 1he sysLemlcally lmporLanL nondeposlL Laklng nonbanklng flnanclal companles (n8lCs
nuSl) were permlLLed Lo ralse shorLLerm forelgn currency borrowlngs
O Allowed banks Lo avall llquldlLy supporL under Lhe LAl for Lhe purpose of meeLlng Lhe
fundlng requlremenLs of n8lCs Lhrough relaxaLlon ln Lhe malnLenance of SL8 up Lo 13
per cenL of Lhelr nu1L
O 8lsk welghLs on banks'exposures Lo clalms on n8lCsnuSl were reduced Lo 100 per cenL
from 130 per cenL
O SeLLlng up of a speclal purpose vehlcle (Sv) for addresslng Lhe Lemporary llquldlLy
consLralnLs of sysLemlcally lmporLanL nondeposlL Laklng nonbanklng flnanclal companles
(n8lCsnuSl)
O ueferrlng Lhe hlgher CA8 norms for n8lCsnuSl by 1 year

Whlle llquldlLy condlLlons sLarLed lmprovlng from C4 l?09 dlsbursemenLs growLh
remalned subdued for Lhe secLor Llll Lhe flrsL half of l?10 Cn a yoy basls Lhe cumulaLlve
dlsbursemenLs showed a fall durlng C1 l?10 and P1 l?10 1hls perlod saw deLerloraLlon
ln asseL quallLy of mosL n8lCs whlch was especlally hlgh ln Lhelr unsecured loan
porLfollos Lower dlsbursemenLs were malnly because of Lhe pull back of n8lCs ouL of
unsecured lendlng segmenLs Cn a cumulaLlve basls 9ML l?10 dlsbursemenLs lncreased
by more Lhan 19 Lven lf we conslder Lhe low base effecL of C3l?09 dlsbursemenLs
Lhere ls clear lndlcaLlon of plck up ln dlsbursemenLs and a poslLlve ouLlook for Lhe secLor
WlLh lmprovemenL ln overall economlc acLlvlLy and hlgher LhrusL on lnfrasLrucLure
flnanclng by Lhe governmenL Lhe scenarlo ls expecLed Lo lmprove furLher ln l?11



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822 CosL of lundlng ShoL up durlng Lhe crlsls due Lo shorL Lenure borrowlngs
sLablllzed now expecLed Lo be less volaLlle due Lo larger proporLlon of long Lerm
fundlng
Many n8lCs Look advanLage of Lhe lower lnLeresL raLe reglme aL Lhe shorLer end of Lhe
yleld curve by borrowlng shorL Lerm funds (3monLhs 1 year) aL lower raLes and lendlng
for maLurlLles ranglng from 34 years aL hlgher raLes Powever Lhe level of mlsmaLches
dlffered beLween n8lCs and Lhose wlLh hlgher mlsmaLch faced noL only llquldlLy
pressure buL Lhelr cosL of fundlng also lncreased durlng Lhls perlod due Lo lnverslng of
Lhe yleld curve and a general rlse ln lnLeresL raLes Average borrowlngs cosLs1 (on an
aggregaLe basls for CA8L raLed n8lCs) lncreased from around 93100 ln l?08 Lo 113
120 ln l?09 1hls shows Lhe severlLy of Lhe lmpacL as flnanclal crlsls affecLed fundlng
cosLs ln Lhe second half of l?09 and led Lo a 200 bps lncrease for Lhe enLlre year 1he
response by n8lCs was Lo gradually replace shorL Lerm fundlng wlLh long Lerm sources
1hls ls a slgnlflcanL sLrucLural change ln Lhe borrowlng proflles LhaL wlll brlng more
sLablllLy ln proflLablllLy of Lhe secLor Powever spreads wlll also be lower compared Lo
hlsLorlcal levels due Lo Lhls change uurlng Lhe 9ML l?10 cosL of borrowlng reduced from
Lhe average of 113120 of l?09 Lo 102 103 for Lhe 9 monLh perlod and ls expecLed
Lo remaln around Lhese levels for l?10 1hls however ls sLlll hlgher Lhan Lhe l?08 levels
due Lo Lhe sLrucLural move Lowards longer Lerm borrowlngs 713 AsseL CuallLy
ueLerloraLed more due Lo unsecured loans whlch ls now vlrLually sLopped by mosL
players provlslonlng has lmproved asseL quallLy expecLed noL Lo worsen furLher AsseL
quallLy for Lhe secLor deLerloraLed slgnlflcanLly durlng Lhe crlsls AggregaLe Cross nA
raLlo Lrended from around 11 for l?08 Lo around 21 ln l?09 Whlle Lhere was
deLerloraLlon ln all asseL classes unsecured asseL classes (ersonal Loans unsecured SML
loans) showed Lhe maxlmum deLerloraLlon and were Lhe key drlvers for overall lncrease
ln nAs AparL from Lhe asseLLype flnanced anoLher dlfferenLlaLor beLween asseL
quallLles was Lhe orlglnaLlon collecLlon model followed n8lC's whlch orlglnaLed
ma[orlLy of Lhelr porLfollo Lhrough branches own employees showed beLLer asseL
quallLy performance Lhan Lhose whlch used Lhe uSA model AggregaLe Cross nA raLlo
has furLher worsened Lo 30 aL Lhe end of 9M l?10 however lL ls close Lo peaklng ouL
uegrowLh ln unsecured porLfollo segmenL has also lowered Lhe porLfollo ouLsLandlng
growLh Lhereby leadlng Lo a _base effecL' on Lhe Cross nA raLlo and addlng Lo Lhe rlse ln
reporLed numbers rovlslon coverage has lncreased from around 30 for l?09 Lo around
60 aL Lhe end of 9Ml?10 as players have become more conservaLlve unsecured lendlng
has vlrLually sLopped for many n8lCs and underwrlLlng norms have also been LlghLened
ln general for oLher asseL classes 1hese developmenLs lndlcaLe poslLlve sLrucLural
changes
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CHAPTFR-9
RFC0HHFt0ATl0tS At0
C0tCuSl0t










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9.1 Recommendation:-
O uomesLlc llnanclal markeLs can be lnLegraLed by maklng n8lC's Channel parLners Lo
8anks lL wlll help ln beLLer allocaLlon and funds avallablllLy lL wlll also help ln beLLer
managemenL of llnanclal servlces secLor ln lndla
O Lnhanclng Lhe credlL dellvery mechanlsms1he credlL dellvery mechanlsm needs Lo be
more LransparenL and hassle free 1here should be more sLrlngenL norms for Lhe
defaulLers
O SLrengLhenlng Lhe professlonallsm of n8lC secLor Lhrough educaLlon and Lralnlng n8lC's
are organlzed players 8egulaLory body needs Lo educaLe people abouL n8lC
O 1o reduce ln lnLeresL cosL and hence beneflL Lhe ulLlmaLe consumer















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9.2. Conclusion:-
lL ls encouraglng LhaL Lhe n8lC secLor's lmporLance ls flnally belng acknowledged across
lS markeL consLlLuenLs as well as Lhe regulaLor Powever Lhe lmporLance aLLached Lo Lhe
secLor ls ofLen Lranscendlng lnLo mlsplaced exuberance Cver slmpllfled and vague drlvers
for n8lC valuaLlons such as sLraLeglc flL and cusLomer base can never subsLlLuLe
dlspasslonaLe buslness analyLlcs A raLlonal assessmenL of Lhe lnLrlnslc values of n8lCs
facLorlng lssues such as pasL performance sLrucLural weaknesses of Lhe secLor (for
lnsLance fundlng dlsadvanLages) along wlLh an ldenLlflcaLlon of real capablllLles are
essenLlal Lo ensure LhaL Lhe equlllbrlum beLween prlce pald and value reallzed ls reached
Lo Lhe exLenL posslble ln Lhe absence of Lhls lndla ls sure Lo wlLness Lhe reopenlng of
Lhe n8lC horror sLory albelL wlLh a new chapLer on Lhe eroslon of n8lC lnvesLmenL
values affecLlng lnvesLors across caLegorles 8aLlngs of Lhe n8lCs whose proflLablllLy and
asseL quallLy was affecLed due Lo Lhe crlsls were supporLed by Lhelr sLrong parenLage
8ased on Lhe parenLal sLrengLh some players have ralsed furLher equlLy and also managed
Lo reallgn Lhelr buslness models whlle malnLalnlng Lhelr solvency overall poslLlve
ouLlook on Lhe secLor due Lo Lhe beLLer ALM poslLlon focus on relaLlvely safer asseL
classes and Lhe demonsLraLed accepLance of Lhe secLor as sysLemlcally lmporLanL by Lhe
regulaLor 1he crlsls has lmposed an overall sense of _cauLlon' even for Lhe newer
enLranLs ln Lhe markeL Also golng forward hlgher caplLal adequacy norms wlll puL a falrly
conservaLlve cap on Lhe leverage of Lhe secLor Lhereby lmprovlng Lhe credlL proflle of
many enLlLles (n8lCnuSl)


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lll06RAPHY













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Bibliography

Webllography

O wwwgoog|ecom
O wwwnbfccom
O wwww|wk|ped|acom
O wwwrb|orgcom
O wwwmanagement parad|cecom
O www|db|com

8ooks 8eferred

#INDIAN IINANCIAL SS1LM"
8 8harat| V athak

#INDIAN IINANCIAL INS1I1U1ICN"
LM8nCLL