Non Banking

Financial Companies

Which is a NBFC?
"Non-banking financial company" means(i) a financial institution which is a company;
(ii)a non banking institution and which has as its principal
business the receiving of deposits, under any scheme or
arrangement or in any other manner, or lending in any
manner;
(iii)such other non-banking institution or class of such
institutions, as the bank may, with the previous approval of
the Central Government and by notification in the
Official Gazette, specify.

Classification of NBFC are:

EQUIPMENT-LEASING COMPANY;
HIRE-PURCHASE COMPANY;
LOAN COMPANY;
INVESTMENT COMPANY
MUTUAL FUND COMPANY
CHIT FUNDS
RESIDUARY FINANCE COMPANY
HOUSING FINANCE COMPANY

EQUIPMENT- LEASING COMPANY

Means a company which is a financial institution
carrying on as its principal business, the activity of
leasing of equipment. EQUIPMENT LEASE - An
agreement that specifies the rights and
obligations between a lessor (who owns
equipment) and a lessee (to whom the lease
gives certain rights to possess and use the
equipment). Obtaining the use of machinery,
vehicles or other equipment on a rental basis. This
avoids the need to invest capital in equipment.
Ownership rests in the hands of the financial
institution or leasing company, while the
business has the actual use of it

HIRE PURCHASE COMPANY

It is a company which is a financial
institution carrying on its main activity
as hire purchase transactions or the
financing of such transactions

LOAN COMPANY
It means any company which is
a financial institution carrying on
as its main business by providing
finance whether by making loans
or advances

INVESTMENT COMPANY
An investment company is a company whose main
business is holding securities of other companies purely for
investment purposes. The investment company invests
money on behalf of its shareholders who in turn share in the
profits and losses.

MUTUAL FUND
A mutual fund is a type of investment company that
pools money from many investors and invests the
money in stocks, bonds, money-market instruments,
other securities, or even cash

CHIT FUND

CHIT means a transaction whether called chit, chit fund, chitty,

kury or by any other name or under which a person enters into
an agreement with a specified number of persons that every one of
them shall subscribe a certain sum of money by way of
periodical installments over a definite period and that each such
subscriber shall, in his turn, as determined by lot or by auction
or by tender or in such other manner as may be specified in the
chit agreement, be entitled to the prize amount.

RESIDUANRY FINANCE COMPANY

Residuary Non-Banking Company-class of
NBFC
Principal business the receiving of deposits, under any
scheme or arrangement or in any other manner and not
being investment, asset financing, loan company.
The functioning of these companies is different from
those of NBFCs in terms of method of mobilization of
deposits and requirement of deployment of depositors'
funds.

HOUSING FINANCE COMPANY

Indian Real Estate-on its way to donning the image of an

organized
industry-global
standards-as
fragmentation,
disorganization, poor governance and inefficient infrastructure;
take a backseat

Most financial institutions- home loans to both

Indian and NRI customers- floating and fixed
rate of interest or blended ones- customized
packages- purposes of constructing/ buying a new
house, vacant plot or extension and even home
improvement.
BRIEF BACKGROUND
Housing Finance has accumulated expert experience
spanning over 40 years in construction/project finance
with emphasis in multiple housing developments.

Role of NBFCs
As recognized by RBI and expert
committees
Development of sectors like Transport &
Infrastructure
Substantial employment generation
Help & increase wealth creation
Broad base economic development
Irreplaceable supplement to bank credit in
rural segments
major thrust on semi-urban, rural areas &
first time buyers / users
To finance economically weaker sections
Huge contribution to the State exchequer

ROLE OF NBFC.contd
70-80% of Commercial Vehicles are finance driven
Indian economy is more dependent on roads
Heavy Govt. outlay for mega road projects
Heavy replacement demand anticipated 30 lacs commercial vehicles
by the year 2007
Another Rs.6000 Crores required for phasing out old commercial
vehicles
CRISIL in its study has placed commercial vehicle financing under
low risk category
Each commercial vehicle manufactured, sold and financed gives
employment to minimum 20 persons (direct and indirect)

WHY
NBFC ?

WHY
NOT
BANK ?

It makes a study of what special is there in NBFCs that provide them an

edge over the Banking sector.
If the NBFCs can prosper and flourish in the future or would it be subsided
due to the Banking sector?
Banks-covered major section of the nation-but still some under-served
sections exist -need for financial institutions for them-NBFCs CAME INTO
PICTURE.
BANKS-focus on the METRO-BASED MODEL-but NBFCs concern
NON-METRO-FOCUSSED MODEL

NBFCs concentrate their activities on areas NOT

ENTERTAINED by the BANKING sector -like

1. HIRE-PURCHASE

2. LEASING

3. EQUIPMENT-LEASING

4. LOANS

5. CHIT FUNDING,etc.
Cost efficiency -NBFCs are better than Banks-greater LEEWAY
on the balance sheet-WORLD OVER.
NBFCs-important role in the provision of QUALITY
CUSTOMER SERVICES -much better than banks can ever do.

SUBMITTED BY :

LAV MOHAN