nbfc by ashok srikrishna
TRANSCRIPT
NON-BANKING FINANCIAL COMPANIES
Ashok srikrishna
FINANCIAL INSTITUTION A financial institution is an institution which
collects funds from the public, and places them in financial assets, such as deposits, loans and bonds rather than tangible property.
FINANCIAL INSTITUTION
Banking institution
Non banking institution
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/ securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business.
It does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property.
DIFFERENCE BETWEEN NBFC’S AND BANK’S(i) a NBFC cannot accept demand deposits
(demand deposits are funds deposited at a depository institution that are payable on demand -- immediately or within a very short period -- like your current or savings accounts.)
(ii) it is not a part of the payment and settlement system and as such cannot issue cheque to its customers drawn to itself.
NBFC’S VERSUS BANK’SBANKS NBFCS
Definition Banking is acceptance of deposits withdraw able by cheque or demand; NBFC cannot accept demand deposits
NBFC are companies carrying financial business
Scope of business
Scope of business of the bank is limited by sec 16(1) of BR Act.
There is no bar on NBFC carrying activity other then financial activity.
Major limitation on Business
No non banking activity are carried.
Cannot provide checking facilities.
Foreign investment
Up to 74% is allowed to private sector bank
Up to 100% is allowed
Need for a license
License norms are tightly controlled and generally it is perceived to be quite difficult to get a license for a bank
It is comparatively much easier to get a registration as an NBFC.
Regulations BR Act and RBI Act lay down the stringent control over the bank.
Much lesser control over NBFC
The NBFCs that are registered with RBI are: (i) equipment leasing company; (ii) hire-purchase company; (iii) loan company; (iv) investment company.
With effect from December 6, 2006 the above NBFCs registered with RBI have been reclassified as (i) Asset Finance Company (AFC)(ii) Investment Company (IC)(iii) Loan Company (LC)
Asset finance Companies (AFC) AFC are financial institutions whose principal business is of
financing physical assets such as automobiles, tractors, construction equipments material handling equipments and other machines.ex: Bajaj Auto Finance corp. , Fullerton India etc
Investment Companies (IC) ICs generally are involved in the business of shares, stocks,
bonds, debentures issued by government or local authority that are marketable in nature
ex: Stock Broking Companies, Gilt firms Loan Companies (LC) LCs are loan giving companies which operate in the business
of providing loans. These can be housing loans, gold loans etc ex: Mannapuram Gold Finance, HDFC
TYPES OF NBFC
NBFCS : OVERVIEW 13000+ players registered under RBI : A & B
categories
Spread all across the country Approx. 570 NBFCs authorized to accept public deposits (Catg.
A) Assets worth Rs. 15000 Crore financed annually & growing
steadily
Asset financing Commercial vehicles Passenger cars Multi-utility & multi-purpose vehicles Two-wheelers & Three-wheelers Construction equipments Consumer durables
ROLE OF NBFCS
As recognized by RBI & Expert Committees / Taskforce 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 To finance economically weaker sections
ROLE OF NBFCS (CONTD..) 70-80% of Commercial Vehicles are
finance driven
Indian economy is more dependent on roads Heavy Govt. outlay for mega road projects 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)
CUSTOMER SERVICE The key factor for our survival & growth
NBFCs provide prompt, tailor made service with least hassles. This more than compensates for the higher lending rates of NBFCs as compared to Banks & FIs
All customers get direct and easy access to and individual attention of the top management
NBFCs cater to a class of borrowers who :-- Do not necessarily have a high income- But have adequate net worth- Are honest and sincere (gauged by the personal touch
maintained with them).
A company incorporated under the Companies Act, 1956 and having desire of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should have a minimum net owned fund of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999). The company is required to submit its application for registration in the prescribed format along with necessary documents for Bank’s consideration. The Bank issues Certificate of Registration after satisfying itself that the conditions as enumerated in Section 45-IA of the RBI Act, 1934 are satisfied.
REGISTRATIONwww.professoraugustin.com
In case a NBFC defaults in repayment of deposit what course of action can be taken by depositors?
If a NBFC defaults in repayment of deposit, the depositor can approach Company Law Board or Consumer Forum or file a civil suit to recover the deposits
OVERVIEW OF PRESENT POSITION NBFCs are highly heterogeneous, continue to offer
wide range of niche and tailor-made financial services.
In terms of relative importance of various activities financed by them, hire purchase finance is the largest activity, accounting for greater than 1/3rd of total assets, followed by loans and equipment leasing.
The number of NBFCs have declined after 2000 due to mergers, closures, cancellation of licenses, regulatory strictness.
The maximum rate of interest that NBFCs can pay on their deposits has been reduced from 12.5 % to 11% per annum w.e.f March 4, 2003.
The NPAs of NBFCs has not shown a clear decline over the years.ed increase in their cost of funds.
RBI has decided to impose penalties on NBFCs having deposits of Rs. 50 crores & above if they don’t submit periodic returns to RBI.
TOP FIVE NBFCS IN INDIA:• Housing Development Finance Corporation
Limited• Power Finance Corporation Limited• Rural Electrification Corporation Limited• National Bank of Agricultural and Rural
Development• Infrastructure Development Finance
Company Limited
Category of NBFC Ceiling on public deposits
AFCs maintaining CRAR of 15% without credit rating
AFCs with CRAR of 12% and having minimum investment grade credit rating
1.5 times of NOF or Rs 10 crorewhichever is less
4 times of NOF
LC/IC with CRAR of 15% and having minimum investment grade credit rating
1.5 times of NOF
CEILING ON PUBLIC DEPOSITS
The symbols of minimum investment grade rating of the Credit rating agencies are:
Name of rating agencies Level of minimum investmentgrade credit rating (MIGR)
CRISIL FA- (FA MINUS)
ICRA MA- (MA MINUS)
CARE CARE BBB (FD)
FITCH Ratings India Pvt. Ltd tA-(ind)(FD)
SYMBOLS OF MINIMUM INVESTMENT GRADE RATING
CONCLUSION The NBFCs have not been very much profitable. The operating cost of NBFCs has increased and it
stands much higher than co-operative banks. This is one area in which improvement is needed.
Enhancing the credit delivery mechanisms: The credit delivery mechanism needs to be more transparent and hassle free. There should be more stringent norms for the defaulters.
RBI needs to educate people about NBFC