Non Banking Financial Companies - 2007

Non Banking Financial Companies - 2007

Dr P Janakiramudu and Prof Chowdari Prasad January 19, 2008

Indian Financial System •

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NBFCs

Development Financial Institutions – IFCI, IIBI, TFCI, EXIM Bank, SIDBI, NABARD, NHB, IL& FS, IDFC., etc.. Commercial Banks – PSBs (including State Bank Group), Private (Old & New), Foreign, Cooperative and Local Area Banks Non Banking Financial Companies Others – National Small Savings/Post Office Schemes (GOI) and Stock Exchanges... Research PJCP 2008

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NBFCs - Business

• Incorporated under Companies Act, 1956 • Registered with RBI/ SEBI/ IRDA/ PFRDA/ NHB • Acceptance of Public Deposits and / or • Engaged in Financial Services like - 1.Lease Financing 2.Hire Purchase 3.Bill Discounting 4.Insurance 5.Merchant Banking 6.Stock Broking 7.Housing Finance 8.Investments in Securities 9.Granting of loans 11.Factoring and Forfaiting 12.Credit Rating 13.Credit Information Bureau 14.Credit Card Companies 15.Mutual Funds 16.Primary Dealers 17.Asset Reconstruction 18.Securitisation 19. Chit Funds 20. Nidhis (Mutual Benefit Companies), 21. VC / PE funding, 22. Micro Financing, etc. • Banks, SIDBI and NABARD extend loans to NBFCs NBFCs

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VARIOUS COMMITTEES • • • • • • • • •

Bhabatosh Dutta Study Group - 1971 James Raj Study Group - 1975 Sukhmoy Chakravarty Committee - 1985 Narayan Vaghul Committee - 1987 S Narasimham Committee on FSR - 1991 Dr A C Shah Committee - 1992 Khanna Group - 1996 Mrs Shere Committee - 1997 CM Vasudev Task Force - 1998

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NBFCs : CLASSIFICATION • FUND BASED ACTIVITIES – Deposits, Equipment Leasing, Hire Purchase, Bills Discounting, Loans/ Investments, Housing Finance, Factoring, Forfaiting, ARCs, Credit Cards etc.

• FEE BASED ACTIVITIES – Issue Management, Portfolio Management, Corporate Counselling, Loan/Lease Syndication, M & A, Capital Restructuring, Credit Rating, CIBIL,etc. NBFCs

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Another Classification • NBFCs – Deposit taking • NBFCs – No Deposits • Residuary Non Banking Finance Companies

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Acceptance of Deposits : Rules • • • • •

Banking Laws (Misc Provns) Act, 1963 NBFC Directions, 1977 MNBCs Directions, 1977 RNBCs Directions, 1987 Amendments to “RBI Act” and “Issue of NBFCs Acceptance of Public Deposits (RBI) Directions 1998 (in place of earlier Directions, 1977) and from time to time

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Prudential Norms 1. Statutory Liquidity Ratio – 25% 2. Credit Rating with one of the Credit Rating Agencies – CRISIL, ICRA, CARE, Fitch... 3. Capital Adequacy Norms – 15% 4. Minimum Capital Rs. 2 Crores 5. Deposit Acceptance Rules linked to Credit Rating 6. Maximum Rate of Interest offered on deposits: 12.5% pa 7.NBFCs Duration – min -1Research year and max6 years PJCP 2008 8

Prudential Norms......contd. 8. Rules for release of Advertisement soliciting deposits 9. Disclosures in Deposit Application Forms 10. Exposure norms / ceilings for lending 11. Income Recognition and Asset Classification norms – NPAs and Provisioning for bad debts 12. 20% Reserve – transfer from Profits every year 13. Asset Liability Management System 14. Statutory Audit as per RBI Guidelines 15. Corporate Governance requirements 16. Know Your Customer (KYC) norms compliance NBFCs

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Some Data on NBFCs Source : Trend and Progress of Banking in India, 2006-2007 : Reserve Bank of India

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1.Number of NBFCs regd with RBI

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2. Profile of NBFCs

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3.Share of Public Deposits of NBFCs in Broad Liquidity (L3) of Total SCBs Deposits

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4. Major components of Liabilities NBFCs-D-Group-wise

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5.Public Deposits held by NBFCs-D-Group-wise

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6. Range of Deposits held by NBFCs-D

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7. Public Deposits held by NBFCsRegion-wise

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8. Distribution of Public Deposits of NBFCs-D according to Rate of Intt

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9. Maturity Pattern of Public Deposits held by NBFCs-D

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10. Spread in Deposit Interest Rates of Banks and NBFCs

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11. Borrowings by NBFCs-D

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12.Sources of Borrowings by NBFCs-D-Group-wise

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13. Financial Performance of NBFCs

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14. Non-Performing Assets of NBFCs-D

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Some more data...... • To refer to www.rbi.org.in – Trends and Progress of Banking in India, 2007

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