Upload
devrajkinjal
View
231
Download
0
Embed Size (px)
Citation preview
8/10/2019 Chap 1 NBFC [CP]
1/9
Study on Non Banking Financial Companies in India
Non-Bank Financial Companies (NBFCs) are largely involved in serving those classes of
borrowers who are generally excluded from the formal banking sector. However,
progressively over the years, the exclusiveness between the banks and NBFCs has somewhat
blurred. More recently, NBFCs are competing with banks in providing financial services such
as infrastructure finance and housing finance among others.
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
but does not include any institution whose principal business is that of agriculture activity,
industrial activity, sale/purchase/construction of immovable property. A non-banking
institution which is a company and which has its principal business of receiving deposits
under any scheme or arrangement or any other manner, or lending in any manner is also a
non-banking financial company (Residuary non-banking company).
NBFCs, historically are involved in providing financial services such as offering of small
ticket personal loans, financing of two/three wheelers, truck financing, farm equipment
financing, loans for purchase of used commercial vehicles/machinery, secured/unsecured
working capital financing, etc. Further, NBFCs also often take lead role in providing
innovative financial services to Micro, Small, and Medium Enterprises (MSME) most
suitable to their business requirements.
NBFCs are doing functions akin to that of banks; however there are a few differences:
(i) NBFC cannot accept demand deposits;
(ii) NBFC is not a part of the payment and settlement system and as such an NBFC
cannot issue cheques drawn on it; and
(iii) Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation
is not available for NBFC depositors unlike in case of banks.
1. Introduction about Industry
8/10/2019 Chap 1 NBFC [CP]
2/9
8/10/2019 Chap 1 NBFC [CP]
3/9
Study on Non Banking Financial Companies in India3
2. Investment Company(IC)
Investment Company is a company which is a financial i nstitution carrying on as it s
principal business the acquisition of securities.
1.3 Investment Companies are further divided into following sub-
categories
Core Investment Companies
The Reserve Bank of India vide its Notification No. DNBS(PD)CC.No.
197/03.10.001/2010-11 dated August 12, 2010, a new class of NBFCs by the name ofCore Investment Companies (CIC) was added
Core Investment Companies in terms of RBIs Notification mea ns
A non-banking financial company carrying on the business of acquisition of shares and
securities and which satisfies the following conditions as on the date of the last audited
balance sheet:-
(i) it holds not less than 90% of its net assets in the form of investment in equity shares,
preference shares, bonds, debentures, debt or loans in group companies;
(ii) its investments in the equity shares (including instruments compulsorily convertible
into equity shares within a period not exceeding 10 years from the date of issue) in group
companies constitutes not less than 60% of its net assets
Net assets, for the purpose of this proviso, would mean total assets excluding
1. Cash And Bank Balances;
2. Investment In Money Market Instruments And Money Market Mutual Funds
3. Advance Payments Of Taxes; And
4. Deferred Tax Payment
8/10/2019 Chap 1 NBFC [CP]
4/9
Study on Non Banking Financial Companies in India4
(iii) it does not trade in its investments in shares, bonds, debentures, debt or loans in
group companies except through block sale for the purpose of dilution or
disinvestment;
(iv) it does not carry on any other financial activity referred to in Section 45 I (c) and
45 I (f) of the Reserve Bank of India Act, 1934 except:
a) investment in
i. bank deposits,
ii. money market instruments, including money market mutual funds,
iii. government securities, and iv. bonds or debentures issued by group companies;
b) granting of loans to group companies; and
c) issuing guarantees on behalf of group companies.
1.4 Other Companies
(i) Asset Finance Company (AFC)
AFC would be defined as any company which is a financial institution carrying on as its
principal business the financing of physical assets supporting productive / economic
activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and
material handling equipments, moving on own power and general purpose industrial
machines. Financing of physical assets may be by way of loans, lease or hire purchase
transactions.
Principal business for this purpose is defined as aggregate of financing real/physical
assets supporting economic activity and income arising therefrom is not less than 60% of
its total assets and total income respectively.
(ii) Mutual Benefit Financial Company (MBFC)
Mutual Benefit Financial Company means a company which is a financial institution
notified by The Central Government under section 620A of The Companies Act 1956.
8/10/2019 Chap 1 NBFC [CP]
5/9
8/10/2019 Chap 1 NBFC [CP]
6/9
Study on Non Banking Financial Companies in India6
ii. Non-Systematically Important NBFCs-ND
A NBFC ND whose asset size does not exceed Rs.100 crore as per the last audited
balance sheet may be considered as Non-systemically important NBFCs ND (NBFCND-
SI).
NBFCs provide financial services like hire-purchase, leasing, loans, investments, chit-fund
companies etc. NBFCs can be classified into deposit accepting companies and non-deposit
accepting companies. NBFCs are small in size and are owned privately. The NBFCs have
grown rapidly since 1990. They offer attractive rate of return. They are fund based as well as
service oriented companies. Their main companies are banks and financial institutions.
According to RBI Act 1934, it is compulsory to register the NBFCs with the Reserve Bank of
India.
The NBFCs in advanced countries have grown significantly and are now coming up in a very
large way in developing countries like Brazil, India, and Malaysia etc. The non-banking
companies when compared with commercial and co-operative banks are a heterogeneous
(varied) group of finance companies. NBFCs are heterogeneous group of finance companies
means all NBFCs provide different types of financial services. Non-Banking Financial Companies constitute an important segment of the financial system.
NBFCs are the intermediaries engaged in the business of accepting deposits and delivering
credit. They play very crucial role in channelizing the scare financial resources to capital
formation.
1.6 Size of the Sector
The share of NBFCs assets in GDP (at current market prices) increased steadily from just 8.4
per cent as on March 31, 2006 to 12.5 per cent as on March 31, 2013; while the share of bank
assets increased from 75.4 per cent to 95.5 per cent during the same period (Table 1).In fact,
if the assets of all the NBFCs below Rs.100 crore are reckoned, the share of NBFCs assets to
GDP would go further.
8/10/2019 Chap 1 NBFC [CP]
7/9
Study on Non Banking Financial Companies in India7
Assets of NBFC and Banking (SCBs) Sectors
as a % to GDP Year
Ratio
2006 2007 2008 2009 2010 2011 2012 2013
NBFC Assets to GDP
(%)
8.4 9.1 10.1 10.3 10.8 10.9 11.9 12.5
Bank Assets to GDP (%) 75.4 80.6 86.8 93.0 93.0 92.2 92.7 95.5
Source: (i) Reports on Trend and Progress of Banking in India, 2006-2013; (ii) Hand Book of
Statistics on Indian Economy, 2012-13
In comparison to assets of the banking system (Scheduled Commercial Banks-SCBs), assetsize of NBFC sector was around 13 per cent; while deposits (including RNBCs) of the sector
were less than 0.15 per cent of bank deposits (SCBs) as on March 31, 2013 (Chart 2). Public
deposits held with the NBFC sector declined in line with RBI policy directions. The decline
in public deposits was largely on account of RNBCs. Due to concerted efforts of RBI, the
number of deposit taking NBFCs has come down from 428 in June 2006 to 254 in June 2013.
8/10/2019 Chap 1 NBFC [CP]
8/9
8/10/2019 Chap 1 NBFC [CP]
9/9
Study on Non Banking Financial Companies in India9
1.8 Responsibilities
The NBFCs accepting public deposits should furnish to RBI
Audited balance sheet of each financial year and an audited profit and loss account in
respect of that year as passed in the annual general meeting together with a copy of
the report of the Board of Directors and a copy of the report and the notes on accounts
furnished by its Auditors;
Statutory Annual Return on deposits - NBS 1;
Certificate from the Auditors that the company is in a position to repay the deposits asand when the claims arise;
Quarterly Return on liquid assets;
Half-yearly Return on prudential norms;
Half-yearly ALM Returns by companies having public deposits of Rs. 20 crore and
above or with assets of Rs. 100 crore and above irrespective of the size of deposits ;
Monthly return on exposure to capital market by companies having public deposits of
Rs. 50 crore and above; and
A copy of the Credit Rating obtained once a year along with one of the Half-yearly
Returns on prudential norms as at (v) above.
1
1https://www.dnb.co.in/BFSISectorInIndia/NonBankC2.asp
https://www.dnb.co.in/BFSISectorInIndia/NonBankC2.asphttps://www.dnb.co.in/BFSISectorInIndia/NonBankC2.asphttps://www.dnb.co.in/BFSISectorInIndia/NonBankC2.asphttps://www.dnb.co.in/BFSISectorInIndia/NonBankC2.asp