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Non-Banking Financial Companies
: Scope and Avenue for CS Professionals
- A Diversified and Entrepreneurial Spirit
By:- CS Manisha Singh
M.com, B.com(H)
CONTENTS
S.No. Topics Covered
1 Definition & Background
2 NBFCs Vs. Bank
3 Registration, Formation and Commencement
4 Classification of NBFC
5 Why NBFC?
6 Sector Highlights
7 Avenue for CS Professionals
8 Return Requirements
9 Recent Amendments
10 NBFCs in India
11 Outcome: Revised Regulations
12 Suggestions
13 Conclusion
NON –BANKING FINANCIAL COMPANY
Section 45I (f) of RBI Act, 1934
A “Financial Institution” which is a company;
A Non Banking Institution ‐ which is a company 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;
Net Owned Funds Requirement -
Min. 200 Lakhs unless specified otherwise.
BACKGROUND
The Revised Regulatory Framework for
NBFCs enforced by RBI has plugged the so called regulatory
arbitrage and brought paritywith banks.
NBFCs’ regulations have a history of 18
years and are today almost at par with banks
INCLUDES EXCLUDES
Loans and Advances
Hire-Purchase
Acquisition of Shares/Stocks/Debentures/
Bonds/Securities
Leasing
Insurance Business
Chit Business
Agricultural Activity
Industrial Activity
Purchase or Sale of any Goods (Other than
Securities)
Providing any Services and Purchase/
Sale/Construction of Immovable Property
NBFC Vs. Banks
Banks – Maintain Demand Deposits(savings/current Accounts)
-Banks have access to low cost public deposits
-Scope of Business is Limited
– Form a Part of Payment and Settlement Mechanism
NBFC– Accept only Term Deposits
-NBFCs have to rely on Banks / financialinstruments to raise funds
-Scope of Business is Unlimited
– Does not form a Part of Payment and Settlement Mechanism
NBFC REGISTRATION
Registration with RBI for carrying on their
business.
Minimum Net Owned Fund requirement of
Rs. 200 lakhs.
Application is to be submitted in two
separate sets tied up Properly in two files.
Annex 2 to be submitted duly signed by the director/Authorized
signatory and certified by statutory auditors.
A company with main object clause/ancillary clause for carrying out NBFI activities (check object clause).
Obtain checklist of requirements from RBI website and fill up prescribed form, available on RBI website, according to instructions with the requirements
Fill up the e‐form provided in excel format and get the required certifications of the statutory auditors/chartered accountants (as the case may be)
Formation Procedure
Obtain the printout of successful submission of the softcopy. Mention the date of submission on the print if date is not appearing on print.
Submit the hardcopy application in duplicate to regional office of RBI, each page in the application file should be numbered.
Prepare the application in triplicate so that a replica is with the applicant for future reference.
Formation Procedure
COMMENCEMENT OF BUSINESS
NBFC must commence its
business within 6
months from the date of CoR
If not commenced
within 6 months, CoR will
stand withdrawn
No change in control prior to commencementof its business
Prior Approval of RBI is
required for change in name
NBFC
Classification
LiabilitiesAssets
Size
Having Public
Deposits/ NBFCs-D
Not having Public
Deposits/ NBFCs-ND
NDFCs-ND having
assets of Rs.100 cr.
(Systemically Important)
•Assets Finance Company
•Investment Company
•Loan Company
•Core Investment Companies
•Infrastructure Finance Companies
•Micro Finance Institutions
Types of NBFCs(Assets based)
Why NBFC ???
Indian Financial System
Sectors Development
Address the Debt Requirement
Credit to Retail Customers
Small Microfinance
Adapt Market Demand Conditions
Sector Highlights (By Jan.2015)
12000 approx.
registered
NBFCs
250 approx NBFCs-D
460 approxNBFCs-ND-SI
90% of NBFC Assets
Other NBFCs
•Passing of Board Resolution under Section 179 of the Companies Act, 2013
•Shareholders Resolution under Section 180(1)(a) and Section 180(1)(c) of the Companies Act,2013
•Preferential issue – Section 42 of the Companies Act, 2013 and Rules made there under.
Avenue for CS Professionals
Compliance with applicable rules & regulations of recognized stock exchange in India
Compliance with the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
Compliance with the SEBI (Issue and Listing of Debt Securities) Regulations, 2008
Compliance with SEBI (Debenture Trustee) Regulations, 1993
Issuance of Non‐Convertible Debentures (Reserve Bank) Directions, 2010, as issued by the RBI (applicable if maturity period is upto 1 year)
Non‐Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998
Master Circular on ECB Guidelines
Consolidated FDI Policy 2013 issued by DIPP
SEBI Laws RBI Laws
• NBFC – D : 7 types of return
• NBFC‐ND‐SI : 6 types of return
• NBFC – ND having asset size more than 50 crores and above but less than 100 crores : quarterly return ‐ basic information (NoF, profit & loss last 3 years etc.)
• NBFC with FDI : half yearly return on compliance of Minimum Capitalization Norm
• NBFC having overseas investment : Quarterly return
Returns Requirements
RECENT AMENDMENTS
Fair Practices Code
(which should
preferably in the
vernacular
language as
understood by the
borrower)
Display grievance
redressal
mechanism and
contact details of
grievance redressal
officer
NBFCs cannot become partners in partnership firms
RBI issued “NBFC Directions, 2011”
RECENT AMENDMENTS…CONT..
Revision in External
Commercial
Borrowings
(ECB) Policy –
Infrastructure
Finance Companies
(IFCs)
Guidelines on classification of frauds for deposit taking NBFCs to apply for NBFC‐ND‐SI also
Review of Guidelines on entry of NBFCs into Insurance Business
Amendments to
definition of
infrastructure
loan
NBFC in India Power Finance Corporation Reliance Capital Shree Global Shriram Transport Finance Bajaj Holdings M & M Financials Muthoot Finance LIC Housing Finance Tata Capital Infrastructure Development Finance Company
OUTCOME: REVISED REGULATIONS
Fund raising is Getting Difficult
NBFCs to be covered under SARFAESI Act
Asset Classification
Norms
Income Tax Benefits
Should Also be at Par with
Banks
“ The growing reliance of NBFCs on bank funding could place a strain on the banks if NBFCs were to deleverage under conditions of stress.
NBFCs themselves could also face difficulties if banks were to become reluctant to lend to them in case of a liquidity crunch.”
– FINANCIAL STABILITY BOARD (FSB)
SUGGESTIONS
Opening new avenues of fund raising like
creating a “refinance window” would go a
long wayin reducing and
ultimately exiting of NBFCs from deposit
acceptance.
RBI may stipulate acap whereby a
maximum of 50% of total bank lending to priority sector may be
routed throughNBFCs.
Systemically Important NBFCs should be given
coverage under the SARFAESI Act.
Recommended by theUsha Thorat
Committee and the Nachiket Mor Committee.
(Already implemented)
Conclusion
To conclude, I may say that the challenge therefore for the NBFC sector is to grow in a prudential manner while not stopping altogether on financial innovations.
In this scenario, the Non-Banking Finance Companies (NBFC) sector has scripted a story that is remarkable. Skepticism about ‘shadow banks’ has settled to a more healthy understanding of the risks and rewards of a diverse financial system.
Thus the need for uniform practices and level playing field for NBFCs in India is indispensable.
Conclusion
THANK YOU…