nbfi,anubha shroff

8/7/2019 NBFI,Anubha SHROFF

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Non - Banking Financial

Institutions

Presented by-

Anubha Shroff

PGP II, Section B

Roll No. 23


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Introduction

A non-bank financial institution (NBFI) is a financial

institution that does not have a full banking license or is not

supervised by a national or international banking regulatory

agency. A company registered under Companies Act 1956 and RBI Act

1934 u/s 45-IA

It facilitate bank-related financial services, such as investment,

loans and advances, leasing, hire - purchase, insurance, but

does not include that institution whose main business is in

agriculture activity, industrial activity, sale/ purchase/

construction of immovable property etc.


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Cont..

While some of them are primary engaged in in fund-

based activities, the others primarily provide financial

services of diverse kinds. Former is known as NBFCs

and latter is known as NBFSCs.

RBI has evolved a regulatory framework the salient

features of which are outlined below for the guidance of

depositors.

An NBFC must be registered with the Reserve Bank

of India (RBI) and have specific authorization toaccept deposits from the public.

NBFC must display the Certificate of Registration or

acetified copy thereof at the Registered office and

other offices/branches


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RBI does not guarantee the repayment of deposits accepted by

NBFCs. NBFCs cannot use the name of the RBI in any manner

while conducting their business.

NBFCs which accept deposits should have minimum

investment grade credit rating granted by an approved credit

rating agency for deposit collection, except certain Asset

Finance (equipment leasing and hire purchase finance)companies and Residuary Non-Banking Companies (RNBCs)

NBFCs excluding RNBCs cannot

Offer a rate of interest on deposits more than that approved

by RBI from time to time (at present 12.5%) Accept deposit for a period less than 12 months and more

than 60 months

Offer any gifts/incentives to solicit deposits from public.


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Structure


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Services

Act as suppliers of loans and credit facilities Supporting investments in property

Trade money market instruments

Fund private education

Provide wealth management such as managing portfoliosof stocks and shares

Underwrite stock and shares, TFCs and other obligations

Provide retirement planning

Advise companies in merger and acquisition

Prepare feasibility, market or industry studies for

companies

Provide discounting services e.g., discounting of

instruments


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CLASSIFICATION OF NBFCS

1. Equipment Leasing companies

2. Investment companies

3. Housing finance companies

4. Venture capital companies

5. Discount and guarantee houses

6. Hire purchase Finance Companies

7. Loan Companies

8. Mutual Benefit Financial Company

9. Miscellaneous Non-Banking Company

10. Residuary Non-Banking Company


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Regulation of NBFCs

The minimum net-owned funds of Rs.2 crores and RBIregistration are the entry point norms. The RBI has powerto cancel registration of NBFCs.

NBFCs have to maintain 10-15% of their deposits inliquid assets effective from January 1 1988

Reserve fund of not less than 20% of their net deposits,every year.

CAR 8%

Minimum credit rating

15% interest rate on deposits Company having more than 50% of its total assets as

financial assets and income from financial assets is morethan 50% of the gross income, will be termed as NBFCs


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Cont In order to protect depositors interest, all NBFCs

accepting/holding public deposits are advised to full cover

available at all times.

KYC norms

Required to inform RBI within one month where merger

and amalgamation takes place in terms of the high court

order in pursuance of sec. 391 and sec. 394 of Companies

Act 1956.

Entire amount of aggregate liabilities, to the depositors

would be invested in directed investment only nodiscretionary investments.

The maximum interest rate on public deposits is 12.5% p.a.

This is the maximum permissible ineterst rate an NBFC

can pay on public deposits; they are free to offer lower

rates


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Ceiling on acceptance of Public Deposit

Category of NBFC having

NOF more than Rs 25 lakh

but less than Rs 200 lakh

Ceiling on public deposits

AFCs maintaining CRAR of

15% without credit rating

Equal to NOF

AFCs with CRAR of 12% and

having minimum investment

grade credit rating

1.5 times of NOF

LCs/ICs with CRAR of 15%

and having minimum

investment grade credit rating

Equal to NOF


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LOAN COMPANIES

Loan company means a company which is a financial

institution carrying on as its principal business the

providing of finance whether by making loans or advances

or otherwise for any activity other than its own but does

not include an equipment leasing company or a hire-

purchase finance company

They give loans to wholesale and retail traders, small scale

industries, and self employed persons. Loans are often

short term loan Unsecured loan based on personal credit standing of

borrower

Rate of interest charge is equivalent to money lenders, 18 -

36 %


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INVESTMENT COMPANIES

Investment Company is a company which is a financialinstitution carrying on as its principal business the

acquisition of securities

It 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.

Finance house building, education and medical needs, and

priority sectors

Interest rate is high

Loans are unsecured


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EQUIPMENT LEASING

COMPANY It is a form of financing employed to acquire the use of

assets. Through lease firms can acquire the economic use

of assets for a stated period of time without owing it. Two parties lessor and lessee

Operating lease and Financial or capital lease

The extent of the lease business largely depends on upon

the legal framework and tax policy of the government ICICI, HDFC, SIICs, etc


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HOUSING FINANCE COMPANY Its an company carrying on as its principal business, the

financing of the acquisition or construction of houses

including the acquisition or development of plots, lands inconnection therewith

Supplier of loan in India are HUDCO, housing boards,

central and state government, etc.


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Comparison between Banks and

NBFCs


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THANK YOU

nbfi,anubha shroff

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