module 6 - nbfc

8/10/2019 Module 6 - NBFC

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1

Non Banking Finance

Company


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Topics Covered

Meaning of NBFC Classification of NBFCs

Types of NBFCs


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Banks Vs. Non-Banks

Both are Financial Intermediaries

Banks Can:

Maintain Demand Deposits (savings/currentAccounts)

Form a Part of Payment and Settlement Mechanism

Non-banks Can

Accept only term Deposits

Does not form Part of Payment and SettlementMechanism


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Meaning of NBFC

Section 45I(f) of RBI act, 1934

Non-banking financial companymeans

a Financial Institutionwhich is a company;

a Non-Banking Institution which is a company andwhich has as its Principal Business the receiving ofdeposits, under any scheme or arrangement or in anyother manner, or lending in any manner;

such other Non-Banking Institution or class of suchinstitutions, as RBI specifies

Non-Banking Institution - means a

company , corporation or co-operative society


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Which is a NBFC?A company which carried on as its business or part of its business

the following activities:

- financing

- acquisition of securities

- hire purchase

- insurance- chit fund

- mutual benefit company

But does not include a company which carries on as its principal

business:

- agricultural operations,

- industrial activities

- Sale and purchase of goods

- providing of services- urchase sale and construction of immovable


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Definition of Principal Business

RBI Press Release Dt. April 8, 1999

- If 50% or more of a companys total assets (netted

off by intangible assets) are financial assets

and

- If 50% or more of a companys gross income is

from financial assets

then the Principal Business of the company is of a NBFC


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Legal Framework

Always Remember NBFC per se is a licensed activity like

Banking, Stock Broking, Money Changing.

Acceptance of Public Deposits isirrelevant for NBFC test.

Income earned & Deployment of Fundsare determining factors

RBI Press Release No.1999-2000/1042 dated 8.2.2000


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Registration and Net Owned Fund (Sec 45- IA)

No NBFC shall commence or carry on business ofNBFI without obtaining a Certificate of Registration &

having minimum Net owned funds

Registration with RBI is mandatory for all companies

interested in carrying on non- banking finance activities.

Minimum Net Owned funds of Rs.2 Crores.


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Classification of NBFCs

Mainly there are following types of NBFCs Asset Finance Company

Equipment Leasing

Hire Purchase Finance

Investment Company Loan Company

Core Investment Companies

Housing Finance Companies

Factoring Merchant banks

Venture capital funds

Credit rating companies http://www.rbi.org.in/commonman/English/scripts/nbfcs.aspx#NI


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Asset Finance Company (AFC) would be defined asany company which is a financial institution carryingon as its principal business the financing of physicalassets supporting productive / economic activity.

The onus of including only eligible assets for thepurpose of classification as AFC shall be that of thecompany concerned.

AFC: Financing of physical assets supporting productive economic activities such asautomobiles, tractors, earth moving machinery, lathe machines, generator sets,

material handling equipments and general purpose industrial machinery.

Principal business - aggregate of financing real/physical assets supportingeconomic activity and income arising therefrom is not less than 60% of

its total assets and total income respectively


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Hire purchase companies

Chapter 10 pg 264-271 of Gordon Natarajan


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Lease companies



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Loan Companies (LC) means any company which is a

financial institution carrying on as its principal business the

providing of finance whether by making loans or advancesor otherwise for any activity other than its own but does

not include an Asset Finance Company

Investment Companies (IC) means any company which isa financial institution carrying on as its principal business

of acquisition of securities


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Infrastructure finance co.(IFC)

IFC: long term funding for developing or operating and maintaining ordeveloping, operating and maintaining any infrastructure project in road,highway, port, airport inland port, waterways, water supply, irrigation project,

water treatment, sanitation and sewage system or solid waste management,

telecom services (basic or cellular), network and internet service,transmission or distribution of power, laying down and maintenance of gas,crude oil and petroleum pipelines


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Core Investment Companies (CICs)

What is CICs?:

(i) Holds not less than 90% of Net Assets in group companies;

(ii) Investments in equity shares in group companies constitutes not

less than 60% of its Net Assets; (Net asset defined in Directions)(iii) It does not trade in its investments except through block sale

for the purpose of dilutionor disinvestment;

(iv) It does not carry on any other financial activity except some

specified acts

CIC is considered SI only if raising/holding public fundsAND Total Assets of Rs. 100 crore or above


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Core Investment Companies (CICs)

For CIC-ND-SI Capital Requirements: minimum capital ratio. i.e.

Adjusted net worth at all time shall not be less than 30%of its aggregate Risk Weighted Assets and Risk adjusted

value of off balance sheet as at the last balance sheet date

Leverage Ratio: Outside liabilities at all times shall notexceed 2.5 times its Adjusted Networth as on the date if

the last audited balance sheetExemptions Given: (i) CIC-ND-SI are exempted from para 15, 16and 18 of the NBFC Norms, 2007 and ii) Norms 2007 not applyfor CIC-NDs (Other than systemically important)


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Core Investment Companies(CICs)

RBI has Announced Core Investment Companies -Overseas Investment (Reserve Bank) Directions, 2012for CICs making investments abroad, opening

branches, representative offices, undertaking jointventures, etc. abroad. The same needs to be followed.

RBI has also separately issued guidelines for entry ofCore Investment Companies in insurance sector

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Housing Finance companies

DIRECT HOUSING FINANCE

Direct Housing Finance refers to the finance provided to individualsor groups of individuals including co-operative societies.

INDIRECT HOUSING FINANCE

Banks should ensure that their indirect housing finance is by way ofterm loans to housing finance institutions, housing boards, otherpublic housing agencies, etc

The Home loan is a loan taken by a borrower from the bankissued against the property/Security intended to be bought on the partby the borrower giving a conditional owernship over the property

HOUSING LOANS UNDER


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HOUSING LOANS UNDER

PRIORITY SECTOR

The following housing finance limits will beconsidered as Priority Sector Advances:1. Direct Finance

(i) Loans up to Rs. 15 lakh in rural, semi-urban,urban and metropolitan areas for construction ofhouses by individuals, with the approval of theirBoards.

(ii) Loans up to Rs.1 lakh in rural and semi urbanareas and Rs. 2 lakhs in urban areas for repairs todamaged houses by individuals.


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2 Indirect Finance

(i) Assistance given to any governmental agency forconstruction of houses, or for slum clearance andrehabilitation of slum dwellers, subject to a ceiling

of Rs. 5 lakh of loan amount per housing unit.(ii) Assistance given to a non-governmental agencyapproved by the National Housing Bank for thepurpose of refinance for reconstruction of houses

or for slum clearance and rehabilitation of slumdwellers, subject to a ceiling of Rs. 5 lakh of loanamount per housing unit.


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STUDY ON HDFC, LIC HOUSING

FINANCE AND SBI HOME FINANCE

Housing Development Finance Corporation

Limited (HDFC)

HDFC is one of the leaders in the Indian housing

finance market with almost 17% market share as onMarch 2010.

Serving more than 38 lakh Indian customers as onMarch 2011

In the FY 2010-11, it registered a net profit of `4528.41crore. It also registered a net profit of `971 crore in thequarter ended September 30, 2011.


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State Bank of India Home

Finance (SBI) State Bank of India is another major player in the

Indian housing finance market with 17% of themarket share, same as HDFC's share as on March2010.

The SBI Housing Loan schemes are specificallydesigned to meet the varied requirements of thecustomers.

SBI Home Finance registered a net profit of `24.63crore in the year ended March 31, 2009.


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LIC Housing Finance Limited

LIC Housing Finance is another major player in housingfinance sector in India with about 8% of market share.

Promoted by Life Insurance Corporation of India,LICHFL has an extensive distribution network with a

strong brand presence. Recently, the company has beenawarded Consumer Superbrand 2009/10 Status bySuperbrands Council. In the last financial year (ended onMarch 31, 2011),

LICHFL earned a net profit of ` 974.49 crore, comparingto `662.18 in the previous FY.

It also registered a net profit of ` 256.50 crore in April-June quarter of 2011.


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HDFC HOUSING FINANCE SERVICES

Home Loan

Home Improvement Loan Home Extension Loans

Land Purchase Loans

Top Up Loans


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LIC HOUSING FINANCE SERVICES

Purchase of flats/house

Construction Extension of flats/house

Plot purchase

Repairs/renovation to existing flats/house


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SBI HOUSING FINANCE SERVICES

SBI Surakshit Home Loan

SBI Yuva Home Loan

SBI Home Loan PAL ( Pre-Approved Limit )

SBI Maxgain (Home Loan as an overdraft)

SBI Realty

NRI Home Loans Gram Niwas


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Merchant banking



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Venture capital funds



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Factoring



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Credit rating



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Thank you

module 6 - nbfc

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