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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)

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Page 1: Non-Banking Financial Companies

Non-Banking Financial Companies

: Scope and Avenue for CS Professionals

- A Diversified and Entrepreneurial Spirit

By:- CS Manisha Singh

M.com, B.com(H)

Page 2: Non-Banking Financial Companies

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

Page 3: Non-Banking Financial Companies

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.

Page 4: Non-Banking Financial Companies

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

Page 5: Non-Banking Financial Companies

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

Page 6: Non-Banking Financial Companies

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

Page 7: Non-Banking Financial Companies

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.

Page 8: Non-Banking Financial Companies

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

Page 9: Non-Banking Financial Companies

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

Page 10: Non-Banking Financial Companies

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

Page 11: Non-Banking Financial Companies

Classification

LiabilitiesAssets

Size

Having Public

Deposits/ NBFCs-D

Not having Public

Deposits/ NBFCs-ND

NDFCs-ND having

assets of Rs.100 cr.

(Systemically Important)

Page 12: Non-Banking Financial Companies

•Assets Finance Company

•Investment Company

•Loan Company

•Core Investment Companies

•Infrastructure Finance Companies

•Micro Finance Institutions

Types of NBFCs(Assets based)

Page 13: Non-Banking Financial Companies

Why NBFC ???

Indian Financial System

Sectors Development

Address the Debt Requirement

Credit to Retail Customers

Small Microfinance

Adapt Market Demand Conditions

Page 14: Non-Banking Financial Companies

Sector Highlights (By Jan.2015)

12000 approx.

registered

NBFCs

250 approx NBFCs-D

460 approxNBFCs-ND-SI

90% of NBFC Assets

Other NBFCs

Page 15: Non-Banking Financial Companies

•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

Page 16: Non-Banking Financial Companies

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

Page 17: Non-Banking Financial Companies

• 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

Page 18: Non-Banking Financial Companies

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”

Page 19: Non-Banking Financial Companies

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

Page 20: Non-Banking Financial Companies

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

Page 21: Non-Banking Financial Companies

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

Page 22: Non-Banking Financial Companies

“ 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)

Page 23: Non-Banking Financial Companies

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)

Page 24: Non-Banking Financial Companies

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

Page 25: Non-Banking Financial Companies

THANK YOU…