role of nbfcs in financial inclusion-mayank arya

Role of NBFCs in Financial Inclusion

SUMMER TRAINING PROJECT


Undertaken at

“ Reserve Bank of India, New Delhi ”Submitted in the partial fulfillment for the award of the degree ofMASTER OF BUSINESS ADMINISTRATION

Under the Supervision Submitted by

and Guidance of MBA 3RD Semester

Prof. Rajesh Bajaj Mayank Arya

(Project Guide) Enroll No. - 03517003909

SESSION: 2010 - 2011

TECNIA INSTITUTE OF ADVANCED STUDIES

(Approved by AICTE, Ministry of HRD, Govt. of India)Affiliated To Guru Gobind Singh Indraprastha University, Delhi

INSTITUTIONAL AREA, MADHUBAN CHOWK, ROHINI, DELHI- 110085E-Mail: [email protected], Website: www.tecniaindia.org

Fax No: 27555120, Tel: 27555121-24

http://www.tecniaindia.org/


TECNIA INSTITUTE OF ADVANCEDSTUDIES

(Approved by AICTE, Ministry of HRD, Govt. of India)Affiliated To Guru Gobind Singh Indraprastha University, Delhi

INSTITUTIONAL AREA, MADHUBAN CHOWK, ROHINI, DELHI- 110085E-Mail : director.tecniaindia@ gmail.com, Website: www.tecniaindia.org

Fax No: 27555120, Tel: 27555121-24

Declaration

I Mayank Arya (03517003909), MBA 3rd Semester of the Tecnia Institute of Advanced

Studies, Delhi hereby declare that the Summer Training Report entitled “Role of NBFCs in Financial Inclusion” is an original work and the same has not been

submitted to any other Institute for the award of any other degree. A seminar

presentation of the Summer Training Report was made on _______________________ and the suggestions as approved by the faculty were duly incorporated.

Signature of Researcher

CountersignedSignature of faculty Guide

http://www.tecniaindia.org/


Acknowledgement

It gives me immense pleasure and sense of achievement in preparing and presenting this project

report as per the requirements for the completion of Summer Internship project.

This project would have not have been possible without the expert guidance of Mr. Nirmal

Chand, (GM-DNBS) and his continued assistance to make sure that the company-visits I

conducted were fruitful. He has been a great mentor and helped me structure the project in a way

that there was mutual benefit for both RBI and me, as an MBA student. He was very flexible and

approachable throughout my stay at RBI.

I would also like to greatly thank Mr. Anandi Paswan(Manager-DNBS) and Mr. Chandan

Kumar Rukhaiyar, (Manager-DNBS) without whose help I would never have gained an

immensely thorough understanding of the section. He assisted me on a day-to-day basis, helping

me match the time-schedule I had prepared as well as engaging in healthy discussions with me

on the project topic.

I am deeply indebted to my faculty guide Prof. Rajesh Bajaj from Tecnia Institute of

Advanced Studies(GGSIPU), whose help, stimulating suggestions and encouragement helped

me in all the time of research and for competing this project


Preface

Financial services actively contribute to the human & economic development of the society.

These lead to social safety net & protect the people from economic shocks. Hence, each & every

individual should be provided with affordable institutional financial products/services popularly

called “Financial Inclusion”.

Despite witnessing substantial progress in financial sector reforms in India, it is disheartening to

note that nearly half of the rural households even today do not have any access to any source of

funds- institutional or otherwise. Hardly one-fourth of the rural households are assisted by

NBFCs and banks. Hence the major task before banks is to bring most of those excluded, i.e.

75% of the rural households, under banking fold. There is a need for the formal financial system

to look at increasing financial literacy and financial counseling to focus on financial inclusion

and distress amongst farmers. Indian banks and financial market players should actively look at

promoting such programs as a part of their corporate social responsibility.


Table of Content Introduction --------------------------------------------------------------------------------------- 8

Company Profile --------------------------------------------------------------------------------- 9 Problem Statement ------------------------------------------------------------------------------ 29

Objective ------------------------------------------------------------------------------------------ 30

Scope ---------------------------------------------------------------------------------------------- 30

Review of Literature ---------------------------------------------------------------------------- 32

Financial Inclusion ------------------------------------------------------------------------------ 35

Non Banking Financial Companies ----------------------------------------------------------- 37

NBFCs go for the Rural and Urban Growth in India --------------------------------------- 50

Role of Micro Finance – NBFCs in Financial Inclusion ----------------------------------- 52

Objective Analysis------------------------------------------------------------------------------- 54

Role of NBFCs in Financial Inclusion ------------------------------------------------------- 58

Data Analysis ------------------------------------------------------------------------------------ 63

Finding ----------------------------------------------------------------------------------------------------- 71

Recommendation -------------------------------------------------------------------------------- 72

Conclusion ---------------------------------------------------------------------------------------- 73

Limitation ----------------------------------------------------------------------------------------- 75

Bibliography -------------------------------------------------------------------------------------- 76

Annexure -------------------------------------------------------------------------------------- 49

Learning Summary -------------------------------------------------------------------------- 81

List of Charts


Figure Page No.

Figure 1: Difficulties in Procuring Banking License 63

Figure 2: Link up of NBFCs with banks for achieving Financial Inclusion 64

Figure 3: Awareness Level 65

Figure 4: Customer Segment Focus 65

Figure 5: Range of Products and services offered by NBFCs 66

Figure 6: Target Segment Expansion Plans 67

Figure 7: Level of Competition 68

Figure 8: Implementing New Innovative Ideas 68

Figure 9: Special Staff Training in view of Financial Inclusion 69


CHAPTER - 1


IntroductionThe World is moving at an amazing pace but due to the advances in technologies, distances have

become meaningless. Globalization has enabled the rise of global trade leading to wealth

generation in developed as well as developing countries. Wealth can be created in any part of the

world with a single click of the mouse. Developing nations, like India have immensely benefited

from the globalizing economy. Wealth has been pouring into the country as investments (both

direct and institutional). Indian companies are acquiring companies all over the world, hence

benefitting from expansion. This has directly affected the lives of many citizens in our country.

For many, there has been a dramatic increase in the disposable income. The savings,

consumption and investment patterns have changed in the past few years. This has meant that

there has been an increase in demand for many financial services from different financial firms.

The market has responded to this soaring demand with making attractive offers and services for

the customers at affordable rates. The liberalization of the economy in the 1990s has brought in

new players into the field which has not only brought in some much needed fresh air to the

stagnant financial sector but also competition for the same market space which was relatively

unknown in the financial sector till then. Since then, there have been progressive reforms in the

financial sector allowing for better and easier facilities and options to the poor and disadvantage

people. An increasing financially aware middle class have realized the importance of financial

services. Banks and NBFCs(Non Banking Financial companies) have streamlined and

rationalized themselves to meet with the changing demands of the people. Banks and NBFCs

have become partners in growth for many offering them a safer and secure future.

India is the fourth largest economy in the world on a purchasing power parity (PPP) basis

and twelfth on a nominal basis. With the real GDP forecasted to grow by 5.7% in the year 2009-

10, the Indian economy is marching ahead. This rapid expansion is expected to continue as

growth in the services and high technology manufacturing sector accelerates. Agriculture, which

continues to support around 60% of the population, has grown by a mere 2.7% in the second

quarter of 2008-09. In addition, the organized sector employment presently comprises less than

10% of the workforce, leaving the vast majority of the working population with irregular income

streams. In India the focus of the financial inclusion at present is confined to ensuring a bare

minimum access to a savings bank account without frills, to all. There could be multiple levels of

financial inclusion and exclusion. At one extreme, it is possible to identify the ‘super-included’,


i.e., those customers who are actively and persistently courted by the financial services industry,

and who have at their disposal a wide range of financial services and products. At the other

extreme, we may have the financially excluded, who are denied access to even the most basic of

financial products.

In between are those who use the banking services only for deposits and withdrawals of money.

But these persons may have only restricted access to the financial system, and may not enjoy the

flexibility of access offered to more affluent customers.

Without a formal and a legally recognized financial system in which all sections of the

population are a part of, it would be impossible even for the most efficient of the governments to

reach out to all sections of the people. A stable and healthy financial service sector creates trust

among the people about the economy and only with this trust (which has legal validity) could a

strong, stable and an inclusive economy be created.

Notwithstanding the rapid increase in overall GDP and per capita income in recent years, a

significant proportion of the population in both rural and urban areas still experiences difficulties

in accessing the formal financial system. There is currently a perception that there are a large

number of rural, urban and semi urban people, potential entrepreneurs, small enterprises and

others, who may not have adequate access to the financial services, which could lead to their

marginalization and denial of opportunity to grow and prosper.

Company ProfileName of the organization: - Reserve Bank of India

Organization Type: - National

Address:- Regional Director for Delhi

Reserve Bank of India,

6, Sansad Marg,P.B.No.696,

New Delhi -110 001.

Telephone No. - 011- 23710538, 011-23710542


Email Id:- [email protected]

Reserve Bank of India(RBI) Head Office Address :

Main Bldg. P. B. No. 901 Shahid Bhagat singh Road

Mumbai : 400001

Maharashtra ,India .

Phone No. : (22) - 22601500, 22660500

Website: www.rbi.org.in

The total workforce of Reserve Bank of India is approx. 21000 till 2009

Geographical Area of working: - RBI has 22 regional offices spread in different states of India.

Diagrammatic views of all 22 regions are as follows:-

http://www.rbi.org.in/

mailto:[email protected]


Nature of Organization and its Business

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of

the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially

established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is

where the Governor sits and where policies are formulated. Though originally privately owned,

since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India.

Since 1935, RBI has began the operations, they have stood at the centre of India’s financial

system, with a fundamental commitment to maintaining the nation’s monetary and financial

stability in India.

From ensuring stability of interest and exchange rates to providing liquidity and an adequate

supply of currency and credit for the real sector; from ensuring bank penetration and safety of

depositors funds for promoting and developing financial institutions and markets, the Reserve

Bank of India plays a crucial role in the economy. The decision taken by them touches the daily

life of all Indians and helps the country’s current and future economic and financial course. Over

the years, They performs specific roles and functions which are very important for maintaining

the financial stability in the system.

The origin of the Reserve Bank can be traced to 1926, when the Royal Commission on Indian

Currency and Finance—also known as the Hilton-Young Commission— recommended the

creation of a central bank to separate the control of currency and credit from the government and

to augment banking facilities throughout the country. The Reserve Bank of India Act of 1934

established the Reserve Bank as the banker to the central government and set in motion a series

of actions culminating in the start of operations in 1935. Since then, the Reserve Bank’s role and

functions have undergone numerous changes—as the nature of the Indian economy has changed.

Today’s RBI bears some resemblance to the original institution, although their mission has

expanded along with their deepened, broadened and increasingly globalised economy

The Reserve Bank of India performs this function under the guidance of the Board for Financial

Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central

Board of Directors of the Reserve Bank of India.


Objective

Primary objective of BFS is to undertake consolidated supervision of the financial sector

comprising commercial banks, financial institutions and non-banking finance companies.

Constitution

The Board is constituted by co-opting four Directors from the Central Board as members for a

term of two years and is chaired by the Governor. The Deputy Governors of the Reserve Bank

are ex-officio members. One Deputy Governor, usually, the Deputy Governor in charge of

banking regulation and supervision, is nominated as the Vice-Chairman of the Board.

BFS meetings

The Board is required to meet normally once every month. It considers inspection reports and

other supervisory issues placed before it by the supervisory departments.

BFS through the Audit Sub-Committee also aims at upgrading the quality of the statutory audit

and internal audit functions in banks and financial institutions. The audit sub-committee includes

Deputy Governor as the chairman and two Directors of the Central Board as members.

The BFS oversees the functioning of Department of Banking Supervision (DBS), Department of

Non-Banking Supervision (DNBS) and Financial Institutions Division (FID) and gives directions

on the regulatory and supervisory issues.

Functions

Some of the initiatives taken by BFS include:

i. Restructuring of the system of bank inspections

ii. Introduction of off-site surveillance,

iii. Strengthening of the role of statutory auditors and

iv. Strengthening of the internal defences of supervised institutions.


The Audit Sub-committee of BFS has reviewed the current system of concurrent audit, norms

of empanelment and appointment of statutory auditors, the quality and coverage of statutory

audit reports, and the important issue of greater transparency and disclosure in the published

accounts of supervised institutions.

Current Focus

Supervision of financial institutions

Consolidated accounting

Legal issues in bank frauds

Divergence in assessments of non-performing assets and

Supervisory rating model for banks.

How RBI functions

The Reserve Bank is wholly owned by the Government of India. The Central Board of Directors

oversees the Reserve Bank’s business.

About the Central Board

The Central Board has primary authority for the oversight of the Reserve Bank. It delegates

specific functions to its committees and sub-committees.|

1. Central Board: Includes the Governor, Deputy Governors and the nominated Directors

and a government nominee-Director.

2. Committee of Central Board: Oversees the current business of the central bank and

typically meets every week, on Wednesdays. The agenda focuses on current business,

including approval of the weekly statement of accounts related to the Issue and Banking

Departments.


3. Board for Financial Supervision: It regulates and supervises commercial banks, Non-

Banking Finance Companies (NBFCs), development finance institutions, urban co-

operative banks and primary dealers.

4. Board for Payment and Settlement Systems: It regulates and supervises the payment

and settlement systems.

5. Sub-committees of the Central Board: It includes those on Inspection and Audit; Staff;

and Building. Focus of each subcommittee is on specific areas of operations.

6. Local Boards: In Chennai, Kolkata, Mumbai and New Delhi, representing the country’s

four regions. Local board members, appointed by the Central Government for four-year

terms, represent regional and economic interests and the interests of co-operative and

indigenous banks.

The RBI is made up of:

1. 26 Departments: These focus on policy issues in the Reserve Bank’s functional areas

and internal operations.

2. 26 Regional Offices and Branches: These are the Reserve Bank’s operational arms and

customer interfaces, headed by Regional Directors. Smaller branches / sub-offices are

headed by a General Manager / Deputy General Manager.

3. Training centres: The Reserve Bank staff College at Chennai addresses the training

needs of RBI officers; the College of Agricultural Banking at Pune trains staff of co-

operative and commercial banks, including regional rural banks. The Zonal Training

Centres, located at regional offices, train non-executive staff.

4. Research institutes: RBI-funded institutions to advance training and research on

banking issues, economic growth and banking technology, such as, National Institute of

Bank Management (NIBM) at Pune, Indira Gandhi Institute of Development Research


(IGIDR) at Mumbai, and Institute for Development and Research in Banking Technology

(IDRBT) at Hyderabad.

5. Subsidiaries: Fully-owned subsidiaries include National Housing Bank (NHB), Deposit

Insurance and Credit Guarantee Corporation (DICGC), Bharatiya Reserve Bank Note

Mudran Private Limited (BRBNMPL). The Reserve Bank also has a majority stake in the

National Bank for Agriculture and Rural Development (NABARD).

Main Functions of RBI

The Reserve Bank is the network of numerous activities and all are related to the nation’s

financial sector, encompassing and extending beyond the functions of a typical central bank. An

overview of primary activities performed by Reserve Bank of India are as follows:

Monetary Authority

It helps in formulating, implementing and monitoring the monetary policy.

The main objective is to maintain the price stability and ensuring adequate flow of credit

to productive sectors.

Regulator and supervisor of the financial system

It prescribes the broad parameters of banking operations within which the country's

banking and financial system functions.

The main objective is to maintain public confidence in the system, protect depositor’s

interest and provide cost-effective banking services to the public.

Manager of Foreign Exchange

It manages the Foreign Exchange Management Act, 1999.

The main objective is to facilitate external trade and payment and promote orderly

development and maintenance of foreign exchange market in India.

Issuer of currency


Main task is to issues and exchanges or destroys currency and coins which are not fit for

circulation.

The main objective is to give the public adequate quantity of supplies of currency notes

and coins and in good quality.

Developmental role

Main task is to perform wide range of promotional functions to support national

objectives.

Related Functions

Banker to the Government:-It performs merchant banking function for the central and

the state governments; also acts as their banker.

Banker to banks:- It maintains banking accounts of all scheduled banks.

Mission and Vision of RBI

Mission Statement of RBI is:

“To regulate the issue of Bank Notes and keeping of reserves with a view to securing

monetary stability in India and generally to operate the currency and credit system of the

country to its advantage.”

Vision statement of RBI is:

“The Vision of RBI is to maintain the stability in Growth and aslo Control the Inflation in

the Indian Economy .”


Product at Glance

In order to bring home the advantages of electronic transactions and putting to use the advantages of technology in banking, RBI introduced various payment products like: -

ECS (Electronic Transfer Mode)

ECS is a mode of electronic funds transfer for transactions that are repetitive and

periodic in nature. ECS is used by institutions for making bulk payment of amounts

towards distribution of dividend, interest, salary, pension, etc., or for bulk collection of

amounts towards telephone / electricity / water dues, cess / tax collections, loan

instalment repayments, periodic investments in mutual funds, etc. Essentially, ECS

facilitates bulk transfer of monies from one bank account to many bank accounts or vice

versa using the services of a ECS Centre at a ECS location.

There are two variants of ECS - ECS Credit and ECS Debit.

ECS Credit is used for affording credit to a large number of beneficiaries having

accounts with bank branches at various locations within the jurisdiction of a ECS Centre

by raising a single debit to an account of a bank (that maintains the account of the user

institution). ECS Credit enables payment of amounts towards distribution of dividend,

interest, salary, pension, etc., of the user institution.

ECS Debit is used for raising debits to a large number of accounts maintained with bank

branches at various locations within the jurisdiction of a ECS Centre for single credit to

an account of a bank (that maintains the account of the user institution). ECS Debit is

useful for payment of telephone / electricity / water bills, cess / tax collections, loan

instalment repayments, periodic investments in mutual funds, etc., that are periodic or

repetitive in nature and payable to the user institution

EFT (Electronic Fund Transfer)

EFT is a Scheme introduced by Reserve Bank of India (RBI) to help banks offering their


customers money transfer service from account to account of any bank branch to any

other bank branch in places where EFT services are offered. The EFT system presently

covers all the branches of the 27 public sector banks and 55 scheduled commercial banks

at the 15 centres (viz., Ahmedabad, Bangalore, Bhubneshwar, Kolkata, Chandigarh,

Chennai, Guwahati, Hyderabad, Jaipur, Kanpur, Mumbai, Nagpur, New Delhi, Patna and

Thiruvananthpuram). Funds transfer is possible from any branch of these banks at these

centres to other branch of any bank at these centres both inter-city and intra-city.

NEFT (National Electronic Funds Transfer)

National Electronic Funds Transfer (NEFT) is a nation-wide system that facilitates

individuals to electronically transfer funds from any bank branch to any other bank

branch in the country. Individuals, firms or corporates maintaining accounts with a bank

branch can transfer funds using NEFT. Even such individuals, firms or corporates who do

not have a bank account (walk in customers) can also deposit cash at the branch with

instructions to transfer funds using NEFT. A separate Transaction Code (No. 50) has

been allotted in the NEFT system to facilitate walk-in customers to deposit cash and

transfer funds to a beneficiary. Such customers have to furnish full details including

complete address, telephone number etc. NEFT, thus, facilitates originators or remitters

to initiate funds transfer transactions even without the need for having a bank account.

RTGS (Real Time Gross Settlement)

The acronym 'RTGS' stands for Real Time Gross Settlement. RTGS system is a funds

transfer mechanism where transfer of money takes place from one bank to another on a

'real time' and on 'gross' basis. This is the fastest possible money transfer system through

the banking channel. Settlement in 'real time' means payment transaction is not subjected

to any waiting period. The transactions are settled as soon as they are processed. 'Gross

settlement' means the transaction is settled on one to one basis without bunching with any

other transaction. Considering that money transfer takes place in the books of the Reserve

Bank of India, the payment is taken as final and irrevocable.

The objective behind the introduction of these products was to bring about further

reduction in the length of the settlement cycle to enhance the efficiency of payment


system. Although RBI has succeeded in bringing about a change in the approach to

adoption of technology in payment and settlement systems, the cost of these services is

militating against wider adoption of these technological products.

INFINET (Indian Financial Network): - The INFINET is essentially an Internet

Protocol (IP) network and hence all the applications should be built around TCP/IP. In

order to make optimum use of the communication resources and to facilitate smooth

implementation of the applications on the network, the RBI had constituted a few sub-

groups for standardisation of different information technology components like

networking products, system software, and messaging standard.

ORGANISATION STRUCTURE OF RBI

The organization of RBI can be divided into three parts:

1) Central Board of Directors.

2) Local Boards

3) Offices of RBI

1. Central Board of Directors

The organization and management of RBI is vested on the Central Board of Directors. They are

responsible for the management of RBI. Central Board of Directors consists of 20 members.

They are constituted as follows:-

One Governor: - It is the highest authority of RBI. He is appointed by the Government of

India for a term of 5 years. He can be re-appointed for another term.


Four Deputy Governors: - Four deputy Governors are nominated by Central Govt. for a

term of 5 years.

Fifteen Directors: - Other fifteen members of the Central Board are appointed by the

Central Government. Out of these, four directors, one each from the four local Boards are

nominated by the Government separately by the Central Government.

Ten directors nominated by the Central Government are among the experts of commerce,

industries, finance, economics and cooperation. The finance secretary of the Government of

India is also nominated as Govt. officer in the board. Ten directors are nominated for a period

of 4 years. The Governor acts as the Chief Executive officer and Chairman of the Central

Board of Directors. In the absence of deputy Governor nominated by the Governor, he acts as

the Chairman of the Central Board. The deputy governors and government’s officer nominee

are not entitled to vote at the meetings of the Board. The Governor and four deputy

Governors are full time officers of the Bank.


ORGANISATION STRUCTURE : CENTRAL BOARD OF DIRECTORS

Executive Directors

Shri V.K. Sharma

Financial Markets Department

(Shri P.Krishnamurthy

, CGM)

Department of Currency

Management(Shri R

Gandhi, CGM)

Rural Planning & Credit

Department (Shri

B.P.Vijayendra, CGM)

Urban Banks Department

(Shri A. Udgata,CGM)

Customer Service

Department (Shri Kaza Sudhakar,

CGM)


Shri. C. Krishnan

Inspection Department(including

Internal Audit)(Shri Karuna

Sagar CGM-in-Charge)

Right to Information Act(First Appellate

Authority)Shri Anand

SinhaFinancial Stability

Unit(Dr.

Rabi.N.Mishra, General Manager

& Officer-in-Charge)

Department of Banking

Operations and Development

(Shri. B. Mahapatra,

CGM-in-Charge)

Department of Expenditure& Budgetary

Control (Smt Deepa Srivastava

CGM-in-Charge)

Shri V.S. Das Secretary's Department

(Smt. Grace E. Koshie, CGM &

Secretary)

Department of Administration &

Personnel Management(Shri Prabal

Sen, Principal CGM)

Human Resources

Development Department

(Shri Deepak Singhal, CGM)

Rajbhasha Department

(Ms. Roopam Mishra, General

Manager-in-Charge)

Department of Communication

(Alpana Killawala, CGM)

Shri G.Gopalakrishn

a

Department of Non-Banking Supervision

Premises Department

(Shri


(Smt Uma Subramaniam, CGM-in-Charge)

S.Venkatachalam, CGM,

Technical )

Department of Banking

Supervision(Dr. N. Krishna Mohan, CGM-in-Charge)

Central Security Cell

(Major General (Retd.)

Soli N. Pavri, Security Adviser)

Shri H.R. KhanDepartment of Government

& Bank Accounts (Shri

S.V.Raghavan, CGM in - Charge)

Department of External

Investments & Operations(Smt. M

Hemachandra,CGM)

Internal Debt ManagementDepartment

(Shri K.K.Vohra, CGM)

Foreign Exchange Department(Shri Salim

Gangadharan,CGM-in-Charge)

Shri D.K.Mohanty

Alternate Appellate

Authority (under RIA)

Monetary Policy Department

(Dr.Janak Raj, Adviser-in-

Charge)


Department of Economic Analysis

& Policy(Shri K.U.B.Rao,

Officer-in-Charge)

Department of Statistics & Information

Management (Dr. A.M.

Pedgaonkar, Principal Adviser)

Shri H.N.Prasad,

Chief Executive Officer

Deposit Insurance and Credit Guarantee Corporation

2. Local Boards

Besides the central board, there are local boards for four regional areas of the country with their

head-quarters at Mumbai, Kolkata, Chennai, and New Delhi. Local Boards consist of five

members each, appointed by the central Government for a term of 4 years to represent territorial

and economic interests and the interests of co-operatives and indigenous banks. The function of

the local boards is to advise the central board on general and specific issues referred to them and

to perform duties which the central board delegates.

3. Offices of RBI

The Head office of the bank is situated in Mumbai and the offices of local boards are

situated in Delhi, Kolkata and Chennai. In order to maintain the smooth working of banking

system, RBI has opened local offices or branches in Ahmedabad, Bangalore, Bhopal,

Bhubaneswar, Chandigarh, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Nagpur, Patna,

Thiruvananthpuram, Kochi, Lucknow and Byculla (Mumbai). The RBI can open its offices with

the permission of the Government of India. In places where there are no offices of the bank, it is


represented by the state Bank of India and its associate banks as the agents of RBI.


CHAPTER – 2Job Specific Analysis


CHAPTER – 2(I)Research Problem and Purpose


Research ProblemNon Banking Financial Companies (NBFCs) in India were having golden days during 1990s.

Their heady days were fueled with the rapid industrial growth due to liberalization in 1991,

simple resource-raising regulations and eager & greedy investors ready to put their saving into

any finance company. As has been said, when you have ample amount of something you do not

care for it, NBFCs too have invested heavily but unwisely. Growth-at- any-cost was the

strategies of some of the NBFCs. Moreover, due to this many weak NBFCs could not pay the

hefty interest during the industrial slowdown during 1997 bringing to an end the golden period of

NBFCs.

Now the question before us is whether the NBFCs, which have traditionally

dominated the market of retail finance (like car finance business), can meet the challenges of the

future. If yes, then how and what should be the role of NBFC in Financial Inclusion.

The forte of NBFCs is to analyze how to provide credit delivery to areas which are not covered

by banks and financial institution (FIs). By virtue of there past experience NBFCs know the tacit

needs of retail customers much better and with more sensitivity than others do. As traditional

boundaries between different categories of financial intermediaries are disappearing, NBFCs

have to face stiff competition in retail financing specially from banks and FIs. The fact is that the

banks' and top Financial Institutions have ability to raise funds at low cost and if NBFCs want to

compete head-on, then they have to monitor their high cost of mobilizing funds.

In the market of retail finance and financial loans, in order to the compete with other financial

player, NBFCs have to increase the quality of their service which is described as the convenience

offered to the customer in terms of speed, accuracy and product features. NBFCs stands a good

chance to succeed as they have an advantage of being lower in operating cost as compared with

other financial intermediaries because of their small size, efficient operation and fast decision

making. NBFC's aggressive collection mechanism and lower proportion of big corporate loans

gives them an edge in containing risk and also results in less amount of Non Performing

Assets(NPAs) which is critical factor for better financial performance of the NBFCs. So the

main problem is that how NBFCs kept on searching for new products and services at low prices

(also known as Financial Inclusion) in order to compete in this challenging economic

environment


Objective of StudyObjective of the Research Project are classified as follows:-

To study the barriers and opportunities for financial inclusion by NBFCs (Non Banking

Financial companies)

Initiatives and developmental activities undertaken by NBFCs in achieving financial

Inclusion.

To study the role of NBFCs in various financial services like Financing, remittances,

asset creation, entrepreunial credit, funding etc.

ScopeThe question that is before us is how to extend the scope of financial products and services of an

organized financial system to include low income groups. The institutions which currently

provide financial services in the rural areas include branches of commercial banks, regional rural

banks, cooperative societies and micro-finance institutions, NBFCs (Non Banking Financial

Companies). What is required now is not creating new institutions for extending their outreach

but finding ways and means to effect improvements within the existing formal credit delivery

mechanism and evolve new models for extending out-reach. In a broad sense, we need to address

issues on the supply side as well as demand side. The financially excluded sections require

products which are customized to meet their needs. Financial exclusion is also caused by demand

side issues. Unless steps are taken on the demand side, that is in the "real sectors", mere supply

side solutions from the financial sector will not work. Credit is necessary for this, but not

sufficient. Credit has to be an integral part of an overall programme aimed at improving the

productivity and income of small farmers and other poor households. Putting in place an

appropriate credit delivery system to meet the needs of marginal and sub-marginal farmers must

go hand in hand with efforts to improve the productivity of such farm households.


CHAPTER – 2(II)Review of Literature


Literature Review

According to Deputy Governor, Reserve Bank of India, Smt. Usha Thorat (June 2009),

discussed the dynamics between financial inclusion and financial regulations for ensuring a

formal financial system that delivers affordable financial services to the excluded population

without compromising on acceptable levels of safety and reliability. She is Focusing on the

approach of regulating non-bank intermediaries so that they can provide financial services to the

weaker and poor section of society. Ms. Usha discussed the issue of allowing NBFCs especially

microfinance companies to provide savings facilities and deposit products for their clients.

According to Shubhashish Dubey, Associate Director at Pipal Research(March 2009),

Financial inclusion is turning into a profitable venture for non-banking finance companies

(NBFCs), as they are scurrying to fill the gap left by banks in rural markets that offer better

margins. Various NBFCs are emerging with their different roles and contribute their healthy

efforts towards achieving financial inclusion like Srei BNP Paribas is entering the agriculture

equipment finance market by April 2009 and hopes to disburse around Rs 500 crore in one year

under the vertical. Similarly, Shriram Transport, which has been for long focusing on used truck

finance, has also created a separate vertical for farm equipment finance, and hopes to disburse as

much as Rs 5,000 crore in the next two years. Similarly, L&T Finance, which has been more

focused on infrastructure finance, is expanding its rural network through products such as Kisan

Bandhu, a product specially launched with a view on the Prime Minister Gram Sadak Yojana

(PMGSY), a rural road construction scheme. The product is targeted at entrepreneurs who need

funding for the acquisition of small-sized transport vehicles.


CHAPTER – 2(III)Current Scenario


Current Scenario

The financial system comprises of financial institutions, financial instruments and financial

markets that provide an effective payment and credit system and thereby facilitate channelising

of funds from savers to the investors of the economy. In India considerable growth has taken

place in the Non-banking financial sector in last two decades. Over a period of time they are

successful in rendering a wide range of services for attaining financial Inclusion to the maximum

extent.

Initially NBFCs at present providing financial services partly fee based and partly fund based.

Their fee based services include portfolio management, issue management, loan syndication,

merger and acquisition, credit rating etc. their asset based activities include venture capital

financing, housing finance, equipment leasing, hire purchase financing factoring etc. In short

they are now providing variety of services.

NBFCs intended to cater to the needs of savers and investors but later on they developed into

institutions that can provide services similar to banks.. Comprehensive regulation of the banking

system and absence or relatively lower degree of regulation over NBFCs have been some of the

main reasons for the growth momentum of the latter. It has been revealed that economic

development and growth of NBFCs are positively related. In this regard the World Development

Report has observed that in the developing countries banks hold a major share of financial assets

than they do in the industrially developed countries. As the demand for financial services grow,

countries need to encourage the development of NBFCs and securities market in order to

broaden the range of services and stimulate competition and efficiency.


Financial InclusionAccess to finance by the poor and vulnerable groups is a prerequisite for poverty reduction and

social cohesion. This has to become an integral part of our efforts to promote inclusive growth.

Financial Inclusion denotes delivery of financial services at an affordable cost to the vast

sections of the disadvantaged and low-income groups. The various financial services include

credit, savings, insurance and payments and remittance facilities. The objective of financial

inclusion is to extend the scope of activities of the organized financial system to include within

its ambit people with low incomes. Through graduated credit, the attempt must be to lift the poor

from one level to another so that they come out of poverty.

Financial Inclusion should include access to Financial Products and Services Like -

No frill Bank accounts – check in account

Micro Credit

Savings products

Remittances & Payment services

Insurance - Healthcare

Mortgage

Financial advisory services

Entrepreneurial credit

Pension for old age

Business correspondence & self help group

Branchless banking

Micro finance & micro credit facility

Investment plan for child's education


Anatomy of Various Product and services and Institutional Structures

Who are financially excluded?

• Small and marginal farmers

• Landless labourers, oral lessees

• Self employed and unorganized sectors enterprises

• Urban slum dwellers, migrants, ethnic minorities and socially excluded groups

• Senior citizens, women, etc.

Objective of Financial Inclusion There are mainly two objectives of Financial Inclusion:-

The access to various mainstream financial services e.g. saving bank account, credit,

insurance, payments and remittance and financial and credit advisory services.

The main objective is to provide the benefit of vast formal financial market,& protect

them from exploitation of informal credit market, so that they can be brought into the

mainstream


Measurement of Financial Inclusion/Exclusion

While the importance of financial inclusion has been widely accepted, much less is known about

how inclusive the financial systems are and who has access to which financial services.

Individual indicators, viz. number of bank accounts and access to various branches are generally

used as measures of financial inclusion, can provide only partial information on the level of

financial inclusion in an economy. Financial services or products rendered by banks, NBFCs,

postal savings banks, credit unions, finance companies, micro-finance institutions (MFIs), and

other formal and quasi-formal non-bank institutions generally form the basis for measuring the

financial inclusion.

Core and headline indicators place a given population along a continuum of access,

depending on its usage of formal, semi-formal, and informal financial services, and those

excluded from the use of financial services. The access to finance could be divided into five

segments:

(i) The proportion of the population that uses a bank or some other Institution

(ii) The population which uses service from non-bank ‘other formal’ financial

institutions, but does not use bank services

(iii) The population which only uses services from informal financial service providers

(iv) The proportion of the population transacting regularly through formal financial

instruments

(v) The population which uses no financial services.

There exists no single comprehensive measure that can be used to indicate the extent of financial

inclusion across economies.

Benefits of Financial InclusionImprovements in access to financial institutions accrue several benefits to the consumer,

regulator and the economy alike. Establishment of an account relationship can pave the way for

the customer to avail the benefits of a variety of financial products. The bank accounts can also

be used for multiple purposes, such as, making small value remittances at low cost and making

purchases on credit.


Furthermore, the regulator benefits, as the audit trail is available and transactions are conducted

transparently in a medium that can be monitored. The economy benefits, as greater financial

resources become transparently available for efficient intermediation and allocation, for uses that

have the highest returns. Promoting financial inclusion can also help in the regeneration of local

areas if money saved by increased access to financial services can be re-invested in the

community. Inclusive finance - safe savings, appropriately designed loans for poor and low

income households and for micro, small and medium sized enterprises, and appropriate insurance

and payments services - can help people help themselves to increase incomes, acquire capital,

manage risk, and work their way out of poverty. Increasing the inclusiveness of financial sectors,

fuelled by domestic savings to the greatest extent possible, will, over time, bolster the poorer

segments of the population as well as those segments of the economy that most affect the lives of

poor people. Holding a bank account itself confers a sense of identity, status and

empowerment and provides access to the national payment system. Therefore, having a bank

account becomes a very important aspect of financial inclusion

Mainstream Financial Services

Some of the necessary financial Services are as follows: -

1. Basic saving bank account- an account with all basic feature of saving account.

2. Payment and remittances services

3. Entrepreneurial credit – this means, to run/expand small scale business/shop or any

economic activity, easy credit should be provided, so that financial dependence can be

created amongst households.

4. Housing finance- funding for purchasing new residential or reconstruction

5. Insurance – life\healthcare- to plan future better

6. Financial education\credit counselling centres – to guide them which product suits

them better, where to go credit needs, what are various services available to better their

personal financial planning.


NON BANKING FINANCIAL COMPANIES (NBFCs)

According to Reserve Bank (Amendment act, 1997) “A Non Banking Finance Company

(NBFC)” means-

1. A financial institution which is a company

2. 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 other manner a lending in any

manner

3. Such other non banking institution or class of such institutions as the bank may with the

previous approval of the central government specify.

The definition excludes financial institutions which carry on agricultural operations as their

principle business. NBFCs consists mainly of finance companies which carry on functions like

hire purchase finance, housing finance, investment, loan, equipment leasing or mutual benefit

financial operations, but do not include insurance companies or stock exchange or stock broking

companies.

In other words NBFCs is a company registered under the Companies Act, 1956. It is engaged in

the business of loans, securities, insurance, chit funds etc They also provide products/services

that includes margin funding, leasing and hire purchase, corporate loans, investment in non-

convertible debentures, IPO funding, small ticket loans, venture capital etc.

NBFCs are classified into four categories

1. Hire- Purchase Leasing

2. Loan Company

3. Investment Company

4. Equipment Leasing Company

From December 6, 2006 NBFCs registered with RBI have been reclassified as

1. Asset Finance Company (AFC)

2. Investment Company (IC)

3. Loan Company (LC)

4. Infrastructure Financing Companies( Since 12 February 2010)

Some of the prominent NBFCs in India are


Infrastructure Development Finance Corporation (IDFC)

Rural Electric Corporation ( REC)

Industrial Finance corporation of India (IFCI )

GE Capital

Till March 2010 there were 15,167 NBFCs .

NBFCs are required as they have a greater reach to various markets and have great efficiency in

mobilizing funds. Generally banks to reduce their operational costs establish NBFC. NBFC

enjoys many liberal policies by RBI in comparison with the commercial banks. However this

scenario is changing. RBI now has strict measures for NBFCs also.

NBFCs are different from Banks are as follows:-

NBFCs cannot accept demand deposits ( Demand deposits are funds deposited in an

institution, that are payable immediately on demand e.g.: Savings account, Current

account etc)

A NBFC cannot issue cheques, to their customers and is not a part of the payment and

settlement system

Deposit insurance facility of Deposit Insurance Credit Guarantee Corporation (DICGC)

is not available for NBFC depositors

They are allowed to accept/renew public deposits for a minimum period of 12 months

and maximum period of 60 months.

They cannot offer interest rates higher than the ceiling rate prescribed by RBI from

time to time. (Currently the ceiling rate is 12.5%)

They cannot offer gifts/incentives or any other additional benefit to the depositors.

They should have minimum investment grade credit rating, from the credit rating

agencies

The banking sector has undergone major transformation since the liberalisation process and the

implementation of the key recommendations of the reports of the M Narasimhan headed

Committee on Banking Sector Reforms in 1991 and 1998. The announcement by the finance

minister during the Budget speech that the Reserve Bank of India (RBI) will issue additional

banking licences to private sector players, including non banking financial companies (NBFC)

that meet the RBI eligibility criteria, came as a cheer to several market participants, especially


the large NBFC players. The government hopes that the policy liberalisation will extend the

geographic coverage of banks and improve access to banking services to the unbanked Indian

population.

It is widely expected that the RBI will revise the eligibility criteria for entry of new banks in the

private sector including the conversion of NBFCs into private sector banks. The present

guidelines for conversion of NBFCs into banks were laid down by the RBI in 2001. The key

criteria for conversion of NBFCs into banks included for instance good track record of

performance and compliance, minimum net worth of Rs 200 crore to be increased to Rs 300

crore within three years of conversion, the NBFC should not have been promoted by a large

industrial house or owned/controlled by public authorities, capital adequacy of at least 12% and

net NPA of less than 5%. The guidelines also stipulated that the NBFC on conversion into a bank

will have to comply with capital adequacy ratio and all other requirements such as lending to

priority sector, promoters’ contribution, lock-in period for promoters’ stake, etc, as applicable to

banks.

Evolution of the NBFC sector

Although NBFCs have a legacy in India, they came into the limelight in the late 1980s.

Liberalization and fresh avenues of operations in areas such as housing and investment spurred

growth of NBFCs in the country. Non-banking financial companies or NBFCs have become an

integral part of India’s financial system. In recent times, NBFCs have emerged as lenders to both

companies and individuals. When it comes to lending, NBFCs are generally regarded to be

complementary to banks and are often able to offer better services and products to their

customers. Initially intended to cater to the needs of the small investors and savers, NBFIs have

developed into institutions that can provide services similar to those of commercial banks.

In the sixties, the reach of the institutional financial intermediaries was quite limited, wherein the

magnitude of deposits with the banks and NBFCs was of small order. While the commercial

banks have expanded their reach in the post-Nationalization era, because of the special features

of the NBFCs, a large segment of the borrowers looked upon them for their credit needs. It was

NBFCs which fuelled the automobile sector growth because banks ventured into auto-financing

only about 5 years back. Besides the lending risk associated with different segments vary widely.


For instance, risks are perceived to be higher in the automobile finance sector, where the

collateral is movable, and the consumer finance business.

NBFC-AFCs have demonstrated that their strength has been in creation of productive national

assets through leasing and other modes of financing. In fact, most developed economies have

relied heavily on lease financing route in their developmental process. NBFC-AFCs have been

playing a major role in promoting leasing, hire-purchase, loan disbursals etc. in different

economic activities, be it infrastructure creation or developing key support services for such

infrastructure.

The Indian economy today is observing a phase of phenomenal growth. We have seen year on

year growth rate of about 8-9% in last 3-4 years. Financing requirement is also increasing

commensurately and will continue to increase in order to support and sustain the tremendous

economic growth led by asset creation. NBFCs have been playing a complementary role to the

other financial institutions including Banks in meeting the funding needs of the economy. In fact

diversification of financial markets is an important component of financial sector reforms. The

increased consumerism in the Indian economy in past decade or so has been possible only

because of the availability of credit to retail customers which has been largely supported by

NBFCs and banks later joined the league.

NBFC-AFCs play a very useful role in channelizing funds towards acquisition of commercial

vehicles and consequently aid in the development of the road transport industry. They are

engaged in creation of assets like financing transportation and infrastructure construction

equipments and projects. Road Transport Sector today is the lifeline of our economy and is

responsible for creating self-employment opportunities – both direct and indirect - in semi-urban

and rural areas. The Road Transport Industry carries a major chunk of freight and passengers.

NBFC-AFCs provide 80% to 90% of funding for the Road Transport Sector. Almost 95% of the

Commercial Vehicles are acquired under financing.

NBFC-AFCs hence have a strong presence in the rural markets where they are engaged in

financing farming machinery such as tractors, and LCVs and three-wheelers used for

transportation of agricultural produce. Given the necessity of increasing agricultural growth


through improvements in productivity and also of generating employment in rural areas, asset-

financing companies will continue to play a vital role in meeting these objectives.

Regulatory arbitrage potential has been frowned upon both at international level and national

level. IMF has framed principles for regulation of the financial sector, where it suggests that

institutions performing similar functions should be subject to similar regulations and there should

be no scope of taking advantage on the basis of this disparity.

Factors that lead to growth of NBFCs

NBFCs are characterized by their ability to provide niche financial services in the Indian

economy to customers who have not availed any loans with banks (and are often referred

to as ‘unbankable’ customers). Hence they work complementary to banks, catering to a

market not supported by these commercial money-lending institutions.

They fulfill the need of all customers for ‘financial inclusion’ by providing them a source

of funds beyond the traditional money-lender.

They are able to provide fast customized services to suit every need of their client.

Due to the relatively lower degree of regulation over NBFCs as compared to banks, there

is less documentation and uncomplicated terms while processing the loan.

NBFCs are believed to be the more ‘customer-oriented’ version of the commercial banks,

which are primarily seen as ‘profit-making machines’ even if it comes at the cost of the

customer’s interest.

NBFCs were majorly boosted due to the higher return on deposits that they offered as

compared to banks.

Also the monetary and credit policies in place in the early seventies marginalized some of

the small borrowers from the banking system.

Product innovation in the form of used vehicles financing, small ticket personal loans,

three wheeler financing, etc. has given a competitive edge to most NBFCs.

Substantial employment generation can be contributed to the NBFCs, which has lead to

increased wealth creation, as well as economic development.

The economy needs atleast two pillars for ensuring that even if 1 pillar falls, the economy

is not drastically affected so both Banking and Non-Banking system are equally relevant.

(e.g. The South-East Asian crisis resulted from a downfall of the banking system)


RBI Perspective

RBI governs NBFCs depending on whether they are deposit-taking, non- deposit-taking or are

systemically important NBFCs. Systemically important NBFCs are governed more strictly by

RBI compared with other non-deposit-taking NBFCs. Systemically important NBFCs are

required to comply with Capital to Risk (Weighted) Assets Ratio, single/group borrower limits,

single/group investment exposure limits, etc., which are not applicable to NBFCs not accepting

public deposits.

As part of the overall NFBC sector, the comments in some of the government and panel reports

are outlined below:-

1) Observations made by the Parliamentary Standing Committee on Finance in their 45 th

Report on The Financial Companies Regulation Bill, 2000

a) NBFCs have higher level of customer orientation, fewer pre and post sanction

requirements and provide simple and speedy tailor made services.

b) NBFCs have become an integral part of the Indian Financial System in view of

their complementary as well as competitive role.

c) Non-Bank credit cover 70% of the requirements for the Trading activity and more

than 50% of the requirement of unregistered manufacturing.

2) Observations of the Task Force on NBFCs (Vasudev Committee) appointed by

Government of India in 1998.

a) Financial intermediaries like NBFCs perform the function of being a link between

savers in the society and users of the savings.

b) NBFCs have greater reach and flexibility in tapping resources and they provide

retail services to small and medium level business and road transport operators.

c) NBFCs constitute an important link between banks and the requirer of services and

are an important component of a diversified financial market.


Timeline of significant Regulatory Changes in the NBFC Sector:

1963- RBI Act was amended by the Banking Laws Act and a new Chapter III B ‘Provisions related to Non-Banking Institutions receiving deposits and FIs’ was inserted.

1966- First set of directions issued by RBI to NBFC’s and NBNFCs 1973- First set of directions issued to MNBCs

1975- RBI withdrew its directions to NBNFCs and these companies are since then regulated by the MCA.

1977- The directions issued in 1966 and 1973 were repealed due to the recommendations of the study group appointed under the Chairmanship of Shri. James S. Raj and a fresh set of directions were issued by RBI.

1982- Chit Funds Act was passed by the Parliament.

1983- Chapter III C on ‘Prohibition of acceptance of Deposits by unincorporated bodies’ was added in the RBI Act.

1987- RBI issued the RNBC Directions.1987- Parliament enacted the NHB Act, established the NHB to regulate HFIs


1993- Scheme of voluntary registration of NBFCs having NOF of Rs. 50 lakhs and above was introduced.

1994- RBI prescribed prudential norms on income recognition, accounting standards, asset classification, provisioning for bad and doubtful assets, etc.

1996- Scheme of Rationalization/ Liberalization was announced by RBI under which NBFCs registered with RBI and complying with the prudential norms were granted freedom from the ceiling on interest-rates and quantum of deposit mobilization.

1997- Department of Non-Banking Supervision (DNBS) was created in RBI.1997- Any company wanting to do NBFI activity had to have a minimum NOF of Rs. 25 lakhs (Made Rs. 2 crores in April’99) and obtain a COR from RBI before commencing the business of a NBFC.

1995- Supervision of the NBFC sector was brought under the jurisdiction of the Board for Financial Supervision (BFS).

2001- The Asset Liability Management (ALM) guidelines were issued for NBFCs.


Functioning of the Department of Non-Banking Supervision (DNBS), RBI

NBFCs have been classified as follows on the basis of their deposit activity and asset-base:

The DNBS at RBI consists of the following six sections:

Registration: All fresh cases seeking a Certificate of Registration (COR) for

commencing NBFI activity need to fill an online form, which once filled generates a

code. [The Oracle-based online submission came into effect from 1st January’ 2009] Then

the company needs to submit 2 copies of this form, (mentioning the unique code) to the

RBI wherein 1 copy is kept at the regional office (RO) while the other is sent to the

central office (CO). Along with the application forms certain documents need to be

submitted like the Balance-Sheet and Profit and Loss Account for the past 3 years,

certified copies of the Memorandum and Articles of Association, the Certificate of

Incorporation, certain Auditors Certificates and Board Resolutions, etc. The company

should maintain a minimum NOF of Rs. 2 Crores and the management should have a

clear conduct and profile (due-diligence).


After receiving these documents, they are thoroughly scrutinized by the RO-DNBS

officials and once the CO approves, the COR is issued to the applicant company. If there

are facts in the documents that appear wrong/ misleading or there is any form of non-

compliance or all documents prescribed have not been submitted, the application is

rejected and the company has to fill a fresh online submission, generate a new-code and

reapply.

Review: Once the company has commenced business, it needs to file returns as per the

regulations regularly and after two years of operations, the company financial records and

returns are checked again to ascertain their operations in the two years. This is done by

the review section, which then regularizes the COR of the NBFC, provided that its

performance is satisfactory and there are no supervisory concerns.

Supervision is undertaken via two-forms on an on-going basis, primarily On-site

Monitoring (Snap Scrutiny and Full-Fledged Scrutiny) and Off-Site Monitoring (via

filing of periodic returns by the NBFCs to check their capital adequacy, compliance with

regulations, asset-quality, etc.)

Legal: This section deals with the legal aspects which arise in case there is non-

compliance by any company or in case of serious customer complaints or in case there is

any NBFC which has ‘vanished’ (i.e. which cannot be traced at its contact address

provided to RBI) after attaining the COR.

Market-Intelligence (MI): MI is defined as a process of collection, collation and

analysis of information obtained through methods and instrumentalities other than,

Regular Inspection, Offsite Surveillance or Auditors’ Reports. The MI officials have to

access all public sources of information to capture any unregistered companies inviting

deposit or any NBFC making false claims to lure depositors or any news about vanished

companies, etc. They are the ones who gather all market information related to the NBFI

companies on a daily basis.


Complaints: The complaints section deals with grievances written by the NBFC

depositors/ customers directly to RBI which can be about excessive rate of interest being

charged by NBFCs or harassment by recovery-agents or discrepancies in repayment

schedules etc. The bank then writes to the respective NBFC to resolve the issue by

forwarding them the complaint as well as asking for a detailed explanation. The bank

then writes to its client and forwards a copy of the same to RBI (DNBS) at the earliest.

Computer-Cell: The officials of this section input the physical returns data on a periodic

basis into the Oracle-based COSMOS system as well as maintain the latest database of

companies contact details, auditors’ names and contact-details, etc.

NBFCs go for the Rural and Urban Growth in India

Financial inclusion is turning into a profitable venture for non-banking finance companies

(NBFCs), as they are scurrying to fill the gap left by banks in rural and Urban markets that offer

better margins like Srei BNP Paribas is entering the agriculture equipment finance market by

April and hopes to disburse around Rs 500 crore in one year under the vertical.

Similarly, Shriram Transport, which has been for long focusing on used truck finance, has also

created a separate vertical for farm equipment finance, and hopes to disburse as much as Rs

5,000 crore in the next two years.

L&T Finance, which has been more focused on infrastructure finance, is expanding its rural

network through products such as Kisan Bandhu, a product specially launched with a view on the

Prime Minister Gram Sadak Yojana (PMGSY), a rural road construction scheme. The product is

targeted at entrepreneurs who need funding for the acquisition of small-sized transport vehicles.

Magma Fincorp, which has around 70 per cent of its branches in semi-urban and rural areas, is

looking at expanding its high-yield portfolio comprising tractors and loans to small and medium

enterprises and used commercial vehicle finance.


Even micro-finance institutions (MFIs), most of which are registered as NBFCs, are now looking

at agriculture equipment finance. Bandhan, an MFI based in West Bengal, has started a pilot

project aimed at lending for investments of over Rs 50,000.

The rush for rural finance is showing in the overall numbers. While credit flow to most sectors

slowed down last year, fund flows to the farm sector remained largely unaffected.

According to the latest data from the Reserve Bank of India, during the year up to November 20,

2009, 23.7 per cent of non-food credit (y-o-y) was absorbed by the agricultural sector, compared

with 9.3 per cent a year ago. Similarly, within non-food credit, bank loan to agriculture and allied

activities increased by Rs 60,505 crore in the year up to November 20, 2009, against Rs 49,994

crore in the corresponding period last year. The growth rate remained around 21.5 per cent, while

non-food credit growth slowed down to 10.4 per cent from 28 per cent in the year up to

November 20, 2008.

A part of the reason for the rural push is in the margins. In urban areas, the net interest margin

(NIM) for NBFCs was 3-4 per cent, and in rural markets, it was close to 8 per cent, said the head

of a Kolkata-headquartered NBFC. With local money lenders, who lend at exorbitant rates, being

the only competition in most villages, NBFCs charge anywhere between 15 per cent and 25 per

cent on loans offered by them. The high rates even prompted RBI Governor D Subbarao to

express concern recently.

The finance companies also admit that a part of the reason for the rural focus are: -

High margins.

Gradually, the agriculture equipment finance market is moving towards maturity and is

becoming competitive. The margins in the market are high because of low competition,

high interest rates and dealers support.

Rural markets are generally unorganised and there is no competition. The growth in

these markets has been very good, and we want to create it as a very strong vertical.

Apart from margins, strong rural demand has prodded banks and finance companies to

focus on this market. While the sale of commercial vehicles declined by 21 per cent


during 2008-09, for the tractor industry, the decline was marginal. Tractor sales declined

marginally from 346,000 units in 2007-08 to 343,000 last year.

Role of Micro Finance – NBFCs in Financial Inclusion

Inadequacies in rural access to formal finance and the usurious terms of informal finance for the

poor provide a strong need and ample space for innovative approaches to serve the financial

needs of India‟s rural poor. The efforts have been made by the government, financial institutions

like MF- NBFCs, and Non-government Organizations (NGOs), often in co partnership, to

develop new financial delivery approaches. These microfinance approaches have been designed

to combine the safety and reliability of formal finance with the convenience and flexibility that

are typically associated with informal finance. They typically involve providing thrift, credit and

other financial services and products of very small amounts to the poor, with the aim to raise

income levels and improve living standards.Micro Finance (MF) - NBFCs could play a

significant role in facilitating inclusion, as they are uniquely positioned in reaching out to the

rural poor. Many of them operate in a limited geographical area, have a greater understanding of

the issues specific to the rural poor, enjoy greater acceptability amongst the rural poor and have

flexibility in operations providing a level of comfort to their clientele. There is a need to

recognize a separate category of Micro finance – Non Banking Finance Companies (MF–

NBFCs), without any relaxation on start-up capital and subject to the regulatory prescriptions

applicable for NBFCs. Such MF-NBFCs could provide thrift, credit, micro-insurance,

remittances and other financial services up to a specified amount to the poor in rural, semi-urban

and urban areas. Such MF-NBFCs may also be recognized as Business Correspondents of banks

for providing only savings and remittance services and also act as micro insurance agents.

In the recent years, the range, the range of microfinance products has widened considerably.

Remittance services have been recognized as a critical service for the poor, many of which migrate

temporarily and support their families from far. Micro-insurance as a road to reduce vulnerability and

not at least to reduce repayment risks of micro-loans, is an important financial service for the poor.

Currently about 15 million poor are at least rudimentarily covered, mostly loan-linked.

Key Factor for NBFCs Survival and GrowthSome key factor for NBFCs survival & growth are as follows: -


NBFCs provide prompt, tailor made service with least hassles.

All customers get direct and easy access

NBFCs cater to a class of borrowers who :-

o Do not necessarily have a high income

o But have adequate net worth

o Are honest and sincere


Objective AnalysisFinancial Exclusion may also have resulted from a variety of structural factors such as

unavailability of products suiting their requirements, stringent documentation and collateral

requirements and increased competition in financial services. The Barriers of financial inclusion

can be identified broadly in two categories, first the demand side and the second supply side.

A. DEMAND SIDE BARRIERS

The people who have the requirement\need but still not demanding\availing the financial

services\products which can be due to the following reasons:

i. Low Income: A higher share of population below the poverty line results in lower demand for

financial services as the poor may not have savings to place as deposit in savings banks; hence

the market lacks incentives in providing financial service/products.

Most the people belonging to financially excluded group are having irregular/seasonal income.

Hence opening of a bank account and operating it i.e. deposit and withdrawal in very small

denominations with high frequency will increase the cost of transaction, adding to that they also

anticipate that bank and NBFCs will refuse if they transact with so small amount.

Further provided that, as they have low earning they cannot maintain minimum balance

requirements of a normal saving bank account which ranges from Rs. 500 to Rs 10000(Rs. 500

in case of PSB and Rs. 10000 for Pvt. Sector Banks) and various annual maintenance

charges(AMC) levied by banks.

ii. Transaction cost: Vast number of rural population resides in small villages which are often

located in remote areas does not have access to financial services. Consequently, the overall

transaction cost in terms of both time and money proves to be a major deterrent for visiting

financial institutions. The excluded section of the society find informal sector more reachable

due to proximity and ease of transaction.

iii. Financial Services Being Very Complex In Nature: Various excluded sections of the

society find dealing with organized financial sector cumbersome.


iv. Easy access to alternative credit: For a good amount of low income people, the alternative

credit provided by NBFCs and pawn shop owners are far more attractive and hassle free

compared to getting a loan from a commercial bank.

Some of the poor that do not have property find it impossible to get credit without the collateral.

The uneducated poor would rather put their trust in NBFCs who provide easy non-collateral

credit than on the well established commercial banks. There might also be cultural reasons for

trusting a moneylender like NBFCs rather than a bank.

Distance from bank branch, branch timings, cumbersome documentation/procedures, unsuitable

products, language, staff attitude are common reasons – Higher transaction cost

v. Low literacy level: The lack of financial awareness about the benefits of the Non banking

services and also illiteracy act as stumbling blocks to financial inclusion. The lack of financial

awareness maybe the single most risk in financial inclusion as those who are newly included in

the financial sector have to maintained within the formal financial sector.

vi. Legal identity: Lack of legal identities like identity cards, birth certificates or written records

often exclude women, ethnic minorities, economic and political refugees and migrant workers

from accessing financial services.

vii. Sophisticated Financial Terminologies: Bankers often use complex financial

terminologies, which the masses are unable to comprehend and hence do not approach for

financial services voluntarily.

viii. Terms and conditions: Terms and conditions attached to products such as minimum

balance requirements and conditions relating to the use of accounts as in the case of bank

account often dissuade people from using such products/services

Further, term and conditions and its framework is generally so tedious and detailed that

understanding it is not possible for those who cannot even write their name or are less literate

and do not understand English or Hindi(in case of some regional rural areas).

B. Supply side barriers


Some of the important causes of relatively low extension of institutional credit in the rural areas

are risk perception, cost of its assessment and management, lack of rural infrastructure, and vast

geographical spread of the rural areas with more than half a million villages, some sparsely

populated

i. Miniscule margin in handling small transactions: As the majority of rural population resides

in small villages that too in remote areas, NBFCs find small transactions cost ineffective.

ii. KYC requirements: The KYC requirements of independent documentary proof of identity

and address can be a very important barrier in having a bank account and providing variety of

services like loans and insurances especially for migrants and slum dwellers.

iv. Unsuitable products: One of the most important reasons for the majority of rural population

not approaching the formal sector for financial services is the unsuitability of products and

services being offered to them. For example, most of their credit needs are in form of small lump

sums and NBFCs and banks are reluctant to give small amounts of loan at frequent intervals.

Consequently, they have to resort to borrowing money from NBFCs at usurious rates.

vi. Poor market linkage: It is often argued that we may have been growing second fastest in the

world, but still our 40-55% of people living in rural and semi-urban areas do not have access to

basic necessities of life. 75% of villages in rural areas have no electricity arrangement, so it can

be imagined that how much penetration market would be having especially when it comes to

providing financial services/products, this may be that they are reluctant or there is no

institutional as well as physical. Therefore there is no institutional infrastructure available in the

rural area. Poor market linkage or say penetration of service providers also constitutes the major

factors of financial exclusion.

vii. Lack of interest: There is a lot of criticism on the NBFCS because of their inherent tendency

to think that poor people are not worthy of being banked on. Due to high transaction costs on

smaller transactions and the speculated high risk in lending credit to the lower strata of the

society, they see banking with poor as unviable. There is also a perception of people for NBFCs


that the money they deposit in NBFCs are not secured and this risk creates a feeling of lack of

interest in mind of people for NBFCs.

xi. Poor credit record: Areas with poor credit record, bad past experience, socially unstable and

poor recovery of previous loan/credit given are observed.

Opportunities for Financial Inclusion by NBFCs

i. Address Poverty & Racism: If the NBFCs provides various financial services to the lower

income group people without doing any racism, then it helps in overcoming poverty from our

country. This leads to the development of nation and economy by providing the attractive

services within the reach of lower class people who have created the perception that they can’t

afford these services to fulfill their basic necessities of living.

ii. Improve Information: Providing the financial literacy to the various masses will lead to

increase in the knowledge of the people. This not only creates the interest of the people in the

products and services offered by NBFCs by educating them but also help to remove illiteracy

from lower class people. The fair trade practices should be used. The fair disclosure must be

given to grab the trust of people for NBFCs. The Staff member of the NBFCs will explain the

benefits offered to the customer if he avail any product and service from the registered NBFCs

and various hidden transparent information related to the product should be cleared at the time of

interaction with the customers.

Improve Access: For improving the access to various financial services various branches will

be opened so that the distance between the product offerings by NBFCs and customers will

reduces to maximum. This will help the lower income group people to go their near by branches

and avail various services. This not only reduces the travel cost but also saves lot of time. The

operating hours of NBFCs will be increased. If NBFCs will improve the access to various

financial services then they will open up the doors to become recognized like banks and expand

their business to large extent.


•Improve Institutional Culture: The NBFCs can create culture by giving the advertisement

in the newspaper for the attractive products and services offered by them for their customer with

fair disclosures. This will create a Institutional culture in the working of NBFCs.

•Reduce Restrictions: If RBI will open up the restriction on the NBFCs then this will create a

opportunity for them to expand their business like banks and provide their various financial

services with in the ambit of the people by offering more attractive incentive schemes.

Improve Incentives: If NBFCs provides new innovating products for low-income (e.g.

secured loans) then this will helps in grabbing the interest of the consumer toward their attractive

schemes and creates a opportunities to earn more profits and side by side expanding their

business operation in the whole country


A robust banking and financial sector is important for activating the economy and facilitating

higher economic growth. Financial intermediaries like NBFCs have a definite and very important

role in the financial sector, particularly in a developing economy like ours. They are a vital link

in the system. NBFCs play their role in various areas:-

Financing in Manufacturing and Services Sector

After the proliferation phase of 1980s and early 90s, the NBFCs witnessed consolidation and

now the number of NBFCs eligible to accept deposits are 317 only, down from 40000 in early

1990s. The number of asset financing NBFCs would be even lower, around 350, the rest are

investment and loan companies. Almost 90% of the asset financing NBFCs are engaged in

financing transportation equipments and the balance are in financing equipments for

infrastructure projects. Therefore, the role of non-banking

sector in both manufacturing and services sector is significant.


Facilitating Flow of Credits

NBFCs play the role of an intermediary by facilitating the flow of credit to end consumers

particularly in transportation, SMEs and other unorganized sectors. NBFCs due to their inherent

strengths in the areas of fast and easy access to market information for credit appraisal, a well-

trained collection machinery, close monitoring of individual borrowers & personalized attention

to each client as well as minimum.

Asset Creation

The role of NBFCs in creation of productive national assets can hardly be undermined. This is

more than evident from the fact that most of the developed economies in the world have relied

heavily on lease finance route in their developmental process, e.g., lease penetration for asset

creation in the US is as high as 30% as against 3-4% in India. A conducive and enabling

environment has been created for the NBFC industry globally, which has helped it grow and

become an essential part of the financial sector for accelerated economic growth of the countries.

This is not the case in our country. It is, therefore, obvious that the development process of the

Indian economy shall have to include NBFCs as one of its major constituents with a very

significant role to play.

Channelising Funds

NBFCs, as an entity, play a very useful role in channelising funds towards acquisition of

commercial vehicles and consequently, aid in the development of the road transport industry.

The road transport sector accounts for nearly 70% of goods movement and 80% of passenger

movement across the length and breadth of the country and the role of NBFCs in the growth and

development of this sector has been historically acknowledged by several committees set up by

the Government and RBI, over the years.

Providing Niche Financial Services



economy. Because of their relative organizational flexibility leading to a better response

mechanism, they are often able to provide tailor-made services relatively faster than banks and

financial institutions. This enables them to build up a clientele that ranges from small borrowers

to established corporates. While NBFCs have often been leaders in financial innovations, which

are capable of enhancing the functional efficiency of the financial system, instances of

unsustainability, often on account of high rates of interest on their deposits and periodic

bankruptcies, underscore the need for reinforcing their financial viability.

Financing in Rural and Social Sectors

NBFCs play a crucial and prominent role in the rural and social sectors of the economy by

providing finance for the acquisition of trucks, buses and tractors, which operate mainly in rural

and semi-urban India. In fact, the exposure to the rural / social sectors is

direct and pronounced, since financing for acquisition of vehicles provides a spin-off benefit by

creating jobs and opportunities in the rural parts of our country. NBFCs have a proven track

record in financing the acquisition of vehicles in rural India for over six decades. Any finance for

a second hand or used vehicle is, in reality, working capital finance and the borrower who avails

such finance often deploys it towards improving business in the rural sector. The security is the

vehicle in question and this is the comfort factor for NBFCs to lend to the prospective borrower

who is very often an agriculturist. NBFCs are also involved in financing earthmoving equipment,

which aid the development of infrastructure and in the process, provide employment to

thousands of

persons in the rural sector. The reach and location of these entities in remote corners of the

country has enabled them to stay in close touch with the customers and they have the necessary

knowledge and skills in credit appraisal and understanding the needs of the borrowers.


CHAPTER – 2(IV)Research Methodology


Research Methodology:

The internship started with gaining knowledge about the sections that make up the Department of

Non-Banking Supervision (DNBS) and what are their functions. This helped me assess the

regulators’ role in the sector. Then I went through certain published articles and RBI-issued

circulars to get a better understanding of areas where there was scope for improvement. I had

sent the Questionnaire to a different category of NBFCs like NDSI-ND, Category A and B

NBFCs, wherein the Directors and Branch managers were contacted to get their viewpoint on the

project topic.

Sample Size:Out of total universe 60 respondents from various NBFCs have been taken for convenience.Data Type:

The data type can be Statistical as well as Theoretical

Area Covered:The area covered for the research study is the Delhi Region.

Sampling Method:

The sample procedure chosen for this are random sampling method. Here randomly some of the

Directors and Branch Managers from different NBFCs are selected for interview and some of

them replied through emails. Information, which I collected, was based on the questionnaires

filled up by the sample Directors and Branch Managers.


Data AnalysisI have done a detailed survey in Delhi to understand and study the mindset of directors and the

branch mangers of NBFCs in view of Financial Inclusion. The primary data was collected

through questionnaires. This questionnaire was mainly formulated to target the NBFCs to see

their role in achieving Financial Inclusion as early as possible. The sample size of the survey was

60.

From the survey I came to know that most of the NBFCs does not have banking license and

only very few NBFCs have Banking license. Some of them are kotak Mahindra, Yes bank

etc .

The next question asked is that whether they are facing any difficulties in procuring the

license?

Out of 100 %, 80% of the NBFCs are facing many hindrances in procuring Banking License and

20 % does not face any difficulties.

80%

20%

0102030405060708090

100

Yes No

Figure 1: Difficulties in Procuring banking License

The hindrances faced by NBFCS in procuring the Banking License are:

The NBFC who are seeking for the Banking License shoul have minimum paid-up capital

of Rs 200 crore, which must be increased to Rs 300 crore with in 3 years of conversion

into a bank.

NBFC which is converted into a Bank have to invest large funds in fixed assetss and

information technology to facilitate financial inclusion, risk management, anti-money

laundering etc.


For NBFCs, to adopt universal banking, the staff needt o be multi-skilled in all banking

functions.

There are some restriction on the bank set by RBI, that is the minimum statutory

requirement towards CRR and SLR. Banks have deposit some amount of money to the

RBI depending upon the percentage of CRR.

Remaining 40% has to be statutory lent towards the priority sector as defined by RBI.

The next question is to find out whether they are linked with any bank in view of achieving

financial inclusion?

Around 90% of the NBFCs replied that they are not linked with any bank and only 10% have

said that they are linked up with the bank for achieving Financial Inclusion.

10%

90%

0102030405060708090

100

Yes No

Figure 2: Link up of NBFCs with banks for achieving Financial Inclusion

Above diagram shows that most of the NBFCs want to maintain it s unique identity in the

financial system and apply their best possible initiatives in view of achieving Financial Inclusion.

The next question asked is to check the awareness level of product and services offered by

particular NBFC among the customer?

The replies are as follows:-

40% have replied that the customer have Medium awareness level


60% have replied that the customer have high awareness level

40% 60%

0102030405060708090

100

Low Medium High

Figure 3: Awareness Level

The next question asked to find out the focus of NBFCs is on which segment of customers

and why?

The main focus of NBFCs is 45% for Rural customers and 35% for semi urban customers and

rest 20% for Urban customers

20%

35%

45% UrbanSemi RuralRural

Figure 4: Customer Segment Focus

Main reason for focusing on the Rural and Semi Urban area because of:-


Gradually, the agriculture equipment finance market is moving towards maturity and is

becoming competitive. The margins in the market are high because of low competition,

high interest rates and dealers support.

Rural markets are generally unorganized and there is no competition. The growth in these

markets has been very good, and NBFCs want to create it as a very strong vertical.

Main reason for not focusing more on Urban areas are :-

Low margins

Higher competition in the market.

Scope of expansion is less

The next question asked is to find out what is the range of products and services that the

NBFCs are offering to the customers?

It is came to know from the survey that percentage of different product and services are as

follows:

Loan and advances-40%

SBI cards-26%

Insurance-24%

60%

26% 24%

0102030405060708090

100

Loans andAdvances

SBI Cards Insurances

Figure 5: Range of Products and services offered by NBFCs


The next question asked to find out whether they are planning to broaden your target

segment in near future?

Most of the NBFCs are planning to broader their target segment and offer more innovative

products in front of the customers at very competitive prices in the near future. From the it came

to know that 95% are planning for expansion and 5% who replied negatively because either they

are facing the liquidity crunch or they are not earning good profits form the current segment.

95%

5%

0102030405060708090

100

Yes No

Figure 6: Target Segment Expansion Plans

The question asked to find out the level of competition the NBFCs are facing in the market

and strategies they are adopting to compete with their competitors?

Most of the NBFCs replied that they are facing tough competition because the number of other

NBFCs and banks are increased and the banks are giving a cut throat challenge to NBFCs by

giving more reliable and safe product to their customer. So, to maintain its reputation and

existence in the market, it is very necessary for any NBFC to grab their customers by launching a

new innovative and attractive product.


15%

35%

50%MinimalModerateTough

Figure 7: Level of Competition

The Strategies adopted by NBFCs are as follows:

Increasing the Power of Financing.

Reducing the cost of Financial Services.

More focus on Rural Segment.

Launching the New innovative products to attract the customers.

The next question asked to find out whether they are implementing new innovative ideas

for achieving Financial Inclusion?

Around 85% of the NBFC replied positively and rest 15% replied negatively.

85%

15%

YesNo

Figure 8: Implementing New Innovative Ideas


The next question asked to find out whether the NBFCs providing special staff training in

view of achieving financial inclusion as early as possible?

60%

40%YesNo

Figure 9: Special Staff Training in view of Financial Inclusion

Here also around 60% of NBFCs replied positively and 40% replied that they are not providing

any special training to their staff members.


CHAPTER – 2(V)

Discussion and Finding


Findings


economy to customers who are often treated as unbankable by commercial banks, and

cater to that segment of the population which is not supported by the commercial money-

lending institutions like rural segment.

The customers of NBFCs in rural areas are mostly illiterate and also unfamiliar with

technology and new financial services launched in the market but their effort of providing

financial literacy will really going to help in achieving Financial Inclusion as early as

possible.

The core strength of NBFCs is their strong customer relationships, good understanding of

regional dynamics, service orientation and ability to reach out to the customers. Because

of their niche strengths, local knowledge and presence in remote topographies, they are in

a position to service those segments of population whose only source of funding would

otherwise have been moneylenders charging usurious rates of interest.


Recommendation

An initiative can be taken by RBI to create customer awareness on current regulations

relating to NBFCs and the rights of customers. Various media like advertisements in

prominent news channels and news papers, distribution of educational literature in the

form of pamphlets, booklets, comics and through discussion forums at the village gram

panchayat level could help in creating awareness.

RBI need to develop alternative low cost funding sources for NBFCs which will facilitate

in their asset - growth as well as in asset diversification. Bringing NBFCs within the

purview of SARFAESI Act, 2002 will help in protecting the interest of investors.

Customer Awareness on current regulations and their rights, etc. can be increased using

channels like advertisements in prominent news channels and newspapers, having tie-ups

with post-offices to distribute comics (like ‘Raju and the Money Tree’), pamphlets, etc.

and through village gram-panchayats by conducting discussion forums.


Conclusion

NBFCs are gaining momentum in last few decades with wide variety of products and services.

NBFCs collect public funds and provide loan able funds. There has been significant increase in

such companies since 1990s. They are playing a vital role in the development financial system of

our country. The banking sector is financing only 40 per cent to the trading sector and rest is

coming from the NBFC and private money lenders. At the same line 50 per cent of the credit

requirement of the manufacturing is provided by NBFCs.

Micro Financing in rural & semi urban areas is a huge untapped market. NBFCs can diversify

and act as distribution backbone for Insurance Companies, Mutual Fund Products and even Co-

branded Credit Cards.

Nearly 80% of all trucks sold in India today are through Hire Purchase schemes. Nearly 99% of

second hand trucks and taxis exchange hands through NBFC support. Not less than 75% of two

wheelers and 25% of white Goods are sold with NBFC Finance. If NBFCs stop their lending

activities there would be a demand recession in each of these industries so the relevance of this

sector is definitely there.

NBFCs have greater reach and flexibility in tapping resources. In desperate times, NBFCs could

survive owing to their aggressive character and customized services. NBFCs are doing more fee-

based business than fund based. They are focusing now on retailing sector-housing finance,

personal loans, and marketing of insurance. Many of the NBFCs have ventured into the domain

of mutual funds and insurance. NBFCs undertake both life and general insurance business as

joint venture participants in insurance companies. The strong NBFCs have successfully emerged

as ‘Financial Institutions’ in short span of time and are in the process of converting themselves

into ‘Financial Super Market’. At present, NBFCs are represented by the Association of Leasing

and Financial Services (ALFS), Federation of India Hire Purchase Association (FIHPA) and

Equipment Leasing Association of India (ELA). The Reserve Bank wants these three industry

bodies to come together under one roof.


The NBFCs are taking initiatives to establish a self-regulatory organization (SRO). Although

NBFCs are working as standalone entities and giving competition to banks by catering to a

particular segment of society - if RBI ensures level playing field for NBFCs, these could prove to

be good partners for banks. This could result in strengthening of the financial system in India.


Limitations of Study

The following are the potential limitations of this study:

Due to the time-frame of the study, it was not possible to access as many companies and

customers that I had expected so the sample had to be revised.

Being a fairly amateur sector (as compared to commercial banking), there was relatively

less secondary sources of information available.


Bibliography

www.rbi.org.in

www.google.com

www.economictimes.com

www.livemint.com

www.wikipedia.com

Statutory Guide for Non-Banking Financing Companies’ 2008(Taxmann)

Universal Financial Inclusion in India: The Way Forward by S.Ramesh and Preeti Sahai

Annual Policy Report 2005-2006

C Rangarajan – Report of the Committee on Financial Inclusion, Jan 2008

http://www.livemint.com/

http://www.economictimes.com/

http://www.google.com/

http://www.rbi.org.in/


Annexure

Questionnaire for Directors and Branch Managers

Name of NBFC:- Location: -Phone. No.:- No. of years of functioning of branch:-

1. Which category of NBFC does your organization belongs to? _______________________________________________________

2. Does your organization have a banking license?

(a) Yes (b) No

If yes, then go to question no. 5 else go to question no. 3

3. Does your organization have any plans to apply for the same in the near future? (a) Yes (b) No If Yes (Reason) __________________________________________________

_____________________________________________________________

4. What are the factors that hinder you for applying the same? _________________________________________________________________ _________________________________________________________________ _________________________________________________________________

5. Since when you have got the license? ____________________________

6. Did you face any difficulties in procuring the license? (a) Yes (b) No If Yes(Please Specify)_______________________________________________ _________________________________________________________________

7. Is your organization linked up any of the Bank for achieving Financial Inclusion? (a) Yes (b) No If Yes (Please Specify)____________________________

8. What is the awareness level of your product and services among your customers?


(a) Low (b) Medium (c) High

9. Your main focus is on which segment of the customers? (a) Urban (b) Semi-Urban (c) Rural

10. What are the reasons that inspired you to select the above customer segment? ____________________________________________________________ ____________________________________________________________ ____________________________________________________________

11. What is range of the product and services your organization is offering?(a) Loans (b) SBI Card(c) Insurance

12. Are you planning to broaden your targeted segment in the near future? (a) Yes (b) No

13. How many No-frills a/c your organization had opened in different areas? (a) Rural ___________ (b) Urban ____________ (c) Semi urban Areas ______________

14. What is the level of competition your organization is facing in the market? (a) Minimal (b) Moderate

(c) Tough

15. What are the strategies that your organization has adopted to compete with your competitors? ___________________________________________________________

___________________________________________________________

16. What are the various opportunities that you wishes to make use of?___________________________________________________________

___________________________________________________________

17. Do you see any growth opportunities for your organization in this field? (a) Yes

(b) No

18. Are you implementing any innovative ideas for achieving financial inclusion? (a) Yes


(b) No If Yes (Please Specify) __________________________________________ _____________________________________________________________ _____________________________________________________________

19. Is there any special training given to staff in view of financial inclusion? (a) Yes

(b) No

20. What are types of loan your organization is offering to the people?(a) Housing Loan(b) Business Loan(c) Education Loan(d) Vehicles Loan(e) Other Loan. (Please Specify)_____________________________________ ____________________________________________________________


CHAPTER – 3Learning Summary


My Experiences and Learning

My Summer Internship Project (SIP) at Reserve Bank of India has been an extremely enriching

one. My SIP was divided into two main parts. One was the project work and the other was the

evaluating the Financial Statements of NBFCs for the company. Apart from that, I have to see

the legal claim of various NBFCs and give my suggestions to my senior personnel’s. I have

faced a lot of hurdles but at the end we took it as a challenge and moved forward

I have gained lot of information about various rules and regulation of my Department, that is

Department of Non Banking Supervision (DNBS). I have visited the chest vault, where the

currency is stored under high security measures.

Summarize my experience in one line I would say that my experience was a really great learning

experience with a lot of new things learnt and as I also wish to specialize in Major-Finance and

Minor-Marketing, this experience is really a big bonus for me

.

The Learning’s I gained during my SIP are mentioned below:

I came to know about the various Department in Reserve Bank of India.

Interactions with staff members of RBI really going to help me in enhancing my

Financial concepts and skills.

I learnt in a more detailed way about the nature of work performed in RBI, the kind of

deadlines they have to meet, the kind of pressure and levels of stress which they work

under and the kind of recognitions given to them after they meet or exceed their

deadlines.

role of nbfcs in financial inclusion-mayank arya

Documents

srei bnp paribas

road transport

credit guarantee

sized transport

loan instalment

farm equipment

indias financial

organized