Non Banking Financial Nbfc

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NON BANKING FINANCIAL COMPANY(NBFC) Presented by: Pervez Tamboli (Roll No. 55)

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Transcript of Non Banking Financial Nbfc

Piesenteu by Piesenteu byPeivez Tamboli Roll No Peivez Tamboli Roll No Introduction Role of NBFC Classification of NBFCs Eligibility & Registration of NBFC Accepting Deposit mechanism of NBFC Prudential Norms on NBFCs FDI in NBFCsNon-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956. and conducting financial business as their principle business.Any company engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business etc.E.g: SundaramFinance, CholamandalamInvestments, Bajaj Finance Ltd.` 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.` All NBFCs are under direct control of RBI in India. As recognized by RBI and expert committeesDevelopment of sectors like Transport & InfrastructureSubstantial employment generationHelp & increase wealth creationBroad base economic developmentIrreplaceable supplement to bank credit in rural segmentsmajor thrust on semi-urban, rural areas & first time buyers /usersTo finance economically weaker sectionsHuge contribution to the State exchequerDynamic of Indian financial systemFinancial Intermediaries Financial Market Financial AssetsBanks NBFCMutualFundsInsurance OrganizationLeasing CompaniesHire-Purchase/Consumer Finance CompaniesHousing Finance CompaniesVenture Capital FundsMerchant Banking OrganizationCredit Rating AgenciesStock broking firmsDepositoriesMoney Mkt Capital MktSecondary MktPrimary MktPrimary/DirectEquityPreference DebentureInnovative debt instrumentsIndirectMutual Fund UnitsSecurity ReceiptsDerivativesForwardFutureOptionNBFIsDevelopment Finance Institutions (DFI)Non Banking Financial Company (NBFC)Insurance CompanyMutual FundsInvestment CompanyEquipment LeasingLoan CompanyHire-Purchase LeasingAsset Finance (AF)Investment Company (IC)Loan Company (LC)NBFCsWith effect from December 6, 2006 , the NBFCs registered with RBI have been reclassified as follows:-NBFCsAccepting DepositsNBFC-DNot Accepting DepositsNBFC- NDNBFCs are classified into two categoriesNBFC accepting deposits from customersNBFC which do not take deposits from customers` Residuary Non-Banking Company is a class of NBFC whose principal business is receiving of deposits, under any scheme or arrangement. The deposits received do not involve investment, asset financing, or loans. ` These companies are required to maintain investments as per directions of RBI, in addition to liquid assets. The functioning of these companies is different from those of NBFCs in terms of method of mobilization of deposits and requirement of deployment of depositors' funds` Sahara Mutual Fund was the first RNBC started in India.` The history of the NBFC Industry in India is a story of under-regulation followed by over-regulation. Policy makers have swung from one extreme position to another in their attempt to set controls and then restrain them so that they do not curb the growth of the industry. ` James Raj Committee (1974)` Chakravarthy Committee (1984)` Vaghul Committee (1987)` NarsimhanCommittee (1991)` Dr. A.C.Shah Committee (1992)` Khanna Committee (1995)` Vasudev Committee (1998)` NBFCs are doing functions akin to that of banks, however there are a few differences:NBFC cannot accept demand deposits It is not a part of the payment and settlement systemAccept/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 should have minimum investment grade credit rating from the credit rating agenciesThe company with its principal business as(a) Agricultural operations (b) Industrial activity(c) The purchase or sale of any goods (other than securities) or the providing of any services(d) The purchase, construction or sale of immovable property, Moreover no portion of the income should be derived from the financing of purchases, constructions or sales of immovable property by other persons` In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be registered with RBI to commence or carry on any business of non-banking financial institution as defined in clause (a) of Section 45 I of the RBI Act, 1934.` NBFCs Exempted from Registration with RBI: Housing Finance Companies Merchant Banking Companies Nidhi Companies Insurance Companies Chit Fund CompaniesIncorporation status:` A company must be incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 Capital Requirement:` The start up company should have a minimum net owned fund (NOF) of Rs 25 lac which is raised to Rs 200 lac from April 21, 1999. Particulars AmtPaid Up Capital XXXXFree Reserve XXXLess:Accumulated Losses (XX)Deferred revenue exp. (XX)Other intangible assets (XX)Investment in shares of Subsidiaries (XX)Finance made & Deposits with NBFC in excess of 10% of owned fund(XX)NOF 200 LakhsName of rating agencies Level of minimum investment grade credit rating (MIGR)CRISIL FA- (FA MINUS)ICRA MA- (MA MINUS)CARE CARE BBB (FD)FITCH Ratings India Pvt. Ltd tA-(ind)(FD)NBFC with Minimum NOF can accept public deposits, provided they obtain minimum investment Level ratings for their Fixed assets deposits from one of the approved rating agencies at least once in a year as per RBI guidelines.(I) NBFCs having Net Owned Fund (NOF) of more than 200 LacsCategory of NBFC Ceiling on public depositsAFCs maintaining CRAR of 15% without credit rating1.5 times of NOF or Rs 10 crorewhichever is lessAFCs with CRAR of 12% and having minimum investment grade credit rating4 times of NOFLC/IC with CRAR of 15% and having minimum investment grade credit rating1.5 times of NOF(ii) NBFCs having NOF more than 25 lakhs but less than 200 LakhsCategory of NBFC Ceiling on public depositsAFCs maintaining CRAR of 15% without credit ratingEqual to NOF (1xNOF)AFCs with CRAR of 12% and having minimum investment grade credit rating1.5 times of NOFLC/IC with CRAR of 15% and having minimum investment grade credit ratingEqual to NOF( 1xNOF)` The NBFCs accepting public deposits should furnish to RBI: Audited balance sheet of each financial year Audited P&L a\c of each financial year Statutory Annual Return on deposits Certificate from the Auditors that the company is in a position to repay the deposits as and when the claims arise. Quarterly Return on liquid assets A copy of the Credit Rating obtained Monthly return on exposure to capital market by companies having public deposits of Rs 50 crore and above` The NBFCs-ND having assets size of Rs 100 croreare required to submit a Monthly Return on important financial parameters of the company` Board resolution to be passed to the effect that the company have neither accepted public deposit nor would accept any public deposit during the year` NBFCs should comply with RBIs policies and directions regarding prudential norms and Deployment of funds: Income Recognition Accounting Standards Classification of Assets Provision for NPA (Non Performing assets) Capital Adequacy Declaration of Purpose, Quantum & Advances of Loan ` Minimum level of liquid asset to be maintained by NBFCs is 15 % of public deposits outstanding as on the last working day of the second preceding quarter .` Of the 15%, NBFCs are required to invest not less than 10% in approved securities and the remaining 5% can be in unencumbered term deposits with any scheduled commercial bank.. Thus, the liquid assets may consist of government securities, government guaranteed bonds and term deposits with any scheduled commercial bank. ` Reserve Fund appropriation` Advertisement and Statement in Lieu of Advertisement` Register of Deposits` Downgrading of Credit Rating` Information of Safe Custody of Approved Security