THE AREAS OF FOCUS IN OUR PROJECT ARE-

What primarily are NBFCs?

When and why had they been introduced in the financial
markets?
How has their performance been till date?
What are the major functions performed by them?
What significance do they have in the global context?
What has been the impact of the inflation on the role of this
sector?
What role are they expected to play in the future in the
context of the financial markets?
"Non-banking financial company" means-
(i) a financial institution which is a company;
(ii) a non banking institution and which has as its principal business
the receiving of deposits, under any scheme or arrangement or in
any other manner, or lending in any manner;
(iii) such other non-banking institution or class of such institutions, as the
bank may, with the previous approval of the Central Government
and by notification in the Official Gazette, specify.

NBFCs as described by RBI in points are-

EQUIPMENT-LEASING COMPANY;
HIRE-PURCHASE COMPANY;
LOAN COMPANY;
INVESTMENT COMPANY
hey are also categorized in a different format among 8 categories-
LOAN COMPANY
HIRE PURCHASE COMPANY
INVESTMENT COMPANY
MUTUAL BENEFIT COMPANY
MISCELLANEOUS NON-BANKING FINANCIAL COMPANY-CHIT FUNDS
RESIDUARY FINANCE COMPANY
HOUSING FINANCE COMPANY
EQUIPMENT LEASING COMPANY

Another and recent way of categorizing NBFCs is as under-

ASSET FINANCING COMPANY(AFC)
INVESTMENT COMPANY(IC)
LOAN COMPANY(LC)
(his is with effect from december,2006)
Loan company means a company which is a financial institution
carrying on as it¶s principal business the providing of finance
whether by making loans or advances or otherwise for any activity
other than its own but does not include an equipment leasing
company or a hire-purchase finance company.
Hire purchase (frequently abbreviated to 6 ) is the legal
term for a contract developed in the United Kingdom.
In cases where a
buyer cannot afford to pay the asked price for an
item of property as a lump sum
But,
can afford to pay a percentage as a deposit,
a hire-purchase contract allows the buyer to hire the
goods for a monthly rent.
‡When sum equal to the original full price plus interest
has been paid in equal installments
‡the buyer may then exercise an option to buy the
goods at a predetermined price (usually a nominal
sum) or return the goods to the owner.
Investment Company is a company which is a financial institution
carrying on as it¶s principal business the acquisition of securities.

An investment company is a company

whose main business is holding
securities of other companies purely for
investment purposes. he investment
company invests money on behalf of its
shareholders who in turn share in the
profits and losses.
 Mutual Benefit Financial Company
means a company which is a financial institution
notified by he Central Government under he
Companies Act 1956.
‡A mutual fund is a professionally managed
type of collective investment scheme in which
money is pooled from many investors and invests
it in many kinds of securities by a fund manager.
‡Currently, the worldwide value of all mutual
funds totals more than $
Ä
‡Mutual funds can invest in many kinds of
securities.
he most common securities in which the mutual funds invest the
money of the investors are-
Cash instruments
Stock
Bonds
but there are hundreds of sub-categories.
For example-
Stock funds can invest primarily in the shares of a particular industry,
such as technology or utilities.
CHI means a transaction whether called chit, chit fund, chitty, kury
or by any other name or under which a person enters into an
agreement with a specified number of persons that every one of them
shall subscribe a certain sum of money by way of periodical
installments over a definite period and that each such subscriber
shall, in his turn, as determined by lot or by auction or by tender or
in such other manner as may be specified in the chit agreement, be
entitled to the prize amount.

Good source of finance-for all

sections of society
Good means of savings for
any contingency
Serves all persons-whether the
desire is for savings or for
contingency or for some
expense
Residuary Non-Banking Company-class of NBFC-
principal business the receiving of deposits,
under any scheme or arrangement or in any
other manner and not being investment, asset
financing, loan company.

·Investments as per directions of RBI, in addition

to liquid assets.

·he 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.
NO CEILING ON THE AMOUNT OF DEPOSITS WITH RNBC-A BIT RISKY.
If the RNBCs are safe or not?

·Although it is true-no ceiling on raising of deposits by RNBCs

·But every RNBC has to ensure that the amounts deposited and
investments made by the company are not less that the aggregate
amount of liabilities to the depositors.
·o secure the interest of depositor, such companies are required to invest
in a portfolio comprising of highly liquid and secured instruments viz.
Central/State Government securities, fixed deposit of scheduled commercial
banks (SCB), Certificate of deposits of SCB/FIs, units of Mutual Funds, etc.
Indian Real Estate-on its way to donning the image of
an organized industry-global standards-as
fragmentation, disorganization, poor governance and
inefficient infrastructure; take a backseat.

Most financial institutions- home loans to

both Indian and NRI customers- floating and
fixed rate of interest or blended ones-
customized packages- purposes of
constructing/ buying a new house, vacant
plot or extension and even home
improvement.

BRIEF BACKGROUND
Housing Finance has accumulated expert experience spanning over 40 years in
construction/project finance with emphasis in multiple housing developments.
 Products and services offered
include
Short-term construction loan of 4 to 6 months for
construction of single dwelling units.

Short-term multiple development construction loans

and bridging loan facilities for a period of up to 24 months.

Long-term financing of a wide spectrum of commercial

and residential properties for rental.

Evaluation of construction projects proposals for

project concept, commercial, technical and financial viability.

Marketing support through availing developer¶s access to

website link, display of properties in ultra modern property
point for wide reach.
Means a company which is a financial institution carrying on as it¶s
principal business, the activity of leasing of equipment. EQUIPMENT
LEASE - An agreement that specifies the rights and obligations
between a lessor (who owns equipment) and a lessee (to whom the
lease gives certain rights to possess and use the equipment).
Obtaining the use of machinery, vehicles or other equipment on a rental
basis. his avoids the need to invest capital in equipment. Ownership
rests in the hands of the financial institution or leasing company,
while the business has the actual use of it.
 The deposit base of NBFCs grew
rapidly in early-mid nineties _
 YEAR

''' ] ]


DEPOSIT BASE

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  ] 

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       ] 
YEAR
] 
Initial years of NBFCs- not a good response in terms of performance-
seen in terms of their deposit base and share in the financial services
sector.
Banks-very popular at that time-enjoyed a much more larger share as
compared to the NBFCs.
Later-improvement in performance-
In 1981, number of NBFCs => 7063
In 1990, number shot upto => 24009
In 1995, number of NBFCs was => 55995
In terms of deposit base, it could be traced as
From April 1991 to March 1997, the deposit base grew at an average
rate of 88.57%. he public deposits managed in 1997 were of value of
about Rs.15000 crores.
Since 1998, due to stringent government regulations, the deosits with
the NBFCs have gone down.
oday the deposits managed by the sector has shrunk to about
Rs.3000crores.
Also the performance of the NBFCs-studied in terms of the asset base
they hold.
‡ As of 2000, the collective asset base of all the NBFCs was about
Rs.400 billion.
‡ his was a huge fall in the figures as there was a sharp fall in the
companies with an asset base of <Rs.5 million.
Generally speaking-core profitability of the NBFCs-rose in 2002-03
since the last two years the status of the NBFCs has increased,
although since the depression in the world economy-the growth and
performance of the NBFCs-gone down-compared to just previous
performance.
BANKS-financial institutions-reached the major section of every country of
the world
·still there were some rural, under-privileged and under-served sections
in each of the nations
·Requirement of the services of some
financial institution which could cater to
their needs.
Lead to the creation of the NON-
BANKING FINANCIAL COMPANIES or
simply NBFCs.

UNTOUCHED AREAS

IMPORTANT ROLE TO BE PLAYED

NEED OF BETTER FINANCIAL SERVICES
UNDER-SERVICED SEGMENTS
It makes a study of what special is there in NBFCs that provide them
an edge over the Banking sector.
If the NBFCs can prosper and flourish in the future or would it be subsided
due to the Banking sector?
Banks-covered major section of the nation-but still some under-served
sections exist -need for financial institutions for them-NBFCs CAME INO
PICURE.
BANKS-focus on the MERO-BASED MODEL-but NBFCs¶ concern
NON-METRO-FOCUSSED MODEL.
Y
 ± tr t t ir ti iti  „r „ I t
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 r tt r t - r t r Y t
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So to sum up we can define this section ³BANKS O ER NBFCs´ in the
following points-
 IMPORAN ROLE IN MACRO
ECONOMICS PERSPECI E
REACH HE UNDER-
DE ELOPED SECOR
AREAS UNOUCHED B
BANKS-LEASING, LOANS, EC.
HIGH QUALI CUSOMER
SER ICE O REAIL
CUSOMERS.
FINANCING COMMERCIAL
EHICLES AND E EN SMALL
BUSINESSES.
Non-bank institutions frequently acts
as:-

· Suppliers of loans and credit.

·Supporting investments in
property

· rading money market instruments

· Funding private education,

· Wealth management.

· Underwrite stock and shares.

· Retirement planning

· Advisory functions.

· Discounting services.
GLOBAL FINANCIAL MARKET is an institution or arrangement
that facilitates the exchange of financial instruments, including
deposits and loans, corporate stocks and bonds and other
instruments across the world in a quick and easy manner«««
 POINTS TO DISCUSS

PRESENT CONTEXT
In the present day world -innovation in their activities-lower cost and
better efficiency-points to the growth of trend of mergers globally.
EFFECT OF CRISIS
Sub-prime mortgage crisis in the US -temporary blip in the domestic
financial sector and its impact on NBFC¶s.
RETAIL¶S EFFECT
In the emerging scene, the market for retail customers is where all
action is. Consumer credit remaining an under-served area ² fuelled
the rapid growth of financial services companies-implies a growth
prospect for the NBFCs.

POLICIES IN INDIA:
Declining interest of the NBFCs in the public deposits-RBI should look
at the possibility of allowing only banks to take public deposits.
CONDITIONS FOR DEVELOPING WORLD
For a developing nation where infrastructure creation has been presently
accorded highest priority -leasing-immense potential.
NEED OF THE HOUR
he market for financial loans-not determined solely by the cost of finance.
Service -- loosely described as the convenience offered to the customer in
terms of speed & product features -- critical role in volume growth. So the
service sector has to be improved. And NBFCs-specially focused on
customer services-higher potential to grow.
ODA it¶s the world of GLOBAL INEGRAION. And the performance of
each and every economy depends and reciprocally affects the other nation as
well.
Hence the overview of the future of NON-BANKING FINANCIAL COMPANIES
in the emerging global markets is very essential for us to have a look at.
o have an idea of this part of our project, we have divided the entire scope of
our idea into some parts:

STATUS of NBFCs in the future.

ROLES expected to be assumed by NBFCs in future.

he status again has to be studied in 2 parts-

NBFCs in the NEAR FUTURE.
NBFCs in the LONG RUN.
PREDICION OF HE FUURE can be done on the basis of-
STUDY OF PAST
STUDY OF PRESENT
PREDICTION ABOUT FUTURE
For 3 different periods the statistics for the TSR for the NBFCs and BANKS has been
shown below-

TSR for 2003-08(%)-

‡ PSU BANKS-42
‡ PRI AE SECOR BANKS-4 . (average)
‡ NBFCs-8

TSR for 200 -08(%)-

‡ PSU BANKS-2
‡ PRI AE SECOR BANKS-30. (average)
‡ NBFCs-83

TSR for 2007-2008(%)-

‡ PSU BANKS-47
‡ PRI AE SECOR BANKS- 8. (average)
‡ NBFCs-83
Seeing the other side of the coin i.e., we get a totally opposite picture!

he return on the total income of 383 NBFCs decreased during the
period between APRIL and JUNE 2008.

he combined net profits of the 383 NBFCs have increased only
.2% to Rs.2 33 crore, resulting a decrease in return to total income
from 22.3 % in APRIL-JUNE2007 to 20.36% in APRIL-JUNE2008.

his does give a negative implication and is also depicting that in case of
depression, NBFCs have been badly affected.
HE LAS couple of years have seen significant developments in the
financial sector that have raised competition across-the-board. Non-banking
finance companies (NBFCs) have perhaps felt the pressure most.
‡ Banks have started looking at NBFCs as competitors.
‡ High-yielding segments such as consumer durables, two-wheelers and pre-
owned C s, where NBFCs have registered strong growth, still offer potential
to grow.
he views of the market players about the FUURE of NBFCs are-
A.C. SHAH-
³A shakeout in the non-banking finance sector is likely in the near future.´
he public is not willing to park its funds with NBFCs due to the low rate of
interest offered by them for deposits.
Credit Rating and Information Services of India Ltd (CRISIL)-
³Concern over the weak financial fundamentals of non-banking finance
companies (NBFCs).´
RBI-
³he NBFCs have been declared to be the weakest link in the entire financial
services sector.´
ROOPA KUDVA, managing director and chief executive officer, Crisil-
"he decline in business volume will mean a further marginalisation of the
sector, a trend that has been accelerating over the past few years as banks
have taken over the traditional NBFC stronghold of retail lending.³
HEMANT KANORIA, CMD, SREI Infrastructure Finance Ltd-
³Over the last 3-4 months, it had become extremely difficult for NBFCs to
raise money in the domestic market. We have been awaiting the
government¶s and the RBI¶s approval for access to the ECB market.´
R RAVI, executive director of the Mumbai-based Alpic Finance-
"he future belongs to strong financial service factories.³
R. VAIDYANATH-
³NBFCs ² creditable but unrecognized role.´
he future of the NON-BANKING SECOR cannot be easily predicted for the long
run because it has seen through many ups and downs in it¶s entire journey.

A merger between BANKS and NBFCs on the overall global front.

 NBFC¶s would convert into BANKS.

Here we would be faced with two of the ER IMPORAN QUESIONS and
those are-

WILL THE MERGERS AND CONVERSION OF NBFCs INTO BANKS WOULD

LEAD TO ENLARGEMENT OF THE NON-BANKING FINANCIAL COMPANIES?

OR,

WILL IT CAUSE THE NBFCs TO BECOME JUST A SMALL SECTOR TO THE

BANKING INDUSTRY?
 A BRIEF SAY ON MERGERS AND ACQUSITIONS«

It is very clear that the gap between the banks and NBFCs has been
narrowing lately. «. Other than deposit taking activity, their activities are
largely similar. he NBFCs have an advantage in management of risks and
reach.

NBFC¶s are fast to adapt to the changes.

In the long-term, the gap between banks and NBFCs will narrow. In which
case a different breed of NBFCs will emerge. For instance, a very focused
entity catering to a small area.
Some NBFCs have converted themselves into banks, while others have
merged into banks.
Given this scenario, does CRISIL foresee NBFCs as having a role to play
in the Indian financial system over the medium to long term? Will there
be any NBFCs left in the country in a few years?
Traditionally, the NBFCs have dominated the market for retail finance.
With such new areas as insurance being opened up, top-rung NBFCs
are presented with an opportunity to grow.

There have been occurring mergers between the NBFCs and BANKS
but apart from mergers, other options waiting for NBFCs are to change
the tracks and explore new areas.

They have to extend their product portfolio to include asset

management companies, housing finance firms and to venture into
newly opened insurance sector for private participation.

There are some areas where the NBFCs can expand themselves due to
either the need of healthy customer service, or as they need to be
explored or even due to the expertise of the NBFCs in those areas.
 ENTRY INTO
Retail finance
Housing loans
Insurance business
Web-based services
High yielding segments
Personal loans & Credit cards
Portfolio-management services
Sale of products of other financial intermediaries

hese are the areas that either haven¶t been touched at all or still offer
huge potential to grow.
Future Capital

Ashok Leyland Finance

Reliance Capital

ABN Amro Bank

Future Capital, the financial arm of Future Group, will soon start rolling out
Money Bazaars
across the country. his one stop-shop would be providing numerous
services like-

‡ Housing loans
‡ Personal loans
‡ Insurance
‡ MFs
‡ Credit cards
raditionally, ALF has depended on commercial vehicle financing for a significant
proportion of its revenue. However, recently the company initiated steps to
broadbase its revenue stream by entering new areas of finance.
‡ The other segment they are concentrating on is passenger cars.

‡ The other segment they have is multi-utility vehicles (MUVs). It is more

or less on the pattern of commercial vehicles vis-à-vis risk. There we
certainly have considerable scope.
‡ The other segment is construction equipment...will take time for others
to get in.
‡ They are also at an advanced stage of developing a loan portal by which
they will have the capability to distribute loan products of other
intermediaries.
‡ The move of Ashok Leyland Finance to launch a finance portal that would
be used to sell products of other financial intermediaries and to use its
skill in collection to derive a pure service income.
Reliance Capital, an arm of the Anil Dhirubhai Ambani Group, will
set up a separate housing financial subsidiary and non-banking
financial company (NBFC) for the consumer finance sector.
Ambani said his company is also planning to selectively expand
its

‡ asset management
‡ life insurance, and
‡ broking operations

in emerging markets across Asia, Africa and

the Middle East.
Ms Meera Sanyal, Country Executive-ABN Amro Bank, India.

´ABN Amro Bank will use its NBFC to

complement its retail distribution business.´
 he future of the Non-Banking Financial Companies would depend
largely on their performance in the present slowdown. It will be a
deciding factor for their future scope and role in the emerging global
financial markets.

In the PRESEN SCENARIO, it is very essential for them to come up

with best of customer services round-the-world because this is the
basic strength of this sector.

hey need to explore all possible opportunities but also need to

strengthen their BASICS too!!!