Non Banking Finance

Company

Topics Covered

Meaning of NBFC
Classification of NBFCs
Types of NBFCs

Banks Vs. Non-Banks

Both are Financial Intermediaries

Banks Can:
Maintain Demand Deposits (savings/current
Accounts)
Form a Part of Payment and Settlement Mechanism

Non-banks Can
Accept only term Deposits
Does not form Part of Payment and Settlement
Mechanism

Meaning of NBFC
Section 45I (f) of RBI act, 1934
Non-banking financial company means

a Financial Institution which is a company;

a Non-Banking Institution which is a company and

which has as its Principal Business the receiving of
deposits, under any scheme or arrangement or in any
other manner, or lending in any manner;

such other Non-Banking Institution or class of such

institutions, as RBI specifies
Non-Banking Institution - means a
company , corporation or co-operative society
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Which is a NBFC?
A company which carried on as its business or part of its business
the following activities:
- financing
- acquisition of securities
- hire purchase
- insurance
- chit fund
- mutual benefit company
But does not include a company which carries on as its principal
business:
- agricultural operations,
- industrial activities
- Sale and purchase of goods
- providing of services

Definition of Principal Business

RBI Press Release Dt. April 8, 1999
- If 50% or more of a companys total assets (netted
off by intangible assets) are financial assets
and
- If 50% or more of a companys gross income is
from financial assets
then the Principal Business of the company is of a NBFC

Legal Framework
Always Remember

NBFC per se is a licensed activity like

Banking, Stock Broking, Money Changing.
Acceptance of Public Deposits is
irrelevant for NBFC test.
Income earned & Deployment of Funds
are determining factors

RBI Press Release No.

1999-2000/1042 dated 8.2.2000

Registration and Net Owned Fund (Sec 45- IA)

No NBFC shall commence or carry on business of
NBFI without obtaining a Certificate of Registration &
having minimum Net owned funds
Registration with RBI is mandatory for all companies
interested in carrying on non- banking finance activities.
Minimum Net Owned funds of Rs.2 Crores.

Classification of NBFCs
Mainly there are following types of NBFCs
Asset Finance Company

Equipment Leasing
Hire Purchase Finance

Investment Company
Loan Company

Core Investment Companies

Housing Finance Companies

Factoring
Merchant banks
Venture capital funds
Credit rating companies

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

Classification of NBFCs

Asset Finance Company (AFC) would be defined as

any company which is a financial institution carrying
on as its principal business the financing of physical
assets supporting productive / economic activity.
Principal business - aggregate of financing real/physical assets supporting
economic activity and income arising therefrom is not less than 60% of
its total assets and total income respectively

The onus of including only eligible assets for the

purpose of classification as AFC shall be that of the
company concerned.

AFC: Financing of physical assets supporting productive economic activities such as

automobiles, tractors, earth moving machinery, lathe machines, generator sets,
material handling equipments and general purpose industrial machinery.
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Hire purchase companies

Chapter 10 pg 264-271 of Gordon Natarajan

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Lease companies

Chapter 11 pg 272-291 of Gordon Natarajan

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Classification of NBFCs
Investment Companies (IC) means any company which is
a financial institution carrying on as its principal business
of acquisition of securities
Loan Companies (LC) means any company which is a
financial institution carrying on as its principal business the
providing of finance whether by making loans or advances
or otherwise for any activity other than its own but does
not include an Asset Finance Company
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Infrastructure finance co.(IFC)

IFC: long term funding for developing or operating and maintaining or
developing, operating and maintaining any infrastructure project in road,
highway, port, airport inland port, waterways, water supply, irrigation project,
water treatment, sanitation and sewage system or solid waste management,
telecom services (basic or cellular), network and internet service,
transmission or distribution of power, laying down and maintenance of gas,
crude oil and petroleum pipelines

Core Investment Companies (CICs)

What is CICs?:
(i) Holds not less than 90% of Net Assets in group companies;
(ii) Investments in equity shares in group companies constitutes not
less than 60% of its Net Assets; (Net asset defined in Directions)
(iii) It does not trade in its investments except through block sale
for the purpose of dilution or disinvestment;
(iv) It does not carry on any other financial activity except some
specified acts
CIC is considered SI only if raising/holding public funds
AND Total Assets of Rs. 100 crore or above
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Core Investment Companies (CICs)

For CIC-ND-SI
Capital Requirements:
minimum capital ratio. i.e.
Adjusted net worth at all time shall not be less than 30%
of its aggregate Risk Weighted Assets and Risk adjusted
value of off balance sheet as at the last balance sheet date
Leverage Ratio: Outside liabilities at all times shall not
exceed 2.5 times its Adjusted Networth as on the date if
the last audited balance sheet
Exemptions Given: (i) CIC-ND-SI are exempted from para 15, 16
and 18 of the NBFC Norms, 2007 and ii) Norms 2007 not apply
for CIC-NDs (Other than systemically important)
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Core Investment Companies (CICs)

RBI has Announced Core Investment Companies Overseas Investment (Reserve Bank) Directions, 2012
for CICs making investments abroad, opening
branches, representative offices, undertaking joint
ventures, etc. abroad. The same needs to be followed.
RBI has also separately issued guidelines for entry of
Core Investment Companies in insurance sector

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Housing Finance companies

DIRECT HOUSING FINANCE

Direct Housing Finance refers to the finance provided to individuals

or groups of individuals including co-operative societies.

INDIRECT HOUSING FINANCE

Banks should ensure that their indirect housing finance is by way of

term loans to housing finance institutions, housing boards, other
public housing agencies, etc

The Home loan is a loan taken by a borrower from the bank

issued against the property/Security intended to be bought on the part
by the borrower giving a conditional owernship over the property

HOUSING LOANS UNDER

PRIORITY SECTOR

The following housing finance limits will be

considered as Priority Sector Advances:
1. Direct Finance
(i) Loans up to Rs. 15 lakh in rural, semi-urban,
urban and metropolitan areas for construction of
houses by individuals, with the approval of their
Boards.
(ii) Loans up to Rs.1 lakh in rural and semi urban
areas and Rs. 2 lakhs in urban areas for repairs to
damaged houses by individuals.

2 Indirect Finance

(i) Assistance given to any governmental agency for

construction of houses, or for slum clearance and
rehabilitation of slum dwellers, subject to a ceiling
of Rs. 5 lakh of loan amount per housing unit.
(ii) Assistance given to a non-governmental agency
approved by the National Housing Bank for the
purpose of refinance for reconstruction of houses
or for slum clearance and rehabilitation of slum
dwellers, subject to a ceiling of Rs. 5 lakh of loan
amount per housing unit.

STUDY ON HDFC, LIC HOUSING

FINANCE AND SBI HOME FINANCE

Housing Development Finance Corporation

Limited (HDFC)
HDFC is one of the leaders in the Indian housing
finance market with almost 17% market share as on
March 2010.
Serving more than 38 lakh Indian customers as on
March 2011
In the FY 2010-11, it registered a net profit of `4528.41
crore. It also registered a net profit of ` 971 crore in the
quarter ended September 30, 2011.

State Bank of India Home

Finance (SBI)

State Bank of India is another major player in the

Indian housing finance market with 17% of the
market share, same as HDFC's share as on March
2010.

The SBI Housing Loan schemes are specifically

designed to meet the varied requirements of the
customers.

SBI Home Finance registered a net profit of ` 24.63

crore in the year ended March 31, 2009.

LIC Housing Finance Limited

LIC Housing Finance is another major player in housing

finance sector in India with about 8% of market share.
Promoted by Life Insurance Corporation of India,
LICHFL has an extensive distribution network with a
strong brand presence. Recently, the company has been
awarded Consumer Superbrand 2009/10 Status by
Superbrands Council. In the last financial year (ended on
March 31, 2011),
LICHFL earned a net profit of ` 974.49 crore, comparing
to ` 662.18 in the previous FY.
It also registered a net profit of ` 256.50 crore in AprilJune quarter of 2011.

HDFC HOUSING FINANCE SERVICES

Home Loan
Home Improvement Loan
Home Extension Loans
Land Purchase Loans
Top Up Loans

LIC HOUSING FINANCE SERVICES

Purchase of flats/house
Construction
Extension of flats/house
Plot purchase
Repairs/renovation to existing flats/house

SBI HOUSING FINANCE SERVICES

SBI Surakshit Home Loan
SBI Yuva Home Loan
SBI Home Loan PAL ( Pre-Approved Limit )
SBI Maxgain (Home Loan as an overdraft)
SBI Realty
NRI Home Loans
Gram Niwas

Merchant banking

Chapter 9 pg 245-263 of Gordon Natarajan

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Venture capital funds

Chapter 12 pg 292-311 of Gordon Natarajan

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Factoring

Chapter 14 pg 348-377 of Gordon Natarajan

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Credit rating

Chapter 17 pg 422-437 of Gordon Natarajan

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Thank you

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