A TRAINING REPORT ON COMPARA COMPARATIVE TIVE STUDY OF NBFC IN INDIA
Submitted to: Satyug Darshan Institute of Engineering and Technology Technology By: PREETY PODDAR Roll No. – ( 6027265) Batch 2016 - 2019 In Partial Fulfillment of Bachelor of Business Administration Administration (Industry-Integrated) (Specialization: Financial Services and Banking) MAHARSHI DAY DAYANAND UNIVERSITY UNIVERSIT Y ROHTAK (HARYANA) (November, 2018)
Satyug Darshan Institute of Engineering and Technology Technology Bhupani Lalpur Road, Village Bhupani Faridabad - 121002, NCR, Haryana, India
DECLARATION I, Ms. Preety Poddar, student of Satyug Darshan Institute of Engineering & Technology here by declare that this training report titled “COPERATIVE STUDY OF NBFC IN INDIA .” is the record of authentic work carried out by me during the period from 30th AUGUST 2018 to 05th NOVEMBER 2018 and has not been submitted to any other University or Institute for the award of any degree / diploma etc.
(Signature) Preety Poddar
Date:
BONAFIDE CERTIFICATE This is to certify that Ms. Preety Poddar , student of Satyug Darshan Institute of Engineering and Technology has successfully completed the project work titled “A COMPARATIVE STUDY OF NBFC” in partial fulfillment of requirement for the
completion of Bachelor in Business Administration (BBA II-FSB) course as prescribed by the Maharshi Dayanand University, Rohtak, (HARYANA).
This project report is the record of authentic work carried out by her during the period from 30th AUGUST AUGUST 2018 to 05th NOVEMBER 2018. She has worked under my guidance.
(Signature) Mr. Sajid Akhtar Khan Associate Professor, Professo r, BBA Department Project Guide (Internal)
Date:
ACKNOWLEDGEMENT Perseverance, inspiration and motivation have always played a great role in the success of any venture. At this level of understanding it is often different to understand the wide spectrum of knowledge without proper guidance and advice.
I have great pleasure and privilege in expressing my deep sense of gratitude to my Project Guide, Mr. Sajid Akhtar Khan for his guidance and support in completing this project and
giving his valuable insights and suggestion regarding the same, which has helped my project to shape up the way, it is now. It It was only because of his helpful nature nat ure that I was given ab absolute solute freedom to explore new directions in this project.
I would take this opportunity to thank Mr. Mr. Subhash Arora.
Finally, I would like to thank all my friends and family members who have helped me for the completion of this project.
Preety Poddar
PREFACE Many students may have work on this project in different way/styles. I have also tried to work on this project in a different way. It was for the first time I got the opportunity to work in such a prestigious and well-known organization. And things which I have experienced in my training time are going to help me throughout my life time. I have worked on this project with great enthusiasm and zeal.
Preety Poddar DATE:
TABLE OF CONTENT
S.NO
PARTICULARS
1
Introduction to the study
2
Company Profile
3
Literature review
4
Research Methodology Methodology
Objectives of the Study Research Design Method of Data Collection Collection Limitations of the Study
5
Data Analysis & Interpretation Interpretation
6
Findings, Conclusion and Suggestions
7
Bibliography
Annexure
PAGE NO.
CHAPTER – 1 INTRODUCTION
Non-Banking Financial Companies (NBFC’s) A non-banking financial company (NBFC) is a company registered under the Companies Act, 1956
and
is
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, but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. A non-banking institution instit ution which is a company, and which has its principal business of receiving receivi ng deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (residuary non-banking company). NBFC in India are registered companies conducting business activities similar to regular banks. Their banking operations include making loans and advances available to consumers and businesses, acquisition of marketable securities, leasing of hard assets asse ts like automobiles, automobiles , hire purchase and insurance insuran ce business. Though they are similar to banks, they differ in a couple of ways. NBFC‟s cannot accept demand deposits (deposits that can be withdrawn at immediate notice), they cannot issue checks to customers and the deposits with them are not insured by the DICGC (the India equivalent of FDIC in the US system). Either the RBI (Reserve Bank of India) or the SEBI (Securities and Exchange Board of India) or both regulate NBFC‟s. Though the NBFC‟s has been around for a long time, they have recently gained popularity amongst institutional investors, since they facilitate access to credit for semi-rural and rural India where the reach of traditional banks has traditionally been poor. NBFC‟s have also had a major impact in developing small business in rural India through local presence and strong customer relationships. Usually the loan officers in such NBFC‟s know the end customer or have a strong “informal” understanding of the credibility of the borrower and are able to structure their loans appropriately.
Classification of NBFCs based on the Nature of its business:
Equipment Leasing Company
Hire-purchase company
Loan company
Investment company
Infrastructure finance company
TheNBFCs that are registered with RBI are basically divided into 4 categories depending upon its nature of business:
Reclassification Reclassification of NBFCs:
However, in terms of the NBFC Acceptance of Public Deposits (Reserve Bank) Directions, 1988 with effect from December6, 2006 the above NBFCs registered with RBI have been reclassified as:
1. Loan Company (LC)
Loan company means any company which a financial institution is carrying on as its principal business the providing of finance whether wh ether by b y making loans or advances adv ances or otherwise ot herwise for any an y activity other than its own but does not include an Asset Finance Company.
2. Investment Company (IC)
Investment Company is a company which is a financial institution carrying on as it’s principal business the acquisition acquisiti on of securities. Investment Companies are further divided into following sub- categories: categories:
• Core Investment Companies:
Core Investment Companies in terms of RBI’s Notification mean: A non-banking financial company carrying on the business of acquisition of shares and securities and which satisfies the following foll owing conditions as on the date of the last audited balanc e sheet: (i) It holds not less than 90% of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group group companies. (ii) It’s investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10years from the date of issue) in group companies constitutes not less than 60% of its net assets.
Net assets, for the purpose purpos e of this provision, would woul d mean total assets excluding excludi ng –
• cash and bank balances; • investment in money market instruments and money market mutual funds • advance payments of taxes; and • deferred tax payment.
(iii)It does not trade in its investments in shares, bonds, debentures, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;
(iv)It does not carry on any other financial activity referred to in Section45I(c) and 45I (f) of the Reserve Bank of India Act, 1934 except: a) investment in i.
bank deposits,
ii.
money market instruments, including money market mutual funds,
iii.
government securities, and
iv.
bonds or debentures issued by group companies;
b) granting of loans to group companies ; and c) issuing guarantees on behalf of group companies.
• Other Companies
Asset Finance Company (AFC)
AFC would be defined as any company which is a financial institution carrying on as its principal business the financing f inancing of physical ph ysical assets asse ts supporting s upporting productive / economic econo mic activity activi ty,, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipment, moving on own power and general-purpose industrial machines. Financing of physical assets may be by way of loans, lease or hire purchase transactions.
Mutual Benefit Financial Company (MBFC)
Mutual Benefit Financial Company means a company which is a financial institution notified by The Central Government under section secti on 620A of The Companies Act 1956.
Non-Banking Financial Companies in India:
Non-Banking Financial Companies (NBFCs) have come a long way from the era of concentrated regional operations, lesser credibility and poor risk management practices to highly sophisticated operations, pan-India presence and most importantly an alternate choice of financial intermediation. Today, NBFCs are present in the competing fields of vehicle financing, housing loans, hire purchase, lease and personal loans. More often than not, NBFCs are present where the risk is higher (and hence the returns), reach is required (strong last-mile network), recovery needs to be the focus area, loan-ticket size is small, appraisal and disbursement has to be speedy and flexibility in terms of loan size and tenor is required. NBFCs‟ growth had been constrained due to lack of adequate capital. Going forward, we believe capital infusion and leverage thereupon would catapult NBFCs‟ growth in size and scale. NBFCs are not required to maintain cash reserve reserv e ratio (CRR) and statutory liquid liqui d ratio (SLR). Priority sector lending norm of 40% (of total advances) is not applicable to them. While this is at their advantage, they do not have access to low cost demand deposits. As a result, their cost of funds is always high, resulting in thinner interest spread.
NBFCs are different from Banks:
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 cannot offer interest rates higher than the ceiling cei ling rate prescribed by RBI from time to time.
They cannot offer gifts/incentives or any other additional benefit to the depositors.
They should have minimum investment grade grade credit rating, from the credit rating agencies.
Type of Services provided by NBFCs:
NBFCs provide range of financial services ser vices to their clients. clients . Types Types of services under nonnon banking finance services serv ices include the following: foll owing:
1. Hire Purchase Services 2. Leasing Services 3. Housing Finance Services 4. Asset Management Services 5. Venture Venture Capital Services 6. Mutual Benefit Finance Services (Nidhi) banks.
The above type of companies may be further classified into those accepting deposits or those not accepting deposits.
Now we take a look at each type of service ser vice that an NBFC could undertake.
Hire Purchase Services
Hire purchase the legal term for a conditional sale contract with an intention to finance consumers towards vehicles, white goods etc. If a buyer cannot afford to pay the price as a lump sum but can afford to pay a percentage as a deposit, the contract allows the buyer to hire the goods for a monthly rent. If the buyer defaults in paying the instalments, the owner can repossess the goods. HP is a different form of credit system among other unsecured consumer credit systems and benefits. Hero Honda Motor Finance Co., Bajaj Auto Finance Company is some of the HP financing companies.
Leasing Services
A lease or tenancy is a contract that transfers the right to possess specific property. Leasing service includes the leasing of assets to other companies either on operating lease or finance lease. An NBFC may obtain license to commence leasing services subject to , they shall not hold, deal or trade in real estate business and shall not fix the period of lease for less than 3
years in the case of any finance lease agreement except in case of computers and other IT accessories. First Century Leasing Company Ltd., Sundaram Finance Ltd. is some of the Leasing companies in India.
Housing Finance Services
Housing Finance Services means financial services related to development and construction of residential and commercial properties. An Housing Finance Company approved by the National Housing Bank may undertake undert ake the services /activities /activit ies such as Providing long lon g term finance for the purpose of constructing, purchasing or renovating any property, Managing public or private sector secto r projects in the housing hous ing and urban development developmen t sector and Financing against existing property by way of mortgage. ICICI Home Finance Ltd., LIC Housing Finance Co. Ltd., HDFC is some of the housing finance companies in our country.
Asset Management Company
Asset Management Company is managing and investing the pooled funds of retail investors in securities in line with the stated investment objectives and provides more diversification, liquidity, and professional management service to the individual investors. Mutual Funds are comes under this category. Most of the financial institutions having their subsidiaries as Asset Management Company like SBI, BOB, UTI and many others.
Venture Capital Companies
Venture capital Finance is a unique form of financing activity that is undertaken on the belief of high-risk-high-return. Venture capitalists invest in those risky projects or companies (ventures) that have success potential and could promise sufficient return to justify such gamble. Venture capitalist not only provides finance but also often provides managerial or technical expertise to venture projects. In India, venture capital concentrate on seed capital finance for high technology and for research & development. ICICI ventures and Gujarat Venture are one of the first venture capital organizations in India and SIDBI, IDBI and others also promoting venture capital finance activities.
Mutual Benefit Finance Companies (MBFC's)
A mutual fund is a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities/bonds. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in. By pooling money together in a mutual fund, investors can purchase stocks or bonds bo nds with much lower trading costs co sts than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification.
There are two main types of such funds, open-ended fund and close-ended mutual funds. In case of open-ended fund, the fund manager continuously allows investors to join or leave the fund. The fund is set up as a trust, with an independent trustee, who keeps custody over the assets of the trust. Each share of the trust is called a Unit and the fund itself is called a Mutual Fund. The portfolio of investments of the Mutual Fund is normally evaluated daily by the fund manager on the basis of prevailing market prices of the securities in the portfolio and this will be divided d ivided by the number nu mber of units issued is sued to determine determin e the Net Asset Value Value (NAV) (NAV) per unit. An investor can join or o r leave the fund fun d on the basis bas is of the NAV NAV per unit.
In contrast, a close-end fund is similar to a listed company with respect to its share capital. These shares are not redeemable and are traded in the stock exchange like any other listed securities. Value of units of close-end funds is determined by market forces and is available at 20-30% discount to their NAV.
Financial Sector Reforms & Liberalization measures for NBFCs:
During the period from 1992-93 to 1995-96 Indian Government took many steps to reform the financial sector like liberalized bank norms, higher ceiling on term loans, allowed to set their own interest rates, freed to fix their own foreign exchange open position subject of RBI approval and guidelines issued to ensure qualitative improvement in their customer service.
Foreign equity investments in NBFCs are permitted in more than17 categories of NBFC activities approved for foreign equity investments such as merchant banking, stock broking, venture capital, housing finance, forex broking, leasing and finance, financial consultancy
etc. Guidelines for foreign investment in NBFC sector have been amended so as to provide for a minimum capitalization norm for the activities, which are not fund based and only advisory, or consultancy in nature, irrespective of the foreign equity participation level.
The objectives behind the reforms in the financial sector are to improve the efficiency and competitiveness in the system. Recent trends in Non-Banking Financial Companies Sector:
NBFCs initially cater to the needs of individual ind ividual and small savings savin gs investors and later developed into financial institutions, providing services similar to those of banks. NBFCs have many tailor-made services for their clients with lesser degree of regulation. They have offered high rate of interest to their investors and atrracted many small size investors. In 1998, Reserve Bank of India implemented unprecedented regulatory measures to safeguard the public deposits.
The Bank has issued detailed directions on prudential norms, vide Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998. The directions interalia, prescribe guidelines guidelin es on income recognition, asset as set classification and provisioning p rovisioning requirements applicable to NBFCs, exposure norms, constitution of audit committee, disclosures in the balance sheet, requirement of capital adequacy, restrictions on investments in land and building and unquoted shares.
The RBI has issued guidelines for entry of NBFCs into insurance sector in June 2000. Accordingly, no NBFC registered with RBI having owned fund of Rs.2 Crore as per the last audited Balance Sheet would be permitted to undertake insurance business as agent of insurance companies on fee basis, without any risk participation.
The focus of regulatory initiatives in respect of financial institutions (FIs) during 2004-05 was to strengthen the prudential guidelines relating to asset classification, provisioning, exposure to a single/group borrower and governance norms. Business operations of FIs expanded during 2004-05. Their financial performance also improved, resulting from an increase in net interest income. Significant improvement was also observed in the asset quality of FIs, in general. The capital adequacy ratio of FIs continued to remain at a high
level, notwithstanding some decline during the year.
Regulatory initiatives in respect of NBFCs during the year related to issuance of guidelines on credit/debit cards, reporting arrangements for large sized NBFCs not accepting/holding public deposits, norms nor ms for premature withdrawal of deposits, depo sits, cover for public deposits d eposits and know your customer (KYC) guidelines. Profitability of NBFCs improved in 2003-04 and 2004-05 mainly on account of containment of expenditure. While gross NPAs of NBFCs, as a group, declined during 2003-04 and 2004-05, net NPAs after declining marginally during 2003-04, increased significantly during 2004-05.
How do NBFCs facilitate Economic Development.
. 1.
Greater Employment Opportunities and Standard of Living
NBFCs help attain the objective of macroeconomic mac roeconomic policies of o f creating more jobs in the country by promoting SMEs and private industries through lending them loans. This increase in new businesses consequently raises the demand for manpower and creates employment. Furthermore, the Purchasing Power Parity (PPP) of people rises and so does their standard of living.
2.
Strengthening of Financial Market
The financial market relies heavily on Non-banking financial institutions for raising capital. The start-ups and small-sized businesses are dependent on funds offered by NBFCs and also in order to maintain liquidity. For an effective functioning and balance in the fi nancial market, NBFCs play a significant role.
3
Supplying long-term credits
Unlike the regular banks, NBFCs extend long-term credits to infrastructure, commerce and trade companies. The traditional banks expect timely, schedules and short-term repayment of loans that may not always suit the requirements r equirements of these industries. NBFCs, on the other hand, fund large projects and so promotes economic growth. They also allow industries to partici pate in equity.
4.
Mobilisation of Funds
Non-banking financial companies help in rotation of resources, resources, asset distribution and regulation of income to shape the economic development. They enable converting saving into investments and thus helps in the mobilisation of funds/resources in the economy.
5.
Growth of National Income
As NBFCs aim to build capital for several industries – private and otherwise – they aid in accumulating a capital stock for the country. This directly adds on to the national income and results in the progression of Gross Domestic Product (GDP).
CHAPTER-2 COMPANY PROFILE
COMPANY PROFILE ON LIC HOUSING FINANCE:
LIC Housing Finance Limited is engaged in the housing finance business. The Company provides loans for purchase, pur chase, construction, repairs rep airs and renovation of houses/flats ho uses/flats to individuals, corporate bodies, builders and co-operative housing societies. It operates through its subsidiaries, which include LICHFL Care Homes Limited, which is engaged in the business of setting up, up , running and maintaining maintainin g assisted living community communit y center/care homes for senior citizens; LICHFL Financial Services Limited, which is engaged in the business of marketing financial products and services; LICHFL Asset Management Company Limited, which is engaged in business of managing, advising, administering mutual funds, unit trusts, investment trusts and to act as financial and investment advisors, and LICHFL Trustee Company Private Limited, which acts as a trustee to venture capital trusts and funds. The Company operates primarily in India.
LIC HOUSING FINANCE LTD. - COMPANY HISTORY: LIC Housing Finance Ltd is one of the largest housing finance companies in India with a key objective of providing long term finance to individuals for the purchase or construction of house/flat for residential purposes in India. LICHFL also provides finance on existing property for business/personal busines s/personal needs and also gives loans to professionals pro fessionals for purchase/construction purchase/constru ction of Clinics/Nursing Homes/ Diagnostic Centers/ Office Space and also for purchase of equipment. The Company also provides finance to builders and developers engaged in the business of construction of houses or flats for residential purpose and to be sold by them. The company has one of the widest networks of offices across the country. The company has its registered and corporate office at Mumbai. It has 9 regional offices 23 back offices and 249 marketing units across India. LICHFL has set up a representative office in Dubai and Kuwait to cater to the non-resident Indians in the GLCC countries covering Bahrain Dubai Kuwait Qatar and Saudi Arabia.LICHFL has four subsidiaries viz. LICHFL Financial Services Limited LICHFL Asset management managemen t Company Limited LICHFL Trustee Company Private Limited and LICHFL Care Homes Limited. LICHFL Financial Services was established for undertaking non fund-based activities like marketing of housing loans insurance products credit card mutual funds Pension Schemes etc. The company provides multiple financial solutions for every customer segment through its territory offices spread
across the Country.LICHFL Asset management Company is the Investment Manager of LICHFL Urban Development Fund a Venture Capital Fund with focus on mid income housing and Income yielding micro infrastructure assets. The LICHFL Urban Development Fund is sponsored by LIC Housing Finance Limited and co-sponsored by LIC of India. LICHFL Trustee Company Private Limited currently provides Trusteeship services to LICHFL Urban Development Fund managed by b y LICHFL Asset Management Company Limited. LICHFL Care Homes Limited was established to set up and operate assisted community living centres for Senior Citizens. It has established Care Homes under two Projects in Bengaluru and another one in Bhubaneswar is nearing Completion. LICHFL Care Homes Limited is also developing a Senior Living project at Vasind in collaboration with TATA value Homes Limited.LIC Housing Finance Ltd was incorporated on June Jun e 19 1989. 1989 . The company was promoted by LIC of India and went public in the year 1994. The company is recognized by National Housing Bank and listed on the National Stock Exchange (NSE) & Bombay Stock Exchange Limited (BSE) and its shares are traded only in Demat format. The GDR's are listed on the Luxembourg Stock Exchange.In the period of 2001 the company launched their new scheme called Griha Vikas. In the year 2002 the company signed a deed of assignment to take over individual housing loan portfolio of Citibank. In the year 2003 they unveiled a new project for elderly people called LICHFL Care Homes. The company launched their maiden GDR issue in the year 2004. Also, they introduced flexi-fixed scheme offering fixed rate of interest for first five years and variable thereafter. In October 2005 the company started offering of 'New Griha Laxmi' housing loans against the security of certain approved financial assets like Bank Fixed Deposits National Savings Certificates and Life Insurance Policies. In the year 2006 the company introduced new Griha Jestha for senior citizens for buying unit of LICHFL Care Homes Ltd. In May 2007 the company launched maiden Fixed Deposit Scheme.In October 31 2007 the company incorporated LICHFL Financial Services Ltd for undertaking non fund-based activities like marketing of housing loans insurance products credit card mutual fund personal loan etc. In February 2008 they launched reverse mortage for senior citizens above 60 years of age. In February 14 2008 the company incorporated LICHFL Asset Management Company Private Limited for undertaking the business of managing advising administering venture funds unit trust investment trust in India as well as abroad. In March 5 2008 the company incorporated LICHFL Trustee Company Private Limited for undertaking the business of trustees of venture capital trust funds - in India and offshore fund. In March 12 2008 they launched a new
venture capital fund for realty projects. During the year 2009-10 the company was awarded the 'Second Best Home Loan Provider' award by Outlook Profit. During the year 2010-11 the company launched a unique interest rate scheme namely 'MINI 5' to cater to housing finance needs of the priority sector population residing in Tier II and Tier III cities.On 6 September 2010 LIC Housing Finance announced that it is applying for a license with the Pension Fund Regulatory Development Authority (PFRDA) to act as Aggregator under the National Pension System (NPS) - Lite.The Board of Directors of LIC Housing Finance at its meeting held on 27 October 2010 approved subdivision of Equity shares of the Company of Rs. 10/each into 5 equity shares of Rs. 2/- each. In 2011 LIC Housing Finance crossed Rs 50000 crore loan portfolio milestone. On 21 March 2012 LIC Housing Finance completed allotment of 3 crore equity shares to LIC of India the promoter of the company on preferential allotment basis at issue price of Rs 270 per share. In 2013 the company crossed Rs 1000 crore profit and Rs 75000 crore cror e assets mark. In 2015 the company compan y crossed Rs 1 lakh crore loan portfolio mark. The Board of Directors of LIC Housing Finance at its meeting held on 15 December 2015 approved the proposal to acquire upto 19.3% in the paid up Equity Share Capital of LIC Nomura Mutual Fund Asset Management Company Limited from Nomura Asset Management Strategic Investment Pte Ltd for a consideration not exceeding Rs 27.36 crore and upto 19.3% in the paid up Equity Share Capital of LIC Nomura Mutual Fund Trustee Company Private Ltd. for a consideration not exceeding Rs 1.52 lakh.In 2017 LIC Housing Finance crossed Rs 1.5 lakh crore assets mark.
PRODUCTS AND SURVICES SURVICES PROVIDED BY LIC HOUSING FINANCE DEPOSITS:
Sanchay Public Deposit Schemes
Deposit scheme is available for Individuals, limited and private limited companies, Non-Resident Indians and Cooperative societies societies and Association of persons.
Minimum deposit of Rs.10000 and additional increment should be in multiples of Rs.1000.
The interest payable is compounded annually on 31 st March.
Rate of interest varies based on the term of deposits.
The senior citizens are paid additional 0.10% on the deposits of up to Rs.50000 and 0.25% on deposits of Rs.51000 and above.
LOANS:
LOANS AGAINST PROPERTY FOR INDIVIDUALS
Loans is provided for the following purposes
Children’s education and marriage.
Business expansion
Purchase of property
The minimum amount of loan is Rs.200000.
The term of loan is maximum 15 years.
The loan is repayable in monthly installments.
Loans are provided against
The equitable or registered mortgage of the property. The property should not be more than 35 years old.
Demand promissory notes.
The upfront fees are 0.01%+ service tax as applicable
The loan is only for resident individuals.
LOANS AGAINST RENTAL SECURITIZATION
This loan is provided to the listed and unlisted companies against the security of the Commercial properties owned by them like office premises or land or property to be purchased by them.
Loan can be utilized for the purpose of existing loans, takeovers or for the purchase of fixed assets.
Loans are provided only for the properties which are fully completed.
Loans are given for the term of 10 years.
LOANS AGAINST PROPERTY NON-RETAIL LOAN
This loan is provided to the listed and unlisted companies against the security of the Commercial properties owned by them like office premises or land or property to be purchased by them.
Loan can be utilized for the purpose of existing loans, takeovers or for th e purchase of fixed assets.
Loans are provided only for the properties which are fully completed.
Loans are given for the term of 10 years.
LOAN AGAINST SECURITIES
Loans are provided against the deposits made in nationalized banks, deposits in postoffices like NSC certificates, KisanVikas Patra etc. and LIC policies having surrender value.
Loan is provided only upto the 95% of the face value valu e of the securities and the surrender surrende r value of the policies.
Minimum loan amount given is Rs.50000
Maximum term for the loan is upto 20 years.
The loans can be clubbed together with the other home other home loans taken.
LOANS TO PROFESSIONALS
Loans are provided for purchasing, extending, modifying of the commercial properties owned by them for their professional practices and can be used for buying any sort of equipments.
Resident Indian professional are only eligible for this loan, companies or partnership firms associated with the professionals are also eligible for the loan.
The term of loan is of 10 years.
Payment mode of the loan is through EMI.
The securities that can be given against the loans are: propert y against which the loan is taken. 1. Equitable or registered mortgage of the property 2. Demand promissory notes. 3. Guarantee of the Directors or the partners of the company or the firms.
4. In case of the companies the R.O.C is also required. 5. Additional securities are also given if the equipments of the firm is also
financed. 6. Interest rate has to be confirmed from the nearest centers
HOME LOANS TO INDIVIDUALS
This loan is given to the individuals for the PURCHASE/CONSTRUCTION/EXTENSION of a new or existing property.
The minimum loan amount is Rs.100000
The loan is sanctioned according to the property cost.
1. 85% of the total cost of the property including stamp-duty and registration charges upto
the loan of 20 lacs. 2. 80% of the total cost of the property including stamp-duty and registration charges upto
the loan of 20lacs-75 lacs. 3. 75% of the total cost of the property including stamp-duty and registration charges for
the loan above Rs.75 lacs.
Maximum term of loan is 30 years for salaried and 20 years for the self-employed.
Repayable mode is through EMI.
The interest rate has to be confirmed from the nearest office.
The upfront fees have to be confirmed as it is revised time to time.
HOME LOANS TO NON-RESIDENT INDIANS
This facility is available to the salaried individual having the status of NRI/PIO for PURCHASE/COSTRUCTION PURCHASE/COSTRU CTION /EXTENSION of a new or an existing property.
The minimum loan amount is Rs.100000 The loan is sanctioned according to the property cost:
1. 85% of the total cost of the property including stamp-duty and registration charges upto
the loan of 20 lacs. 2. 80% of the total cost of the property including stamp-duty and registration charges upto
the loan of 20lacs-75 lacs.
3. 75% of the total cost of the property including stamp-duty and registration charges for
the loan above Rs.75 lacs.
Maximum term of loan for professionals is 15 years and for others is 10 years.
Repayable mode is through EMI.
Interest rates have to be confirmed from nearby centers.
Upfront fees is payable at prevailing rates.
HOME LOANS TO PENSIONERS
Loans under this scheme are given to the pensioners before retirement for purchasing construction or extension of a house or a flat. The person should be 50 years or above of age and is governed under a pension scheme on retirement. The loan term is 15 years or 70 years of age whichever is earlier. An undertaking letter has to be given for the 30% of the loan or the amount decided by the Area officer which will be paid out of the retirement benefits. Loans can also be availed after retirement for the same s ame purpose if the person has a stable income throughout his life can apply for this loan. The loan has to be paid before 70 years of age. And the loan requires a guarantor.
COMPANY PROFILE OF RELIANCE CAPITAL: Reliance Capital Limited is a non-banking financial services company. The Company has interests in asset management and mutual funds, pension funds, life and general insurance, commercial finance, home finance, stock broking services, wealth management services, financial products distribution, asset reconstruction and other activities in the financial services sector. The Company's segments include Finance & Investments, which includes the corporate lending and investment activities; Asset Management, which includes asset management activities, including mutual fund and portfolio management services; General Insurance, which includes the general insurance business; Life Insurance, which includes the life insurance business; Commercial Finance, which includes the consumer finance and home
finance businesses, and Others, which includes other financial and allied services. It also offers mortgages, small and medium enterprises (SME) loans, vehicle loans and infrastructure loans.
RELIANCE CAPITAL LTD. (RELCAPITAL) - COMPANY HISTORY Reliance Capital Ltd a part of the Reliance Anil Dhirubhai Ambani Group is one of India's leading private sector financial services companies. Reliance Capital is primarily a holding company holding investments in its subsidiaries associates and other group companies. Reliance Capital has interests in asset management and mutual fund life and general insurance commercial and home finance stock broking wealth management services distribution of financial products asset reconstruction proprietary investments and other activities in financial services. Reliance Capital Ltd was incorporated in year 1986 at Ahmedabad in Gujarat with the name Reliance Capital & Finance Trust Ltd. The company entered the capital market with the maiden issue in the year 1990. Initially the company engaged in steady annuity yielding businesses such as leasing bill discounting and intercorporate deposits. In the year 1993 the company diversified their business in the areas of portfolio investment investmen t lending against securities secur ities custodial services serv ices money market operations operation s project finance advisory adviso ry services and investment invest ment banking. In January Januar y 5 1995 the company changed their name from Reliance Capital & Finance Trust Ltd to Reliance Capital Ltd. In December 1998 they obtained their registration as a Non-banking Finance Company (NBFC). During the year 2001-02 the company took a new strategic initiative by entering into the life insurance and general insurance business. They made investments in Reliance General Insurance Company Ltd and Reliance Life Insurance Company Ltd by virtue of which the said two companies became the subsidiaries of the company. Also, they divested their holding in Observer Network Pvt Ltd and Reliance Net Ltd and thus the said two companies ceased to be the subsidiaries of the th e company. The company shifted their th eir registered office to Jamnagar Jamna gar in Gujarat.During the year 2005-06 Reliance Asset Management (Mauritius) Ltd and Reliance Asset Management (Singapore) Pte Ltd became subsidiaries of the company. The company along with their affiliate Reliance Land Pvt Ltd acquired the controlling stake in Adlabs Films Ltd a leading company engaged in the entertainment sector. Pursuant to such acquisition the company and Reliance Land Pvt Ltd became Promoters of Adlabs Films Ltd.During the year the company acquired AMP Sanmar Life Insurance Company Limited with the approval of Insurance Regulatory and Development Authority (IRDA) which enabled the company to enter the exciting growth area of life insurance. Pursuant to the
acquisition AMP Sanmar Life Insurance was renamed as Reliance Life Insurance Company Ltd. They shifted their registered office to Mumbai in Maharashtra.During the year 2006-07 Reliance Venture Venture Asset Management Pvt Ltd Travelmate Services (India) (India ) Pvt Ltd Medybiz Med ybiz Pvt Ltd Net Logistics Pvt Ltd Reliance Capital Research Pvt Ltd and Reliance Technology Ventures Pvt Ltd became subsidiaries of the company. As per the scheme of amalgamation Reliance Capital Ventures Ventures Ltd was amalgamated with the company. Reliance Mutual Fund launched 6 new schemes and they increased the number of branches from 81 to 123. In the Reliance Life Insurance, the distribution network was increased to 217 branches as against 153 branches. Also, Reliance Life Insurance Company Ltd secured the approval of the Insurance Regulatory & Development Authority (IRDA) to start an additional 130 branches. Reliance Asset Management (Singapore) Pte Ltd a wholly owned subsidiary of company received approval from the SEBI and the Monetary Authority of Singapore to commence operations. In February 2007 the first fund of this subsidiary India Equity Growth Fund commenced operations. In April 2007 the company formally launched Reliance Money a comprehensive online financial services and solutions portal which provides the customers with investment and trading access to equities equity options commodities futures mutual funds IPOs life and general insurance products offshore investments and credit cards. The range of offerings the ease of access and the sheer technological edge which Reliance Money brings is unparalleled in the history of the Indian Indi an financial and capital capit al markets. During the year 2007-08 Reliance Capital Markets Pvt. Ltd. and Reliance Asset Management (UK) Plc became subsidiaries of the th e company. Reliance Mutual Fund launched 6 new schemes Reliance Auto Invest Plan Reliance Secure Child Plan (unit linked plan) Reliance Wealth + Health Plan (unit linked plan) and Reliance Total Investment Plan Series (Retirement and unit linked insurance plan) and Group Leave encashment plan. Reliance Money made tie ups with global partners pa rtners like Reuters Vasco Vasco Valcambi Valcambi Webaroo World World Gold Council and Wincor Nixdorf to provide the customers cu stomers better access and wider choice of quality qualit y global products. In May 2007 Reliance Consumer Finance commenced operations. Thus, the company entered into the fast-expanding consumer finance segment with a wide range of products which includes personal loans vehicle loans (cars and commercial vehicles) home loans loan against property and SME loans. In November 2007 200 7 Global fund management house hou se Eton Park bought 4.76% equity stake stak e in the Asset Management Company. Company. In January 2008 RCAM launched a new fund - Reliance Natural Resources Fund. In February 2008 the company received approval from Reserve Bank of India to commence the business of asset
reconstruction.During the year 2008-09 Reliance Consultants (Mauritius) Ltd Reliance Equities International Pvt Ltd Reliance Home Finance Pvt Ltd Reliance Capital Services Pvt Ltd Reliance Capital (Singapore) Pte Ltd Reliance Consumer Finance Pvt Ltd Reliance Securities Ltd Reliance Prime International Ltd Reliance Commodities Ltd Reliance Financial Ltd Reliance Alternative Investments Services Pvt Ltd and Reliance Capital Pension Fund Ltd became subsidiaries of the company. In January 2009 Reliance ARC acquired 2 NPAs from Dena Bank for an aggregate acquisition price of over Rs 2 crore. During the year Reliance Capital Asset Management received approval from Malaysian Authorities to start operations in Malaysia. Also, RCAM received approval from the Financial Services Authority in United Kingdom to commence investment advisory operations in the United Kingdom. Reliance Life Insurance launched 89 new life insurance policies namely Reliance Super Sup er Invest Assure plan Reliance Super Invest Assure Plus Plan Reliance Guaranteed Return Plan Series I Insurance Reliance Guaranteed Return Plan Series I Pension Reliance Group Savings Linked Insurance Plan Reliance Group Credit Shield Plan Reliance Imaan Investment Plan and Reliance Savings Linked Insurance Plan.During the year 2009-10 Reliance Asset Management (Malaysia) SDN BHD became subsidiary of the company. Reliance Mutual Fund launched a new product feature - 'Reliance Smart Step'. Reliance Life Insurance launched five new life insurance policies namely Reliance Jan Samriddhi Plan Reliance Traditional Group Gratuity Plan Reliance Traditional Super Invest Assure Plan Reliance Life Highest NAV NAV Guarantee Plan and Reliance Reli ance Life Super Golden Golde n Years Senior Citizen Term 10 plans. In May Ma y 2009 Reliance Mutual Fund launched a new fund - Reliance Infrastructure Fund. Reliance Spot Exchange is a new initiative of the company in the exchange space by setting up modern exchanges in various segments. They commenced operations by launching Reliance Spot Exchange (RSX) in October 2009. In June 2010 the company transferred their Consumer Finance Division (CFD) business to two of their wholly owned subsidiaries namely Reliance Home Finance Pvt Ltd (RHFPL) and Reliance Consumer Finance Pvt Ltd (RCFPL) with effect from April 01 2010.During the year 2010-11 Reliance Exchangenext Ltd Reliance Spot Exchange Infrastructure Ltd Quant Capital Pvt Ltd Quant Broking Pvt Ltd Quant Securities Pvt Ltd Quant Commodities Pvt Ltd Quant Commodity Broking Pvt Ltd Quant Capital Advisors Pvt Ltd Quant Capital Finance and Investments Pvt Ltd Reliance Wealth Management Ltd Quant Investment Services Pvt Ltd Qoppa Trading Pvt Ltd and Valankulam Investments & Trading Pvt Ltd became subsidiaries of the company. Also, Medybiz Pvt Ltd Net Logistics Pvt Ltd and Reliance Capital Services
Pvt Ltd ceased to be subsidiaries of the company. During the year Reliance Commercial Finance Pvt Ltd (RCFPL) a wholly owned subsidiary of the company was amalgamated with the company with effect from April 1 2010. In June 2010 the Brokerage and Financial Services Business of Reliance Equities International Pvt Ltd was demerged into Quant Broking Pvt Ltd with effect from April 1 2009. In February 2011 the Infrastructure Division of Reliance Money Infrastructure Pvt Ltd was demerged into Reliance Capital Asset Management Company Ltd. In October 2011 the company completed the sale of a 26% stake in Reliance Life Insurance to Nippon Life Insurance Company for a consideration of Rs 3062 crore. In February 2012 the Company through their wholly owned subsidiary Sun International (South Africa) Ltd acquired additional interest in Real Africa Holdings Ltd subsequently increasing their ownership to 99%. In March 2012 Nippon Life Insurance Company signed final agreements with the company to acquire 26% stake in Reliance Capital Asset Management (RCAM) India's profitable Asset Management Company (AMC). On 17 August 2012 Reliance Capital announced completion of transaction for sale of 26 per cent stake in Reliance Capital Asset Management (RCAM) to Nippon Life Insurance.On 1 February 2013 Reliance Capital Asset Management Singapore (RCAMS) a subsidiary of Reliance Capital Asset Management (RCAM) India announced that the company has crossed US$ 1 billion AUM milestones in its offshore funds.On 21 June 2013 Reliance Capital announced major decisions to support Government's objective of curbing gold imports. Reliance Capital announced that it has decided to suspend sale of gold in physical form (including inter alia supply of gold coins for sale through India Post) and also as an investment product across all its businesses and subsidiaries. In addition, Reliance Capital's Commercial Finance Division has decided to suspend financing against gold as a security. Further Reliance Capital Asset Management (RCAM) a part of Reliance Capital has decided to suspend new subscriptions in Reliance Gold Savings Fund. Existing SIP investors will not be affected by this decision. decision . On 12 March 2015 Sumitomo Mitsui Trust Bank Limited of Japan completed acquisition of 2.77 per cent strategic stake in Reliance Capital. Sumitomo Mitsui Trust Bank has acquired an initial 2.77 percent strategic stake in Reliance Capital amounting to Rs 371 crore (US$ 58.4 million) through preferential allotment with a lock-in period of one year. The investment has been made at Rs 530 per share. shar e. As part of the agreement Reliance Capital intends to establish a new bank in India with support of Sumitomo Mitsui Trust Bank as strategic partner as and when RBI's policies permit formation of the same. Both companies will also collaborate in providing solutions for their clients
including inter alia in the area of M&A opportunities in India and Japan and will assist each other in distribution of their respective financial products through their networks. Sumitomo Mitsui Trust Group is the fourth largest bank in Japan (in terms of market capitalization and corporate loans) and Japan's largest financial institution managing assets of US$ 682 billion with assets under custody of US$ 1.8 trillion as of September 30 2014.On 3 June 2015 Gujarat International Finance Tec-City (GIFT) a Government of Gujarat project announced the allotment of 5 lakh sq ft of space to Anil Ambani led Reliance Capital Limited (RCL). The company was allotted this space in the International Finance Service Centre (IFSC) Special Economic Zone being set up under the GIFT project. This is the largest space taken by any private sector company co mpany in IFSC under GIFT till date. On 4 August 2015 Reliance MediaWorks Ltd. (RMW) announced the completion of the transaction for sale of its multiplexes business to Carnival Cinemas Ltd. in the largest ever deal in the sector in India. The sales proceeds will be used to reduce Reliance Capital's leverage by approx. Rs. 700 crore through a combination of transfer of debt of RMW and infusion of cash proceeds. The transaction is in furtherance of Reliance Capital's stated objective of focusing purely on its core financial services businesses significantly reducing exposure to non-core investments in the media and entertainment sector and reducing overall debt. On 21 October 2015 Reliance Capital Asset Management (RCAM) a part of Anil Ambani led Reliance Capital signed definitive agreements to acquire Goldman Sachs Asset Management's (GSAM) onshore business in India. Reliance Capital Capi tal Asset Management will pay a total sum of Rs 243 crore (US$ 37.5 million) in cash to acquire all onshore mutual fund schemes including exchange traded funds of GSAM India.On 17 March 2016 Reliance Capital announced the completion of the transaction for receipt of approx. Rs 1200 crore (US$ 180 million) from Nippon Life Insurance for additional 14 per cent stake sale in Reliance Capital Asset Management (RCAM). Nippon Life Insurance (NLI) a Fortune 500 company and one of the largest life insurers in the world now becomes a co-sponsor of Reliance Mutual Fund along with Reliance Capital and will own 49 per cent in Reliance Capital Asset Management. In line with the new shareholding the name of Reliance Capital Asset Management would be changed to Reliance Nippon Life Asset Management.On 30 March 2016 Reliance Capital announced the completion of additional 23 per cent stake sale in Reliance Life Insurance to Nippon Life Insurance. Nippon Life Insurance now holds 49 per p er cent stake in Reliance Life Insurance. In line with the new shareholding Reliance Life Insurance will be renamed as Reliance Nippon Life Insurance Company.On 23 November 2016 Reliance Capital
announced value unlocking in the Radio and TV businesses that will reduce its debt by approx. Rs 1900 crore (US$ 283 million) upon final completion of stake sale transactions. These transactions form part of Reliance Capital's stated strategy to reduce leverage and exposure in non-core business of media and entertainment. Reliance Broadcast Network Limited (RBNL) the largest operator of FM channels in India has signed definitive and binding agreements with Zee Media Corporation Limited (ZMCL) to sell 49% stake stak e in its radio broadcast business. Simultaneously Zee Entertainment Enterprises Ltd (ZEEL) a separate entity under Zee Group will acquire 100% stake in the Group's General Entertainment TV business. The transaction pegs the combined Enterprise value of Radio and TV business at approx. Rs 1900 crore (US$ 283 million). On 16 March 2017 Reliance Capital Limited (RCL) announced plans to separate out its retail Health Insurance business from its General Insurance business into a standalone wholly owned subsidiary. The Board of Directors of Reliance General Insurance Company Limited (RGIL) a subsidiary of Reliance Capital Limited (RCL) has approved this proposal subject to necessary IRDA and other approvals. Reliance Health Insurance Ltd. the proposed new company for Health Insurance business will be a wholly wholl y owned subsidiary of Reliance CapitalOn Capit alOn 24 March 2017 Reliance Capital announced completion of transfer of its commercial finance division - Reliance Commercial Finance Limited (RCFL) - into a separate wholly owned subsidiary. RCFL is amongst the leading SME lenders in the Indian non-banking finance space with a focus on asset backed lending and productive asset creation. The Commercial Finance division has an aggregate asset under management (including securitized portfolio) portfolio of Rs 16191 crore (US$ 2.4 billion) as of 31 December 2016.On 3 July 2017 Billionloans Financial Services Pvt. Ltd. (Billionloans) announced that it had closed a seed funding round of approximately Rs 7 crore (US$ 1 million) from Reliance Corporate Advisory Services Limited a wholly-owned subsidiary of Reliance Capital. Billionloans is a technology-enabled financial services company focused on providing flexible and affordable financing options to individuals and small businesses that have so far found it difficult to access loans from the traditional banking system to meet their aspirationsOn 13 July 2017 Reliance Capital Ltd. announced that it has received Rs 378 crore from Nippon Life Insurance (NLI) a Fortune 500 company and one of the largest life insurers in the world upon completion of the transaction for increasing NLI's equity stake in Reliance Nippon Life Asset Management Limited (RNAM) to 49%. RNAM is the largest asset manager in India in terms of AUM managing Rs. 358059 crores (US$ 55.2 Billion) as of 31 March 2017 across mutual funds pension funds
managed accounts and offshore funds. On 22 September 2017 shares of Reliance Home Finance Ltd. were listed liste d on BSE and NSE consequent consequ ent to a Scheme of Arrangement. As per the Scheme shareholders of Reliance Capital were allotted one share free of cost in Reliance Home Finance for every one share held in Reliance Capital on record date. Reliance Home Finance Limited (RHFL) provides a wide range of solutions like home loans LAP Construction finance and Affordable housing loans. The company also provides property solutions' services that help customers find their dream homes/property along with financing. The company has a strong distribution network with over 1750 distributors serving over 36000 customers across more than 100 locations through a hub and spoke model across the country. Reliance Home Finance Limited is a subsidiary of Reliance Capital.Reliance Money a brand by Reliance Commercial Finance Limited (RCFL) a subsidiary of Reliance Capital Limited announced on 9 October 2017 that it has signed an agreement with Indian Renewable Energy Development Agency Limited (IREDA) to receive funding of Rs 300 3 00 crore. IREDA is a Government of India Enterprise under the administrative control of Ministry of New and Renewable Energy (MNRE). This loan assistance offered by IREDA will be utilized by Reliance Commercial Finance Limited for lending to its renewable energy and energy efficiency projects.In late October 2017 Reliance Nippon Life Asset Management successfully completed an initial public offer (IPO). The IPO was a mix of a fresh issue of up to 2.44 crore equity shares by the company and an offer for sale of up to 3.67 crore equity shares by Reliance Capital Limited and Nippon Life Insurance Company the promoter selling shareholders. On 17 November 2017 Reliance General Insurance Company Limited (RGI) announced that it has signed a comprehensive Bancassurance - Corporate Agency agreement with Yes Bank India's 5th largest private sector bank with the objective to distribute multiple general insurance products to the customers of Yes Bank further augmenting its distribution network. Reliance General Insurance Company Ltd (RGI) a 100% subsidiary of Reliance Capital Limited.
PRODUCTS OF RELIANCE FINANCE
Reliance finance has business in
Assets management
Mutual funds
Life insurance and general insurance
Commercial finance
Home finance
Stock broking
Weath management services
Distribution of financial products
Private equity
Assets reconstruction
Proprietary investment and
Other activities in finance.
CHAPTER-3 LITERATURE LITERATURE REVIEW
IMPORTANCE OF NBFC’S According to RBI Non-Banking Finance Companies (NBFCs) is a constituent of the institutional structure of the organized financial system in India. NBFCs perform a significant and important role in our financial system. They facilitate the process of channelising of public savings and provide better return to the depositors. We are aware that due to liberalization and globalisation, banking industry and financial sector has gone through many reforms. In the present economic environment, it is very ver y difficult to cater need of society by Banks alone so role of Non-Banking Finance Companies and Micro Finance Companies become indispensable. The activities of non-banking financial companies (NBFCs) in India have undergone qualitative changes over the years through functional specialisation. The role of NBFCs as effective financial intermediaries has been well recognised as they have inherent ability to take quicker decisions, assume greater risks, and customise their services and charges more according to the needs of the clients. While these features, as compared to the banks, have contributed to the proliferation of NBFCs, their flexible structures allow them to unbundle services provided by banks and market the components on a competitive basis. The distinction between banks and non-banks has been gradually getting blurred since both the segments of the financial system engage themselves in many similar types of activities. At present, NBFCs in India have become prominent in a wide range of activities like hire-purchase finance, equipment lease finance, loans, investments, etc. By employing innovative marketing strategies and devising tailor-made products, NBFCs have also been able to build up a clientele base among the depositors, mop up public savings and command large resources as reflected in the growth of their deposits from public, shareholders, directors and their companies, and borrowings by issue of non-convertible debentures, etc. According to KPMG survey The Indian Non-Banking Finance Company (NBFC) sector has often been relegated to the shadows, in most discuss ions on the Indian Financial Services (FS) industry. Banks, insurance companies and capital market players take centre stage and invariably, NBFCs attract public attention only during times of crisis. Little attention has been paid to the silent but effective manner in which NBFCs have spread their operations across the country. NBFCs have provided financial solutions to sections of society who hitherto were at the mercy of unorganized players for credit and savings products, which were delivered on economically and socially usurious terms. ronically, in recent times, NBFCs are once again in
the spotlight for their perceived strengths and capabilities rather than their problems. While this re-rating ought to bring cheer to a much-maligned sector, a degree of caution needs to be instilled within potential investors in NBFCs, who need to clearly understand the true drivers of value for finance companies. This understanding is imperative to enable a better judgment of the intrinsic worth of NBFCs. This article proceeds to illustrate the key factors responsible for the strong re-rating of the NBFC sector, as well as discuss the validity of each of these factors, as actual drivers of value. Today, the NBFC sector is as financially sound as it has ever been. To an extent, this can be attributed to the very problems affecting the sector which have resulted in the purging of several players, leaving the fittest few to dominate the landscape. Taking the Reserve Bank of India ‘s (RBI) definition of ‗reporting NBFC’s as a proxy for nondormant players, a mere 24 NBFCs held 92.7 percent of the total assets of all NBFCs in 20052006. The balance assets, amounting to less than 8 percent of the total, were f ragmented across 439 NBFCs. In addition to this consolidation, at present, NBFCs in general are well-capitalized with strong parent support. A majority of active NBFCs reported capital adequacy ratios exceeding 12 percent
ROLE OF NBFC’S
According to EPW Research Foundation (EPWRF The Indian economy is going through a period of rapid `financial liberalisation'. Today, the `intermediation' is i s being conducted by a wide range of financial institution through a plethora of customer friendly financial products. The segment consisting of Non-Banking Financial Companies (NBFCs), such as equipment leasing/hire purchase finance, loan and investment companies, etc. have made great strides in recent years and are meeting the diverse financial needs of the economy. In this process, they have influenced the direction of savings and investment. The resultant capital formation is important for our economic growth and development. Thus, from both the macroeconomic perspective and the structure of the Indian financial system, the role of NBFCs has become increasingly important. The crucial role of Non-Banking Finance Institutions (NBFIs) in broadening access to financial services, and enhancing competition and diversification of the financial sector has been well recognized. The main advantages of these companies lie in their ability to lower transactions costs of their operations, their quick decision-making ability, customer orientation and prompt provision of services. While NBFIs are sometimes seen as akin to banks in terms of the products and services offered, this is strictly not accurate, as more often, NBFIs play a range of roles that complement banks. Further, Status Note on NBFCs
NBFIs can add to t o economic strength to the extent they t hey enhance the resilience of the financial system to economic shocks. A well developed and properly regulated NBFI sector is thus an important component of broad, balanced, efficient financial system that spreads risks and provides a sound base for economic growth growth and prosperity.
ON GLOBAL CRISIS
According to CARE: NBFC sector faced significant stresses on asset quality, liquidity and funding costs due to the global economic slowdown & its impact on the domestic economy. While all the NBFCs were affected, the impact varied according to the structural features of each NBFC. Asset-liability maturity (ALM) profiles, type of assets financed and origination / collection models followed were the primary differentiators within NBFCs. The support provided by the Reserve Bank of India (RBI) highlighted the explicit acceptance of the systemic importance of the sector. FY10 was marked by re-aligning of the liability profiles, tightening of lending norms coupled with closing down of many of the unsecured loan segments. On a structural basis, the sector is now more robust due to the lessons learned by NBFCs from this crisis. Profitability is expected to be lower than historical levels due to conservative ALM management, higher provisioning and avoidance of high yielding unsecured loan segments. However, profits are at the same time expected to be much more stable & less susceptible.
CHAPTER -4 RESEARCH METHODOLOGY
Research Redman and Mory define research as a “systemized effort to gain new knowledge.” Some people consider research as a movement, a movement from the known known to the unknown. Research is an academic activity and as such the term should be used in a technical sense. According to Clifford Woody, research comprises defining and redefining problems, formulating hypothesis or suggested solutions; collecting, organizing and evaluating data; making deductions and reaching conclusions; and at last carefully testing the conclusions to determine whether they fit the formulating hypothesis.
Research Methodology Research methodology is a way to systematically study &solve the research problems. If research wants to claim his study as a good study. He must clearly state the methodology adopted in conducting the research so that it may be judged by the reader whether the methodology of work done is so or not.
OBJECTIVE OF THE STUDY The confined objectives of the present study are:
To analyze the market of NBFC ‘s in India
To study the financials of NBFC ‘s
RESEARCH DESIGN The formidable problem that follows the task of defining the research problem is the preparation of the design of the research project, popularly known as “Research Design”. Research design is a plan, structure and strategy of investigation conceived to obtain answers to research questions and to control variance. The research used here is descriptive research.
METHOD OF DAT DATA COLLECTION COLLECTIO N Information can be collected through both primary and secondary sources. Primary Data: In some cases, the researchers may realize the need for collecting the first-h and
information. As in the case of everyday life, if we want to have first-hand information or any
happening or event, we either ask someone who knows about it or we observe it ourselves, we do the both. Thus, the two methods by which primary data can be collected is observation and questionnaire. Secondary Data: Any data, which have been gathered earlier for some other purpose, are
secondary data in the hands of researcher. Those data collected first hand, either by the researcher or by someone else, especially for the purpose of the study is known as primary data.
The data collected for this project has been taken from the secondary source. Sources of secondary data are:
Internet
Magazines
Publications
Newspapers
Brouchers
Limitation of the Study:
Although the project aims data making in depth study of loan process at AU Finance but there is some practical limitation regarding the methodology followed & the overall procedure these can be summed up under the following points:
The study is limited to the comparative study of nbfc.
The study is based on secondary data available from monthly fact sheets, websites and other books.
As the study was for short span i.e., 3 years and due to lack of time other areas could not be well focused.
No direct access to company data. data .
CHAPTER-5 DATA ANALYSYS AND INTERPRETATION
NET PROFIT MARGIN
Year
Reliance capital
LIC housing finance
2015-16
21.14
13.80
2016-17
13.29 25.28
2017-18
25.28
13.29
30 25 20 15 10 5 0 2015-16
2016-17 Reli Re lian ance ce ca capi pita tall
2017-18
LIC LI C hous housiing fi fina nanc nce e
INTERPRET INTERPRE TATION: Net profit margin of Reliance capital and LIC Housing finance is 21.14 and 13.80 1 3.80 respectively in year 2015-16. In year 2016-17 it is 25.28 and 3.29 respectively. And in the year 2017-18 it is 25.28 and 13.29 which is same as previous year.
SHAREHOLDER FUNDS Year
Reliance capital
LIC housing finance
2015-16
253.00
101.00
2016-17
101.00 253.00
2017-18
253.00
101.00
300 250 200 150 100 50 0 YEAR
Reliance capital
LIC housing finance
INTERPRETATION: Shareholders fund is remain same in all the three years which is 253.00 of Reliance and 101.00 of LIC. It is constant in all three financial years.
NON CURRENT LIABILITIES. Year
Reliance capital
LIC housing finance
2015-16
13795.00
113628.24
2016-17
13909.00
106834.27
2017-18
18552.00
93141.07
120000 100000 80000 60000 40000 20000 0 year
2015-16 Series1 Series2 2016-17 Series3
2017-18
INTERPRET INTERPRE TATION: Non - current liabilities of Reliance and LIC is 13795.00 and an d 113628.24 respectively in year 2015-16. In the year 2016-17 it is 13909.00 and 106834.27 respectively. And in the year 2017-18 it is 18552.00 and 93141.07.
CURRENT ASSETS Year
Reliance capital
LIC housing finance
2015-16
91.00
92.65
2016-17
96.02 130.00
2017-18
179.00
97.12
180 160 140 120 100 80 60 40 20 0 YEAR
2015-16 Series1
Series2
2016-17 Series3
2017-18 Series4
INTERPRET INTERPRE TATION: Current Assets of Reliance and LIC is 91.00 and 92.65 respectively in the year 2015-16. In the year 2016-17 it is 130.00 and 96.02 respectively. And in the year 2017-18 it is 179.00 and 97.12 respectively which is more than the previous years.
FINDINGS, RECOMMENDATION AND CONCLUSION
FINDINGS Top-rated NBFCs have not only been successful in managing their market share but also in protecting their profitability. profit ability. A combination of the factors facto rs cited earlier had helped hel ped these NBFCs earn better returns on their deployment. d eployment. In fact, almost all the top-rated t op-rated NBFCs enjoy a return on total assets that is higher than HDFC Bank's, one of the better-run banks. The higher return on assets was despite their operating cost ratio being similar to that of HDFC Bank. For example, operating expenses as a proportion of net margin worked out to 68 per cent for HDFC Bank. On an average, this was not significantly higher than the ratio for most top-rated NBFCs. If return on assets were still superior, then it was because of the higher return on their funds. For top NBFCs, the interest income worked out to 17-21 per cent of their total assets for the year ended FY. The liquidity in the banking system also helped these finance companies. Spreads over government securities for AAA rated corporate sector debt instrument are now only 50 basis points. In other words, if the cost of funds for banking companies has declined sharply, then top-rated NBFCs have also benefited from such a decline in interest rates. Some of these companies are now raising funds at 7-8 per cent.
Also, these companies have displayed the ability to manage their portfolio without large incidence of non-performing assets. For instance, LIC Housing Finance, IDFC and Shriram Transport Finance boast of net non-performing assets to net advances ratio of less than 1 per cent. This again has helped them lower the overall cost of operations and, thereby, protect their profitability. Higher profitability and innovative financing options, such as securitization, have also helped in boosting the capital adequacy ratio of these NBFCs. among others, LIC Housing Finance, IDFC and Shriram Transport Finance, Reliance Capital, boast of capital adequacy adequ acy ratios upwards of 15 per p er cent. In other words, their balance b alance sheets continue to be strong to accommodate further growth in disbursements.
Disbursements - Sharp fall during the crisis Disbursements were clearly hit during the crisis as is visible from Primary reason for this initial fall was lack of supply of funds after the market liquidity dried up. Impact however differed depending on the capital structure of the company, with NBFCs having larger ALM mismatches and those which had more dependence on mutual funds for funding were affected more severely as mutual funds themselves faced redemption pressure on their short term schemes. To support the sector, RBI undertook several measures to improve liquidity flow to the NBFC sector. This was a significant development as the regulator highlighted the
systemic importance of the sector.
RBI measures to improve liquidity of NBFCs
The systemically important non-deposit taking non-banking financial companies (NBFCs-ND-SI) were permitted to raise short-term foreign currency borrowings.
Allowed banks to avail liquidity support under the LAF for the purpose of meeting the funding requirements of NBFCs through relaxation in the maintenance of SLR up to 1.5 per cent of their NDTL.
‘expo sures to claims on NBFCs-NDSI were reduced to 100 per Risk weights on banks ‘exposures cent from 150 per cent.
Setting up of a special purpose vehicle (SPV) for a ddressing the temporary liquidity constraints of systemically important non-deposit taking non-banking financial companies (NBFCs-ND-SI).
Deferring the higher CAR norms for NBFCs-ND-SI NBFCs-ND-SI by 1 year. year. While liquidity conditions started improving from Q4 FY09, disbursements growth remained subdued for the sector till the first half of FY10. On a y-o-y basis the cumulative disbursements showed a fall during Q1 FY10 and H1 FY10. This period saw deterioration in asset quality of most NBFCs, which was especially high in their unsecured loan portfolios. Lower disbursements were mainly because of the pull back of NBFCs out of unsecured lending segments. On a cumulative basis 9ME FY10 disbursements increased by more than 19%. Even if we consider the low base effe ct of Q3FY09 disbursements, there is clear indication of pick up in disbursements and a positive outlook for the sector. With improvement in overall economic activity and higher thrust on infrastructure financing by the government, the scenario is expected to improve further in FY11.
Cost of Funding - Shot up during the crisis due to short tenure borrowings, stabilized now & expected to be less volatile due to larger proportion of long-term funding Many NBFCs took advantage of the lower interest rate regime at the shorter end of the yield curve by borrowing short term funds (3months – 1 year) at lower rates and lending for maturities ranging from 3-4 years at higher rates. However, the level of mismatches differed between NBFCs and those with higher mismatch faced f aced not only liquidity liqui dity pressure, but their cost of funding also increased during this period due to inversing of the yield curve and a
general rise in interest rates. Average borrowings costs1 (on an aggregate basis for CARE rated NBFCs) increased from around 9.5-10.0% in FY08 to 11.5-12.0% in FY09. This shows the severity of the impact as financial crisis affected funding costs in the second half of FY09 and led to a 200 bps increase for the entire year. The response by NBFCs was to gradually replace short term funding with long termsources. This is a significant structural change in the borrowing profiles that will bring more stability in profitability of the sector. However, spreads will also be lower compared to historical levels due to this change. During the 9ME FY10 cost of borrowing reduced from the average of 11.5-12.0% of FY09 to 10.2 10.5% for the 9-month period and is expected to remain around these levels for FY10. This however is still higher than the FY08 levels due to the structural move towards longer term borrowings.
Asset Quality – Deteriorated more due to unsecured loans which is now virtually stopped by most players, provisioning has improved & asset quality expected not to worsen further . Asset quality for the sector deteriorated significantly during the crisis. Aggregate Gross NPA ratio trended from around 1.1% for FY08 to around 2.1% in FY09. While there was deterioration in all asset classes, unsecured asset classes (Personal Loans, Unsecured SME loans) showed the maximum deterioration and were the key drivers for overall increase in NPAs. NPAs. Apart from the asset-type asset-t ype financed, another differentiator differenti ator between asset qualities qualit ies was the origination & collection model followed. NBFC ‘s which originated majority of their portfolio through branches br anches & own employees showed better bet ter asset quality performance performan ce than those which used the DSA model. Aggregate Gross NPA ratio has further worsened to 3.0% at the end of 9M FY10, however it is close to peaking out. De-growth in unsecured portfolio segment has also lowered the portfolio outstanding growth thereby leading to a ‗base effect‘ on the Gross NPA ratio and adding to the rise in reported numbers. Provision coverage has increased from around 50% for FY09 to around 60% at the end of 9MFY10 as players have become more conservative. conservativ e. Unsecured lending has virtually vir tually stopped for many NBFCs and underwriting norms have also been tightened in general for other asset classes. These developments indicate positive structural changes.
RECOMMENDATION
Domestic Financial markets can be integrated by making NBFC ‘s Channel partners to Banks. It will help in better allocation and funds availabil ity. It will also help in better management of Financial services sector in India.
Enhancing the credit delivery mechanisms: The credit delivery mechanism needs to be more transparent and hassle free. There should be more stringent norms for the defaulters.
Strengthening the professionalism of NBFC sector through education and training:
NBFC‘s are organized players. Regulatory Regulator y body needs to educate people peop le about NBFC.
To reduce in interest cost and hence benefit the ultimate consumer
CONCLUSION
It is encouraging that the NBFC sector’s importance is finally being acknowledged across FS market constituents as well as the regulator. However, the importance attached to the sector is often transcending into misplaced exuberance. Over simplified and vague drivers for NBFC valuations such as strategic fit and customer base, can never substitute dispassionate business analytics. A rational assessment of the intrinsic values of NBFCs factoring issues such as past performance, structural weaknesses of the sector (for instance funding fundin g disadvantages), along alon g with an identification of real capabilities are essential to ensure that the equilibrium between price paid and value realized real ized is reached to the extent ex tent possible. In the absence absenc e of this, India is sure to witness the re-opening of the NBFC horror story albeit with a new chapter on the erosion of NBFC investment values affecting investors across categories. Ratings of the NBFCs whose profitability and asset asse t quality were affected due to the t he crisis were supported b y their strong parentage. Based on the parental strength some players have raised further equity and also managed to re-align their business models while maintaining their solvency. solvency. overall positive outlook outloo k on the sector due to the better ALM position, focus on relatively relativ ely safer asset classes and the demonstrated acceptance of the sector as systemically important by the regulator. The crisis has imposed an overall sense of ‗caution ‘even for the newer entrants in the market. Also going forward higher capital adequacy norms will put a fairly conservative cap on the leverage of the sector thereby improving the credit profile of many entities (NBFC-NDSI)
CHAPTER-7 BIBLIOGRAPHY
REFERENCES
http://www.rediff.com/money/2004/jan/07rbi.htm http://www.scribd.com/doc/22498809/Porter‘s-Five-Forces-Model-of-Competition http://www.financialexpress.com/news/Column---Why-NBFCs-may-not-want-to-be banks/614492/ banks/614492/ http://www.stockwatch.in/nbfcs-offering-high-dividends-yet-again-25964 http://www.livemint.com/2010/04/30204917/IDFC-seeks-infrastructure-NBFC.html http://www.encyclopedia.com/doc/1G1-143176307.html http://mba-bba-dissertations.blogspot.com/2010/05/capital-structure-of-indiabulls-nbfc.html http://www.nbfc.rbi.org.in http://www.rediff.com/money/2007/jul/20nbfc.htm http://www.thehindubusinessline.com/2009/11/14/stories/2009111451870100.htm http://indiabudget.nic.in/es98-99/chap35.pdf http://www.banknetindia.com/finance/fbanking.htm http://www.mydigitalfc.com/news/nbfcs-again-doling-out-higher-dividendfy10-732 www.livemint.com/2008/.../The-multiplicity-of-regulation.html fy10-732 www.livemint.com/2008/.../The-multiplicity-of-regulation.html http://www.coolavenues.com/know/fin/svs_nbfc_1.php3 www.thehindubusinessline.com/.../2005022800330800.htm
Annual Reports:
1. LIC housing finance 2.
Reliance capital
ANNEXURE
Balance Sheet of Reliance Capital
(-----------in rs crore---------------) Mar 18
Mar-17
Mar-16
12 mths
12 mths
12 mths
Equity Share Capital
253
253
253
Total Share Capital
253
253
253
Reserves and Surplus
13,915.00
13,448.00
13,028.00
Total Reserves and Surplus
13,915.00
13,448.00
13,028.00
Total Shareholders Funds
14,168.00
13,701.00
13,281.00
Long Term Borrowings
18,113.00
13,670.00
13,615.00
Deferred Tax Liabilities [Net]
18
3
0
Other Long Term Liabilities
43
13
121
Long Term Provisions
378
223
59
Total Non-Current Liabilities
18,552.00
13,909.00
13,795.00
Short Term Borrowings
467
3,423.00
3,812.00
Trade Payables
0
0
6
Other Current Liabilities
3,151.00
2,397.00
5,167.00
Short Term Provisions
14
7
293
Total Current Liabilities
3,632.00
5,827.00
9,278.00
Total Capital And Liabilities
36,352.00
33,437.00
36,354.00
Tangible Assets A ssets
90
123
155
Intangible Assets
1
7
24
EQUITIES AND LIABILITIES SHAREHOLDER'S FUNDS
NON-CURRENT LIABILITIES
CURRENT LIABILITIES
ASSETS NON-CURRENT ASSETS
Balance Sheet of LIC Housing Finance
------------------- in Rs. Cr. ------------------Mar 18
Mar-17
Mar-16
12 mths
12 mths
12 mths
Equity Share Capital
101
101
101
Total Share Capital
101
101
101
Reserves and Surplus
12,589.73
10,976.03
9,044.98
Total Reserves and Surplus
12,589.73
10,976.03
9,044.98
Total Shareholders Funds
12,690.72
11,077.03
9,145.98
Long Term Borrowings
1,10,221.88
1,03,738.89
90,658.14
Deferred Tax Liabilities [Net]
1,042.99
917.27
810.9
Other Long Term Liabilities
1,105.91
1,180.89
865.7
Long Term Provisions
1,257.45
997.23
806.33
Total Non-Current Liabilities
1,13,628.24
1,06,834.27
93,141.07
Short Term Borrowings
9,384.50
7,587.22
5,440.44
Trade Payables
61.29
58.97
41.39
Other Current Liabilities
35,968.53
25,201.60
22,268.36
Short Term Provisions
118.73
141.32
460.53
Total Current Liabilities
45,533.05
32,989.11
28,210.72
Total Capital And Liabilities
1,71,852.01
1,50,900.41
1,30,497.77
Tangible Assets
94.71
92.88
87.2
Intangible Assets
2.41
3.65
4.82
EQUITIES AND LIABILITIES SHAREHOLDER'S FUNDS
NON-CURRENT LIABILITIES
CURRENT LIABILITIES
ASSETS NON-CURRENT ASSETS
Fixed Assets
97.12
COMPANY CERTIFICATE
96.52
92.02
