39996577 non banking financial companies nbfc

8/7/2019 39996577 Non Banking Financial Companies Nbfc

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Presented By:Presented By:--

DHAVAL DESHMUKHDHAVAL DESHMUKH


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MEANING AND DEFINATION

y NBFC consist mainly of finance companies which carry on hire purchase finance,

housing finance, investment, loan, equipment leasing or mutual benefits.

y Reserve Bank(Amendment Act) 1997:- NBFC means

1. A Financial institute which is a company.

2. NBFC has its principal business as receiving of deposits under any Scheme or

arrangement or lending in any manner.


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FUNCTION OF NBFC

1. Brokers of loanable funds.

2. Mobilization Of Savings.

3. Channelization of fund into Investment.

4. Stabilize the capital market.

5. Provide Liquidity.


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TYPES OF SERVICES PROVIDED BY NBFCS

1. Hire Purchase Services.

2. Leasing Services.

3. Housing Finance Services.

4. Asset Management Company.

5. Venture Capital Companies.


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IMPORTANCE OF NBFC

1. Greater Reach.

2. Flexibility in tapping resources.

3. Retail Services to small and medium business.

4. Important Components of Financial Market.


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MINIMUM INVESTMENT BY NBFC

HAVING MULTIPLE LICENSES

Leasing

20%

HPS

20%HFS

20%

Other

40%


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RAISING FUNDS

1. Certificate of Deposits

A. NBFC Criteria1. 2 years of profitable operations

2. NBFC/directors lawful conduct3. Annual credit rating exceeds minimum Inv. Grade4. Disclosure statement to accompany application for

permission

B. Credit rating to be published in all adsC. No CoD if credit rating falls below criterion

2 Commercial paper, foreign debentures, redeemablecapital, Lines of Credit, rediscounting


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INVESTMENT IN INDIA

0%

5%

10%

15%

20%

25%

30%

35%

40%

Leasing HirePurchase

HousingFinance

Assestmanagement

VentureCapital

Investment


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PROVISIONING1. Time based Classification into:

a) Substandard(90 days),

b) doubtful(180 days); andc) Loss (1 yr, TBs 180 days, Credit Card 180 days)2. Provisioning @ 25%, 50% & 100%

3. No provisioning for Govt. guaranteed exposure

4. Additional subjective evaluation

5. Declassification of rescheduled loans

6. FSV ( other than realizable assets)

a) In case of leasing & IFS:i. Discounted for yr 1, 2 & thereafter as 80%, 70% &

50%ii. Revaluation every 3 years by independent valuer

b) In case of HFS

i. Discounting @ 70%ii. Revaluation every 10 years by independent valuer7. Types of charges

8. Quarterly credit review by NBFCs, annual by Auditors

9. Reversal of provision Cash receipt> 20%, 50%, 100% of NPL)

10. Quarterly list of delinquent / rescheduled accounts to SEC


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(I) LEASING


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An NBFC engaged in Leasing shall meet the following conditions:

Assets invested > 70% of total assets

Investment in Shares < 50% equity of NBFC

Investment in shares

Of one company < 10% equity of NBFC/Co

Lease period > 3 years

May not engage in land / residential building leases


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(II) INVESTMENT FINANCE

SERVICES


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SCOPE OF WORK AND INV. LIMITS

1. Scope of work includes:

a. Money market activities,b. Capital market activities (including managing client

portfolios)c. Project financing activities; &

d. Corporate finance servicese. General activities

2. Investment limits %age of NBFC equity

Shares < 100

Shares of1 company < 10

Equity futures < 100

Single future < 10Reverse Repo & CFS < 250

Single CFS security < 25 (i.e. 10% of above)


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CONTINUE.

3. Margin Loans

Total < 50

To 1 client < 10

(Margin shall be at least 30% of loan)

Margin loans approved according to pre- defined BoD policy

4. Underwriting commitments fully backed


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(III) HOUSING FINANCE

SERVICES


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1. Additional functions w.r.t property:

a) Mortgage finance to purchase/construct/alterproperty

b) Surveys and valuationc) Arrange insuranced) Manage mortgage investments

Investment in: LimitHFS > 70% total assetsShares < 50% NBFC equityShares of 1 co < 10% -do-Financing:One party < Rs 20 million

Total Monthly InstallmentsConsumer loan < 60% NDIDE ratio < 85:15

Period of Mortgage loan < 20 years2. Appoint Lawyer, valuer

3. Review market every quarter


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(IV) VENTURE CAPITALINVESTMENT & VCF


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Venture Capital Company

1. Exposure by NBFC to one person/group of Cos. < 40% of equity

2. Raise funds by: shares issue and private placement for VP

Venture Capital Fund

1. A Company, engaged solely in VPs with equity of Rs 50 m & managedby VCC

2. Exposure to one person/grp of Cos. < 40% of equity

3. Exposure to director < 10% of total exposure4. Each investor to invest at least Rs 1,000,000

5. Registration can be suspended by SEC for 60 days. Can lead tocancellation


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(V) ASSET MANAGEMENT

SERVICES


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ASSET MANAGEMENT SERVICES-

STRUCTURE

AMC

Fundmanager

CISRegional

CISState

CISCentral

InvestmentCommittee


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ASSET MANAGEMENT SERVICES- TERMS

AND CONDITIONS

A. Designation of qualified fund manager to manage upto 3 CIS

B. At least 1 investment Committee, formed by BoD

1. Comprise fund manager, Chief Investment Officerother Key Personnel of AMC

2. Reportable to CEO

3. Quorum for investment decisions is 2/3

4. Ensure compliance with constitutivedocuments/policies

C. AMC to fulfill SEC conditions for managing multiple CIS

D. Sharia appointed for Islamic CIS


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TRUSTEE OF A SCHEME

1. Appointed with SEC approval for each open and closed end scheme

2. Trustee to be a

a) Scheduled bank

b) Trust company

c) Foreign bank

d) CDCe) NBFC engaged in IFS

f) Other SEC approved trustee

3. Obliged to take custody of, manage, a/c for loss of property of scheme

a) Issue trustee report to form part of annual report

b) Ensure AMC/ IA has arranged for a diverse panel of brokers

c) Ensure units of open end scheme \issued after sub money receivedd) Review adequacy of AMC/IA unit value calculation

4. May retire or be removed by the NBFC

5. Will be independent of the AMC


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ASSET MANAGEMENT COMPANIES-

RESTRICTIONS & OBLIGATIONS

Restrictions:

1. Acquiring control of an investee through CIS

2. Transaction with 1 broker>10% annual brokerageexp

3. Accepting deposits from CIS

4. Loans from CIS assets

5. Undertake brokerage services

6. Enter underwriting contracts, invest in CIS except asallowed


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OPEN & CLOSED END SCHEMES

1. Registration as a notified entity

a) Application to be accompanied also by undertaking of AMC guaranteeinginvestment

2. 3 months notice for winding up by AMC / Cancellation by SEC

3. Ads to be approved by SEC & circulated within 60 days of approval

4. Offering document / prospectus to include investment policy, type ofsecurities it will invest in and the risk associated.

5. Closed end schemes: securities offered at par if investment is arranged byIA and the offer is underwritten

6. Open end schemes:

a) Investment made after conclusion of issue of units

b) 4 regular dealings per week

c) Offer price and redemption price

d) Redemption to be completed in 6 working days


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CONTINUE.

1. Discretionary and non discretionary a/cs:

a) Notice to SEC

b) Due diligence

c) Separate management & disclosure2. Conversion of closed end fund to open end scheme:

a) By Special resolution of certificate holders

b) 5 years after fund launch

c) Cert. holders not in favor can sell @ discount


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(VI) INVESTMENT COMPANIES

& IAS


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Investment company(closed end fund)

Investment Advisor Custodian

Discretionary ClientPortfolio

Non discretionaryportfolio

External auditor-

SEC panel


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EXPOSURE LIMITS FORCIS

LimitBy CIS to1 person < 10% Net Assets of scheme/

10% of issued capital of person

By all CIS to 1 person < 49% of issued capital of the person

By CIS in 1 sector < 25% of net asset value of scheme

By CIS in one group < 35% of net assets of CIS

By CIS in listed group

Cos. Of AMC < 10% of net assets of CIS

Invested by equity based

CIS in non listed securities < 0% (Pre-IPO 15%)


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CONTINUE

Limitations on AMC of scheme include short selling, forward purchase contracts, real estatedealing, delisting without SEC approval, lend/ borrow.

No transactions by AMC of scheme with connected persons

Direct transactions b/w CIS of 1AMC notified to SEC in 2 days

IA(AMC) to bear all inc. exp. Of closed (open) end scheme

NAV notified to SE,SEC& self regulatory association 14 days of month end Discretionary and non discretionary a/cs:

DESCRIPTION BY TO AMOUNT

AMC

remuneration

CIS AMC 5yrs: 3% of Avg. annual

net assets of CISAfterwards, 2%

Annual fee AMC SEC 0.1% of AANA

Dividend AMC Shareholders

of CIS

90% income


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39996577 non banking financial companies nbfc

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