INTRODUCTION TO LOANSWHAT IS A LOAN?A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.The borrower initially does receive an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt. A loan is of the annuity type if the amount paid periodically (for paying off and interest together) is fixed.A borrower may be subject to certain restrictions under the terms of the loan.Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding. Bank loans and credit are one way to increase the money supply.Legally, a loan is a contractual promise of a debtor to repay a sum of money in exchange for the promise of a creditor to give another sum of money.

FOREWORDThe Reserve Bank of India is entrusted with the responsibility of regulating and supervising the Non-Banking Financial Companies by virtue of powers vested in Chapter III B of the Reserve Bank of India Act, 1934. The regulatory and supervisory objective, is to:a) ensure healthy growth of the financial companies;b) ensure that these companies function as a part of the financial system within the policy framework, in such a manner that their existence and functioning do not lead to systemic aberrations; and thatc) the quality of surveillance and supervision exercised by the Bank over the NBFCs is sustained by keeping pace with the developments that take place in this sector of the financial system.It has been felt necessary to explain the rationale underlying the regulatory changes and provide clarification on certain operational matters for the benefit of the NBFCs, members of public, rating agencies, Chartered Accountants etc. To meet this need, the clarifications in the form of questions and answers, is being brought out by the Reserve Bank of India (Department of Non-Banking Supervision) with the hope that it will provide better understanding of the regulatory framework.The information given in the FAQ is of general nature for the benefit of depositors/public and the clarifications given do not substitute the extant regulatory directions/instructions issued by the Bank to the NBFCs.

NBFC & MFI in IndiaA Non Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 of India, engaged in the business of loans and advances, acquisition of shares, stock, bondsire-purchase, insurance business, or chit business: but does not include any institution whose principal business is that includes agriculture or industrial activity; or the sale, purchase or construction of immovable property Difference between NBFCs & BanksNBFCs perform functions similar to that of banks; however there are a few differences in that an NBFC cannot accept demand deposits; an NBFC is not a part of the payment and settlement system and as such, an NBFC cannot issue cheques drawn on itself; and deposit insurance facility of the Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors, unlike banks.MFIMicrofinance institutions, also known as MFIs, offer financial services to underprivileged and impoverished communities.MFIs go for NBFC licencesAn Increasing number of microfinance institutions (MFIs) are seeking non-banking finance company (NBFC) status from RBI to get wide access to funding, including bank finance. Exemptions granted to NBFCs engaged in microfinance activitiesThe Task Force on Supportive Policy and Regulatory Framework for Microfinance setup by NABARD in 1999 provided various recommendations. Accordingly, it was decided to exempt NBFCs which are engaged in micro financing activities, licensed under Section 25 of the Companies Act, 1956, and which do not accept public deposits, from the purview of Sections 45-IA (registration), 45-IB (maintenance of liquid assets) and 45-IC (transfer of profits to the Reserve Fund) of the RBI Act, 1934. 010

MFIs & SHG-Bank linkage programmeIn a joint fact-finding study on microfinance conducted by the Reserve Bank of India and a few major banks, the following observations were made: Some of the microfinance institutions (MFIs) financed by banks or acting as their intermediaries or partners appear to be focusing on relatively better banked areas, including areas covered by the SHG-Bank linkage programme. Competing MFIs were operating in the same area, and trying to reach out to the same set of poor, resulting in multiple lending and overburdening of rural households. Many MFIs supported by banks were not engaging themselves in capacity building and empowerment of the groups to the desired extent. The MFIs were disbursing loans to the newly formed groups within 1015 days of their formation, in contrast to the practiceobtaining in the SHG Bank linkage programme, which takes about six to seven months for group formation and nurturing. As a result, cohesiveness and a sense of purpose were not being built up in the groups formed by these MFIs. Banks, as principal financiers of MFIs, do not appear to be engaging them with regard to their systems, practices and lending policies with a view to ensuring better transparency and adherence to best practices. In many cases, no review of MFI operations were undertaken after sanctioning the credit facility.

RBI relaxes norms for NBFCsNBFCs registered with the Reserve Bank of India may take part in the insurance agency business on a fee basis and without risk participation or the need to seek the bank's approval.In a notification issued, the RBI said such NBFCs should obtain permission from the Insurance Regulatory and Development Authority and comply with IRDA regulations for acting as a "composite corporate agent" with insurance companies. MFIs of IndiaForbes magazine named seven microfinance institutes in India in the list of the world's top 50 microfinance institutions.Bandhan, as well as two other Indian MFIsMicrocredit Foundation of India (ranked 13th) and Saadhana Microfin Society (15th) have been placed above Bangladesh-based Grameen Bank (which along with its founder Mohammed Yunus, was awarded the Nobel Prize). Besides Bandhan, the Microcredit Foundation of India and Saadhana Microfin Society, other Indian entries include Grameen Koota (19th), Sharada's Women's Association for Weaker Section (23rd), SKS Microfinance Private Ltd (44th) and Asmitha Microfin Ltd (29th). CriticismsRecently, microfinance has come under fire in the state of Andhra Pradesh due to allegations of MFIs using coercive recollection practices and charging usurious interest rates. These charges resulted in the state government's passing of the Andhra Pradesh Microfinance Ordinance on October 15, 2010. The Ordinance requires MFIs to register with the state government and gives the state government the power, suo moto, to shut down MFI activity. A number of NBFCs have been affected by the ordinance, including sector heavyweight SKS Microfinance.

Company OverviewHinduja Leyland Finance Ltd (HLF) was incorporated in the year 2008 and is registered as a non-deposit taking NBFC with Reserve Bank of India. It is one of Indias leading non-banking finance companies spread across 19 states pan-India. Through a vast network of branches, it provides customized finance for the widest range of utility vehicles, tractors, cars, two wheeler and other commercial vehicles, focusing on the semi-urban and rural sector.Hinduja Leyland finance is a conglomerate of "HINDUJA GROUP" which has global presence in Automobiles, Energy & Chemicals, IT/ITES, Banking and Finance, Media/Entertainment and Infrastructure. HLF aims to enable people fulfill their ambition of owning their own vehicle. We think of ourselves, not as a simple loan provider, but as a partner in your quest to fulfill your biggest ambitions in life and in business. We offer an exhaustive suite of vehicle financial solutions Commercial vehicle finance, Personal Vehicle finance, Construction Equipment Finance, Rural finance loans etc. Whats unique with our business model is that, we provide an easy-to-use loan calculator with which one can decide on the tenure, interest rate and the loan amount that best suits you.HLFs goal is to be a one stop shop in the space of vehicle and equipment financeHLF is governed by following values: Trust : To maintain a workplace characterized by widespread belief in the integrity, reliability, and ability of employees. Customer Service : To Consider and understand the needs of the customer to facilitate the accomplishment of common goals. Competence : To maintain a workplace characterized by employees who have the skills and training to do their jobs. Teamwork : To encourage the use of teams to accomplish organizational goals and objectives. Quality : To promote an environment characterized by employees with a passion for excellence. Honesty : To always maintain the highest standards of credibility, sincerity and trustworthiness. Respect : To always treat people with the highest level of regard and dignity, recognizing the value of each individual Accountability : To be responsible for and committed to, the timely delivery of quality services and solutions as individuals and teams.

OperationHLF is into commercial vehicle loan financing business. We offer a wide range of products to suit the customer needs at affordable cost. HLF has 430 branches as on date spread across 19 states in India. HLF put in place a process which is evolved on the principle laid down here in, our enterprise solution seeks to provide a comprehensive understanding of the business process governing the financing of vehicles. Underlying theme or the objective of this application is to enable even a new entrant to the business to understand business risks, his role and the role of other participants in the process. Every activity underscores in its process the role of the maker, checker and reviewer. In order to minimize the time taken for review by three layers in every process, we have, through technology, achieved reduced / minimum flow of documents physically. In many of the processes the checkers role is embedded in the validation mode in the system so that there is no physical verification is necessary for ensuring accuracy. The following process is has been embedded in our business process to strengthen our operations by minimizing risks : De-dupingThis is the exclusivity feature in HLF business activity. The purpose of this feature is to track multiple loans to the same customer across products. Credit ScoringIn our business process we have developed credit scoring module that would match with our business needs. We decide customers loan eligible amount by using this feature. We have configured the questions for credit scoring and the score corresponding to those questions in a way that it can be changed based on our operational requirements. Integrated accounting We have inbuilt accounting module to track all the accounting entries. We have used CGAP standards to build this module. Our accounting module is strongly integrated with both operational and financial modules. This builds transparency and accountability in the business-flow. ReportsAll the reports are generated real time so that in case of any discrepancy there can be early rectification. We have an internal team who closely monitors the reports on real-time and do necessary follow-ups from the field and this is one of the ways we minimize risk in our business.

StrengthsThe core strengths of our business are : Wide network / huge customer base : Our operations are spread across India. Currently we operate in 19 states with more than 400 branches. Low / Minimal documentation norms : The KYC and other required documents are very minimal Customized products : We have customized our products based on customer needs Fast Loan Processing : The turn-around time is less than 48 hrs after receiving the application. Flexible repayment modes : We have given customers the flexibility to choose the mode of payment based on their choice. Excellent Relationship with dealers : We hold excellent relationship with all the dealers and are preferred financers for most of them.Milestones Within no time of starting operations Hinduja Leyland Finance has become a leading player in vehicle loan financing segment across India. Presented below are some of the significant milestones in the Companys journey towards excellence and leadership.

TechnologyHLF firmly believes that technology is one of the key enablers for scaling business. HLF has developed a robust Enterprise Resource Planning (ERP) system internally to track the data real-time. The integrated technology platform that HLF has adopted would enable all the branches to send data online daily to a centralized server for consolidation and analysis. This has been helping HLF increase its operational efficiency and employee productivity, which in turn is assisting minimize risk. It also provides timely decision support to the management and ensures strict monitoring controls. The key factors that have influenced HLFs investment in technology are flexibility, scalability and interfacing capabilities of the technical solution.One of the unique features of HLFs ERP is the option of configuring various products in the same system. We have developed our ERP in a way that it has an appetite to accept n number of products. This way we minimize cost of development and also help in strengthening our de-dupe function.

Heavy vehicleOur core business operation is Financing and refinancing all types of commercial vehicles. Since inception we have been working towards supporting entrepreneurs realize their dreams by financing vehicles. Our large geographical coverage is marked by a hub-and-spoke approach through an array of regional, branch and pocket offices. One of our key offering covers Heavy Commercial Vehicles. We are exclusively tied up with Ashok Leyland heavy vehicle department and enjoy special offers.Features & Benefits Loans are also extended for both chassis and body fabrication. We provide refinance on your existing vehicle or finance for the purchase of pre-owned vehicles. Documentation process is absolutely simple and hassle-free. Presence in multiple locations lets you have quicker access to funds and repayment Repay with easy EMIs, cash or post-dated cheques Maximum tenor of loan 48 months Funding can go up to 100% based on the class of customersTo help you with your dream of owning a Medium Commercial Vehicle we provide several customized financial options. From a range of MCVs, now purchase your own through a quick and simple loan process. We also extend financial assistance for buying second hand medium commercial vehicles. For all dealers we have a special trade advance facility in place. The condition and market value of the vehicle are the key factors in determining the credit approval and the quantum of finance.Features & Benefits Speedy delivery of the vehicle after the initial payment and the submission of all necessary documents All documentation required will be discussed with you up-front Maximum tenure will be 48 months Quick finance against vehicles that are used Loans are extended for both chassis and body fabrication.

Intermediate VehicleHLF is a prominent player in Intermediate commercial vehicle finance in each of the states in which it operates. Our primary focus is on financing first-time buyers and first-time users owning 0-5 vehicles. Features & Benefits Loans are also extended both on chassis and body fabrication. We even provide refinance on your existing vehicle or finance for the purchase of pre-owned vehicles. Documentation process is absolutely simple and hassle-free. Presence in multiple locations lets you have quicker access to funds and repayment Repay with easy EMIs, cash or post-dated chequesLightIf you are looking at finance or loan options for the purchase of your light commercial vehicle, you have come to right place. We offer hassle-free commercial vehicle loans with the best terms for funding at the most attractive rates in India.Features & Benefits Flexibility of selecting a finance scheme that suits your needs. Speedy delivery of the vehicle after the initial payment and the submission of all necessary documents Funding can go up to 100% based on the class of customers All documentation required will be discussed with you up-front Maximum tenure will be 48 months Quick finance with attractive packages against vehicles that are used

Smallor any business to succeed, the availability of funds throughout its life cycle is of paramount importance. We offer a wide range of services for funding of small commercial vehicles. The limits are fixed keeping in view the customers need for funds against the value of the security, margin available and credit worthiness of the borrower.At first, the customer requirements are properly understood and documented. After this the customer requirements are matched with company capability and services are offered as per the requirements of the customer within the overall policy framework/procedural guidelines. Credit worthiness of the customer is properly assessed and approval is obtained from the appropriate authorityFeatures & Benefits Speedy delivery of the vehicle after the initial payment and the submission of all necessary documents Funding can go up to 100% based on the class of customers All documentation required will be discussed with you up-front Quick finance against vehicles that are old Maximum tenor of loan provided is for 48 monthsPassenger vehicleTransportation is a vital lifeline for business growth, and absolutely cannot be compromised upon. Nobody understands this better than us, which is why we have tailored the Commercial Vehicle Loans to make it easier than ever to own the ideal Passenger carriers. We have created a unique range of products at competitive rates to meet the ever growing commercial vehicle needs of India Inc. Features & Benefits Funding option available for contract carriages, stage carriages, staff buses, school & college Buses. Maximum tenor of loan provided is for 48 months. Flexible funding option based on customer prediction.Three wheeler vehicleWith our customized financial options and quick process of sanctioning a loan, acquiring your new three-wheeler will become easier than you ever expected. Now choose the one that suits you the best.Features & Benefits Speed delivery of the vehicle after the initial payment and the submission of all necessary documents Maximum tenor of loan provided is 36 months Maximum funding provided is 85% cost of the vehicle. All documentation required will be discussed with you up-front

Persona vehicleTwo vehicleYou dream for a vehicle and you own it immediately. With our customized two wheeler finance product now every individual can own a vehicle of your choice. With quick approvals, flexible payment options and easy repayment - we'll help you buy the bike you desire.Features & Benefits Flexible repayment options, ranging from 12 to 36 months available even at the point of purchase. Repay through post-dated cheques, with easy EMIs or by cash collection. Hassle free loans Speedy loan approval Available for almost all models at attractive interest ratesCarOur Car Loans makes owning that car youve always wanted a speed-bump-free experience. In today's fast paced world, a vehicle is but a necessity. Whether as a comfortable and dependable means of transport or as a status symbol in society, we believe you deserve ownership of a vehicle. The Car Loans from HLF are designed to finance the car that suits your need and matches to your status & taste.Features & Benefits Covers the widest range of cars in India. Loan repayment tenure ranging from 12 to 60 months. Borrow up to 2 times your annual salary for salaries and self-employed professionals Speedy processing - within 48 hours. Repay with easy EMIs, cash or post-dated cheques Attractive interest rates Hassle-free documentation

Constuction equipmentWhether you're looking to construct a bigger business or play your part in building the nation, Our Construction Equipment Loans is there to partner you. We believe, after all, that every person must have access to the means to not just live, but live big.We also provide finance for the purchase of new equipment for road construction, mining as well as infrastructure projects. We also extend financial assistance for buying second hand construction equipment. Features & Benefits After the initial payment and the submission of all necessary documents, the delivery order for the equipment is placed and the equipment is delivered to you All the documentation required will be discussed with you up-front Flexible funding option based on customer prediction. The scheme generally varies based on the needs of the customers The maximum tenure will be 48 months Quick finance against vehicles that are up to 10 years oldRural vehiclef you are looking for finance to buy your tractor, you have come to the right place. We offer hassle-free Tractor loan with the best terms for funding at the most attractive rates in India.Features & Benefits Covers a wide range of tractors manufactured in India. Covers customer segments, using tractors for agricultural as well as commercial purposes Avail finance up to 90 % on your favorite tractor Flexible repayment options ranging from 12 - 48 months Speedy processing Repay with easy PDC's or by way of cash collection Attractive interest rates Hassle Free documentation

Commercial Vehicles (CV)

The year 2012-2013 has been a challenging year for vehicle industry in general and commercial vehicle segment in particular due to cumulative effect of slowdown in economic growth, flagging buyer sentiment, high interest rates and rising fuel costs. The slackened pace of infrastructure development coupled with the ban on miningactivities imposed by Supreme Court in some states also had an adverse impact on demand for Commercial Vehicles during 2012-2013. Sales of Medium and Heavy Commercial Vehicles (M/HCV) were the worst hit registering a steep fall of 23% as against growth of 8% in 2011-2012 due to below average monsoon and continuing inertiain manufacturing and infrastructure sectors. Sales of Light Commercial Vehicles (LCV),however showed growth during the year, though at a lower rate of 14% in 2012-2013 as compared to 23% in the previous year mainly on account of higher demand for intra-city logistics.

Operating and Financial PerformanceIn line with the trends in Commercial Vehicle sector, loan disbursement of your Company during the year ended 31st Mar 2013 was at `2100 crores, which is flat, compared to the previous year. The gross receivables managed by your Company grew by 30% and stood at ` 3280 Crores as at March 31, 2013 as compared to ` 2518 Crores as at March 31, 2012. Your Company has made a net profit of ` 91.38 crores during the year as compared to ` 83.70crores during the previous year 2011-2012. The Companys net worth stood at ` 526.02 Crores as on March 31, 2013. Capital Adequacy Ratio wasat 15.95% as against the statutory requirement of 15%. Standard assets constituted 96.84% of the total assets and the net non-performing assets after provisioning stood at 2.76%. Your Company has made adequate provision for Non-Performing Assets as per regulatory requirements, including a provision of `6.21 Crores towards provision forstandard assets as mandated by RBI.

Regulatory EnvironmentIn December 2012, Reserve Bank of India had issued draft Guidelines on regulatory framework of Non Banking Finance Companies for public comments. The broad thrust of the draft guidelines is towards aligning the regulatory framework of NBFCs with that of banks in respect of Asset Classification, Capital Adequacy, Corporate Governance and Liquidity Management. Your Company has already started to gear its systemsand processes to ensure adherence to the draft Guidelines.

Resource MobilisationTerm Loans and Bank Credit During the year, your Company availed term loansof `1223 Crores and `90 Crores as cash credit from its Bankers. This has been the primary source of funds for the business concluded during the year. Assignment of receivablesIn August 2012, RBI had announced the revised Guidelines on Securitisation transactions, with a view to develop an orderly and healthy securitisation market and encourage greater alignment of the interests of the originators and investors. In the year 2012-2013, your Company raised resources amounting to ` 258 crores by direct assignment of receivables in accordance with revised Guidelines.

Credit RatingThe term borrowings of your Company have been rated and CARE has assigned a rating of A+ which indicates adequate safety.

Capital InfusionYour Company is in the final stages of negotiations with a Private Equity (PE) Investor with respect to further capital infusion into the Company and the transaction is expected to be closed by Q1 of 2013-14. This capital infusion would further strengthen the capital adequacy of your Company besides sending positive feedback in the market about your Company.

This transaction would also involve conferring some special rights to the PE investor necessitating changes to the Memorandum and Articles of Association. The revised draft of Memorandum and Articles of Association incorporating the necessary changes is enclosed with the Notice for Annual General Meeting for the approval of members by Special Resolution.

Internal AuditAs part of the effort to evaluate the effectiveness of the internal control systems your Companys internal audit function reviews all the control measures on a periodic basis and recommends improvements, wherever appropriate. The Audit Committee regularly reviews the audit findings as well as the adequacy and effectiveness of the internal control measures.

Risk ManagementYour Company, being in the business of financing of commercial vehicles, three wheelers, two wheelers and equipment in the retail segment, has to manage various risks including credit risk, liquidity risk, interest rate risk and operational risk. The Credit Committee, the Risk ManagementCommittee and the Asset Liability Management Committee review and monitor these risks at periodic intervals.

Outlook for the yearInflation continues to be a major concern. The global environment is still uncertain and though core inflation is easing, retail inflation remains high, offering little scope for further monetary easing.

CV and passenger vehicle sales volumes are likely to remain flat in 2013-14. The structural shift in the CV industry is leading to increasing demand for large tonnage and low tonnage CVs and shrinking demand for medium tonnage vehicles. The trend is likely to continue in the medium term. The use of LCVs for the intra-city movement of consumer goods, rural/urban taxis and captive use has also supported high sales and financing growth in LCV segment. Used M/HCV financing may be negatively impacted since the limited bargaining power of owner drivers/small road transporters (mainbuyers of used M/HCVs) to increase their freight rates in line with the diesel price increases would constrain their ability to buy more vehicles.

Consequent to various measures of fiscal consolidation initiated by the Government, there is a general expectation of falling inflation and gradual decline in interest rates. While this could gradually improve business and consumer sentiments, the deregulation of diesel prices in the absence of perfect correlation between diesel prices and freight rates and continued slowdown in infrastructure projects is likely to impact the borrowers earnings viability and hence may pose portfolio pressures for your Company. Assetquality may, therefore, come under pressure, at the same time as credit growth in this business line remains weak. Your Company has taken necessary steps to mitigate these effects. Given the various uncertainties in the macroeconomic environment and the none too optimistic outlook for the automobile industry, your Company will strive for growth that is sustainable and profitable, while remaining strongly focused on the highest asset quality.Your Company continues to be engaged in financing the Light Commercial Vehicles, Small Commercial Vehicles, Tractors, Construction Equipment, Three Wheelers and Two Wheelers apart from M & HCVs. With its presence in more than 601 locations across the country including semi-urban and rural locations, the Company would be able to capitalise on the growth in this segment.

References1. http://acronyms.thefreedictionary.com/NBFC2. http://www.rediff.com/money/2007/jul/20nbfc.htm3. http://acronyms.thefreedictionary.com/MFI4. http://economictimes.indiatimes.com/News/News_By_Industry/Finance__Insurance/Finance/MFIs_go_for_NBFC_licences_for_better_access_to_funds/articleshow/988065.cms5. http://rbi.org.in/scripts/NotificationUser.aspx?Id=3651&Mode=06. http://rbi.org.in/scripts/NotificationUser.aspx?Id=3175&Mode=07. http://www.hindu.com/2004/02/12/stories/2004021203031600.htm8. http://rbi.org.in/scripts/NotificationUser.aspx?Id=1481&Mode=09. http://www.forbes.com/2007/12/20/microfinance-philanthropy-credit-biz-cz_ms_1220microfinance_table.html10. http://timesofindia.indiatimes.com/business/international-business/india-in-forbes-list-of-leading-microfinance-institutes/articleshow/2653281.cms11. http://indiamicrofinance.com/andhra-mfi-suicide-972532.html12. http://indiamicrofinance.com/download-andhra-microfinance-ordinance-908172.html13. http://in.reuters.com/article/idINIndia-52994520101118

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