(NBFC)

NON BANKING FINANCIAL COMPANY

AGENDA•What is NBFC• Difference between NBFC and banks• Salient features of NBFC• NBFC and Public deposit• Types of NBFC• Nominations• Rating of NBFC• Role of company law board• NBFC exempted from registration• RBFC

NON BANKING FINANCIAL COMPANY

• NBFC is a company registered under the companies act , 1956 and is engaged in the business of:

- loans and advances

- leasing

- insurance business etc.• It does not include financial institutions whose principle business is that of agricultural activity, industrial activity etc. • Financial institutions that provide banking services.

Difference between banks & NBFC

• Banks are incorporated under banking companies act but while as NBFC are incorporated under company act.• Banks can issue cheques and NBFC cannot.• Banks can accept deposit and NBFC cannot.

SALIENT FEATURES

• Deposits• Minimum- 12 months• Maximum- 60 months

• Demand deposit not acceptable• Interest rates cannot be higher than ceiling rates prescribed by RBI(11%)• No gifts/incentives to customers• Minimum investment grade credit rating• Deposits not insured• Repayment of deposits not guaranteed by RBI

REGISTRATION WITH RBI

• NBFC should be registered with RBI to commence or carry on any business.• To obviate dual regulation.

Different types of NBFC’s registered with RBI

The NBFCs that are registered with RBI are:

(i) equipment leasing company;

(ii) hire-purchase company;

(iii) loan company;

(iv) investment company.

With effect from December 6, 2006 the above NBFCs registered with RBI have been reclassified as

(i) Asset Finance Company (AFC)

(ii) Investment Company (IC)

(iii) Loan Company (LC)

Requirements for registration with RBI

• Should have a minimum net owned fund of Rs 25 lakh (raised to Rs 2 crore from April 21, 1999).• The company is required to submit its application for registration in the prescribed format.• The bank issues certificate of registration after satisfying itself that the conditions as enumerated in Section 45-IA of the RBI Act, 1934 are satisfied

NBFCs and Public deposits

• All NBFCs are not entitled to accept public deposit.• Only those NBFCs holding a valid certificate of registration with authorization to accept public deposits can accept/hold public deposit.• The NBFCs accepting public deposits should have minimum stipulated net owned fund.

• Overdue matured deposits• Pre payment

Ceiling of acceptance of public deposits

An NBFC maintaining required NOF/CRAR and complying with the prudential norms can accept public deposits as follows:• Category of NBFC• Ceiling on public deposits• AFCs maintaining CRAR of 15% without credit rating• AFCs with CRAR of 12% and having minimum investment grade credit rating 1.5 times of NOF or Rs 10 crore whichever is less• 4 times of NOF• LC/IC with CRAR of 15% and having minimum investment grade credit rating 1.5 times of NOF

DEPOSITS FROM NRI’s

• Generally NBFCs cannot accept deposits from NRI

• Exception:- deposits by debit to NRO account of NRI provided such amount do not represent inward remittance or transfer from NRE/FCNR account.

TYPES OF NBFC’S

LEASING

•  Formality of a lease•  Term of a lease•  Rent•  Leasing of real property• Leasing of tangible personal property• Leasing Internationally

EX: BAJAJ CAPITAL LIMITED

•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

Investment finance

•  Investment related to business of a firm - business management•  In finance•  Real estate as the instrument of investment•  Residential real estate•  Commercial real estate• Ex: Motilal Oswal securities limited in Mumbai

HOUSING FINANCE

• Removing legal, financial and administrative barriers for facilitating access to

loans, finance and technology

• Ensuring that housing, along with supporting services, was treated as a priority

and at par with the infrastructure sector

• The creation of surpluses in housing stock and

• Providing quality and cost-effective shelters especially to the vulnerable groups and the poor.

EX: HDFC

• Additional functions w.r.t property:

•Mortgage finance to purchase/construct/alter property•Surveys and valuation•Arrange insurance•Manage mortgage investments

ASSET MANAGEMENT

• Asset Management (AM) eliminates the need for point solutions that offer a limited, "flat" view of an asset by expanding the visibility and ownership of an asset throughout an entire organization.

Entities may describe an asset in several ways:• fixed asset to an accounting department• leased asset to facilities management• piece of production equipment to operations• inventory item to materials management•maintainable asset to mechanical engineers

EX: JP MORGAN

Asset Management services- Structure

Sharia

If Islamic

trustee trustee trustee

INVESTMENT ADVISORY SERVICES• A business that specializes in providing investment advice for a fee. • All advisers of an advisory service must be registered with the Securities and Exchange Commission

EX:Aaditya International

VENTURE CAPITAL INVESTMENT

• Venture capital firms and funds•  Structure of Venture Capital Firms•  Types of Venture Capital Firms•  Roles within Venture Capital Firms•  Structure of the funds•  Compensation

• Venture capital funding

EX: RELIANCE TECHNOLOGY VENTURES

NOMINATION FACILITY• Available to the depositors of NBFCs

• Adopt the Banking Companies (Nomination) Rules, 1985 of the Banking Regulation Act, 1949

• Applicable for nomination, cancellation of nomination and variation of nomination

RATING OF NBFC’s• An unrated NBFC, except certain Asset Finance companies (AFC), cannot accept public deposits

• Exception:- AFC companies with CRAR of 15% which can accept public deposit up to 1.5 times of the NOF or Rs 10 crore whichever is lower without having a credit rating

RATING AGENCIE

S

ICRA

CARE

FITCH

CRISIL

DCR INDIA

Role of Company Law Board

Where a non-banking financial company fails to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the Company Law Board (CLB) either on its own motion or on an application from the depositor directs, by order, the non-banking financial company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order.

NBFC exempted from registration

Housing Finance Companies

Insurance companies

Chit Fund Companies

Nidhi Companies

National housing bank

Insurance regulatory and development authority

State government

Ministry of Company Affairs, GOI

SEBI

Venture Capital Fund Companies

Merchant Banking

Companies

Companies engaged in the

business of stock-broking/sub-

broking Stock Exchanges

These are exempted from the requirement of registration under Section 45-IA of the RBI Act, 1934 subject to certain conditions.

Residual non banking companies• its principal business is the receiving of deposits, under any scheme and not investment, asset financing &loan • These companies are required to maintain investments as per directions of RBI, in addition to liquid assets.• The functioning of these companies is different from those of NBFCs in terms of method of mobilisation of deposits and requirement of deployment of depositors' funds. • Prudential Norms Directions are applicable to these companies also.