ANALYSIS OF NBFC SECTOR

SATHISH KUMAR R

ABIRAMI A

SARAVANA PRABHU B

Industry Structure

Complimentary to banking system

12.7% of the total assets of financial system

Operate largely in vehicle financing, hire purchase, lease, personal loans, working capital loans,microfinance, consumer loans, housing loans, loans against shares, investments, distribution of financialproducts, etc

NBFC

Nature of Business

Acceptance of Deposits

NBFC-D NBFC-ND

Banks Vs NBFC

NBFC – Can accept only Demand deposits

Cost of funds

Business Model Flexibility – Limited reporting/documentation

Relaxed regulatory norms – Int. rate/ PSL/ Capital Market Exposure

DICGC not available, cannot issue cheques, NPA classification

Recovery Mechanisms – SARFAESI, DRT not present

Easy to obtain License, no restriction on number

of branches

KYC (know-your-customer) norms not Stringent

NPA Classification - 180 days vs 90 days

NBFC

Asset Finance

Company

# NOF – 2crores

#CRAR – 15%

Investment Company

# NOF – 2crores

#CRAR – 15%

Loan Company

# NOF – 2crores

#CRAR – 15%

Infrastructure Finance

Company

# NOF – 300crores

#CRAR – 15% (Tier I-10%)

Infra Debt Funds

# NOF –300crores

#CRAR – 15%

CIC- ND-SI

# Assets Size >100 crores

#CRAR – 15%

Micro Finance

Institutions

# NOF – 5crores

#CRAR – 15%

Factors

#NOF – 5crores

CRAR – 15%

Classfification – Nature of Business

Growing per capita income

Growth Drivers

Market Size

13572

2448 2753

58412.27%

0.12% 0.06% 0.09%0

5000

10000

15000

1997-98 2005-06 2009-10 2011-12

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

NBFCs-acceptance of Public Deposits

Public Deposits % of Bank Deposits

Source of Funds161

28

641

1121

71

41

698

144194

58

809

107

P AI D U P C AP I T AL & R E S E R V E S AN D

S U R P L U S

P U B L I C D E P O S I TS B O R R O W I N G S O TH E R L I AB I L I T I E S

SOURCE OF FUNDS - NBFC-D

2010 2011 2012

* F

igu

res a

re in

mill

ion

s

Use of Funds96.3

4

88.6

4

711.1

9

45.5

0135.0

0

76

.00

780.0

0

63.0

0134.0

0

25.0

0

874.0

0

103.0

0

S L R N O N - S L R I N V E S TM E N TS

L O AN S AN D AD V AN C E S

O TH E R AS S E TS

USE OF FUNDS - NBFC-D

2010 2011 2012

* F

igu

res a

re in

mill

ion

s

34

85

41

7

11

98

78

8

47

09

50

2

15

07

89

5

59

00

63

5

15

95

10

83

L O A N S & A D V A N C E S H I R E P U R C H A S E A S S E T S I N V E S T M E N T S O T H E R A S S E T S

USE OF FUNDS - NBFC-ND-SI

2010 2011 2012

Performance – ROA, ROE

2.7

1.57

2.712.75

2.82

2.2

1.9

2.1

1.5

2.1

0

0.5

1

1.5

2

2.5

3

2009 2010 2011 2012 2013

ROA

NBFC-D NBFC-ND-SI

15.7

19.2

17 17

15.4

8.26

7.49

8.08 78.6

0

5

10

15

20

25

2009 2010 2011 2012 2013

ROE

NBFC-D NBFC-ND-SI

17.5

15.4

15

15.3

13 14 15 16 17 18

NBFC

PSU banks

Old Pvt banks

New Pvt banks

Average RoE (post tax) FY 11 -12

Performance - NPA

2.12

1.3

0.7

2.1

0

0.5

1

1.5

2

2.5

2008 2009 2010 2011 2012

Gross NPAs to Total Advances

22.2

21

20.422.3

42.1

32.827.5

28

0

5

10

15

20

25

30

35

40

45

2010 2011 2012 2013

CRAR

NBFC - D NBFC-ND-SI

Banks and NBFCs

F06 FY10 FY11

No of NBFCs 13014 12630 12409

Bank Credit of all scheduled Banks 1,572,780 3,337,659 4,060,843

NBFC advances as % of Bank Credit 10.77% 12.57% 13.20%

Assets of all scheduled banks 2,531,462 5,258,495 6,146,590

NBFC assets as a % of Bank assets 13.06% 13.33% 13.78%

Deposits of all scheduled banks 2,185,809 4,635,224 5,355,160

NBFC Public deposits as % of bank

deposits 1.05% 0.37% 0.22%

* Fig

ure

s a

re in

cro

res

STRENGTH

Easy and fast appraisal & disbursements

Product Innovation and Superior Delivery

Strong Market Penetration and increased operating effeciency

Collection Effeciency

WEAKNESS

Too much of diversification from core business

Increased regulatory coverage

No access to SARFAESI or DRT for recovery from bad loans and no access to refinance

Volatile business environment

OPPORTUNITIES

Large untapped market, both rural & urban and also geographically

Tie-up with global financial sector giants

New opportunities in credit card, personal finance, home equity, etc

THREATS

High cost of funds

Restrictions on Deposit taking NBFCs

Growing retail thrust within banks and competition from unorganized money lenders

Significant slowdown in the economy affecting the various segments of NBFC. Deterioration of asset quality and rising levels of NPA.

SWOT Analysis

Recent Regulatory Changes

Usha Thorat Committee

Tier I Capital of 10%, as against 7.5% recently

NPA recognition norm to be lowered to 90 days from 180/360 days

Standard asset provisioning -0.40% from March 31, 2014.

Acceptance of Deposits

Liquidity Management

Raising money through private placement of debenture

NBFCs finance for Purchase of Gold – LTV 60%

Retail NBFC0.9

2

1.4

4

1.5

6 1.8

5

2.3

7

3.5

3.2

5

2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3

AUM OF RETAIL NBFC (IN TRILLIONS)

THANK YOU!!!