ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

CHAPTER 1
INTRODUCTION OF THE
STUDY

CONTENT

1.1 INTRODUCTION

1.2 HISTORY

1.3 DEFINITION

1.4 CHARACTERISTICS

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

1.1 INTRODUCTION

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
which is a company and which has its principal business of receiving 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).

NBFCs are doing functions akin to that of banks; however there are a few
differences:

(i)an NBFC cannot accept demand deposits;

1.an NBFC is not a part of the payment and settlement system and as such an
NBFC cannot issue cheques drawn on itself; and
2.deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation
is not available for NBFC depositors unlike in case of banks.

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1.2 HISTORY

The Reserve Bank of India Act, 1934 amended on 1 December 1964 by Reserve
Bank Amendment Act, 1963. In this new 'Chapter III-B' introduced to Regulate
'Deposit Accepting' NBFCs.

Different types of Committees to Review existing framework of NBFCs

James S. Raj Committee

In early 1970s Government of India asked Banking Commission to Study the

Functioning of Chit Funds and Examining activities of Non-Banking Financial
Intermediaries. In 1972, Banking Commission recommended Uniform Chit Fund
Legislation to whole country.

Reserve Bank of India prepared Model Bill to regulate the conduct of chit funds and
referred to study group under the Chairmanship of James S. Raj.

In June 1974, study group recommended ban on Prize Chit and other Schemes.
Directed the Parliament to enact a bill which ensures uniformity in the provisions
applicable to chit funds throughout the country.

Parliament enacted two acts. Prize Chits and Money Circulation Schemes (Banning)
Act, 1978 and Chit Funds Act, 1982

Chakravarty Committee

During Planning Era, Reserve Bank of India tried best to 'Manage Money's and
evolve 'Sound Monetary' system but no much appreciable success in realising social
objectives of monetary policy of the country.

In December 1982, Dr Manmohan Singh, Governor of RBI appointed committee

under the Chairmanship of 'Prof. Sukhamoy Chakravarty' to review functioning of
monetary system in India.

Committee recommended assessment of links among the Banking Sector, the Non-
Banking Financial Institutions and the Un-organised sector to evaluate various
instruments of Monetary and Credit policy in terms of their impact on the Credit
System and the Economy.

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Khanna Committee (1995)

This Group was set up with the objective of designing a comprehensive and effective
supervisory framework for the non-banking companies segment of the financial
system. The important recommendations of this committee are as follows: i.
Introduction of a supervisory rating system for the registered NBFCs. The ratings
assigned to NBFCs would primarily be the tool for triggering on-site inspections at
various intervals. ii. Supervisory attention and focus of the Reserve Bank to be
directed in a comprehensive manner only to those NBFCs having net owned funds of
Rs.100 lakhs and above. iii. Supervision over unregistered NBFCs to be exercised
through the off-site surveillance mechanism and their on-site inspection to be
conducted selectively as deemed necessary depending on the circumstances. iv.
Need to devise a suitable system for coordinating the on-site inspection of the
NBFCs by the Reserve Bank in tandem with other regulatory authorities so that they
were subjected to one-shot examination by different regulatory authorities. v. Some
of the non-banking non-financial companies like industrial/manufacturing units were
also undertaking financial activities including acceptance of deposits, investment
operations, leasing etc. to a great extent. The committee stressed the need for
identifying an appropriate authority to regulate the activities of these companies,
including plantation and animal husbandry companies not falling under the
regulatory control of either Department of Company Affairs or the Reserve Bank, as
far as their mobilization of public deposit was concerned. vi. Introduction of a
system whereby the names of the NBFCs which had not complied with the
regulatory framework / directions of the Bank or had failed to submit the prescribed
returns consecutively for two years could be published in regional newspapers. Most
of the recommendations of the Committee were accepted by the Reserve Bank after
an in depth analysis and the revised framework for effective supervision of the
NBFCs including offsite monitoring of NBFCs is being put in place.

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1.3 DEFINITION

A 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, bonds, hire-purchase insurance business or chit-fund
business but does not include any institution whose principal business includes
agriculture, industrial activity or the sale, purchase or construction of immovable
property.

The working and operations of NBFCs are regulated by the Reserve Bank of
India (RBI) within the framework of the [[Reserve Bank of India Act, 1934]]
(Chapter III-B) and the directions issued by it. On November 9, 2017, Reserve Bank
of India (RBI) issued a notification outlining norms for outsourcing of
functions/services by Non-Bank Financial Institution (NBFCs) As per the new
norms, NBFCs cannot outsource core management functions like internal audit,
management of investment portfolio, strategic and compliance functions for know
your customer (KYC) norms and sanction of loans.

Staff of service providers should have access to customer information only

up to an extent which is required to perform the outsourced function. Boards of
NBFCs should approve a code of conduct for direct sales and recovery agents. For
debt collection, NBFCs and their outsourced agents should not resort to intimidation
or harassment of any kind. All NBFCs’ have been directed to set up a grievance
redressal machinery, which will also deal with the issues relating to services
provided by the outsourced agency.

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1.4 CHARACTERISTICS

In India where 70% of the population lives in rural areas, incorporation of a non-banking
financial firm is essential as they are small players who provide loans, chit–funds etc.

Many companies have come forward and registered themselves with RBI to attain the status of
NBFC. NBFC’s are an integral part of the Indian economy and financial sector as they enhance
competition among the companies of the financial sector.

NBFC with their low-cost operations, simple sanction procedure and flexibility has given it an
edge over the commercial banking sector. It is an important financial mediator, particularly for
the retail and small-scale sector.

The contribution of NBFC to Indian economy has increased 12%in the year 2015 moreover
the ongoing stress in the public sector bank due to amounting bad debt has deteriorated their
service and their contribution to the Indian economy.

This mounting bad debt has driven commercial banks to decrease their grant of financial help to
small-scale traders and the infrastructure sector.

NBFC recently contributed 12.5% to GDP this recent success of NBFC can be attributed to its
lower cost, swiftness in providing strong risk management services and their reach in the sector
where public sector bank doesn’t.

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CHAPTER 2
RESEARCH METHODOLOGY

CONTENT

2.1 OBJECTIVES OF THE STUDY

2.2 HYPOTHESIS

2.3 SCOPE OF THE STUDY

2.4 LIMITATIONS OF THE STUDY

2.5 SIGNIFICANCE OF THE STUDY

2.6 METHOD OF COLLECTION OF DATA

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2.1 OBJECTIVES OF THE STUDY

1. To know the performance of select Non-Banking Housing Financial

companies in India in terms of profit & growth.
2. To identify the Operating Risk, Financial Risk, Business Risk &
along with the return of respective companies.
3. To understand the Return Per Unit of Risk (RPUR) of Select Non
Banking Housing Financial companies in India.
4. To ascertain the sustainable growth rate of earnings for the Non-
Banking Financial Companies.
5. To find the Economic Value Added (EVA) of the Non Banking
Housing Financial Companies.
6. To know the Composite Index Value for better performance of Non
Banking Financial companies in India.
7. To offer suggestions in the light of findings for select Non-Banking
Housing Financial companies.

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2.2 HYPOTHESIS

The following hypotheses are framed and tested in the study:

1. There is no significant difference between profitability and solvency

positions of the select NBFCs.

2. There is no significant difference between liquidity and efficiency status of

Manappuram finance and Muthoot finance.

3. There is no significant difference in the mean percentage of profitability

ratios between years and between the select NBFCs.

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2.3 SCOPE OF THE STUDY

The present study expected to produce some important findings and

conclusions/recommendations which may help the housing finance
companies to formulate policies and programmes to manage minimization
of risk & maximization of profit & value creation of Non- banking housing
financial companies effectively. This will go in the improvement of better
performance in the market.

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2.4 LIMITATION OF THE STUDY

1. The study is based on secondary data obtained from the published annual
Reports of Manappuram finance and Muthoot finance and as such its finding
depends entirely on the accuracy of such data.

2. The present study is largely based on ratio analysis which has its own
limitations.

3. Statistical test used in the study to interpret the analyzed data to generalize the
findings of the study for the Manappuram finance and Muthoot finance has got
their own limitations and result of the analysis is subject to same constraints as
are applicable to statistical tools.

4. The analysis of financial statement of business enterprise gives diagnostic

indicators. The researcher, being an outside, external analyst, obviously has no
access to internal data. Therefore, inside view of the organization cannot be
characterized in the study.

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2.5 SIGNIFICANCE OF THE STUDY

Deep and broad financial markets facilitate savings mobilization, by

offering both individuals and insitutional savers and investors additional instruments
and channels for placement of their funds at more attractive returns than are
available on bank deposits. Bank and non-bank financial intermediation are both key
elements of a sound and stable financial system. Both sectors need to be developed
as they offer important synergies, meant to foster economical growth. While banks
dominate the financial systems in most countries, business, households, and the
public sector rely on the availability of a wide range of financial products to meet
their financial needs. Such products are not provided only by banks, but also by
insurance, leasing, factoring, and venture capital companies as well as mutual funds
or pension funds.

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2.6 METHOD OF COLLECTION OF DATA

1. PRIMARY DATA
These include the survey or questionnaire method, telephonic interview as well as
the personal interview methods of data collection
2. SECONDARY DATA
The secondary data as it has always been important for the completion of any report
provides a reliable, suitable, adequate and specific knowledge. The standard cost
reports, working sheets provide the knowledge and information regarding the
relevant subjects.
Secondary data is a data, which is collected from various sources. Secondary data is
not a fresh data so it has its own limitations like: Time Constraints, Accuracy and
Applicability.

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CHAPTER 3
LITERATURE REVIEW

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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 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.

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According to KPMG survery The Indian Non Banking Finance

Company (NBFC) sector has often been relegated to the shadows, in most
discussions 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 NBFCs‘
as a proxy for non-dormant players, a mere 24 NBFCs held 92.7 percent of
the total assets of all NBFCs in 2005-2006. The balance assets, amounting
to less than 8 percent of the total, were fragmented 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

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ROLE OF NBFC’S
According to EPW Research Foundation (EPWRFThe Indian economy
is going through a period of rapid `financial liberalisation'. Today, the
`intermediation' is 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 economic strength to the extent they 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 and prosperity.

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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.

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CHAPTER 4
DATA ANALYSIS,
INTERPRETATION AND
PRESENTATION

CONTENTS

4.1 LIC HOUSING FINANCE

4.2 RELIANCE CAPITAL

4.3 SHRIRAM TRANSPORT FINANCE

4.4 IDFC

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LIC HOUSING FINANCE

RELIANCE CAPITAL

SHRIRAM TRANSPORT
FINANCE

IDFC

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4.1 LIC HOUSING FINANCE

4.1.1 Housing Finance Industry

India‘s housing finance industry comprises of banks and housing finance
companies. They have contributed to new residential home loans at a compounded
annual growth rate (CAGR) of more than 30 percent during the period 2002-2007.
This has been due to the combined effect of a booming economy and low interest
rates.
Further, steady prices and continuation of tax concessions to self-occupied
residential home borrowers are contributors to the growth of the industry. The
average age of borrowers has declined over the years, while the number of double
income households has grown significantly enabling them to borrow higher loan
amount due to higher repaying capacity.
The scenario of unprecedented growth in housing finance, driven by low interest
rates, increasing purchasing power and attraction of the yield in this sector has
begun to show signs of change last year. There has been a decrease in demand

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during the last one year. Earlier to that i.e., during 2006 to 2007 home prices
increased at a CAGR of 30 to 40 percent against a 20 percent increment in salaries
witnessed in metros and large cities.
This had affected the buyer‘s affordability.
As the borrowing cost for banks and housing finance companies steadily increased in
line with rising interest rates in the economy in the past two years up to Q3 of 2008-
09, banks and housing finance companies resorted to hike in interest rates so as to
maintain their interest spreads. Interest rates on new home loan originations have
increased significantly by 200 basis points during April‗2008 to September October‘
2008. As a result a higher proportion of monthly income was being paid out as home
loan equated monthly installments (EMI). The combined effect of an increase in
property prices and interest rates has meant that home loan buyers, who would have
had to borrow less at an interest rate of 8.75 percent a year ago, now have to borrow
more to buy the same property due to higher property prices at higher interest rates
of 10.5 to 11 percent. This trend has resulted in both lower affordability i.e., an
average home at a higher multiple of annual income, and higher debt burden
(meaning that a larger proportion of income gets spent as home loan EMI). Further,
the increase in interest rates on fresh loans to 10.5 to 11 percent from 8.75 percent
meant increase in debt burden i.e., higher installment to income ratio. Along with,
the economic down turn and consequential apprehensions of job insecurity and
income reduction led to slump in the market. However,
The scenario has taken the reverse turn in the last quarter of the financial year
2008-09, which was evident from the higher booking of flats, and sharp increase in
the disbursements. Real estate developers have taken sensible decision in reducing
or slashing rates in major centres specially Mumbai, Thane, Navi Mumbai, Delhi
NCR and Bangalore to encash on the existing demand in the real estate market. The
good deals might be offered for a few weeks or for the first ten properties or for a
killer deal for a time-bound two days or similar schemes but yes, the writing is clear
on the wall that the willingness to connect with the ―real‖ pricing has dawned on
the developers to sell at reduced prices to encourage more and more sales. The sales
teams in the builder/ developer offices are at their all-time creative best with sales
tactics. They now understand clearly that with buyers unwilling to relent on
unrealistic pricing, there is an even greater need to price competitively, maybe with a

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lower profit margin, than holding on to the price and project as the interest meter
runs. These proactive steps should ensure renewed demands and increased volumes
during the current year.
The Indian economy, which was on a robust growth path up to 2007-08, averaging at
8.9 per cent during the period 2003-04 to 2007-08, witnessed moderation in 2008-
09, with the deceleration turning out to be somewhat sharper in the third quarter.
Industrial growth experienced a significant downturn and the loss of growth
momentum was evident in all categories, viz., the basic, capital, intermediate and
consumer goods.
However, the fiscal stimulus packages of the Government and the monetary
easing of the Reserve Bank will, however, arrest the moderation in growth and
revive consumption and investment demand, though with some lag, in the months
ahead. Furthermore, prospects of the agricultural sector also remain bright, and this
will continue to support the rural demand. Finally, in the wake of expected
improvement in agricultural production as well as low international commodity
prices, inflationary pressures are also anticipated to remain at a low level through the
greater part of the 2009-10.

Indian Housing Finance scenario

India‘s housing finance industry comprises of banks and housing finance
companies. They have contributed to new residential home loans at a
compounded annual growth rate (CAGR) of more than 30 percent during the
period 2002-2007. The scenario of unprecedented growth in housing finance,
driven by low interest rates and booming economy, has begun to show signs of
change last year. There has been a decrease in home prices during the last one
year.
Earlier to that i.e., 2006 to 2008 home prices increased at a CAGR of 30 to 40
percent against a 20 percent increment in salariee witnessed in metros and larger
cities. This had affected the buyer‘s affordability. The average home buyer spent
around 4 times his net annual income for purchasing a new residential home in the 3-
4 years till March 2005. (source CRISIL report 19th February, 2009)

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As the borrowing cost for banks and housing finance companies steadily increased
in line with rising interest rates in the economy in the past two years upto
September‘ 2008, banks and housing finance companies resorted to hike in interest
rates so as to maintain their interest spreads. Interest rates on new home loan
originations had increased significantly by 200 basis points during April‗ 2008 to
August September‘ 2008. As a result a higher proportion of monthly incomes was
paid as home loan equated monthly instalments (EMI). But, the scenario has taken
the reverse turn in the last quarter of the financial year 2008-09 which was evident
from the higher booking of flats and sharp increase in the disbursements. As interest
rates are heading southward, public sector banks have set the pace. Housing finance
companies would follow the suit. It may be mentioned here that with the decline
ininterest rates,
LIC Housing Finance has passed on 150 basis points rate cut to the customers i.e.
75 basis points each on 1st January, 2009 and 1st April, 2009. Our interest rates are
among the lowest in the industry. This has helped our company in retaining
customers and maintaining high growth rates even in tough conditions. And interest
rate is just one of the factors. Transparency, hassle-free services, property prices and
buyer‘s repayment capacity are equally important. The customer would not arrive at
a decision solely based on the reduction in interest rates for one year. LIC Housing
Finance is one of the best players in the industry in terms of EMI as our company
has no hidden costs.

4.1.3 LIC Housing Finance

LIC Housing Finance Ltd. is one of the largest Housing Finance Company in India.
Incorporated on 19th June 1989 under the Companies Act, 1956, the company was
promoted by LIC of India and went public in the year 1994. The Company launched
its maiden GDR issue in 2004. The Authorized Capital of the Company is Rs.1500
Million (Rs.150 Crores) and its paid up Capital is Rs.850 Millions (Rs.85 Crores).
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.

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The main objective of the Company is providing long term finance to individuals
for purchase / construction / repair and renovation of new / existing flats / houses.
The Company also provides finance on existing property for business / personal
needs and gives loans to professionals for purchase / construction of Clinics /
Nursing Homes / Diagnostic Centres / Office Space and also for purchase of
equipments.
The Company possesses one of the industry's most extensive marketing network in
India : Registered and Corporate Office at Mumbai, 6 Regional Offices, 13 Back
Offices and 158 marketing units across India. In addition the company has appointed
over 1352 Direct Sales Agents (DSAs), 7085 Home Loan Agents (HLAs) and 777
Customer Relationship Associates (CRAs) to extend its marketing reach. Back
Offices spread across the country conduct the credit appraisal and administrative
functions.
The Company 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. Today the Company has a proud group of over 10,00,000
prudent house owners who have enjoyed the Company's financial assistance.

Profile & Progress

 Provides loans for homes, construction activities, and corporate housing schemes.

 Around 91% of the loan portfolio derived from the retail segment and the rest from
large corporate clients

 Formed three new wholly owned subsidiaries in 2007-08 to promote marketing of

 financial products and venture capital fund.

 Rated ‗AAA‘ by CRISIL for the 8th consecutive time in 2008-09; maiden Fixed
Deposit

 program received an FAAA/stable rating by CRISIL.

 An offshoot of Life Insurance Corporation of India (LIC), incorporate in 1989.

 Registered & Corporate Office at Mumbai with 6 regional offices, 13 Back Offices

 and 130 marketing units across the country .

 1352 Direct Sales Agents (DSAs), 7085 Home Loan Agents (HLAs) and 777
Customer.
 

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 Relationship Associates (CRAs) comprise its pan-Indian marketing network.


 Representative overseas presence in Dubai and Kuwait.
 Listed on the Bombay Stock Exchange Limited, National Stock Exchange of India

 Limited and the Luxembourg Stock Exchange.

 More than 10,00,000 satisfied customers across the country since inception.

 Reported a 23.90 percent increase in disbursals in 2008-09.

 Improved return on networth by 267 basis points to 23.80 percent in 2008-09.

 Reduced net NPA to a record low of 0.21 percent in 2008-09.

 Enhanced PAT 37.30 percent to Rs. 531.62 crore in 2008-09.

 Un-interrupted dividend payment record since 1990.

 Recommended 30 percent increase in dividend over previous year i.e from

 100 percent to 130 percent.


4.1.4 Financial Performance

Interest income from housing loans increased 34.90 percent from Rs. 2036.79 crore
in 2007-08 to Rs. 2747.65 crore in 2008-09. The net interest income grew by 31.97
percent from Rs. 553.94 crore in 2007-08 to Rs. 731.04 crore in 2008-09. Profit after
tax surged 37.30 percent from Rs. 387.19 crore in 2007-08 to Rs. 531.62 crore in
2008-09.

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On funds

On the performance of the Company : In the turbulent times when Housing sector
was passing through rough patch, LIC Housing Finance largely could manage the
environment well, inspite of various global as well as domestic economic challenges
and was successful in producing good business growth by its inherent strength in
meeting difficult challenges through unceasing and untiring efforts. The Company
has not only ensured consolidation of the gains achieved in the past years, but also
ensured further growth and increased profitability. The year 2008-09 has been a year
of further containment of defaults and NPA levels when compared to previous years.

Lending operations
The main thrust continues on individual loans with a growth of 25 percent as against
20
percent in the previous year. However, project loans were also given due weightage
resulting in a modest growth of 20 percent over previous year. During the year, the
Company
sanctioned 67,886 individual loans for Rs. 8,186.02 crore and disbursed 67,237 loans
for Rs.
7,351.09 crore during 2008-09. Individual retail loans constitute 75.11 percent
of the total
sanctions and 83.94 percent of the total disbursements for the year 2008-09
compared to the
last year‘s figure of 75.84 percent and 83.47 percent respectively. The retail
(individual) loan
portfolio grew by over 22 percent from Rs. 20,618.78 crore as on 31st March, 2008
to Rs.
25,252.87 crore as on 31st March, 2009. The cumulative sanctions and
disbursements since
the incorporation, in respect of individual oans are: Amount sanctioned : Rs.
45,624.24 crore
Amount disbursed : Rs. 42,993.98 crore

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

Non-Performing Assets and provisions:

The amount of gross Non-Performing Assets (NPA) as on 31st March, 2009 was
Rs. 297 crores, which is equivalent to 1.07 percent of the housing loan portfolio of
the Company, as against Rs. 372.92 crore i.e., 1.70 percent of the housing loan
st
portfolio as on 31st March, 2008. The net NPA as on 31 March, 2009 is reduced to

Rs. 57 crore i.e. 0.21 percent of the housing loan portfolio vis-à-vis Rs. 140.90 crore
i.e., 0.64 percent of the housing loan portfolio as on 31st March, 2008. The total
cumulative provision towards housing loan as on 31st March, 2009 is Rs. 240.25
crore. During the year, the Company has written off Rs. 5.40 crore of housing loan
portfolio as against Rs. 38.99 crore during the previous year.

Fund raising The Company raised funds aggregating to Rs. 11,188.33 crore through
term loans from banks, Non-Convertible Debenture (NCD), sub-ordinate debts,
commercial paper, Public Deposit and others which were used for fresh
disbursements as well as repayments/prepayments of past borrowings. The
Company‘s NCD issue was rated ‗AAA‘ and Public Deposit was rated as
FAAA/STABLE by CRISIL.

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

Macro Economic Analysis

Competition
The Housing Finance Industry is one of the most keenly competitive segments of
the Economy, with the Banking sector having a significant presence. However,
Housing Finance Companies with a dedicated focus on the industry and better
understanding of the underlying real estate markets stand on a better footing when it
comes to understanding the needs and requirement of the customers as also
assessing the risks in the industry. It may be mentioned here that with the decline in
interest rates, LIC Housing Finance has passed on 150 basis points rate cut to the
customers during the calendar year 2009 so far 75 basis points each on 1st January,
2009 and 1st April, 2009. Our interest rates are among the lowest in the industry.
This has helped our company in retaining customers and maintaining high growth
rates even in tough conditions. And interest rate is just one of the factors.
Transparency, hassle-free services, property prices and customer affordability are
equally important. NHB has lowered its interest rates on refinance to housing
finance companies. Refinance for rural housing at concessional rate of 8 percent per
annum for seven years has also been provided. Its‘ PLR has been reduced to 10.75
percent per annum. The refinance facility of Rs. 4,000 crore extended by RBI to
NHB will be on-lent by NHB to housing finance companies with a cap of Rs. 400
crore per housing finance company with the condition that the refinance would be
available at an interest of 8 percent, only for loans below Rs. 20 lakh. Housing
Finance, the Company, through its competitive pricing, transparency in operations,
wide distribution network and good customer service, has not only been able to
show a good growth in new business, but has shown an improved retention rate,
which is reflected in high growth of loan book.

Opportunities
There are many unique characteristics of housing distinguishing it from other
goods. It is a universal necessity. Home ownership is a social goal, bringing social
status to the buyer. Housing is also a relatively expensive asset, often soaking up a
lifetime‘s savings. Housing properties have a downward sloping demand curve,
which means that less people would effectively buy when prices are high and vice

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

versa. At high prices, buyers postpone their buying decisions and opt for rented
accommodation. At low prices, people often purchase more than one house.
Disposable incomes determine purchasing power. Government policies relating to
interest rates, mortgage subsidies, tax rebate and other taxes like stamp duty etc. also
impact the housing property market. The housing sector is marked by a variety of
taxes and regulations. These are meant to ensure the safety of houses for occupation
and to confer rights of ownership to enable further transactions. Given that building
or acquisition of a house usually involves several intermediary agents (either
statutory like registration of various title documents or facilitating agents such as
brokers, builders or financiers), the final cost of acquisition includes not just the
price of the property that is paid to the seller (in case the property is purchased) but
also all the intervening transaction costs. As for the housing property market in
India, the residential housing property segment constitutes about 75 percent of the
real estate market in terms of value. Real estate development activity has shifted
from metros to their suburbs and tier-two cities. A gradual shift to tier-three cities
and rural areas is taking place. Easy availability of finance from the housing finance
companies and commercial banks at lower interest rates, increased salaries and
availability of fiscal and tax benefits are propelling the demand for housing
properties. The growth of the Information Technology Enabled Services (ITES),
industry has been a significant contributor of housing property demand in recent
years. ITES firms are moving from traditional centres like Mumbai, Delhi,
Bangalore, Hyderabad and Chennai to the National Capital Region, Pune,
Chandigarh, Jaipur, etc. in order to be cost effective. This is resulting in not only the
boom in residential property markets but also in the institutional property markets in
these cities. There is great demand for modern office buildings and commercial
spaces in India.

Threats (bottlenecks)
Impact of legal charges and documentation fees
There are taxes / duties / fees payable to the state at the construction stage. There are
two aspects of the cost namely:
 monetary cost and;
 cost in terms of time devoted in obtaining various permissions and

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

clearances.
The number of permissions and documentation required can be quite large. Further,
permissions have to be taken from different departments and that too sequentially.
This delays the process of housing construction and occupation. The actual fees
imposed by the government are not necessarily high but the time taken to obtain
requisite permissions is very long, procedures cumbersome and sometimes involves
extra payments to facilitate the movement of files and getting the transaction
through, is significant vis-à-vis the statutory fees. The delays highlight the
sluggishness of the market by increasing the gap between change in demand and the
market response to it.
Future Outlook:
It is estimated that the housing finance industry will be able to maintain a higher
growth in fresh origination of residential home loans over next three to five years
mainly due to increased affordability of the borrower i.e. ratio of average property
price to average annual income, on account of the falling loan interest rates and
decrease in property prices. The average age of borrowers has declined over the
years, while the number of double-income households has grown significantly
thereby enabling them to borrow higher loan quantum due to increased affordability
and repayment capacity. The growth drivers will continue to increase demand for
self-occupied residential housing; Revival of economy will certainly lead to a steady
increase in monthly incomes across key sectors. Rising proportion of double income
households, renewed confidence in higher income generation, reassurance of job
security and availability of variety of financing options should stimulate growth of
the housing sector. All these factors will further boost the impact of increased
affordability, leading to the sector‘s steady and comfortable growth. Looking
forward, LIC Housing Finance would like to remain focused in end-user segment for
growth and increased profitability and wish to make the coming year, a year of
further consolidation and progress by crossing greater milestones.

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

4.2 RELIANCE CAPITAL:

4.2.1 Indian Economy:

After several quarters of around 9 per cent GDP growth, the rate moderated to 7.6per
cent and 5.3 per cent in the last two quarters of 2008, and is expected to average 7
per cent for Financial Year (FY) 2009. The slowdown has been largely caused by a
deceleration in industrial growth from about 8.5 per cent in FY 2008 to 2.4 per cent
in the third quarter of FY 2009. Surprisingly, the agriculture sector slowed down
from 4.5 per cent in FY 2008 to -2.2 per cent in the third quarter of FY 2009. In
contrast, the remarkable service sector success story remained intact as output grew
9.9 per cent in third quarter, down only slightly from 10.8 per cent in 2008. The
moderation from previous years was due to several factors. The financial crisis and
global slowdown affected both export growth in goods, services and hence industrial
production as well as corporates‘ access to diverse and low cost funding. Moreover,
high inflation during the first half of FY 2009 forced RBI to pursue a tight monetary
policy, which further dampened investment and consumption. However, the fact that
India‘s growth in the last few years has been fairly broad based (across sectors and
regions) and balanced (with consumption, investment, savings and exports all rising)
bodes well for the structural transformation of the economy as the business cycle
enters a recovery phase, in the second half of FY 2010.
RBI cuts rates aggressively: India‘s Wholesale Price Index, which was as high as
12.9 per cent in August 2008 fell to 0.3 per cent by March 2009 resulting in an
average inflation of around 8 per cent for FY09. The sharp fall in inflation was
caused by a high base, a significant fall in commodity prices and various duty cuts
announced by the Government. Inflation is expected to remainlow and may even
enter the negative territory for a short time before moving up again towards the end
of 2009.
Falling inflation and slowing growth gave the Central bank enough room and reason
to cut rates aggressively. From September ‘08 to March ‘09, the RBI has cut Repo,
Reverse Repo and CRR by 400, 250 and 400 bps respectively. This easing in
monetary policy is likely to translate, with a lag, into a significant boost for the
economy. India‘s Trade Deficit widens, largely due to increasing import growth:
Global demand destruction due to the recent crisis led to a mere 3.4 per cent growth

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

in exports in FY 2009 while higher commodity prices (including oil) pegged the
imports growth at 14.3 per cent. This resulted in a trade deficit of US$119 billion in
FY09 compared to US$88.5 billion in FY 2008. For the first three quarters in FY
2009, the higher trade deficit, coupled with negative capital flows, reduced India‘s
Balance of Payments (BoP) surplus to a deficit of US$20.4 billion. After 10
consecutive quarters of surpluses, this is the second time in three quarters that BoP
has ended in a deficit. The capital a/c balance too turned negative (-US$ 3.7 billion)
in third quarter FY 2009 mainly due to net outflows under portfolio investment,
banking capital and short-term trade credit. Outflows under portfolio investment
were led by large sales of equities by FIIs and slowdown in net inflows under ADRs/
GDRs. India‘s foreign exchange reserves declined by about US$ 59 billion in FY
2009, but still remained at an impressive US$250 billion in March 2009. The
country‘s current foreign exchange reserves far exceed its total official and private
sector external debt making India‘s balance of payments position quite comfortable.

Import declines more than export in recent months, thereby improving trade deficit:
Since January 2009, Imports have declined more than exports due to both lower oil
import bills and slowing domestic investment and consumption. This has helped in
narrowing our trade deficit further. The trade deficit for the month of March
narrowed to US$4 billion (4.1 per cent of GDP, annualized) compared to US$14
billion in August 2008.

4.2.2 Reliance Capital

(RCL) is a part of the Reliance Anil Dhirubhai Ambani Group and is one of India‘s
leading and fastest growing private sector financial services companies, and ranks
among the top 3 private sector financial services and banking groups, in terms of net
worth. It is a constituent of S&P CNX Nifty and MSCI India. Reliance Anil
Dhirubhai Ambani Group is amongst India‘s top 3 business houses with a market
cap of US$ 22 billion, and 150 million customers. It has a strong presence across a
wide array of high growth consumer-facing businesses such as Telecom, Financial
Services, Energy, Power, Infrastructure and Media an Entertainment Reliance
Capital has interests in asset management and mutual funds, life and general
insurance, private equity and proprietary investments, stock broking and depository

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

services, consumer finance, asset reconstruction, institutional broking and

distribution of financial products.
Reliance Capital, a constituent of S&P CNX Nifty and MSCI India, is a part of the
Reliance Anil Dhirubhai Ambani Group (www.relianceada.com). It is one of India's
leading, most valuable and fastest growing financial services companies in the
private sector.

Reliance Capital has interests in asset management and mutual fund; life and general
insurance; consumer finance and industrial finance; stock broking; depository
services; private equity and proprietary investments; exchanges, asset reconstruction;
distribution of financial products and other activities in financial services.
Reliance Mutual Fund is India's largest Mutual Fund with over seven million
investors. Reliance Life Insurance is one of India's fastest growing life insurance
companies and among the top four private sector insurers. Reliance General
Insurance is one of India's fastest growing general insurance companies and among
the top three private sector insurers. Reliance Money is one of India‘s leading retail
brokerage houses and distributors of financial products and services.
Reliance Capital has a net worth of Rs. 7,712 crore (US$ 2 billion) and total assets of
Rs.
26,003 crore (US$ 6 billion) as on March 31, 2010.
Reliance Consumer Finance offers a wide range of products, which include personal
loans, vehicle loans (car and commercial), home loans, loan against property, and
SME loans. The focus in this business is primarily the asset quality and the
profitability of each loan given; not merely growth or market share gains. In the
September to December quarter of the year, there was a steep drop in liquidity due to
the global financial meltdown that had its fallout on India. Consequently we slowed
our disbursals. This naturally resulted in a smaller loan book, which fell from
Rs.9,513 crore last year to Rs.8,576 crore this year Reliance Consumer Finance
offers a wide range of products which include Home loans, Loans against property,
Vehicle loans (cars and commercial vehicles), SME loans and Personal loans. The
focus in this business is not just on the growth of credit per se but also on the quality
of credit. Backed by the long-standing conservative approach, we have developed
stringent in-house credit risk management systems to ensure the highest quality of
credit.There was reduction the size of our loan book to Rs.8,576 crore (US$ 2

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

billion) as on March 31, 2009, as against Rs.8,902 crore at the end of December 31,
2008. Our loan book is spread across 1,19,759 customers and 23 locations. The loan
book as on March 31, 2008 was Rs.7,120 crore. Reliance Consumer Finance
generated revenues of Rs.1,200 crore (US$ 261 million) for the year ended March
31, 2009, as against Rs.395 crore for the corresponding previous period an increase
of 204 per cent. For the year ended March 2009, it achieved a profit before tax of
Rs.91 crore (US$ 20 million) as against Rs.36 crore an increase of 152 per cent. _
Reliance Capital‘s subsidiaries i.e. Reliance Consumer Finance Pvt. Ltd. and
Reliance Home Finance
Pvt. Ltd. have got approvals from RBI as NBFC and the National Housing Bank for
doing the business of retail financing i.e. consumer finance and homes finance
respectively.

Business mix of Reliance Capital

Asset Mutual Fund, Portfolio Management, Offshore
Management Fund

Insurance Life Insurance, General Insurance

Consumer
Finance & Mortgages, Loans against Property , Business
Home Loans, Loans for
Commercial Vehicles, Loans for Construction
Finance Equipment,
Auto Loans, Loans against shares, Business Loans
Broking and Stocks Commodities and Derivatives, Wealth
Distribution Management
Services, Portfolio Management Services,
Investment Banking,
Foreign Exchange and Offshore Investment,
Third Party
Products
Other Asset Reconstruction, Institutional Broking,
Businesses Private Equity,
Exchanges, Venture Capital

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

4.2.3 Financial Performance

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

The Company‘s gross income for the financial year ended March 31, 2009 increased
to Rs.3,017.29 crore, from Rs.2,079.79 crore in the previous year, registering a
growth of over 45.08 per cent. The operating profit (PBDIT) of the Company
increased 46.24 per cent to Rs.2,334.99 crore during the year, up from Rs.1 596.69
crore in the previous year. Interest expenses for the year increased by 203.02 per
cent to Rs.1,236.75 crore, from Rs.408.15 crore, in the previous year. Depreciation
was at Rs.21.22 crore as against Rs.17.09 crore in the previous year.

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

The provision for taxation during the year was Rs.109 crore. The net profit for the
year decreased by over 5.60 per cent to Rs.968.02 crore from Rs.1,025.45 crore in
the previous year. An amount of Rs.193.61 crore was transferred to the Statutory
Reserve Fund pursuant to section 45-IC of the Reserve Bank of India Act, 1934, and
an amount of Rs.96.81
crore was transferred to the General Reserve during the year under review. The
Company‘s Net worth as on March 31, 2009, stood at Rs.6,697.42 crore, as against
Rs.5,927.50 Fixed Deposits The Company has neither accepted nor renewed any
fixed deposits during the year. Five deposit accounts, aggregating to Rs.26,000,
remained unclaimed on the due dates as on March 31, 2009. The Company has
intimated the deposit holders individually of their unclaimed amount with a request
to return the Fixed Deposit Receipts duly discharged to enable the Company to repay
the amount.

4.2.4 Macro Economic Analysis

Opportunities
 Low retail penetration of financial services / products in India

 Tremendous brand strength and extensive distribution reach

 Opportunity to cross sell services

 Increasing per-capita GDP
 Changing demographic
profile of the country in favour of the young

Threats
 Competition from local and multinational players.

 Execution risk.

 Regulatory changes.

 Attraction and retention of human capital.

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

Future Outlook
India has survived one of the worst global crises in history better than most other
economies. The recent recovery in many of the leading macro indicators of
economic activity has led many to believe that the worst is over for the Indian
economy and we are on our way to a higher growth trajectory. There has been a
resurgence in sales across a variety of sectors from automobiles to cement, steel and
electricity production. Rail and port traffic too has seen an up tick. The Purchasing
Managers‘ Index (PMI) has shown an improvement from a
low of 49.5 for March to 53.3 for April 2009, signifying a renewed trend of growth
in manufacturing. India is the second major economy after China where the PMI has
crossed the baseline 50 mark, indicating the start of an expansionary ph ase. The
growth in first half of FY 2010 is expected to remain soft, with the economy turning
around in the second half. The drivers of this turnaround include government‘s fiscal
stimulus measures, the collapse in commodity prices, the coming onstream of
significant domestic oil and gas output, the recent infusion of record levels of FDI,
the improvement in trade deficit and the environment for external commercial
borrowing (ECB) the fall in the real exchange rate, the RBI‘s aggressive monetary
policy actions and the expected stabilization of the global economy. India remained
the second fastest growing economy in FY 2009 after China. In the light of the
ongoing global recession, India will, even at a modest growth of 6 per cent in FY
2010, be one of the fastest growing in the world.

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ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

4.3 SHRIRAM TRANSPORT FINANCE

4.3.1 ECONOMIC OVERVIEW

The global economic conditions deteriorated sharply during the year 2008-09 with
several advanced economies experiencing their sharpest declines. The associated
adverse effects spread across emerging market economies (EMEs) particularly by
the third quarter of the year and accentuated the synchronized global slowdown.
Inflation conditions witnessed sharp volatility during the year as headline inflation
in major advanced economies firmed up considerably up to July 2008, but declined
sharply thereafter. The global financial environment entered a crisis phase in mid-
September 2008, following the growing distress among large international financial
institutions. India – the third largest economy in Asia is estimated to have grown
less than 7 percent in 2008-09, after growing at an average rate of around 9 percent
or more in three fiscal years to March 2008. This was on account of a global
economic downturn and a contraction in domestic demand.

4.3.2 COMMERCIAL VEHICLE INDUSTRY OVERVIEW

The financial year 2008-09 ended with a net decline of 22.3 percent in new
commercial vehicle (CV) sales (domestic and exports) as compared to the previous
year. The industry witnessed a healthy growth during the first-half of 2008-09, post
which the CV sales started declining at a high rate. This can be primarily attributed
to the weakening of macro-economic indicators, resulting in drop in freight
availability, and restricted credit availability. However, in the fourth quarter, the
industry witnessed a slight revival in sales, on a month-on-month basis, partly
driven by the stimulus packages provided by the government. The key steps taken
include reduction in excise duty and provision of accelerated depreciation to benefit
CV buyers. In addition to this, the government also undertook measures to improve
liquidity for NBFCs and provide financial assistance to State Transport
Undertakings for purchasing buses under the Jawaharlal NehruNational Urban
Mission.

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

MAJOR DEMAND DRIVERS

1. Roadways have remained a dominant transport mode:

Over the last few decades, roadways have dominantly improved their share due to
greater coverage, higher flexibility of door-to-door delivery and lower risk of
handling losses. Further, the government‘s investment in the development of
national highways over the last few years has led to higher demand for road
transport. With further improvement in road infrastructure and higher growth
expected in road transport (which are primarily transported through roadways), road
freight is expected to account for 63.5 percent of the total freight movement.

 Higher replacement demand: Higher CV sales over the last few years were also
supported by replacement demand which stemmed from stricter regulations on
overloading and
emissions. The Supreme Court, in November 2005, banned overloading of goods‘
trucks and trailers in excess of prescribed gross vehicle weight. To reduce pollution,
the Automotive Research
OWNERSHIP TREND IN CVS Shriram Transport caters to small truck operators
(STO – owning less than five trucks) and first-time users (FTU),and is currently the
only organised player financing this segment (others are private financiers). STOs
and FTUs control around 75 percent of the total truck fleet; however, they have
poor freight origination skills and are therefore dependent on brokers for a majority
of their contracts.

4.3.3 Shriram Transport Finance

We are a part of the "SHRIRAM" conglomerate which has significant presence in
financial services viz., commercial vehicle financing business, consumer finance,
life and general insurance, stock broking, chit funds and distribution of financial
products such as life and general insurance products and units of mutual funds.
Apart from these financial services, the group is also present in non-financial
services business such as property development, engineering projects and
information technology

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

Our Company was incorporated in the year 1979 and is registered as a Deposit
taking NBFC with Reserve Bank of India under Section 45IA of the Reserve Bank
of India Act, 1934.
STFC decided to finance the much neglected Small Truck Owner. Shriram
understood the power of 'Aspiration' much before marketing based on 'Aspiration'
became

fashionable.Shriram started lending to the Small Truck Owner to buy new trucks.
But we found a mismatch between the Aspiration and Ability. The Truck Operator
was honest but the Equity at his command was not sufficient to support the credit
levels required to buy a new truck.
From Driver to Owner, even if only of a Pre-owned Truck and from Pre-owned
Truck to the New Truck, we have been with him in his journey of Prosperity as he
has been our partner in our road to success and leadership.

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

4.3.5 Financial Performance

UBLICISSUEOFNCDs
To explore and develop additional source of financing and with a view to meet The
Company‘s business operations, The Company, pursuant to the Securities and
Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008
and subject to the necessary approvals, consents and permissions, issued and allotted
Secured Non Convertible Debentures, through a public issue and raised a sum of Rs.
99,999.96 lacs.
Considering the potential in raising funds by issue of non convertible debentures
(NCDs), The Board, at its meeting held on January 18, 2010, has decided to offer
and allot, subject to the aforementioned Regulations and such approvals as may be
necessary, secured / unsecured, NCDs not exceeding Rs. 50,000 lacs in one or more

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

tranches through another public issue which is expected to open for public
subscriptions in May 2010.

4.3.4 SWOTANALYSIS
Strengths

 The pioneer in the pre-owned CVs financing sector


 Knowledge-driven (products as well as local customers) and relationship-based
business model.

 Significant expertise and experience in valuation of pre-owned CVs as well as in
recovery/collection of monthly payments from customers

 Pan-India presence with 484 branch offices all over the country.
 A well-defined and scalable organisation structure, capable of supporting surging
growth Low delinquency as assets are backed with adequate cover and are easy to
repossess with immediate liquidity

 Strong financial track record driven by fast growth in AUM with low Non
Performing Assets (NPAs)

 Experienced and stable management team Strong relationships with public, private
as well as foreign banks, institutions and investors

Weaknesses

 The Company‘s business and its growth are directly linked to the GDP growth of the
country.

 Any slowdown in GDP growth may have a negative impact on the business

Opportunities

 Growth in the CV market driven by the economic growth and the infrastructure
development in the country

 Strong demand for construction equipment Strong demand for passenger CVs Strong
demand for pre-owned tractors Loans for working capital requirements of CV users

 Partnerships with private financiers will enable the Company to enhance its reach

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

without significant investments in building infrastructure

Threats

 Maintaining relationships with customers who are mobile and have no proper
documentation

 Maintaining asset quality

 Regulatory changes in the Non-Banking Financial Company (NBFC) and
transportation sectors

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

OUTLOOK AND OPPORTUNITIES

The global financial slump drastically squeezed export demand for our products
and services in the country‘s main US and European markets. The GDP growth for
2008-09 is now projected to be in the range of 6.5 to 6.7 per cent. The Government
of India as well as the Reserve Bank of India did a splendid task in somewhat
insulating the country and its financial markets from the effects of the world wide
crisis. They responded to the challenge quickly and magnificently, thus minimising
the impact of the crisis on India while maintaining comfortable domestic and foreign
exchange liquidity. The Government of India provided three stimulus packages
which, amongst other measures, cut excise duty by four per cent across the board
and increased planned expenditure by Rs. 20,000 crores.
Easing of monetary curbs and regulatory actions of the Reserve Bank ensured that
our financial markets functioned normally in spite of the disturbances across the
world. These measures, on one hand stimulated consumption and on the other hand
provided enough liquidity in the financial markets. These initiatives, coupled with
lower commodity prices, are expected to soften the downswing by stabilising
domestic economic activity. Several factors, such as increased movement of freight
at the leading ports, pick-up in project investments, increased hiring, and
encouraging data from a number of key manufacturing segments could be an
indicator that the downtrend has bottomed out and that our economy is poised to
regain its lost vigour shortly.
It is reported that auto, cement, steel and capital goods sectors have started
performing strongly which indicates a possible strong turnaround in the economy.
Despite several challenges lying ahead, the Indian economy remains resilient and is
widely expected to grow at around 6 percent in FY 2009-10. The cumulative
production data for the Auto industry for 2008 – 09 recorded a growth of 2.96
percent over 2007 – 08. During 2008-09 the sales of Commercial Vehicles declined
by 21.69 percent when compared to that of last year. Sales of Medium & Heavy
Commercial Vehicles (M&HCV) fell by 33.16 percent and Light Commercial
Vehicles (LCV) recorded a negative growth of 7.10 percent. In spite of the economic
slowdown in the country,

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4.4IDFC

4.4.1 Global Financial and Economic Crisis

TH E Y E A R 2 0 0 8 - 0 9 SAW the worst global financial and economic crisis in
60 years. The crisis had a sev ere knock-on effect on the developing and emerging
economies,
and caused India to lose much sheen from the stellar economic performance of the
past years. It exacerbated the beginning of a cyclical downturn in India‘s economy
and India‘s GDP growth, which was 9% during 2007-08, slowed to 5.3% in the third
quarter of 2008-09.
Although Financial Institutions (FIs) in India have very limited exposure to the
‗toxic‘ or
‗distressed‘ assets, directly or through derivatives, and to the failed and stressed
global FIs, India has felt a strong impact through trade, financial markets and
moderation in capital flows. The impact has also been felt by the infrastructure
sector in the country, largely through weakening of demand, which was pronounced
in the transportation sector (see Table 1), and reduced availability of finances, as
external capital dried up and the equity market On the other hand, the global
economic slowdown led to softening of commodity prices such as crude oil,
aluminum, iron ore, copper and steel after July 2008, there by reducing the cost of
projects albeit with some time lag. Interest rates also started declining in line with
the monetary policy measures adopted by the Reserve Bank of India. Nevertheless,
these positive effects were offset by the weakening rupee, slackening demand and
problems faced by developers in respect of fund raising.

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meet the growing demand for infrastructure services - regulatory framework and
private sector participation. Notwithstanding such efforts, the progress in capacity
expansion in the different sectors was very limited (see Table 2). The global crisis is
only partly to blame as there are continuing defi ciencies in policy and regulatory
frameworks, and delays in decision making. The delays in allocation of 3G spectrum
and allegations of favoured treatment to some operators for 2G spectrum have done
little to strengthen the investment climate in not only the telecom sector, but in
infrastructure per se. Similarly, litigation relating to norms laid down in the model
bid documents for the roads sector delayed the much needed impetus for new
projects under the National Highways Development Programme (NHDP). The
concession agreements finalized for the award of new terminals at major ports in
2007-08 also underwent several revisions during 2008-09. The award and execution
of projects also faced several problems. These include the large number of
clearances required from various government agencies, delays in land acquisition.
changes in scope of projects during the bidding process, inadequate supply of
equipment, delays in award of civil works, and weak project execution capacity.
While financial markets in the US and Europe were feeling the pressure in the
second half of 2007-08, other capital markets, especially in emerging economies, did
not seem to think that the sub-prime problem would play out into a full blown crisis
of financial confidence. That changed by the first half of 2008-09, when everyone
began to see a clearer picture of the extent of write-downs undertaken by the major
international financial houses on account of their non-performing assets.

4.4.2 Infrastructure Development Finance

Company Limited (‗IDFC‘ or ‗the Company‘) was set up in 1997 to act as a
financier and catalyst for the development of private sector sponsored infrastructure
projects in India. Over the last 12 years, and more so since the Initial Public Offering
(IPO) in July 2005, IDFC has pursued a focused growth strategy to evolve rapidly
into a ‗one-stop-shop‘ for infrastructure fi nance in India, capable of meeting the
increasingly complex and ambitious requirements of an expanding client base.
Infrastructure typically involves projects with long gestation periods, with each

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project going through different phases of implementation. Broadly speaking, it

begins with conceptualizing a project. Then the full project plan is developed,
followed by financial closure. Next comes the execution phase, where the
underlying

Physical infrastructure is actually created. Finally, the project moves to revenue

generation, when the underlying asset starts getting utilised and generates actual
income streams. Each of the phases has different risk return profiles. IDFC‘s
expertise lies in a deep understanding of the risks and opportunities associated with
the different phases of a project‘s lifecycle, and appropriately packaging
differentiated financial solutions that best meet the requirements of investors and
clients at the different stages by progressively expanding the range of its skills,
products and services beyond the traditional project lending to investment banking
as well as different types of asset management. This diversified range of product and
service capability has strengthened IDFC‘s core business model and has propelled
the Company into one of India‘s premier financial services platform leveraging
knowledge and talent to span the areas of infrastructure project finance, asset
management and investment banking. Much of IDFC‘s business is about mobilizing
international as well as domestic capital. Naturally, like other businesses, it has to
deal with demand and supply side issues. While the demand side issues are domestic
in nature and relate largely to the appetite for private investment especially in the
Infrastructure sector, the supply side issues are more global. These include factors
like cost of capital, liquidity and investor confidence that are intrinsic to
international capital flows.
On both fronts there were significant developments in the macro-economic
environment and overall market conditions, which played a key role in defining the
Company‘s strategy and progress during 2008-09. In this context, it is important to
first analyse the structural changes that took place in the macroeconomic
environment to appreciate the challenges that IDFC had to face and overcome
during 2008-09.

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THE BUSINESS ENVIRONMENT AND IDFC

As was reported in last year‘s Annual Report, the fall in housing prices in the US
had sparked off the sub prime lending crisis in the middle of 2007. Credit
downgrading by rating agencies and increased default risk of various housing
backed paper, particularly collateralised debt obligations (CDOs) that were sliced,
diced and far removed from the original assets, rapidly spread throughout the US,
and then to the European and Asian financial systems. In a matter of months, what
had started as a US housing problem became a major crisis that affected the entire
global financial system. Several large international financial institutions were left to
grapple with the consequences of large asset write-downs. Soon this led to an
unprecedented contraction of credit in the system — especially in the last three and a
half months of 2008,

after the collapse of Lehman Brothers on 14th September. Thanks to massive

financial, monetary and fiscal interventions by the US as well as major European
nations, the acute financial crisis passed by January 2009. But it scarred the real
economy everywhere in the world. Starting with the US in the third quarter of 2008,
every major developed country went into a recession — which continues till today.
At the time of writing this Management Discussion and Analysis, the global
situation remains grim. Indeed, this is the worst economic downturn that the world
has seen since the Great Depression of the 1930s.
 The US has already suffered from three successive quarters of negative GDP growth,
with possibly more to follow. Although it is believed by some that the US economy
will bottom out by the end of the third quarter of 2009, the estimated GDP growth
for 2009 will be -2.9%. In April 2009, unemployment was at 8.9%, and rising—the
worst since the early 1980s.

 The Euro area is also in a deep recession, and structurally much worse off than the
US. GDP growth for 2009 is estimated at -3.7%.

 Japan is heading for yet another period of long term de-growth. Industrial output has
been falling by more than 30% every month compared to a year earlier; and GDP
growth for 2009 is being estimated at 6.4%.

 With an estimated 11% to 12% fall in the real value of world trade in 2009, China‘s

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growth is expected to reduce to high single digits.


 India‘s growth is down from the 9% plus range of the last three years to 6.7% in
2008-09, with the chances of it being similar in 2009-10.

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IDFC consolidated net profit at Rs. 750 crore for

FY 2009 Highlights of FY 2009
 Profit After Tax of Rs.750 crore for FY 2009 compared to Rs.742 crore in FY 2008

 Balance sheet size as on March 31, 2009: Rs. 29,809 crore : an increase of 7%

 Net NPAs at 0.21% of outstanding loans

 Capital Adequacy Ratio at 23.75% (Tier I – 20.04%; Tier II – 3.71%)

 Net Interest income (NII) of Rs.922 crore : an increase of 33%

 Non Interest Income of Rs. 613 crore in FY 2009

 Assets under management – USD 4.7 bn

 Closure of USD 1.0 bn India Infrastructure Fund and USD 0.70 bn IDFC Private

 Equity Fund III

 At its 72nd Board Meeting held on April 28, 2009, the Board of Directors of
Infrastructure Development Finance Company Limited (IDFC) approved financial
results for the period April 1, 2008 to March 31, 2009 and recommended Dividend
at the rate of Rs. 1.20 per equity share for FY 2009.

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INCOME
 Net Interest Income (NII) increased by 33% from Rs. 694 crore in FY 2008 to

 Rs. 922 crore in FY 2009.

 Net Interest Income (NII) from infrastructure loans increased by 34% from

 Rs. 565 crore in FY 2008 to Rs. 758 crore in FY 2009.

 Net Interest Income from treasury operations increased by 27% from Rs. 129

 crore in FY 2008 to Rs. 164 crore in FY 2009.

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 Non Interest Income for FY 2009 decreased by 1% from Rs. 618 crore in FY 2008 to
Rs.613 crore in FY 2009.

 Fees from IDFC‘s asset management business were Rs. 203 crore in FY 2009.

 Income from Investment banking and broking activity of IDFC was Rs. 115 crore in
FY 2009.

 Income from principal investments was Rs. 184 crore in FY 2009.

 Other fees was Rs.111 crore in FY 2009.

PROFITS
 Profit before tax (PBT) increased by 4% from Rs. 1,000 crore in FY 2008 to Rs.
1,036 crore in FY 2009.

 EPS (diluted) at Rs. 5.78 per share

 After accounting for Rs. 278 crore for tax, profit in associate company and minority
interest, the profit after tax (PAT) for FY 2009 increased by 1% to Rs. 750 crore
from Rs. 742 crore in FY 2008.

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TYPES OF NBFC’S

Originally, NBFCs registered with RBI were classified as: (i)equipment leasing
company;
 hire-purchase company;
 loan company;
 investment company.

However, with effect from December 6, 2006 the above NBFCs

registered with RBI have been reclassified as

Asset Finance Company (AFC)

Investment Company (IC)
Loan Company (LC)
The study presents a comparative study of NBFC’s in India. There are almost
13000 registered NBFC’s in India. The study is aimed to provide an holistic view
of the NBFC Industry. NBFC fulfills the financial gap by providing loan at a lower
rate of interest. The major players of each field

Housing Finance Industry: LIC Housing Finance.

 Infrastructure Finance Industry: IDFC

 Asset Financing: Shriram Transport Finance

 Composite: Reliance Capital

The study also compared the Indian Banks v/s NBFC. It was found that at even at
the time of the economic slowdown NBFC was more profitable. Porters Five
forces was also used to analyse the industry and to find the competitiveness in
the industry. The industry is not tightly regulated as there are many regulatory
bodies. Hence, there was an important need to study the NBFC as the industry
plays an important role in the financial Services market of INDIA.

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

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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 disadvantages), along with
an identification of real capabilities are essential to ensure that the
equilibrium between price paid and value realized is reached to the extent
possible. In the absence 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

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REGULATIONS OF NBFC’S

 In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every
NBFC should be registered with RBI to commence or carry on any business of non-
banking financial institution as defined in clause (a) of Section 45 I of the RBI Act,
1934. However, to obviate dual regulation, certain categories of NBFCs which are
regulated by other regulators are exempted from the requirement of registration with
RBI viz. Venture Capital Fund/Merchant Banking companies/Stock broking
companies registered with SEBI, Insurance Company holding a valid Certificate of
Registration issued by IRDA, Nidhi companies as notified under Section 620A of
the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the
Chit Funds Act, 1982 or Housing Finance Companies regulated by National Housing
Bank.


` The company is required to submit its application online by accessing RBI‘s

secured website https://secweb.rbi.org.in/COSMOS/rbilogin.do (the applicant

companies do not need to log on to the COSMOS application and hence user ids

for these companies are not required). The company has to click on ―CLICK‖ for

Company Registration on the login page. A window showing the Excel application

forms available for download would be displayed. The company can then

download suitable application form (i.e. NBFC or SC/RC) from the above website,

key in the data and upload the application form. The company may note to indicate

the name of the correct Regional Office in the field ―C-8‖ of the ―Annx-

Identification Particulars‖ worksheet of the Excel application form. The company

would then get a Company Application Reference Number for the CoR application

filed on-line. Thereafter, the company has to submit the hard copy of the

application form (indicating the Company Application Reference Number of its

on-line application), along with the supporting documents, to the concerned

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Regional Office. The company can then check the status of the application based

on the acknowledgement number. The Bank would issue Certificate of

Registration after satisfying itself that the conditions as enumerated in Section 45-

IA of the RBI Act, 1934 are satisfied.

All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a
valid Certificate of Registration with authorisation to accept Public Deposits can
accept/hold public deposits. NBFCs authorised to accept/hold public deposits
besides having minimum stipulated Net Owned Fund (NOF) should also comply
with the Directions such as investing part of the funds in liquid assets, maintain
reserves, rating etc. issued by the Bank.
LCs/ICs with CRAR of 15% and having minimum investmentEqual to NOF grade
credit rating

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CHAPTER 5
CONCLUSION

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 ROLE OF NON BANKING FINANCIAL COMPANY 2018-19

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

disadvantages), along with an identification of real capabilities are essential to

ensure that the equilibrium between price paid and value realized is reached to the

extent possible. In the absence 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 quality was affected due to

the crisis were supported by 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. overall positive outlook on the sector due

to the better ALM position, focus on relatively 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)

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LIMITATIONS:

 NBFCs cannot accept demand deposits as it falls within the realm of activity of
commercial banks
 An NBFC is not a part of the payment and settlement system and as such an NBFC
cannot issue cheques drawn on itself
 Deposit insurance facility is not available for NBFC depositors unlike in case of
banks
 All NBFCs cannot accept deposits; only some can. Only those NBFCs holding a
valid Certificate of Registration with authorisation to accept Public Deposits can
accept/hold public deposits
 The regulatory mechanism for NBFCs is stringent

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SCOPE OF THE FURTHER STUDY

Top-rated NBFCs have not only been successful in managing their market share but
also in protecting their profitability. A combination of the factors cited earlier had
helped these NBFCs earn better returns on their deployment. In fact, almost all the
top-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 ratios
upwards of 15 per cent. In other words, their balance sheets continue to be strong to
accommodate further growth in disbursements.

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RECOMMENDATIONS OF THE STUDY

 Domestic Financial markets can be integrated by making NBFC‘s Channel partners

to Banks. It will help in better allocation and funds availability. 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 body needs to educate people about

NBFC.

 To reduce in interest cost and hence benefit the ultimate consumer.


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. Apart from the asset-type financed, another
differentiator between asset qualities was the origination & collection model
followed. NBFC‘s which originated majority of their portfolio through branches &
own employees showed better asset quality performance 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. Unsecured lending has
virtually stopped for many NBFCs and underwriting norms have also been tightened
in general for other asset classes. These developments indicate positive structural
changes.

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CHAPTER 6
BIBLIOGRAPHY

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6. BIBLIOGRAPHY

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/

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

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BOOKS & AUTHORS

SR. NO. NAME OF BOOK AUTHORS NAME PUBLICATION

1 Indian Banking Khan M.Y. and Jain Tata McGraw Hill.
Industry P.K (2001)
2 Non Banking Kothari, C. R. Vikas Publishing
Technique (1978), House Pvt. Limited
3 International Kozak Y.G. Wiley & Sons
Taxation

WEBSITES

1  http://www.scribd.com/do
2  http://www.sebi.com/
3 http://en.wikipedia.org/wiki/Investment
4  http://www.investopedia.com/terms/p/price-
earningsratio.asp

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