A SYNOPSIS ON

“PERFORMANCE OF NON-BANKING FINANCIAL COMPANIES”

AT

“HDFC BANK LIMITED”

BY

B. SWETHA

(HALL TICKET NO: 2129-21-672-090)

Synopsis for project to be submitted for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

OSMANIA UNIVERSITY

2021-2023

AURORA’PG COLLEGE, NAMPALLY

 CHAPTER PLAN

CHAPTER-1
INTRODUCTION
SCOPE OF THE STUDY
OBJECTIVES OF THE STUDY
METHODOLOGY OF THE STUDY
LIMITATIONS OF THE STUDY
CHAPTER-2
REVIEW OF LITERATURE
CHAPTER-3
INDUSTRY PROFILE
COMPANY PROFILE
CHAPTER-4
DATA ANALYSIS AND INTERPRETATION
CHAPTER-5
SUGGESTION
FINDINGS & CONCLUSION
BIBLIOGRAPHY
INTRODUCTION

Non-Banking Financial Companies (NBFC’s)

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).

NBFC in India are registered companies conducting business activities similar to regular
banks. Their banking operations include making loans and advances available to consumers
and businesses, acquisition of marketable securities, leasing of hard assets like automobiles,
hire-purchase and insurance business.

Though they are similar to banks, they differ in a couple of ways. NBFC‟s cannot accept
demand deposits (deposits that can be withdrawn at immediate notice), they cannot issue
checks to customers and the deposits with them are not insured by the DICGC (the India
equivalent of FDIC in the US system). Either the RBI (Reserve Bank of India) or the SEBI
(Securities and Exchange Board of India) or both regulate NBFC‟s.

Though the NBFC‟s have been around for a long time, they have recently gained popularity
amongst institutional investors, since they facilitate access to credit for semi-rural and rural
India where the reach of traditional banks has traditionally been poor.

NBFC‟s have also had a major impact in developing small business in rural India through
local presence and strong customer relationships. Usually the loan officers in such NBFC‟s
know the end customer or have a strong “informal” understanding of the credibility of the
borrower and are able to structure their loans appropriately.
 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;

(ii) an NBFC is not a part of the payment and settlement system and as such an
NBFC cannot issue cheques drawn on itself; and
(iii) deposit insurance facility of Deposit Insurance and Credit Guarantee
Corporation is not available for NBFC depositors unlike in case of banks.
NBFCs garnered the attention of the Reserve Bank of India (‘RBI’) when several depositors
lost their money, during the failure of several banks in the late 1950s and early 1960s. In
order to prevent the large number of depositors, RBI initiated regulating them by introducing
Chapter IIIB in the Reserve Bank of India Act, 1934.In March 1996, there were around
41,000 NBFCs in India and they were not recognized as a separate class. However, due to
the failure of some of the institutions the regulatory structure along with the reporting and
supervision was constricted by RBI. In the late 90s, sweeping changes were brought to
protect the interest of depositors and ensuring the desired functioning of NBFCs.
The capital requirement was changed in the year 1999, NBFCs getting registered on or after
the issuance of notification dated April 21, 19991 were required to have the minimum net
owned funds of ` 200 lakhs in order to commence the business of an NBFC. Due to
snowballing trend in the sector and to ensure the growth of the sector in a healthy and
efficient
manner various regulatory measures were taken for identifying the systemically important
companies and bringing them under the austere norms. The NBFC-ND with asset size of `
100 crores or more were considered to be systemically important companies. During the FY
2011-12, two new categories of NBFCs were introduced viz., IDF and MFI.
 THEORETICAL REVIEW

NBFCs provide financial services like hire-purchase, leasing, loans, investments, chit-fund
companies etc. NBFCs can be classified into deposit accepting companies and non-deposit
accepting companies. NBFCs are small in size and are owned privately. The NBFCs have
grown rapidly since 1990. They offer attractive rate of return. They are fund based as well as
service oriented companies. Their main companies are banks and financial institutions.
According to RBI Act 1934, it is compulsory to register the NBFCs with the Reserve Bank of
India.

The NBFCs in advanced countries have grown significantly and are now coming up in a very
large way in developing countries like Brazil, India, and Malaysia etc. The non-banking
companies when compared with commercial and co-operative banks are a heterogeneous
(varied) group of finance companies. NBFCs are heterogeneous group of finance companies
means all NBFCs provide different types of financial services.

Non-Banking Financial Companies constitute an important segment of the financial system.

NBFCs are the intermediaries engaged in the business of accepting deposits and delivering
credit. They play very crucial role in channelizing the scare financial resources to capital
formation.

NBFCs supplement the role of the banking sector in meeting the increasing financial need of
the corporate sector, delivering credit to the unorganized sector and to small local borrowers.
NBFCs have more flexible structure than banks. As compared to banks, they can take quick
decisions, assume greater risks and tailor-make their services and charge according to the
needs of the clients. Their flexible structure helps in broadening the market by providing the
saver and investor a bundle of services on a competitive basis.

Non Banking Finance Companies (NBFCs) are a constituent of the institutional structure of
the organized financial system in India. The Financial System of any country consists of
financial Markets, financial intermediation and financial instruments or financial products.
All these Items facilitate transfer of funds and are not always mutually exclusive. Inter-
relationships Between these are parts of the system e.g. Financial Institutions operate in
financial markets and are, therefore, a part of such markets.

NBFCs at present providing financial services partly fee based and partly fund based. Their
fee based services include portfolio management, issue management, loan syndication,
merger and acquisition, credit rating etc. their asset based activities include venture capital
financing, housing finance, equipment leasing, hire purchase financing factoring etc. In short
they are now providing variety of services. NBFCs differ widely in their ownership: Some
are subsidiaries of large Manufacturers (e.g., T.V. Motors T.V. Finances and Services Ltd).
Many others are owned by banks such as ICICI Banks, ICICI Securities Ltd, SBI Capital
Market Ltd, Muthoot Bankers Muthoot Financial Services Ltd a key player in Kerala
financial services. Other financial institutions are IFCIs IFCI Financial Services Ltd or IFCI
Custodial Services Ltd (Devdas, 2005).
Non-banking Financial Institutions carry out financing activities but their resources are not
directly obtained from the savers as debt. Instead, these Institutions mobilize the public
savings for rendering other financial services including investment. All such Institutions are
financial intermediaries and when they lend, they are known as Non-Banking Financial
Intermediaries (NBFIs) or Investment Institutions.
 REVIEW OF LITERATURE

Suresh and Deepak has made a thorough analysis of the expansion of the non-banking sector
in India, including a discussion of the number of operating firms, the nature of the businesses
conducted by NBFCs, the size of their assets, the regional distribution of NBFCs, the
regulations that govern them, the challenges they face, and the opportunities they have ahead.
According to the findings of the research, the expansion of NBFCs contributes to the
accelerated expansion and increased profitability of the banking industry. The survey found
that NBFCs face a number of issues, including difficulty in accepting open assets, customer
communication and management, as well as a lack of clarity in RBI control directives and
legislation. According to the findings of the research, non-bank financial companies (NBFCs)
should be eligible for increased tax breaks.

Devendra has done an This study was conducted at a regional level and consisted of
empirical research work on asset and liability management methods at two public sector
banks, namely Andhra bank and Bank of India, as well as two private banks, HDFC and
AXIS, throughout the period of 2007 to 2016. The assessment of interest rate risk analysis
using GAP analysis has been the primary focus of the research, along with the identification
of a link between NPA and asset liability structure. In addition to this, he investigated the
effect that ALM procedures have on the efficiency of the banking industry. According to the
findings of the research, in order to prevent issues caused by a shortage of cash, private banks
maintained larger cash reserves than public sector banks. Throughout the whole of the
research period, private sector banks were shown to have better returns from their operations
than public sector banks. According to the findings of the research, the profitability position
of banks in the private sector is much greater than that of banks in the public sector because
of the high competency of their employees.

Sathyakala, a study that was conducted between 2006 and 2015 in India on seven new
generation private sector banks to investigate the link between asset liability management
techniques and financial situation found a correlation between the two. In order to conduct
research, he made use of a wide variety of financial and statistical methods, including ratios
(including spread, burden, and coverage ratios), growth rates, the t-test, the mean, the
standard deviation, the coefficient of variance, and structural equation modelling. According
to the findings of the survey, HDFC and Kotak Mahindra banks reported a better financial
situation than the majority of other new generation banks over the time period covered by the
study. In a similar vein, the asset and liability management methods of ICICI banks are
consistent with industry norms when compared to those of other banks. According to the
report, new generation banks need to reduce the maturity gap that exists between their assets
and liabilities in order to avoid being exposed to liquidity risk.

Basappahas conducted an investigation on the asset and liability management procedures

used by regional rural banks during the years 2011 and 2015, paying particular attention to
Karnataka VikasGrammena Bank. Within the scope of the research, he investigated the
methods of risk management used by Karnataka Bank with regard to the areas of credit risk,
interest rate risk, and liquidity risk. According to the findings of the research, the level of
capital adequacy ratio in Tier II of KVGB was inadequate in comparison to Tier I. The
research also discovered that there was a considerable difference in the asset-liability gap and
the interest gap throughout the course of the study period. But the maturity gaps for very
short and short periods revealed a negative gap in the first three years and a positive gap in
the following two years, while the maturity gaps for lengthy periods discovered a positive
gap during the whole research period. This suggests that the company had a healthy liquidity
position throughout the course of the investigation.

Jayanthihas used the CAMEL methodology to conduct an analysis of the efficacy of asset
liability management in a variety of commercial banks throughout the period of 2003–2012.
Statistical cost accounting and multiple regression analysis were two of the methods that
were used in this research to investigate the influence that ALM management has on the
profitability of banks. According to the findings of the research, ALM procedures in the
banking industry are noticeably distinct from one another. During the time period under
review, the risk management capabilities of certain Indian banks were much lower than that
of international banks. However, the findings of the research indicate that the banking
industry is making progress toward the efficient application of ALM via the use of novel and
sophisticated methods such as duration gap, simulation, and Value at Risk.
Rayganihas conducted a comparative analysis on the credit and liquidity risk management
procedures of two Indian banks throughout the period of 2007 to 2013; these banks are SBI
and ICICI. Nevertheless, this analysis did not take into account additional dangers that the
banking industry faces, such as those caused by fluctuations in interest rates and currency
rates, amongst others. In the study, he measured the liquidity risk of banks using various
ratios, such as the Ratio of Core deposits to Total assets, the Ratio of Total loans to Total
deposits, the Ratio of Time Deposits to Total Deposits, the Ratio of Liquid Assets to Total
Assets, the Ratio of Prime Assets to Total Assets, the Ratio of Short Term Liabilities to
Liquid Assets, the Ratio of Market Liabilities to Total Assets In a similar fashion, credit risk
is evaluated using ratios such as NPA to TL, risk adjusted margin, TL to TA, TL to TD, TE
to TA, TL to TE, TA to GDP, and so on. According to the findings of the research, both SBI
and ICICI banks were exposed to credit and liquidity risk throughout the time period under
investigation; however, the level of exposure was comparable in the case of liquidity risk but
different in the case of credit risk. In the course of the research, he made use of t-tests as well
as multiple regression analyses.

Rosy Karla has conducted an analysis of the performance of 20 different asset-based and core
investment non-banking financial organizations between the years 2006 and 2015. The
research looked at how certain NBFCS fared in terms of their increase in physical assets and
how well they performed. According to the findings of the study, the company's assets and
investments have been steadily growing throughout the course of the research period, which
is indicative of an increasing industry contribution to the financial sector.
 STATEMENT OF PROBLEME
NBFCs have become significant in India’s Banking, Financial Services and Insurance (BFSI)
sector. Today, BFSI’s mention looks incomplete without talking about NBFCs’ critical role
in its growth. Innovations are the lifeblood of Non-Banking Financial Companies (NBFCs),
the relatively new entrant making waves. It is creating disruptions across the financial
landscape of the country. Leveraging numerous IT-backed industry firsts, NBFCs have been
able to script many success stories in the Indian BFSI sector in a relatively short span of time.
These 13,000 plus players (the figure registered with the Reserve Bank of India) hold
immense potential in terms of innovation and growth. Because of their several unique
strengths; these are today considered the future growth drivers of the BFSI sector.

NATURE OF THE STUDY

Non Banking Finance Companies (NBFCs) are a constituent of the institutional structure of
the organized financial system in India. The Financial System of any country consists of
financial Markets, financial intermediation and financial instruments or financial products.
All these Items facilitate transfer of funds and are not always mutually exclusive. Inter-
relationships Between these are parts of the system e.g. Financial Institutions operate in
financial markets and are, therefore, a part of such markets.

NEED OF THE STUDY

Non-Banking Financial Companies are financial companies which performs like banks but
they are not actual bank. These types of financial companies have to be registered under
Companies act,1956. These financial companies engage in the business of financial loans and
advances, acquisition of securities/bonds/debentures which are issued by Government or
local authority or the marketable securities of a like nature, leasing, hire- purchase, insurance
business, chit business but does not it does not include whose prime principal business is that
of agricultural activity, industrial activity, purchase or sale of any goods. A Non-Banking
Financial Companies have head business of accepting stores under any plan or course of
action in one singular amount or in portions by method for commitments or in some other
way, is additionally a non-banking budgetary organization. Since the research is for industry
analysis and it is structured for NBFC‘S. The research uses secondary data for analysis and
interpretation.
 OBJECTIVE OF THE STUDY

The confined objectives of the present study are:

 To analyze the short-term solvency of the selected NBFCS.
 To appraise the long-term solvency of the selected NBFCS.
 Financial performance of NBFCS in terms on profitability.
 Financial performance of NBFCs in terms of return on net worth equity and return on
 capital employed
 To study whether the NBFCs are different or similar in terms of debt-to-equity ratio,
current ratio, return on net worth ratio, return on equity ratio. Net profit ratio
 To analyze the market of NBFC‘s in India
 To study the financials of NBFC‘s

SCOPE OF THE STUDY

The study was limited to the Financial Service market of India which included
NBFC‘s mainly from the . The study was completed within the time frame of 45 days
starting from 1st April, 2022 and ending on 1st June, 2022. The target group of the
study were the NBFC‘s
RESEARCH METHODOLOGY OF THE STUDY:

The study is both descriptive and analytical in nature. It is a blend of primary data
and secondary data. The primary data has been collected personally by approaching
the online share traders who are engaged in share market. The data are collected with
a carefully prepared questionnaire. The secondary data has been collected from the
books, journals and websites.

Data collection
Secondary information has been collected through various sources which include data from
RBI Publications, Money control Website, Journals and Reports on NBFCs. For conducting
the study, 10 companies of five different categories are chosen for which data is available.
The five different categories of NBFCs chosen are Asset Finance Companies, Core
Investment Companies, Factors NBFCs, Infrastructure Finance Companies and Microfinance
Companies. In the course of the analysis in this study, the use of various accounting and
statistical techniques has been made. Ratio analysis, mean, standard deviation and ANOVA
have been applied. The variables selected for analyzing the performance of NBFCs are
Current ratio, Debt-Equity Ratio and Net profit Ratio.

There are two methods of data collection that can be considered when collecting data
for research purpose. These data collection types include the following:

1. Primary data

2. Secondary data

Both the secondary and primary data collection methods were used in the study.

PRIMARY DATA

The primary data required for this study was collected by visiting the financial
services and analysing the information provided by them.
 SECONDARY DATA

The secondary data for the research was collected from journals, research articles,
books and internet websites, annual reports etc whose details and references has been
given in Chapter- 2 and in ―References‖. The source of the secondary data was
British Library, NBFC‘s and Internet.

Secondary data was the main source in formulating the constructs of ― A

comparative study of NBFC‘s in India‖

Research design
Research Design is the conceptual structure with in which research in conducted. It
constitutes the blueprint for the collection measurement and analysis of data. Research
Design includes and outline of what the researcher will do form writing the hypothesis and it
operational implication to the final and collection and analyzing the data. It is a strategy
specifying which approach will be used for gathering and analyzing the data.
Types of research design:
1. Exploratory Research Design: This research design is preferred when researcher has a
vague idea about the problem the researcher has to explore the subject.
2. Experimental Research Design: The research design is used to provide a strong basis for
the existence of casual relationship between two or more variables.
3. Descriptive Research Design: It seeks to determine the answers to who, what, where, when
and how questions. It is based on some previous understanding of the matter.
4. Diagnostic Research Design It determines the frequency with which something occurs or
its association with something else.
Research design used in this project - Research Design chosen for this study is Descriptive
Research Design. Descriptive study is based on some previous understanding of the topic.
Sampling design
Sampling is necessary because it is almost impossible to examine the entire parent population
(i.e., the entire universe) various factors such as time available cost, purpose of study etc.
make it necessary for the researchers to choose a sample. It should neither be too small nor
too big. It should be manageable. The sample size of past 6 years is taken for present study.
LIMITATIONS OF THE STUDY

• The study is restricted only for five years i.e., 2018-2022.

• The study is completely based on secondary data and the accuracy of the analysis

depend on the data obtained.

• The study may not be extensive enough to cover all the ratios to be considered in

evaluating the financial soundness of the NBFCs.

 INDUSTRY PROFILE

A bank is a financial institution that accepts deposits and channels those deposits into

lending activities. Banks primarily provide financial services to customers while enriching

investors. Government restrictions on financial activities by banks vary over time and

location. Banks are important players in financial markets and offer services such as

investment funds and loans. In some countries such as Germany, banks have historically

owned major stakes in industrial corporations while in other countries such as the United

States banks are prohibited from owning non-financial companies. In Japan, banks are

usually the nexus of a cross-shareholding entity known as the keiretsu. In France,

bancassurance is prevalent, as most banks offer insurance services (and now real estate

services) to their clients.

Introduction

India’s banking sector is constantly growing. Since the turn of the century, there has been a

noticeable upsurge in transactions through ATMs, and also internet and mobile banking.

Following the passing of the Banking Laws (Amendment) Bill by the Indian Parliament in

2018, the landscape of the banking industry began to change. The bill allows the Reserve

Bank of India (RBI) to make final guidelines on issuing new licenses, which could lead to a

bigger number of banks in the country. Some banks have already received licenses from the

government, and the RBI's new norms will provide incentives to banks to spot bad loans and

take requisite action to keep rogue borrowers in check.

Over the next decade, the banking sector is projected to create up to two million new jobs,

driven by the efforts of the RBI and the Government of India to integrate financial services

into rural areas. Also, the traditional way of operations will slowly give way to modern

technology.
3.2 COMPANY PROFILE

HDFC Bank Ltd is a major Indian financial services company based in Mumbai. The Bank

is a publicly held banking company engaged in providing a wide range of banking and

financial services including commercial banking and treasury operations.

This Integrated Annual Report for 2021- 22 provides insight into the process followed by the

Bank as it endeavours to deliver on its purpose. It provides a holistic assessment of the

Bank’s financial and non-financial performance. It also outlines relevant information on the

Bank’s strategy, governance, risks and prospects to offer better insights into its activities and

progress. Reporting principles and framework The financial information presented in this

report is in line with the requirements of · The Companies Act, 2013 (including the rules

made thereunder) · The Companies (Accounting Standards) Rules, 2006 · The Securities and

Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations,

2015 · The Banking Regulation Act, 1949 and other relevant RBI regulations The report has

been prepared in accordance with the framework prescribed by the International Integrated

Reporting Council (IIRC) and also contains disclosures as per the Global Reporting Initiative

(GRI) Standards: Comprehensive option, Task Force on Climate-related Financial

Disclosures (TCFD), Business Responsibility and Sustainability Report (BRSR) and United

Nations Sustainable Development Goals (UN SDGs). There are no restatements of

information provided in the integrated report during the reporting year. Howeverthe changes

in the GHG accounting methodology from FY21 are documented on pages 59-61. Materiality

and scope This report includes information which is material to all stakeholders of the Bank

and provides an overview of its business and related activities. The report discloses matters

that substantially impact or affect the Bank’s ability to create value and could influence

decisions of providers of financial capital. In FY19 we conducted a materiality assessment in

line with GRI requirements through consultations with internal and external stakeholders.

Subsequently, in FY21, we have refreshed our materiality study to consider emerging topics

of interest within the ESG domain. The GRI Content Index, which specifies the GRI

Standards and disclosures made under them in the Report, has been provided in this report.

Reporting boundary the non-financial information in this report covers the activities and

progress of the Bank on a standalone basis. It covers information pertaining to the period

from April 1, 2021 to March 31, 2022. Assurance statement the report has also been

externally assured by an independent third party, based on ISAE 3000 (Revised).

Responsibility statement thecontent of this report has been reviewed by the senior

management of the Bank, and reviewed and approved by the Board of Directors to ensure

accuracy, completeness and relevance of the information presented in line with the principles

and requirements of the International Integrated Reporting Framework. Governance over

integrated reporting process the2022 Integrated Report is prepared through the joint effort of

a cross-functional team, led by the Bank’s Chief Financial Officer (CFO), representing

various departments as well as subject matter experts. The information is collated from

Senior Management and Board discussions and decisions as well as inputs taken from

internal stakeholders. Several drafts of the report are produced with oversight from the

department heads and the CFO. Members of Bank’s Senior Management team and the Board

are involved in the various approval processes, which are also supported by the oversight

provided by independent assurance providers.

PROMOTERS:

HDFC is India's premier housing finance company and enjoys an impeccable track record in

India as well as in international markets. Since its inception in 2077, the Corporation has

maintained a consistent and healthy growth in its operations to remain the market leader in

mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC
has developed significant expertise in retail mortgage loans to different market segments and

also has a large corporate client base for its housing related credit facilities. With its

experience in the financial markets, strong market reputation, large shareholder base and

unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian

environment.

Best Performing Branch in Microfinance among private sector banks by NABARD, 2018,

Bank of the year & best digital banking initiative award 2017, AIMA Managing India

Awards 2016, Financial Asia poll on Asia's Best Companies 2016, Award for Best

Performance in Microfinance, best managed public company - India Most Valued brand in

India for third successive year, J.P MORGAN Quality Recognition Award World's 30 Best

CEOs – Aditya Puri Best in class straight through processing rates.

Technology:

HDFC Bank operates in a highly automated environment in terms of information technology

and communication systems. All the bank's branches have online connectivity, which enables

the bank to offer speedy funds transfer facilities to its customers. Multi-branch access is also

provided to retail customers through the branch network and Automated Teller Machines

(ATMs).
 BIBLIOGRAPHY

SLNO AUTHOR TITLE OF publisher place EDITION YEAR

NAME BOOK

1 M.Y. Khan & Financial McGraw-Hill Bangalore 5th-edition May

P.K. Jain Management Education 2007
(India) Pvt
Limited

2 Prasanna Investment Bangalore 5th-edition May

Chandra Analysis and 2007
Prasanna
Portfolio Chandra
Management Books

3 I. M. Pandey Mr.Edouard Braeutigam 11th 2015

Maciejewski Edition
Financial
Management
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