NON-BANKING FINANCIAL COMPANIES

Introduction to NBFCs:

 A Non-Banking Financial Company (NBFC) is a financial institution that provides

financial services similar to banks but does not hold a banking license.
 NBFCs play a significant role in the economy by offering credit, investments,
insurance, wealth management, and asset financing services.
 NBFCs are regulated by the Reserve Bank of India (RBI) under the RBI Act, 1934,
along with other regulatory frameworks depending on the type of NBFC.
 NBFCs cater to a wide range of customers, including individual borrowers, small and
medium enterprises (SMEs), microfinance institutions, and infrastructure projects.
 They have gained prominence due to their ability to serve niche markets that banks
may not effectively cover.

Functions and Services Offered by NBFCs:

NBFCs provide a variety of financial services, including:

A. Loan and Credit Facilities

 Personal Loans – Short-term and long-term loans for individuals.

 Business Loans – Credit for small and medium enterprises (SMEs) and startups.
 Vehicle Loans – Financing for purchasing two-wheelers, four-wheelers, and
commercial vehicles.
 Gold Loans – Loans provided against gold as collateral.
 Housing Finance – Home loans for purchase, renovation, and construction.
 Microfinance – Small loans to rural and semi-urban borrowers, especially women
entrepreneurs.

B. Investment Services

 Stock Market Investments – Investment in shares, bonds, and mutual funds.

 Wealth Management – Advisory services for investment planning.
 Portfolio Management – Managing financial assets for individuals and businesses.

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C. Asset Financing and Leasing

 Equipment and Machinery Financing – Loans for acquiring industrial and business
equipment.
 Vehicle Leasing – Providing vehicles to businesses and individuals on lease.

D. Infrastructure Financing

 Project Finance – Funding for infrastructure projects like roads, bridges, and power
plants.
 Construction Finance – Loans for real estate developers and infrastructure firms.

E. Insurance and Risk Management

 Insurance Services – Some NBFCs also act as insurance brokers or provide insurance-
related financial products.
 Factoring Services – Providing liquidity to businesses by purchasing their unpaid
invoices.

Classification of NBFCs

NBFCs are classified based on their activities, deposit-taking ability, and regulatory
framework.

A. Based on Deposit Acceptance

1) Deposit-Taking NBFCs (NBFC-D) – Allowed to accept public deposits under RBI

regulations.
2) Non-Deposit-Taking NBFCs (NBFC-ND) – Cannot accept public deposits but offer
financial services.

B. Based on Activities

1) NBFC-Investment and Credit Company (NBFC-ICC) – Engaged in lending,

investment, and asset financing.
2) NBFC-Infrastructure Finance Company (NBFC-IFC) – At least 75% of total assets
must be in infrastructure loans.
3) NBFC-Microfinance Institution (NBFC-MFI) – Provides micro-loans to low-income
individuals.
4) NBFC-Factor – Engaged in receivables and invoice financing.

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 5) NBFC-Peer-to-Peer Lending Platform (NBFC-P2P) – Online lending platforms
connecting borrowers and lenders.
6) NBFC-Housing Finance Company (NBFC-HFC) – Specializes in home loans and
mortgage finance.
7) NBFC-Asset Finance Company (NBFC-AFC) – Provides financing for asset
purchases like machinery and vehicles.
8) NBFC-Core Investment Company (NBFC-CIC) – Holds shares and securities of its
subsidiaries but does not trade them.

Regulations and Compliance

NBFCs are primarily regulated by the Reserve Bank of India (RBI), though some are
also supervised by other regulatory bodies like the National Housing Bank (NHB) and
Securities and Exchange Board of India (SEBI).

Key Regulatory Aspects

1) Bridging the Credit Gap – Serving individuals and businesses that cannot access
traditional banks.
2) Encouraging Financial Inclusion – Providing loans to rural and semi-urban
populations.
3) Boosting Infrastructure Growth – Financing large-scale infrastructure projects.
4) Supporting MSMEs – Providing working capital and business loans to small
enterprises.
5) Promoting Digital Finance – Many NBFCs have adopted fintech solutions for faster
loan processing and credit disbursement.

Challenges Faced by NBFCs

1) Liquidity Crisis – Some NBFCs struggle with funding shortages, leading to financial
instability.
2) High Borrowing Costs – Unlike banks, NBFCs do not have access to low-cost
deposits, making their capital expensive.
3) Rising Non-Performing Assets (NPAs) – Loan defaults impact the profitability of
NBFCs.
4) Regulatory Changes – Increasing regulations by the RBI can impact business
operations.

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 5) Competition from Banks and Fintechs – The rise of digital lending platforms and
aggressive banking competition.

Difference Between NBFCs and Banks

Recent Developments in NBFC Regulations (As of 2024)

 Scale-Based Regulation (SBR) Framework – NBFCs are now classified into Base
Layer, Middle Layer, Upper Layer, and Top Layer, with different compliance
requirements.
 Stricter NPA Recognition Norms – NBFCs must recognize NPAs on a day-end basis
instead of month-end basis.
 Enhanced Corporate Governance Norms – Stricter guidelines for board composition,
audit requirements, and risk management.
 Digital Lending Guidelines – Rules to regulate digital NBFC lending platforms and
prevent fraudulent practices.

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 TITLE 1

RISK PROFILE ASSESSMENT FOR CLIENTS IN A NON-BANKING

FINANCIAL COMPANY

PROJECT OBJECTIVE:

To prepare a comprehensive question bank that will help assess the risk profile of
clients seeking financial services from a Non-Banking Financial Company (NBFC). This will
aid in understanding the client’s risk tolerance, investment preferences, and financial goals.

PROJECT OUTLINE:

1. Introduction

Overview of NBFCs:

Non-Banking Financial Companies (NBFCs) are financial institutions that provide

banking-like services such as loans, asset financing, and investment products but do not hold
a banking license. They play a crucial role in extending credit to individuals and businesses
that may not have access to traditional banking channels.

Importance of Understanding Client Risk Profiles:

 Offer appropriate financial products that match their risk appetite.

 Improve client satisfaction by providing tailored solutions.
 Reduce default risks by aligning financial products with client needs.

Purpose of the Question Bank:

 Assess a client’s financial status, investment knowledge, and market attitude.

 Identify their risk tolerance and investment goals.
 Help NBFCs design personalized financial solutions that align with client needs.

2. Understanding Risk Profiles

Definition of Risk Profile:

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 A risk profile is an evaluation of an individual’s ability and willingness to take
financial risks based on their financial status, investment experience, and behavioural
tendencies.

Components of Risk Profile:

 Risk Tolerance – The client’s psychological ability to handle market fluctuations.

 Risk Capacity – The client’s financial ability to bear potential losses.
 Investment Knowledge – The client’s familiarity with investment products and
financial markets.

Importance of Aligning Financial Products with Risk Profiles:

 Ensures investments match the client’s comfort level and financial objectives.
 Helps mitigate potential losses by aligning product recommendations with the client’s
risk capacity.
 Enhances trust and transparency between NBFCs and their clients.

3. Question Bank Structure:

 Personal Information
 Financial Status
 Investment Goals
 Risk Tolerance
 Investment Experience
 Market Attitude
 Time Horizon
 Behavioural Questions

4. Question Bank

i) Personal Information

 What is your age?

 What is your marital status?
 Do you have dependents? If yes, how many?

ii) Financial Status

 What is your annual income?

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  What are your monthly expenses?
 Do you have any outstanding debts? If yes, please specify (e.g., loans, credit cards).
 What is your current savings or investment portfolio worth?

iii) Investment Goals

 What are your primary financial goals? (e.g., retirement, home purchase, education)
 What is the time frame for achieving these goals?
 How important is it for you to preserve your capital?

iv) Risk Tolerance

 On a scale of 1 to 10, how would you rate your willingness to take risks with your
investments?
 How would you react if your investments lost 20% of their value in a short time?
o Panic and sell everything
o Hold and wait for recovery
o Buy more shares to lower the average cost
 Are you comfortable with significant fluctuations in your investment value?

v) Investment Experience

 Have you invested in the stock market before? If yes, for how long?
 Which types of investments have you made in the past? (e.g., stocks, bonds, mutual
funds, real estate)
 How familiar are you with financial products offered by NBFCs?

vi) Market Attitude

 How often do you follow financial news and market trends?

 Do you prefer to make investment decisions based on research or advice from
financial advisors?
 How do you feel about market volatility?

vii) Time Horizon

 What is your investment horizon? (Short-term, Medium-term, Long-term)

 Are you investing for a specific event? If so, when is it expected to occur?

vii) Behavioural Questions

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  How do you feel about making financial decisions?
 Have you ever made impulsive investment decisions? If yes, please provide examples.
 Do you discuss your investment decisions with family or friends before acting?

5. Conclusion

Summary of the Importance of a Tailored Risk Assessment:

 A well-structured risk assessment helps NBFCs understand client behaviour, risk

appetite, and financial goals.
 Ensures better product recommendations and financial planning.

The Role of the Question Bank in Developing a Financial Plan for Clients:

 Provides a structured approach to assessing client needs.

 Helps in risk categorization (Conservative, Moderate, Aggressive).
 Forms the foundation for personalized investment and credit solutions.

Recommendations for Financial Advisors on Utilizing the Question Bank:

 Use the responses to guide clients toward suitable investment or credit options.
 Conduct periodic risk profile reassessments to account for changing financial
conditions.
 Ensure compliance with regulatory guidelines when offering financial advice.

7. Implementation

 Conduct Interviews or Surveys: Use the question bank to gather responses from
clients.
 Analyse Responses: Categorize clients into risk profiles (e.g., Conservative, Balanced,
Aggressive).
 Create Personalized Investment Strategies: Align financial products with client risk
profiles to maximize returns and minimize risk.

8. References

 Financial literature on risk assessment and investment strategies.

 Regulatory guidelines regarding client profiling in NBFCs.

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 TITLE 2

NIFTY 50 INDEX ANALYSIS REPORT

Introduction:

The Nifty 50 is a stock market index that represents the weighted average of 50 of the
largest and most liquid Indian stocks listed on the National Stock Exchange (NSE). It serves
as a benchmark for the Indian equity market and reflects the overall health of the Indian
economy. The index is diversified across various sectors, making it a crucial indicator for
investors and market analysts.

List of Stocks in Nifty 50

As of January 31, 2025, the following is a list of companies included in the Nifty 50
index, along with their respective sectors and weightage in the index. Please note that the
weightage of each stock can fluctuate based on market conditions.

Stock name Sector Weightage (%)

HDFC Bank Ltd. Financial Services 13.28

ICICI Bank Ltd. Financial Services 8.57

Oil, Gas &
Reliance Industries Ltd. Consumable fuels 8.21
Information
Infosys Ltd. Technology 6.13

Bharti Airtel Ltd. Telecommunication 4.25

Fast moving consumer
ITC Ltd. Goods 4.04
Tata Consultancy Information
Services Ltd. Technology 3.61

Larsen & Toubro Ltd. Construction 3.76

Axis bank Ltd. Financial Services 3.13

Kotak Mahindra Bank
Ltd. Financial Services 3.04

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 State Bank of India Financial Services 2.94
Fast moving consumer
Hindustan Unilever Ltd. Goods 2.9

Bajaj Finance Ltd. Financial Services 2.88

Information
HCL Technologies Ltd. Technology 2.28

Asian Paints Ltd. Consumer Durables 1.86

Automobile and auto
Maruti Suzuki India Ltd. components 1.84
Mahindra & Mahindra Automobile and auto
Ltd. components 1.73
Automobile and auto
Tata Motors Ltd. components 1.66
Sun Pharmaceutical
Industries Ltd. Healthcare 1.62

NTPC Ltd. Power 1.6

Fast moving consumer
Nestle India Ltd. Goods 1.52
Power Grid Corporation
of India Ltd. Power 1.03
Information
Wipro Ltd. Technology 1.01

UltraTech Cement Ltd. Construction Materials 0.98

JSW Steel Ltd. Metals & Mining 0.97

Tata Steel Ltd. Metals & Mining 0.95

Divi's Laboratories Ltd. Healthcare 0.94

Dr. Reddy's
Laboratories Ltd. Healthcare 0.91
Information
Tech Mahindra Ltd. Technology 0.89
Adani Ports and Special
Economic Zone Ltd. Services 0.79
Apollo Hospitals
Enterprise Ltd. Healthcare 0.77
Automobile and auto
Bajaj Auto Ltd. components 0.76

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 Fast moving consumer
Britannia Industries Ltd. Goods 0.75

Cipla Ltd. Healthcare 0.74

Coal India Ltd. Metals & Mining 0.72

Automobile and auto
Eicher Motors Ltd. components 0.71

Grasim Industries Ltd. Construction Materials 0.7

Automobile and auto
Hero MotoCorp Ltd. components 0.69

Hindalco Industries Ltd Metals & Mining 0.68

IndusInd Bank Ltd. Financial Services 0.67

Indian Oil Corporation Oil, Gas &
Ltd. Consumable fuels 0.66
SBI Life Insurance
Company Ltd Financial Services 0.65
Tata Consumer Products Fast moving consumer
Ltd Goods 0.64
Fast moving consumer
UPL Ltd. Goods 0.63

Adani Enterprises Ltd. Metals & Mining 0.62

Oil, Gas &
BPCL Ltd. Consumable fuels 0.61
Oil, Gas &
ONGC Ltd. Consumable fuels 0.6
HDFC Life Insurance
Company Ltd. Financial Services 0.59

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Sector Breakdown

The sectoral composition of the Nifty 50 index as of January 31, 2025, is as follows:

Sector Weightage (%)

Financial services 36.53

Information Technology 13.15

Oil, Gas & Consumable fuels 10.4

Fast moving consumer Goods 7.63

Automobile and auto
components 7.23

Telecommunication 4.25

Healthcare 3.82

Construction 3.76

Metals & Mining 3.52

Power 2.63

Consumer Durables 2.28

Construction Materials 2.03

Consumer Services 1.09

Capital goods 0.89

Services 0.79

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Conclusion

The Nifty 50 index is a crucial indicator of the performance of the Indian stock
market and economy. The list of stocks and their weightages provide insights into the sectors
that are currently driving the market. Financial Services, Information Technology, and Oil &
Gas sectors dominate the index, highlighting their significant impact on the overall economy.

Investors and analysts closely monitor the Nifty 50 to gauge market sentiment, make
investment decisions, and assess economic trends.

Note

The weightage of stocks in the Nifty 50 can change frequently due to market
fluctuations and adjustments made by the index provider. It is advisable for investors to stay
updated on the latest changes and conduct further research as needed.

For real-time updates, visit the official NSE website:

Nifty 50 Index - NSE India

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 TITLE 3

Prepare a process to become a SEBI Registered Research Analyst

to start your own robo-advisory firm

Starting a robo-advisory firm as a SEBI-registered Research Analyst requires a clear

understanding of regulations, acquiring the necessary qualifications, and setting up a
compliant, technology-driven investment advisory platform. Below is a detailed step-by-step
process to help you establish your business successfully.

Step 1: Understand the SEBI Regulations

Familiarize Yourself with SEBI (Research Analysts) Regulations, 2014

The Securities and Exchange Board of India (SEBI) governs research analysts under
the SEBI (Research Analysts) Regulations, 2014. These rules specify who can become a
registered research analyst, what qualifications they need, and the compliance standards they
must follow.

Understand the Role of a Research Analyst

A SEBI-registered Research Analyst is responsible for:

 Conducting financial research on stocks, bonds, mutual funds, and other securities.
 Preparing detailed research reports and investment recommendations.
 Maintaining ethical and unbiased financial opinions.
 Ensuring full disclosure of conflicts of interest while providing advisory services.

Key Compliance Requirements

 Research analysts must maintain records of research, client interactions, and

disclosures.
 They should not mislead investors with false claims or biased recommendations.
 Confidentiality of client information must be ensured.

Understanding these regulations is the first step before applying for SEBI registration.

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Step 2: Fulfil Educational & Experience Requirements

Educational Qualifications

To apply as a Research Analyst, you must meet one of the following criteria:

 Hold a graduate degree in finance, commerce, economics, business administration, or

a related field.
 Have an advanced professional qualification like:
o Chartered Financial Analyst (CFA)
o Chartered Accountant (CA)
o Certified Financial Planner (CFP)
o MBA in Finance
 If you do not hold a professional certification, you must have at least five years of
work experience in research or investment advisory.

Gain Relevant Work Experience

Gaining experience in financial markets is highly recommended before starting your own
firm. Work in:

 Asset management companies (AMCs)

 Financial advisory firms
 Investment banks
 Portfolio management services (PMS)
 Stockbroking firms

Experience will help you understand market trends, investment strategies, and compliance
regulations, which are crucial for a robo-advisory business.

Pass the NISM-Series XV: Research Analyst Certification Exam

Before applying for SEBI registration, you must pass the NISM-Series XV: Research Analyst
Certification Exam, which tests your knowledge of:

 Financial statement analysis

 Valuation techniques
 Investment risk management
 Ethical practices in research analysis

15
Once you clear this exam, you will receive a certificate that is required for SEBI registration.

Step 3: Register as a SEBI Research Analyst

To apply for SEBI Research Analyst registration, gather the following documents:

 Educational certificates (Degree, professional certifications)

 Work experience proof (Offer letters, experience letters)
 NISM Certification (Research Analyst Exam Certificate)
 Identity proof (PAN Card, Aadhaar Card)
 Net worth certificate from a Chartered Accountant (Minimum ₹1 lakh)
 Income Tax Returns (ITR) of the last three years
 Business plan (if starting an advisory firm)

Complete the SEBI Application Process

1) Fill out Form A (available on SEBI’s official website).

2) Pay the Registration Fee of ₹5,000 + 18% GST (Total ₹5,900).
3) Submit the Application and required documents to SEBI’s regional office.
4) Await SEBI’s Approval – SEBI may conduct a background check, ask for
clarifications, or request additional documents before granting the Research Analyst
Registration certificate.

Once approved, you become a SEBI-registered Research Analyst, legally allowed to offer
investment research and advisory services.

Step 4: Define Your Robo-Advisory Business Model

Market Analysis

Before launching your robo-advisory firm, conduct thorough market research:

 Identify potential clients – retail investors, high-net-worth individuals (HNIs),

millennials, etc.
 Analyse competitors – existing robo-advisory firms, traditional financial advisors.
 Study market trends – AI-driven investing, algorithm-based trading, passive vs. active
investing.

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Select a Revenue Model

Decide how your robo-advisory firm will generate revenue:

 Subscription Model – Clients pay a fixed monthly/yearly fee.

 Assets Under Management (AUM) Model – You charge a percentage of the client’s
investment portfolio.
 Commission-Based Model – Earn commission from partnered brokers and mutual
funds.

Determine Your Unique Selling Proposition (USP)

Differentiate your robo-advisory service by offering:

 AI-based investment recommendations

 Low-cost automated portfolio management
 Tax-efficient investment strategies
 ESG (Environmental, Social, and Governance) investing options

Step 5: Build Your Robo-Advisory Platform

Develop or License the Technology

 Build an AI-driven platform that provides automated investment recommendations.

 Use machine learning models to analyse market trends and suggest investment
strategies.
 Partner with fintech developers or use white-label robo-advisory solutions.

Ensure Data Security & Regulatory Compliance

 Implement data encryption, two-factor authentication, and cybersecurity protocols.

 Comply with SEBI’s guidelines on data protection and investment advisory
disclosures.

Step 6: Register & Comply with Legal Requirements

Business Registration

 Register your firm as a Private Limited Company, LLP, or Sole Proprietorship with
the Ministry of Corporate Affairs (MCA).
 Obtain GST Registration for tax compliance.

17
Additional SEBI Registrations (if needed)

 Apply for an Investment Adviser (IA) License if offering personalized financial

planning.

Establish Compliance & Reporting Mechanisms

 Set up SEBI-compliant reporting systems.

 Maintain client interaction logs and grievance redressal mechanisms.

Step 7: Launch & Market Your Robo-Advisory Firm

Create a Brand Identity

 Build a professional website & mobile app for your advisory platform.
 Design a logo, marketing materials, and investor education resources.

Market Your Services

 Use SEO, social media marketing, and content marketing to attract clients.
 Partner with brokerage firms, fintech platforms, and financial influencers.

Set Up Customer Support

 Offer live chat, email, and phone support.

 Provide investment education webinars & FAQs.

Step 8: Continuous Learning & Business Expansion

Stay Updated with Regulatory Changes

 Regularly check SEBI updates and modify your advisory services accordingly.

Enhance Technology & Features

 Introduce robo-advisory enhancements like tax planning, goal-based investing, and

real-time risk management.

Expand Your Service Offerings

 Offer mutual fund recommendations, insurance planning, or wealth management

services.
 Explore international investment opportunities for clients.

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Conclusion

Becoming a SEBI-registered Research Analyst and launching a robo-advisory firm

requires regulatory compliance, technical innovation, and a strong client acquisition strategy.
By following this structured process, you can build a successful, scalable, and compliant
robo-advisory business in India’s growing fintech market.

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Conclusion:

NBFCs have become a vital part of India's financial ecosystem, bridging the gap
between traditional banks and underserved sectors like MSMEs, rural borrowers, and
infrastructure projects. Their ability to offer flexible credit solutions, faster loan approvals,
and tailored financial products has made them a preferred choice for many individuals and
businesses. Additionally, their role in promoting financial inclusion and supporting small
entrepreneurs has significantly contributed to economic growth.

However, NBFCs face challenges such as liquidity shortages, rising non-performing

assets (NPAs), and increased regulatory scrutiny. Unlike banks, they lack access to low-cost
deposits, making it difficult to maintain stable funding. The Reserve Bank of India's (RBI)
implementation of stricter regulations, such as the Scale-Based Regulation (SBR) framework
and digital lending guidelines, aims to strengthen the sector and ensure financial stability.

Despite these challenges, NBFCs have a promising future, driven by digital

transformation, fintech collaborations, and innovative lending models. The adoption of AI,
machine learning, and big data analytics is improving risk assessment and operational
efficiency. Co-lending partnerships with banks are also helping expand credit availability
while managing risks.

Going forward, NBFCs must strike a balance between innovation and compliance,
ensuring sustainable growth while maintaining financial discipline. With the right strategies,
regulatory adherence, and technological advancements, they can continue to be a driving
force in India's financial landscape, enhancing credit access and economic development.

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