Non-Banking Financial Companies (NBFCs) Non-banking financial companies (NBFCs) are fast emerging as an important segment of Indian financial

system. It is an heterogeneous group of institutions (other than commercial and co-operative banks) performing financial intermediation in a variety of ways, like accepting deposits, making loans and advances, leasing, hire purchase, etc. They raise funds from the public, directly or indirectly, and lend them to ultimate spenders. They advance loans to the various wholesale and retail traders, small-scale industries and self-employed persons. Thus, they have broadened and diversified the range of products and services offered by a financial sector. Gradually, they are being recognised as complementary to the banking sector due to their customer-oriented services; simplified procedures; attractive rates of return on deposits; flexibility and timeliness in meeting the credit needs of specified sectors; etc. 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 under the Act. As per the RBI Act, a 'nonbanking financial company' is defined as:- (i) a financial institution which is a company; (ii) a non banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; (iii) such other non-banking institution or class of such institutions, as the bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify. Under the Act, it is mandatory for a NBFC to get itself registered with the RBI as a deposit taking company. This registration authorises it to conduct its business as an NBFC. For the registration with the RBI, a company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution, should have a minimum net owned fund (NOF) of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999). The term 'NOF' means, owned funds (paid-up capital and free reserves,minus accumulated losses, deferred revenue expenditure and other intangible assets) less, (i) investments in shares of subsidiaries/companies in the same group/ all other NBFCs; and (ii) the book value of debentures/bonds/ outstanding loans and advances, including hire-purchase and

lease finance made to, and deposits with, subsidiaries/ companies in the same group, in excess of 10% of the owned funds. The registration process involves submission of an application by the company in the prescribed format along with the necessary documents for RBI's consideration. If the bank is satisfied that the conditions enumerated in the RBI Act, 1934 are fulfilled, it issues a 'Certificate of Registration' to the company. Only those NBFCs holding a valid Certificate of Registration can accept/hold public deposits. The NBFCs accepting public deposits should comply with the Non-Banking Financial Companies Acceptance of Public Deposits ( Reserve Bank) Directions, 1998, as issued by the bank. Some of the important regulations relating to acceptance of deposits by the NBFCs are:They are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand. They cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. They cannot offer gifts/incentives or any other additional benefit to the depositors. They should have minimum investment grade credit rating. Their deposits are not insured. The repayment of deposits by NBFCs is not guaranteed by RBI. The types of NBFCs registered with the RBI are: 

Equipment leasing company:- is any financial institution whose principal business is that of leasing equipments or financing of such an activity. Hire-purchase company:- is any financial intermediary whose principal business relates to hire purchase transactions or financing of such transactions. Loan company:- means any financial institution whose principal business is that of providing finance, whether by making loans or advances or otherwise for any activity other than its own (excluding any equipment leasing or hirepurchase finance activity). Investment company:- is any financial intermediary whose principal

business is that of buying and selling of securities. Now, these NBFCs have been reclassified into three categories:  

Asset Finance Company (AFC) Investment Company (IC) and Loan Company (LC). Under this classification, 'AFC' is defined as a financial institution whose principal business is that of financing the physical assets which support various productive/economic activities in the country

Classification Depending upon their nature of activities, non- banking finance companies can be classified into the following categories: 1. 2. 3. 4. 5. 6. 7. Development finance institutions Investment companies House finance companies Leasing companies Modaraba companies Venture capital companies Discount & guarantee houses

1.Development finance institutions

NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD) NABARD, an apex development bank, was set up on the recommendations of CRAFICARD Committee on July 12, 1982 under NABARD Act 1981 with a capital of Rs.100 crore contributed by Central Govt. and RBI, with its main office in Mumbai, by merging the Agriculture Credit Deptt and Rural Planning and Credit Cell of RBI and took over the entire functions of Agriculture Refinance and Development Corporation (ARDC). NABARD is managed by Board of Directors consisting of Chairman, Managing Director other directors. NABARD raises funds through National Rural Credit - Long Term operations, National Rural Credit-Establishment fund, through bonds and debentures guaranteed by Central Govt, borrowing from RBI, Central Govt. or any other organisation approved by Central Govt and funds from external sources. It credit functions include providing credit to agriculture, small and village and cottage industries through banks by way of refinance facilities to commercial banks, RRBs, Coop Banks, Land Development Banks and other Financial Institutions like KVIC. Its developmental functions are co-ordination of various institutions, acting as agent of Govt. and RBI, providing training and research facilities. The regulatory functions include inspection of RRBs and Coop Banks, receipt of returns and making of recommendations for opening new branches. EXPORT IMPORT BANK OF INDIA It is apex institution for co-ordinating the working of institutions in India engaged in financing exports and import of goods and services. With initial authorized capital of Rs. 200 crore (increased to Rs.500 and then to Rs.2000 crore) Exim Bank was established on Jan 01, 1982 (and started functioning wef March 01, 1982) under Export Import Bank of India Act 1982, which took over the export finance activities of IDBI. It raises funds by way of bonds and debentures, borrowing from RBI or other institutions, raising foreign deposits.

It undertakes following kind of functions: -direct finance to exporter of goods. -direct finance to software exports and consultancy services. -finance for overseas joint ventures and turnkey construction project -finance for import and export of machinery and equipment on lease basis -finance for deferred payment facility -issue of guarantees -multi-currency financing facility to project exporters. -export bills re-discounting -refinance to commercial banks in India -guaranteeing the obligations. SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI) SIDBI was established under SIDBI Act 1988 and commenced its operations wef April 02, 1990 with head quarters in Lucknow and branches all over the country, as a subsidiary of IDBI. It took over the IDBI business relating to small scale industries including National Equity Scheme and Small Inds Development fund. The objective of establishment of SIDBI, in particular, is to strengthen and broad-base the existing institutional arrangement to meet the requirement of SSI and tiny industries. Its functions include: -administration of SIDF and NEF for development and equity support to small and tiny industry. -providing working capital through single window scheme -providing refinance support to banks/development finance institutions. -undertaking direct financing of SSI units. -coordination of functions of various institutions engaged in finance to SSI and tiny units.

NATIONAL HOUSING BANK (NHB) NHB, the apex bank for Housing, was established on July 09, 1988 under NHB Act 1987, as a wholly owned subsidiary of RBI with head quarters in New Delhi. The bank was set up with the main purpose of setting up of an institution to operate as a principal agency to promote housing finance institutions and to provide financial and other support to these institutions. NHB can raise sources by issue of bonds and debentures, borrowing from RBI under short term loans and long term operations, borrowing from Central govt and other approved institutions. Its functions are: -promotion and development of housing finance institutions. -refinance to banks and other housing finance institutions for credit facilities granted by them for housing. -inspection of books of accounts of housing finance institutions -technical, administrative and advisory assistance to housing finance institutions. -providing underwriting and guarantee facilities to housing finance institutions. -arranging financing and resources for institutions engaged in housing facilities. -advising Central and other govt. in the matter of housing and housing finance. -collection and publication of information and data relating to housing finance. -maintaining control over corporate housing finance institutions. INDUSTRIAL FINANCE CORPORATION OF INDIA Ltd (IFCI) IFCI was established under IFCI Act 1948 during July 1948 as Indias first development bank. The main objective for which IFCI was established, are to make medium and long term credit available to the industrial undertakings and to assist them in creation of industrial facilities. Its functions include: -direct financial support (by way of rupee term loans as well as foreign currency loans) to industrial units for undertaking new projects, expansion, modernisation, diversification etc. -subscription and underwriting of public issues of shares and debentures. -guaranteeing of foreign currency loans and also deferred payment guarantees. -merchant banking, leasing and equipment finance During 1994, IFCI was converted into a joint-stock company and came out with a public issue of shares. It is managed by a Board of Directors. It floated institutions such as TFCI, ICRA etc.

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI) ICICI was set up during 1955 as a private company with a view to provide support to industry in India by way of rupee and foreign currency loans, particularly the private international investment and World Bank funds to assist the industry in the country in private sector. It functions include: -assistance to industrial undertakings for new projects, expansion, modernisation, diversification etc. in the shape of rupee loans or foreign currency loans. -subscription and underwriting of capital issues -guaranteeing the payment for credits. -merchant banking, equipment leasing and project counselling. It floated a number of institutions successfully which include credit rating agency CRISIL, ICICI Banking Corporation, SCICI (since merged with it) a Mutual Fund etc. During Sept 1998 it changed its name to ICICI Ltd. Of late, it has started providing working capital support to industrial undertakings. INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI) IDBI is the apex institution in the area of long term industrial finance. It was established under the IDBI Act 1964 as a wholly owned subsidiary of RBI and started functioning on July 01, 1964. Under Public Financial Institutions Laws (Amendment) Act 1976, it was delinked from RBI. IDBI is engaged in direct financing of the industrial activities as well as in re-finance and re-discounting of bills against finance made available by commercial banks under their various schemes. The objectives of this institution are to create a principal institution for long term finance, to coordinate the institutions working in this field for planned development of industrial sector, to provide technical and administrative support to the industries and to conduct research and development activities for the benefit of industrial sector. It raises funds by way of market borrowing by way of bonds and deposits, borrowing from Govt. and RBI, borrowing abroad in foreign currency and lines of credit.

Its functions include: -direct loans (rupee as well as foreign currency) to industrial undertakings as defined in the Act to finance their new projects, expansion, modernisation etc. -soft loans for various purposes including modernisation and under equipment finance scheme -underwriting and direct subscription to shares/debentures of the industrial companies. -sanction of foreign currency loans for import of equipment or capital goods. -short term working capital loans to the corporates for meeting their working capital requirements. -refinance to banks and other institutions against loans granted by them. Of late, with the reforms in the financial sector, IDBI has taken steps to re-shape its role from a development finance institution to a commercial institution. It has floated its own bank IDBI Bank as also a Mutual Fund. During the financial year 1999-2000 IDBIs total sanctions were Rs.28308 cr (19.2% increase), the total assets were Rs.72169 cr, net worth at Rs.9025 cr, capital adequacy ratio of 14.5%, DER 6.8:1 and PBT Rs.1027 cr (1301 cr previous years). To meet emerging challanges, it has been introducing new products, setting up Mergers & Acquistions Divn, increasing fee based business such as corporate advisory services, credit syndication, debenture-trushtee ship etc., setting up of IT sector subsidiary-IDBI Intech Ltd, venture capital fund, joint ventures and transfer of not less than 51% of IDBIs share capital in SIDBI to PSBs as a result of SIDBI (Amendment) Act 2000 effective from 27.03.2000.

Investment Companies in India For the past three decades, India has been an increasingly good choice for investment opportunities, particularly among European investors, as the diversity of its sectors and rapidly growing economy provide for solid investment practices. India is ranked as having the fifth largest economy in the world, with the third largest GDP in all of Asia. The Indian government, which oversees much of the investing and banking for the country, established the Foreign Investment Promotion Board (FIPB) with the goal of promoting foreign direct investment (FDI) into India by promoting and facilitating investment in India through

international companies, non-resident Indians, and other foreign investors. Foreign direct investment in India may occur through collaborations with financial corporations, joint ventures and technical collaborations, capital markets via Euro issues, and private placements or preferential allotments. Foreign direct investment is prohibited in the following industrial sectors: arms and ammunition, atomic energy, railway transport, coal and lignite, and mining of various minerals. Foreign investment in India is prohibited in stock markets and real estate as well. The Indian government must approve in advance any investment into India from a foreign company, as many investments require prior clearance from the FIPB. India can be the ideal investment locale for almost any sector, as its enormous workforce and the diversity of its business sectors yield high prospects for both growth and earning potential. The country as a whole has warmed up considerably towards foreign investors since its independence from Britain in 1947. As a whole, India encourages foreign groups to bring their investment activities to India, as the market potential is great.
y y y y y y y y y y

Bajaj Allianz Equity India Indian Investment Centre Merc Holding Pvt. Ltd. Sarabhai Holding Pvt. Ltd. Shah Financial Group Stanrose Mafatlal Investment and Finance Ltd. Tata Investment Corporation Ltd. Toss Financial Services Pvt. Ltd. Veronica Financial Services Ltd.

Housing Finance Companies India thanks to economic liberalization and ensuing policy changes, the housing finance industry has undergone a paradigm shift over the last decade. Gone are the days, when taking a loan meant entering a labyrinth of documentation and dealing with condescending bank officials. Today, in the backdrop of intense competition, housing finance companies are falling over each other to woo potential customers.

Housing finance being one of the safest lending avenues has also contributed to the emergence of new players in the market. The unique place that a house has in an individual's life plus the high proportion of the customer's own money in the house provides considerable comfort for home loan companies. In the present times, people are increasingly taking to credit, because of rising annual incomes and the series of tax sops that have become an annual ritual in the Union Budget. With the constant rise in demand for residential and commercial complexes, the growth of the real estate sector in India has witnessed at an exponential rate over last five years. Cut-throat competition among Indian housing finance companies has brought down the interest rates by a few notches. The vast difference in interest rates across-theboard has all but disappeared, and home loan companies are taking recourse to product innovation to stand out in the burgeoning home loan market. Today, apart from the resident Indians, even NRI's can apply for a home loan. An applicant applying for a loan can either opt for fixed or floating rates. The loan rates of companies today are in between 7.50% to 12 %, depending on the repayment years.

Top Asset Management Companies in India The Indian asset management industry has seen a steady asset growth over the past few years, though there certainly have been some rough patches. After the setback due to the recent recession, the mutual fund industry in India is recovering slowly. The industry is dominated by the institutional investors. Like hundreds of mutual funds, there are a number of asset management companies in India as well. Among those, there are some Indian companies as well as some foreign/joint venture companies. However, Indian players are outperforming the foreign counterparts in every area, viz. revenues, assets, and profitability. According to the latest report, asset management business in India is going to increase at least 33% annually. And without wasting any time, Indian asset management companies are getting prepared to cash in the scenario. The main growth is expected in the retail segment (an estimated growth of 36%). Also in the list is investor segment (as estimated growth of 29%). According to the McKinsye study, this growth will lead AUM (Assets Under Management) to US$ 440 billion.

List of Top Asset Management Companies in India

UTI Asset Management Company Ltd. Name Income / Debt Oriented Schemes Growth / Equity Oriented Schemes Balanced Schemes Exchange Traded Funds Fund of Funds Investing Overseas Grand Total UTI Asset Management Company Ltd. 1,935,985 6,817,477 1,028,613 29,046 9,811,121

Reliance Capital Asset Management Ltd. Name Income / Debt Oriented Schemes Growth / Equity Oriented Schemes Balanced Schemes Exchange Traded Funds Fund of Funds Investing Overseas Grand Total Reliance Capital Asset Management Ltd. 172,612 6,389,925 1,074,839 41,343 7,678,719

SBI Funds Management Private Ltd. Name Income / Debt Oriented Schemes Growth / Equity Oriented Schemes Balanced Schemes Exchange Traded Funds Fund of Funds Investing Overseas Grand Total SBI Funds Management Private Ltd. 87,184 5,730,085 72,437 2 5,889,708

Franklin Templeton Asset Management (India) Pvt. Ltd. Name Income / Debt Oriented Schemes Growth / Equity Oriented Schemes Balanced Schemes Exchange Traded Funds Fund of Funds Investing Overseas Grand Total Franklin Templeton Asset Management (India) Pvt. Ltd. 193,977 2,231,995 22,886 55 2,448,913

NBFC Synopsis 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). 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 category 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. NBFC - Registration 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 category 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 NBFCs that are registered with RBI are: (i) equipment leasing company; (ii)hire-purchase company; (iii) loan company;

(iv) investment company. With effect from December 6, 2006 the above NBFCs registered with RBI have been reclassified as (i) Asset Finance Company (AFC) (ii) Investment Company (IC) (iii) Loan Company (LC) AFC would be defined as any company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive / economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising there from is not less than 60% of its total assets and total income respectively. The above type of companies may be further classified into those accepting deposits or those not accepting deposits. Besides the above class of NBFCs the Residuary Non-Banking Companies are also registered as NBFC with the Bank. Requirements for registration with RBI y A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act,1934 should have a minimum net owned fund of Rs 2 crores. y The company is required to submit its application for registration in the prescribed format along with necessary documents for bank's consideration. The bank issues certificate of registration after satisfying itself that the conditions as enumerated in Section 45-IA of the RBI Act, 1934 are satisfied. y 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. The NBFCs accepting public deposits should have minimum stipulated net owned fund and comply with the directions issued by the bank. y An NBFC maintaining required Net Owned Fund (NOF) /CRAR and complying with the prudential norms can accept public deposits as follows: Category of NBFC Ceiling on public deposits y AFCs maintaining CRAR of 15% without credit rating y AFCs with CRAR of 12% and having minimum investment grade credit rating 1.5 y times of NOF or Rs 10 crore whichever is less 4 times of NOF y LC/IC with CRAR of 15% and having minimum investment grade credit rating 1.5 y times of NOF Presently, the maximum rate of interest a NBFC can offer is 11%. The

interest may be paid or compounded at rests not shorter than monthly rests. y The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand. Some of the important regulations relating to acceptance of deposits by NBFCs are as under: y The NBFCs are allowed to accept/renew public deposits for a minimum period of 12months and maximum period of 60 months. They cannot accept deposits repayable ondemand. y NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI fromtime to time. The present ceiling is 11 per cent per annum. The interest may be paid orcompounded at rests not shorter than monthly rests. y NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors. y NBFCs (except certain AFCs) should have minimum investment grade credit rating. y The repayment of deposits by NBFCs is not guaranteed by RBI.

Submission of Returns and other information to RBI The NBFCs accepting public deposits should furnish to RBI: i. Audited balance sheet of each financial year and an audited profit and loss account in respect of that year as passed in the general meeting together with a copy of the report of the Board of Directors and a copy of the report and the notes on accounts furnished by its Auditors; ii. Statutory Annual Return on deposits - NBS 1; iii. Certificate from the Auditors that the company is in a position to repay the deposits as and when the claims arise; iv. Quarterly Return on liquid assets; v. Half-yearly Return on prudential norms;

vii. Half-yearly ALM Returns by companies having public deposits of Rs 20 crore and above or with assets of Rs 100 crore and above irrespective of the size of deposits viii. Monthly return on exposure to capital market by companies having public deposits of Rs 50 crore and above; and ix. A copy of the Credit Rating obtained once a year along with one of the Half-yearly Returns on prudential norms as at (v) above. Documents or the compliance required to be submitted to the Reserve Bank of India by the NBFCs The NBFCs having assets size of Rs 100 crore and above but not accepting public deposits are required to submit a Monthly Return on important financial parameters of the company. All companies not accepting public deposits have to pass a board resolution to the effect that they have neither accepted public deposit nor would accept any public deposit during the year. However, all the NBFCs (other than those exempted) are required to be registered with RBI and also make sure that they continue to be eligible to remain Registered. Further, all NBFCs (including non-deposit taking) should submit a certificate from their Statutory. Auditors every year to the effect that they continue to undertake the business of NBFC requiring holding of CoR under Section 45-IA of the RBI Act, 1934. RBI has powers to cause Inspection of the books of any company and call for any other information about its business activities. For this purpose, the NBFC is required to furnish the information in respect of any change in the composition of its board of directors, address of the company and its directors and the name/s and official designations of its principal officers and the name and office address of its auditors. With effect from April 1, 2007 non-deposit taking NBFCs with assets size of Rs 100 crore and above have been advised to maintain minimum CRAR of 10% and shall also be subject to single/group exposure norms.