Non Banking Financial Companies

Smita Mhatre

Vinay Kadam

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.

1 .Only NBFC’s with assets worth of rs.1000 crore should be regulated, even if they are doing business with their own assets.

IMPACT:Will ensure that only serious players remain.

2.Tier I capital for capital adequacy pegged at 12%, to be achieved in three years.

IMPACT: Will address regulatory arbitrage between banks and NBFCs.

3. Liquidity Ratio, in line with statutory liquidity ratio of banks.

IMPACT: Cash and Liquidity gaps will be addressed.

4.All Boards of NBFCs with assets of rs. 1000 crores and above should have a remuneration committee to decide on the compensation.

IMPACT: Will ensure better governance of NBFCs.

NBFCs are doing functions similar to banks. What is difference between banks & NBFCs ?

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

(i) a NBFC cannot accept demand deposits (demand deposits are funds deposited at a depository institution that are payable on demand -- immediately or within a very short period -- like your current or savings accounts.)

(ii) it is not a part of the payment and settlement system and as such cannot issue cheques to its customers; and

(iii) deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks.

(i) equipment leasing company; (ii) hire-purchase company; (iii) loan company; (iv) investment company (i) Asset Finance Company (AFC) (ii) Investment Company (IC) (iii) Loan Company (LC)

1. High cost of funds 2. Stiff competition with NBFCs as well as with banking sector 3. Small balance sheet size resulting in high cost of funds and low asset profile 4. Inability to raise funds due to RBI restrictions5. Non performing assets

i. On-site inspection; ii. Off-site monitoring supported by

state-of the art technology; iii. Market intelligence; and iv. Exception reports of statutory

auditors of NBFCs. The thrust of supervision is based on the

asset

THANK YOU