Please don’t move the chairs

Evening Presentation

MBA ‘16

31- 08 2016

Prelude

Indian Banking• Indian banking system consists of: •26 public sector banks•25 private sector banks•43 foreign banks•56 regional rural banks•1,589 urban cooperative banks•93,550 rural cooperative banks

How big is Indian banking industry?• Indian Banking Industry stats:•11,75,149 employees.•1,09,811 branches in India. •171 branches abroad.•manages an aggregate deposit of ₹67,504.54 billion •bank credit of ₹52,604.59 billion. •The net profit of the banks operating in India was ₹1,027.51 billion.

Non Banking Financial

Corporations (NBFC)

A challenge to Indian Banking Sector?

Presented by SOP A10Simi | Sruthi | Subin | Theertha | Tinku SOP Mentor: Prof.Dr. Kuppachi Sreenivas

Contents• Introduction•NBFC

RegulationsRole of NBFCImportance of NBFC

• Indian Banks•NBFC v/s Banks•Conclusion

Non Banking Financial Corporations

•Registered under the Companies Act.•Registration with RBI is mandatory.•Are not entitled to accept public deposits.•Can accept public deposit for a minimum period of 12 months and maximum of 60 months.•Cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time.

Indian Banks•The basic function of a bank is to accept deposits from public for the purpose of lending.•Directed under the RBI guidelines.•26 nationalized bank in India.•16 old private sector banks.•15 new age private sector banks.

What is NBFC?•Financial intermediaries engaged primarily 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.•They cannot accept deposits repayable on demand

•NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors•NBFCs (except certain AFCs) should have minimum investment grade credit rating.•The deposits with NBFCs are not insured.•The repayment of deposits by NBFCs is not guaranteed by RBI.

Regulations•RBI Regulation •Certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI.•Should have minimum net owned fund of ₹ 200 lakh. •NBFC have to maintain 10 and 15 per cent of their deposits in liquid assets.

•All NBFCs are not entitled to accept public deposits.•Maintain reserve fund and transfer not less than 20 per cent of their net deposits to it every year.•Allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months.

•Cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 11 per cent per annum.•They have to obtain a minimum credit rating from anyone of the three credit rating agencies.•NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.

Role of NBFCs•Development of sectors like Transport & Infrastructure•Substantial employment generation•Help & increase wealth creation•Major thrust on semi-urban, rural areas & first time buyers / user.•To finance economically weaker sections

Importance of NBFC•Very difficult to cater need of society by Banks alone.•The role of NBFCs as effective financial intermediaries has been well recognised as they have inherent ability:to take quicker decisionsassume greater risks customise their services charges more according to the needs of the clients.

Indian Banks:•The basic function of a bank is to accept deposits from public for the purpose of lending.•Directed under the RBI guidelines.•Around 26 nationalized bank in India.•16 old private sector banks.•15 new age private sector banks.•Around 44 foreign banks.

BANKS Vs. NBFC’sBanks•banking is acceptance of deposits withdrawable by cheque or demand•Scope of business for banks is limited by sec 6 (1) of the BR Act

NBFC•NBFCs are companies carrying financial business.•There is no bar on NBFCs carrying activities other than financial activities.

Banks•Licensing requirements are quite stringent. Transfer of shareholding also controlled by RBI•No non-banking activities can be carried

NBFC• It is quite easy to form an NBFC. Acquisition of NBFCs is procedurally regulated but not approval required•Cannot provide cheque facilities.

Banking•Can exercise powers of recovery under SARFAESI and DRT law•FDI Upto 74% allowed to private sector banks•BR Act and RBI Act lay down stringent controls over banks

NBFC•Do not have powers under SARFAESI or DRT law.• FDI Upto 100% allowed.•Controls over NBFCs are relatively much lesser.

Banking•Banks are covered by SLR/ CRR requirements

•Certain minimum exposure to priority sector required

NBFC•NBFCs have to maintain a certain ratio of deposits in specified securities; no such requirement for non depository companies•Priority sector norms are not applicable to banks

Conclusion•Size of sector:•The NBFC sector has grown considerably•As of March 2013, it accounted for 12.5% of the country’s Gross Domestic Product .

• Growth:• it grew 22% every year.

•Promoting inclusive growth:•NBFCs cater to a wide variety of customers – both in urban and rural areas.

•Profitability:•NBFCs are more profitable than the banking sector because of lower costs.•Credit grew an average 24.3% per year for NBFCs as against 21.4% for banks.

• Infrastructure Lending:•NBFCs lent over one third or 35.8% of their total assets to infrastructure sector as of March 2013. • In contrast, banks lent only 7.6%.

•Only 34% of Indian individuals have access to banks.•Banks have a lot of constraints in lending.•Proximity of financial services.•Size of loans.•Higher risk taking ability.• Innovative business model.

•Relationship with customers.•Single product and dedicated business.•For collecting the dues they use human resources and pay them lower than what banks pay. Banks lack here.• In truck financing majority of the truck drivers don’t have proper papers to get the loans.

References•www.rbi.org.in• http://www.crisil.com•www.blonline.com

Q & A

Open Forum

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