Description
ifference between banks and NBFCs. It also explains different types of NBFCs, what is the procedure for registration with RBI, Salient features of NBFCs regulations
Non-Banking Financial Company (NBFC)
NBFC
?
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, hirepurchase, 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).
?
Recent years have witnessed significant increase in financial intermediation by the NBFCs. This is reflected in the proposal made by the latest Working Group on Money Supply for a new measure of liquidity aggregate incorporating NBFCs with public deposits worth Rs.20 crore and above
For regulatory purposes, NBFCs have been classified into 3 categories: A. Those accepting public deposits B. Those not accepting public deposits but engaged in financial business C. Core investment companies with 90 per cent of their total assets as investments in the securities of their group/ holding/subsidiary companies. The focus of regulatory attention is on NBFCs accepting public deposits.
The Task Force on NBFCs appointed by the Government of India submitted its report in October, 1998, which recommended rationalization of regulations for NBFCs, improvement of the legislative framework for protecting the interests of depositors and development of NBFCs on sound and healthy lines. The modified regulatory framework for NBFCs based on the recommendations made by the Task Force provides for the following:—
Major Recommendations of the Task Force on NBFCs
The rising number of defaulting NBFCs and the need for a quick redressal system call for change in the existing legislative and regulatory framework for NBFCs. ? Extension of the period for attaining minimum Net Owned Funds (NOF) beyond three years (January 2000) should be made conditional on adequate steps having been taken by the concerned NBFCs. Also, the minimum prescribed NOF of Rs. 25 lakh be considered for upward revision. ? The Reserve Bank of India should draw up a time bound programme for disposal of applications for registration of NBFCs and keep States informed of registration granted/rejected in respect of NBFCs in the respective States. ? Higher CRAR of 15 per cent for NBFCs seeking public deposits without credit rating be prescribed by RBI, as against existing 12 per cent for rated NBFCs.
?
?
?
?
Ceilings for exposures to real estate sector and investment in capital market, especially unquoted shares, be prescribed by the Reserve Bank of India. The Reserve Bank of India may stipulate 25 per cent of reserves of NBFCs to be invested in marketable securities in addition to SLR securities already held by them. The following ceilings may be prescribed for public deposits in respect of different categories of NBFCs.
Difference between Banks & NBFCs
?
?
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
NBFC should be registered with RBI
?
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 categories 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.
Different types of NBFCs
?
?
(i) equipment leasing company; (ii) hire-purchase company; (iii) loan company; (iv) investment company. However, 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.
?
Procedure For Registration with RBI
?
?
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 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999). The company is required to submit its application online by accessing RBI’s secured website.
?
All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid Certificate of Registration with authorization to accept Public Deposits can accept/hold public deposits. NBFCs authorized to accept/hold public deposits besides having minimum stipulated Net Owned Fund (NOF) should also comply with the Directions such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by the Bank.
interest and period of deposit of NBFCs
An NBFC maintaining required NOF/Capital to Risk Assets Ratio (CRAR) and complying with the prudential norms can accept public deposits as follows: Category of NBFC having Ceiling on public minimum deposit NOF of Rs 200 lakhs
AFC* maintaining CRAR of 15% without credit rating
AFC with CRAR of 12% and having minimum investment grade credit rating LC/IC** with CRAR of 15% and having minimum investment grade credit rating * AFC = Asset Finance Company
1.5 times of NOF or Rs 10 crore whichever is less
4 times of NOF
1.5 times of NOF
** LC/IC = Loan company/Investment Company
?
As has been notified on June 17, 2008 the ceiling on level of public deposits for NBFCs accepting deposits but not having minimum Net Owned Fund of Rs 200 lakh is revised as under: Category of NBFC having NOF more than Rs 25 lakh but less than Rs 200 lakh AFCs maintaining CRAR of 15% without credit rating and Revised Ceiling on public deposits
Equal to NOF
AFCs with CRAR of 12% and 1.5 times of NOF having minimum investment grade credit rating LCs/ICs with CRAR of 15% and having minimum investment grade credit rating Equal to NOF
The terms ‘owned fund’ and ‘net owned fund’ in relation to NBFCs
Owned Fund’ means aggregate of the paidup equity capital and free reserves as disclosed in the latest balance sheet of the company after deducting there from accumulated balance of loss, deferred revenue expenditure and other intangible assets. ? 'Net Owned Fund' is the amount as arrived at above minus the amount of investments of such company in shares of its subsidiaries, companies in the same group and all other NBFCs and the book value of debentures, bonds, outstanding loans and advances made to and deposits with subsidiaries and companies in the same group, to the extent it exceeds 10% of the owned fund.
?
?
Presently, the maximum rate of interest an NBFC can offer is 12.5%. The interest may be paid or compounded at rests not shorter than monthly rests. 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. The RNBCs have different norms for acceptance of deposits which are explained elsewhere in this booklet.
Salient features of NBFCs regulations
? ?
? ? ? ? ?
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. NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 12.5 per cent per annum. The interest may be paid or compounded at rests not shorter than monthly rests. 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. Certain mandatory disclosures are to be made about the company in the Application Form issued by the company soliciting deposits.
Deposit
?
The term ‘deposit’ is defined under Section 45 I(bb) of the RBI Act, 1934. ‘Deposit’ includes and shall be deemed always to have included any receipt of money by way of deposit or loan or in any other form but does not include: amount raised by way of share capital, or contributed as capital by partners of a firm; amount received from scheduled bank, co-operative bank, a banking company, State Financial Corporation, IDBI or any other institution specified by RBI; amount received in ordinary course of business by way of security deposit, dealership deposit, earnest money, advance against orders for goods, properties or services; amount received by a registered money lender other than a body corporate; amount received by way of subscriptions in respect of a ‘Chit’.
Public Deposits
?
Non-Banking Financial Companies Acceptance of Public Deposits ( Reserve Bank) Directions, 1998 defines a ‘ public deposit’ as a ‘deposit’ as defined under Section 45 I(bb) of the RBI Act, 1934 and further excludes the following: amount received from the Central/State Government or any other source where repayment is guaranteed by Central/State Government or any amount received from local authority or foreign government or any foreign citizen/authority/person; any amount received from financial institutions; any amount received from other company as inter-corporate deposit; amount received by way of subscriptions to shares, stock, bonds or debentures pending
?
Amount received from shareholders by private company; amount received from directors or relative of the director of an NBFC; amount raised by issue of bonds or debentures secured by mortgage of any immovable property or other asset of the company subject to conditions; the amount brought in by the promoters by way of unsecured loan; amount received from a mutual fund; any amount received as hybrid debt or subordinated debt; any amount received by issuance of Commercial Paper.
NBFCs Accept Public Deposits
?
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. NBFCs authorised to accept/hold public deposits besides having minimum stipulated Net Owned Fund (NOF) should also comply with the Directions such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by the Bank.
Secured debentures treated as Public Deposit
?
Debentures secured by the mortgage of any immovable property or other asset of the company, if the amount raised does not exceed the market value of the said immovable property or other asset, are excluded from the definition of ‘Public Deposit’ in terms of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998. Secured debentures are debt instruments and are regulated by Securities & Exchange Board of India.
Can NBFCs accept deposits from NRIs
?
Effective from April 24, 2004, NBFCs cannot accept deposits from NRIs except deposits by debit to NRO account of NRI provided such amount does not represent inward remittance or transfer from NRE/FCNR (B) account. However, the existing NRI deposits can be renewed.
Nomination Facility Available to the Depositors of NBFCs
Yes, nomination facility is available to the depositors of NBFCs. ? The Rules for nomination facility are provided for in section 45QB of the Reserve Bank of India Act, 1934. Non-Banking Financial Companies have been advised to adopt the Banking Companies (Nomination) Rules, 1985 made under Section 45ZA of the Banking Regulation Act, 1949. ? Accordingly, depositor/s of NBFCs are permitted to nominate one person to whom the NBFC can return the deposit in the event of the death of the depositor/s. ? NBFCs are advised to accept nominations made by the depositors in the form similar to one specified under the said rules, viz Form DA 1 for the purpose of nomination, and Form DA2 and DA3 for cancellation of nomination and change of nomination respectively.
?
Rating of NBFCs is Necessary Before it Accepts Deposit
?
?
?
An unrated NBFC, except certain Asset Finance companies (AFC), cannot accept public deposits. An exception is made in case of unrated AFC companies with CRAR of 15% which can accept public deposit without having a credit rating upto a certain ceiling depending upon its Net Owned Funds. AN NBFC may get itself rated by any of the four rating agencies namely, CRISIL, CARE, ICRA and FITCH Ratings India
Symbols Of Minimum Investment Grade Rating Of Different Companies
Name of rating agencies Nomenclature of minimum investment grade credit rating (MIGR) FA- (FA MINUS)
CRISIL
ICRA
CARE FITCH Ratings India Pvt. Ltd.
MA- (MA MINUS)
CARE BBB (FD) tA-(ind)(FD)
It may be added that A- is not equivalent to A, AA- is not equivalent to AA and AAA- is not equivalent to AAA.
In case an NBFC defaults
? ?
?
If an NBFC defaults in repayment of deposit, the depositor can approach Company Law Board or Consumer Forum or file a civil suit in a court of law to recover the deposits. Official Liquidator is appointed by the court after giving the company reasonable opportunity of being heard in a winding up petition. The liquidator performs duties of winding up and such duties in reference thereto as the court may impose. Where the court has appointed an official liquidator or provisional liquidator, he becomes custodian of the property of the company and runs the day-to-day affairs of the company. He has to draw up a statement of affairs of the company in prescribed form containing particulars of assets of the company, its debts and liabilities, names/residences/occupations of its creditors, the debts due to the company and such other information as may be prescribed.
The scheme is drawn up by the liquidator and same is put up to the court for approval. The liquidator realizes the assets of the company and arranges to repay the creditors according to the scheme approved by the court. The liquidator generally inserts advertisement in the newspaper inviting claims from depositors/investors in compliance with court orders. ? Therefore, the investors/depositors should file the claims within due time as per such notices of the liquidator. The Reserve Bank also provides assistance to the depositors in furnishing addresses of the official liquidator.
?
various prudential regulations applicable to NBFC
?
The Bank has issued detailed directions on prudential norms, vide Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998. The directions interalia, prescribe guidelines on income recognition, asset classification and provisioning requirements applicable to NBFCs, exposure norms, constitution of audit committee, disclosures in the balance sheet, requirement of capital adequacy, restrictions on investments in land and building and unquoted shares.
Overview of NBFC Sector
In the early 2000s, the NBFC sector in India was facing following problems: 1. High cost of funds 2. Slow industrial growth 3. Stiff competition with NBFCs as well as with banking sector 4. Small balance sheet size resulting in high cost of fund and low asset profile 5. Non performing assets
Majority of NBFCs were not able to face the pressure created on and were wiped out. ? Since FY2001-2002, there has been significant improvement in the business model of existing NBFCs with improvement in overall business environment. ? BFCs have been able to expand their resource profile by diversifying the funding avenues. Further a strict control on asset quality and overheads, coupled with use of innovative borrowing tools such as securitization has resulted in improved profitability of NBFCs.
?
Key Insights about NBFC Sector as of Today
Higher Interest yield than banks ? Marginal increase in fee based income aided profitability ? Strict control on overheads help maintain core profitability ? Enhanced investor base and funding avenues bolster resources profile
?
Near Future
In the near term, NBFCs will continue to maintain their core profitability. ? Interest costs have declined as well, which will enable them to maintain their interest spreads, since interest yields are not expected to decline significantly in the near term.
?
doc_639784029.pptx
ifference between banks and NBFCs. It also explains different types of NBFCs, what is the procedure for registration with RBI, Salient features of NBFCs regulations
Non-Banking Financial Company (NBFC)
NBFC
?
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, hirepurchase, 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).
?
Recent years have witnessed significant increase in financial intermediation by the NBFCs. This is reflected in the proposal made by the latest Working Group on Money Supply for a new measure of liquidity aggregate incorporating NBFCs with public deposits worth Rs.20 crore and above
For regulatory purposes, NBFCs have been classified into 3 categories: A. Those accepting public deposits B. Those not accepting public deposits but engaged in financial business C. Core investment companies with 90 per cent of their total assets as investments in the securities of their group/ holding/subsidiary companies. The focus of regulatory attention is on NBFCs accepting public deposits.
The Task Force on NBFCs appointed by the Government of India submitted its report in October, 1998, which recommended rationalization of regulations for NBFCs, improvement of the legislative framework for protecting the interests of depositors and development of NBFCs on sound and healthy lines. The modified regulatory framework for NBFCs based on the recommendations made by the Task Force provides for the following:—
Major Recommendations of the Task Force on NBFCs
The rising number of defaulting NBFCs and the need for a quick redressal system call for change in the existing legislative and regulatory framework for NBFCs. ? Extension of the period for attaining minimum Net Owned Funds (NOF) beyond three years (January 2000) should be made conditional on adequate steps having been taken by the concerned NBFCs. Also, the minimum prescribed NOF of Rs. 25 lakh be considered for upward revision. ? The Reserve Bank of India should draw up a time bound programme for disposal of applications for registration of NBFCs and keep States informed of registration granted/rejected in respect of NBFCs in the respective States. ? Higher CRAR of 15 per cent for NBFCs seeking public deposits without credit rating be prescribed by RBI, as against existing 12 per cent for rated NBFCs.
?
?
?
?
Ceilings for exposures to real estate sector and investment in capital market, especially unquoted shares, be prescribed by the Reserve Bank of India. The Reserve Bank of India may stipulate 25 per cent of reserves of NBFCs to be invested in marketable securities in addition to SLR securities already held by them. The following ceilings may be prescribed for public deposits in respect of different categories of NBFCs.
Difference between Banks & NBFCs
?
?
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
NBFC should be registered with RBI
?
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 categories 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.
Different types of NBFCs
?
?
(i) equipment leasing company; (ii) hire-purchase company; (iii) loan company; (iv) investment company. However, 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.
?
Procedure For Registration with RBI
?
?
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 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999). The company is required to submit its application online by accessing RBI’s secured website.
?
All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid Certificate of Registration with authorization to accept Public Deposits can accept/hold public deposits. NBFCs authorized to accept/hold public deposits besides having minimum stipulated Net Owned Fund (NOF) should also comply with the Directions such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by the Bank.
interest and period of deposit of NBFCs
An NBFC maintaining required NOF/Capital to Risk Assets Ratio (CRAR) and complying with the prudential norms can accept public deposits as follows: Category of NBFC having Ceiling on public minimum deposit NOF of Rs 200 lakhs
AFC* maintaining CRAR of 15% without credit rating
AFC with CRAR of 12% and having minimum investment grade credit rating LC/IC** with CRAR of 15% and having minimum investment grade credit rating * AFC = Asset Finance Company
1.5 times of NOF or Rs 10 crore whichever is less
4 times of NOF
1.5 times of NOF
** LC/IC = Loan company/Investment Company
?
As has been notified on June 17, 2008 the ceiling on level of public deposits for NBFCs accepting deposits but not having minimum Net Owned Fund of Rs 200 lakh is revised as under: Category of NBFC having NOF more than Rs 25 lakh but less than Rs 200 lakh AFCs maintaining CRAR of 15% without credit rating and Revised Ceiling on public deposits
Equal to NOF
AFCs with CRAR of 12% and 1.5 times of NOF having minimum investment grade credit rating LCs/ICs with CRAR of 15% and having minimum investment grade credit rating Equal to NOF
The terms ‘owned fund’ and ‘net owned fund’ in relation to NBFCs
Owned Fund’ means aggregate of the paidup equity capital and free reserves as disclosed in the latest balance sheet of the company after deducting there from accumulated balance of loss, deferred revenue expenditure and other intangible assets. ? 'Net Owned Fund' is the amount as arrived at above minus the amount of investments of such company in shares of its subsidiaries, companies in the same group and all other NBFCs and the book value of debentures, bonds, outstanding loans and advances made to and deposits with subsidiaries and companies in the same group, to the extent it exceeds 10% of the owned fund.
?
?
Presently, the maximum rate of interest an NBFC can offer is 12.5%. The interest may be paid or compounded at rests not shorter than monthly rests. 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. The RNBCs have different norms for acceptance of deposits which are explained elsewhere in this booklet.
Salient features of NBFCs regulations
? ?
? ? ? ? ?
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. NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 12.5 per cent per annum. The interest may be paid or compounded at rests not shorter than monthly rests. 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. Certain mandatory disclosures are to be made about the company in the Application Form issued by the company soliciting deposits.
Deposit
?
The term ‘deposit’ is defined under Section 45 I(bb) of the RBI Act, 1934. ‘Deposit’ includes and shall be deemed always to have included any receipt of money by way of deposit or loan or in any other form but does not include: amount raised by way of share capital, or contributed as capital by partners of a firm; amount received from scheduled bank, co-operative bank, a banking company, State Financial Corporation, IDBI or any other institution specified by RBI; amount received in ordinary course of business by way of security deposit, dealership deposit, earnest money, advance against orders for goods, properties or services; amount received by a registered money lender other than a body corporate; amount received by way of subscriptions in respect of a ‘Chit’.
Public Deposits
?
Non-Banking Financial Companies Acceptance of Public Deposits ( Reserve Bank) Directions, 1998 defines a ‘ public deposit’ as a ‘deposit’ as defined under Section 45 I(bb) of the RBI Act, 1934 and further excludes the following: amount received from the Central/State Government or any other source where repayment is guaranteed by Central/State Government or any amount received from local authority or foreign government or any foreign citizen/authority/person; any amount received from financial institutions; any amount received from other company as inter-corporate deposit; amount received by way of subscriptions to shares, stock, bonds or debentures pending
?
Amount received from shareholders by private company; amount received from directors or relative of the director of an NBFC; amount raised by issue of bonds or debentures secured by mortgage of any immovable property or other asset of the company subject to conditions; the amount brought in by the promoters by way of unsecured loan; amount received from a mutual fund; any amount received as hybrid debt or subordinated debt; any amount received by issuance of Commercial Paper.
NBFCs Accept Public Deposits
?
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. NBFCs authorised to accept/hold public deposits besides having minimum stipulated Net Owned Fund (NOF) should also comply with the Directions such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by the Bank.
Secured debentures treated as Public Deposit
?
Debentures secured by the mortgage of any immovable property or other asset of the company, if the amount raised does not exceed the market value of the said immovable property or other asset, are excluded from the definition of ‘Public Deposit’ in terms of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998. Secured debentures are debt instruments and are regulated by Securities & Exchange Board of India.
Can NBFCs accept deposits from NRIs
?
Effective from April 24, 2004, NBFCs cannot accept deposits from NRIs except deposits by debit to NRO account of NRI provided such amount does not represent inward remittance or transfer from NRE/FCNR (B) account. However, the existing NRI deposits can be renewed.
Nomination Facility Available to the Depositors of NBFCs
Yes, nomination facility is available to the depositors of NBFCs. ? The Rules for nomination facility are provided for in section 45QB of the Reserve Bank of India Act, 1934. Non-Banking Financial Companies have been advised to adopt the Banking Companies (Nomination) Rules, 1985 made under Section 45ZA of the Banking Regulation Act, 1949. ? Accordingly, depositor/s of NBFCs are permitted to nominate one person to whom the NBFC can return the deposit in the event of the death of the depositor/s. ? NBFCs are advised to accept nominations made by the depositors in the form similar to one specified under the said rules, viz Form DA 1 for the purpose of nomination, and Form DA2 and DA3 for cancellation of nomination and change of nomination respectively.
?
Rating of NBFCs is Necessary Before it Accepts Deposit
?
?
?
An unrated NBFC, except certain Asset Finance companies (AFC), cannot accept public deposits. An exception is made in case of unrated AFC companies with CRAR of 15% which can accept public deposit without having a credit rating upto a certain ceiling depending upon its Net Owned Funds. AN NBFC may get itself rated by any of the four rating agencies namely, CRISIL, CARE, ICRA and FITCH Ratings India
Symbols Of Minimum Investment Grade Rating Of Different Companies
Name of rating agencies Nomenclature of minimum investment grade credit rating (MIGR) FA- (FA MINUS)
CRISIL
ICRA
CARE FITCH Ratings India Pvt. Ltd.
MA- (MA MINUS)
CARE BBB (FD) tA-(ind)(FD)
It may be added that A- is not equivalent to A, AA- is not equivalent to AA and AAA- is not equivalent to AAA.
In case an NBFC defaults
? ?
?
If an NBFC defaults in repayment of deposit, the depositor can approach Company Law Board or Consumer Forum or file a civil suit in a court of law to recover the deposits. Official Liquidator is appointed by the court after giving the company reasonable opportunity of being heard in a winding up petition. The liquidator performs duties of winding up and such duties in reference thereto as the court may impose. Where the court has appointed an official liquidator or provisional liquidator, he becomes custodian of the property of the company and runs the day-to-day affairs of the company. He has to draw up a statement of affairs of the company in prescribed form containing particulars of assets of the company, its debts and liabilities, names/residences/occupations of its creditors, the debts due to the company and such other information as may be prescribed.
The scheme is drawn up by the liquidator and same is put up to the court for approval. The liquidator realizes the assets of the company and arranges to repay the creditors according to the scheme approved by the court. The liquidator generally inserts advertisement in the newspaper inviting claims from depositors/investors in compliance with court orders. ? Therefore, the investors/depositors should file the claims within due time as per such notices of the liquidator. The Reserve Bank also provides assistance to the depositors in furnishing addresses of the official liquidator.
?
various prudential regulations applicable to NBFC
?
The Bank has issued detailed directions on prudential norms, vide Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998. The directions interalia, prescribe guidelines on income recognition, asset classification and provisioning requirements applicable to NBFCs, exposure norms, constitution of audit committee, disclosures in the balance sheet, requirement of capital adequacy, restrictions on investments in land and building and unquoted shares.
Overview of NBFC Sector
In the early 2000s, the NBFC sector in India was facing following problems: 1. High cost of funds 2. Slow industrial growth 3. Stiff competition with NBFCs as well as with banking sector 4. Small balance sheet size resulting in high cost of fund and low asset profile 5. Non performing assets
Majority of NBFCs were not able to face the pressure created on and were wiped out. ? Since FY2001-2002, there has been significant improvement in the business model of existing NBFCs with improvement in overall business environment. ? BFCs have been able to expand their resource profile by diversifying the funding avenues. Further a strict control on asset quality and overheads, coupled with use of innovative borrowing tools such as securitization has resulted in improved profitability of NBFCs.
?
Key Insights about NBFC Sector as of Today
Higher Interest yield than banks ? Marginal increase in fee based income aided profitability ? Strict control on overheads help maintain core profitability ? Enhanced investor base and funding avenues bolster resources profile
?
Near Future
In the near term, NBFCs will continue to maintain their core profitability. ? Interest costs have declined as well, which will enable them to maintain their interest spreads, since interest yields are not expected to decline significantly in the near term.
?
doc_639784029.pptx