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1.1. Introduction
1.2. Non Banking Financial Company Meaning and Definitions
1.3. Structure of NBFCs
1.4. Different Types of NBFCs
1.5. Some of the Differences between NBFCS and Banks
1.6. Importance of the Study
1.7. Statement of Problems
1.8. Objectives of the Study
1.9. Hypotheses
1.10. Methodology
1.11. Limitations of the Study
1.12. Chapter Scheme
1.1. INTRODUCTION
The Indian economy has been witnessing high rates of growth in the last
few years. Financial requirements have also risen commensurately and will
continue to increase in order to support and sustain the tremendous economic
growth. NBFCs have been playing a complementary role to the other financial
institutions, including banks in meeting the funding needs of the economy. 1 They
help fill the gaps in the accessibility of financial services that otherwise occur in
bank-dominated financial systems. The openings are in regards the product as well
as customer and geographical segments.
NBFCs over the years have played a very critical part in the economic
system. They have been at the forefront of catering to the financial needs and
creating livelihood sources for the so-called un-bankable masses in the rural and
semi-urban regions. Through strong linkage at the grassroots level, they have
created a medium of reach and communication and are very effectively serving this
segment. Thus, NBFCs have all the key characteristics like other lending agencies
to accomplish the mission of financial inclusion in the rural and urban area.
A Non-Banking Finance Company (NBFC) means a financial institution
which is a company; 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; such other non-banking
institution or class of such institutions as the Bank may with the previous approval
of the Central Government specify.
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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.
gross income. Both these tests are required to be satisfied as the determinant factor
for principal business of a company.
Definitions of NBFC
Whereas the 'Reserve bank of India Act 1934' itself defines the term NBFC,
there is a different definition of the same term viz. NBFC in the 'Non-Banking
Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions,
1988' that the RBI itself has issued under the aforesaid Act of 1934.
According to the Reserve Bank (Amendment Act) 1997, A Non-banking
finance company (NBFC) means a financial institution which is a company; 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; such other non-banking institution or class of such
institutions as the Bank may with the previous approval of the Central Government
specify.3 The definition excludes financial institutions besides institutions which
carry on agricultural operations as their principal business.
economic activity and income arising there from is not less than 60% of its total
assets and total income respectively.
Investment Company (IC): IC means any company which is a financial
institution carrying on as its principal business the acquisition of securities.
Loan Company (LC): LC means any company which is a financial institution
carrying on as its principal business the providing of finance whether by making
loans or advances or otherwise for any activity other than its own but does not
include an Asset Finance Company.
Infrastructure Finance Company (IFC): IFC is a non-banking finance company
a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has
a minimum Net Owned Funds of Rs. 300 crore, c) has a minimum credit rating of
A or equivalent d) and a CRAR of 15%.
Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI
is an NBFC carrying on the business of acquisition of shares and securities which
satisfies the following conditions :
! it holds not less than 90% of its Total Assets in the form of investment in equity
shares, preference shares, debt or loans in group companies
! its investments in the equity shares (including instruments compulsorily
convertible into equity shares within a period not exceeding 10 years from the date
of issue) in group companies constitutes not less than 60% of its Total Assets
! it does not trade in its investments in shares, debt or loans in group companies
except through block sale for the purpose of dilution or disinvestment
! it does not carry on any other financial activity referred to in Section 45I(c) and
45I(f) of the RBI act, 1934 except investment in bank deposits, money market
The NBFCs
liberalization measures for NBFCs on July 24, 1996. Over the last decade or so,
the Reserve Bank of India has been blowing hot and cold over non-banking finance
companies (NBFCs). The RBI reacted to a series of defaults and misdemeanors by
a few NBFCs restricting their ability to hold public deposits. This unfortunately
led to a collapse of many NBFCs which depended on a continuous inflow of
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NBFCs have also ventured into riskier segments such as unsecured loans,
purchase finance for used commercial vehicles, capital market lending, etc. The
earlier mentioned factors increase their risk profile which could have adverse
impact on the financial health of NBFCs. Although some improvement has been
witnessed in auto sales in last few months, the demand for vehicle finance is likely
to remain subdued. Besides, given the significant slowdown in the Indian
economy, NBFCs are encountering structural challenges such as increased
refinancing risk, short-term asset-liability mismatch leading to decelerating growth
and declining margins. This is expected to have a bearing on the profitability of
NBFCs in the medium term. The growth in vehicle finance remaining low in the
medium term, NBFCs are expected to focus on rural and semi-urban markets.
Credit requirements of rural population are primarily met by banks from organised
sector or local money lenders. Though, in recent years there has been some
penetration of NBFCs in this segment, the market still remains largely untapped.
There is a large section of rural population which does not have access to credit
either because of their inability to meet the lending covenants of banks or due to
high interest rates of local money lenders. This provides a huge opportunity for
NBFC sector to spread their business in the rural & semi-urban markets. 4
In the above juncture, the present study deals with the performance of the
select NBFCs such as Manappuram finance and Muthoot finance. The study deals
with the analysis of balance sheets and income statements of the select companies.
4
BFSI Sector in India under the D&B Sectoral Round Table Conferences series, RBI,
https://www.dnb.co.in/BFSISectorInIndia/NonBankC2.asp
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1.10. METHODOLOGY
The present study pertains to A Study on NBFCs in Tamilnadu only.
Among the NBFCs registered with the Registrar of Companies in Tamilnadu, the
NBFCs such as Manappuram finance and Muthoot finance are spread wide over in
the State of Tamilnadu with more number of branches and wide and strong
customer base are selected. And also, they are the largest gold loan providers in
Tamilnadu.
The research design of the study is analytical and conclusive.
The study
confined with only secondary data. The secondary information pertaining to the
study are gathered from journals related to non banking financial companies,
magazines, survey of Indian Industry 2012, academic literatures, RBI bulletin, and
the select NBFCs websites.
TOOLS USED
The performance of Manappuram Finance and Muthoot Finance has been
examined with the help of financial highlights and balance sheets over ten years of
the companies. The ratio analysis, CAGR, t value, mean, standard deviation,
simple percentage, Altman Z-Score and Du Pont analysis have been adopted for
the present study.
PERIOD OF STUDY
The present study covers a period of ten years of secondary data from the
two non-banking financial agencies collected from the year 2003-04 to the year
2012-13.
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The present study is largely based on ratio analysis which has its own
limitations.
3. Statistical test used in the study to interpret the analyzed data to generalize the
findings of the study for the Manappuram finance and Muthoot finance has got
their own limitations and result of the analysis is subject to same constraints as are
applicable to statistical tools.
4. The analysis of financial statement of business enterprise gives diagnostic
indicators. The researcher, being an outside, external analyst, obviously has no
access to internal data. Therefore, inside view of the organization cannot be
characterized in the study.
1.12. CHAPTER SCHEME
The study is designed with seven chapters.
The first chapter entitled Introduction and Design of the Study deals with
a brief introduction of non-banking financial companies, meaning and definitions,
Structure of NBFCs, Different types of NBFCs, and their importance, statement of
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