NBFCs in India’s Financial Landscape

- Manisha Sachdeva
(Associate Economist)
- Darshini Kansara
(Research Analyst)
 Ratings Limited, have juxtaposed the numbers for Banking sector and Housing Finance

Companies (NBFCs) position vis-à-vis the Banking sector and the HFCs in the Indian

*Data for HFCs pertains to aggregate of 19 listed companies from AceEquity

Introduction –NBFCs

1.

2. NBFCs are specialized intermediaries that are regarded as shadow banks

3. They leverage on lower transaction costs, financial innovations and regulatory arbitrage
They play an important role in emerging economies as they have the ability to
Reach out to inaccessible areas
4. Act as not just complements but also substitutes to banks
Preference over banks due to

Quicker decision-making ability

prompt provision of services
Expertise in niche segments

NBFC’s in India’s Financial Landscape 25th October 2017

Introduction –NBFCs
Contd.

Shadow banking refers to all non-bank financial intermediaries that provide services similar to those
of traditional commercial banks

The Shadow Banking sector in India primarily includes NBFCs and collective investment vehicles NBFCs are distinctly
different from shadow banking entities in other countries

NBFCs are regulated by the Reserve Bank of India (RBI) with priority being assigned to calibrating

regulations to harmonize them with those of the banking sector regulations to minimize the scope of regulatory arbitrage

NBFCs are gaining importance in the Indian Financial System, accounting for about 9% of the total assets of the financial sector
– the third largest segment after the scheduled commercial banks or SCBs (64%) and insurance companies (14%) – RBI 2014

NBFC’s in India’s Financial Landscape 25th October 2017

Introduction –NBFCs
Contd.

NBFCs had the third largest bilateral exposures after banks and mutual funds

Also, they are the biggest receivers of funds, on a net basis, surpassing banks, signifying their

systemic importance

In the context of slowdown in bank credit in wake of asset quality stress in recent years, double-digit

growth in credit by NBFCs has distinctly emphasized their role as credit provider in India’s financial system

NBFC’s in India’s Financial Landscape 25th October 2017

Structure of NBFIs sector in India

Non-Banking Financial Institutions (NBFIs)

Non- Banking Financial

Companies (NBFCs)
All India FInancial Primary Dealers
Institutions

NBFCs-D

EXIM NABARD SIDBI National Housing

NBFCs-ND
Bank (NHB)
NBFCs-ND

(NBFCs-ND-SI) Companies

Housing(HFCs)
Finance
Other
NBFCs-ND
(NBFC-ND)

NBFC’s in India’s Financial Landscape 25th October 2017

Different types of NBFCs in India: End-March position: FY17

NBFC-D, 178
(1.5%)

NBFC-ND-SI, 218
(1.9%)

NBFC-ND, 11,126
(96.6%)

Note: Data for FY17 are provisional

NBFC’s in India’s Financial Landscape 25th October 2017

Distribution of assets across NBFCs-ND-SI and NBFCs-D: End-March position

NBFCs-D In view of phenomenal increase in the number

14.8%
and deposits, a comprehensive legislative
framework for NBFCs-D was introduced in
1997 to protect the interest of the depositors.

A conscious policy was pursued to discourage

acceptance of deposits by NBFCs so that only
banks accept public deposits. Hence, no new
SI
license has been given to NBFCs-D after 1997.
85.2%
Therefore, NBFCs-ND-SI have become

Note: Data for FY17 are provisional significantly larger than NBFCs-D – their share
in total assets of the two categories taken
together was about 86% in 2017.
NBFC’s in India’s Financial Landscape 25th October 2017
Classification of NBFCs based on activities undertaken

Sr No Types of NBFCs Activity

Financing of physical assets supporting productive/economic activity,

1 Asset Finance Company (AFC) including automobiles, tractors and generators.

Providing finance by extending loans or otherwise for any activity

2 Loan Company other than its own but does not include an AFC

3 Investment Company Acquiring securities for the purposes of selling.

4 Infrastructure Finance Company (NBFC-IFC) Providing infrastructure loans.

Systemically Important Core Investment Acquiring shares and securities for investment in mainly equity shares.
5 Company (CIC-ND-SI)

For facilitating flow of long-term debt into infrastructure projects

6 Infrastructure Debt Fund (NBFC-IDF)

NBFC’s in India’s Financial Landscape 25th October 2017

Classification of NBFCs based on activities undertaken

Sr No Types of NBFCs Activity

Extending credit to economically disadvantaged groups as well support

7 Micro Finance Institution (NBFC-MFI) Micro, Small and Medium Enterprises (MSMEs).

Undertaking the business of acquiring receivables of an assignor

8 Factor (NBFC-Factor) or extending loans against the security interest of the receivables at a
discount.

NBFC- Non-Operative Financial Holding For permitting promoter / promoter groups to set up a new bank.
9 Company (NOFHC)

10 Mortgage Guarantee Company (MGC) Undertaking mortgage activities.

Collecting and providing the information of customers’ financial assets in a

11 Account Aggregator (NBFC-AA) consolidated, organised and retrievable manner to the customer or
others as specified by the customer

Non-Banking Financial Company - Peer to Peer Providing an online platform to bring lenders and borrowers together
12 Lending Platform (NBFC-P2P) to help mobilise unsecured finance.

NBFC’s in India’s Financial Landscape 25th October 2017

Classification of NBFCs based on activities undertaken: FY17

CICs-ND-SI
2.2%
NBFCSs-MFI
3.0%
IDF-NBFCs
0.6% NBFCs-Factor
0.1%
Investment companies
12.6%
36.2%

Loan Companies
AFCs
13.7%
NBFCs-IFC
31.5%

Note: 1. Data for FY17 are provisional

2. NOFHC, MGC and NBFC-AA data are not captured as they have miniscule share in the total assets of the NBFC sector

NBFC’s in India’s Financial Landscape 25th October 2017

Liabilities Breakup (%) of NBFCs: Comparison with SCBs and HFCs

5.9

4.5
9.9
28.5
69.9

77.9

1.6
54.4
18.0
7.0 10.6
4.7 0.4
0.7
NBFCs
6.0
Share capital
Note : Data for banking sector pertains to FY16 and FY17 for NBFCs (Provisional) and HFCs

Banks HFCs
Reserves and Surplus Public deposits Borrowings Others
NBFC’s in India’s Financial Landscape 25th October 2017
Assets Breakup (%) of NBFCs: A Comparison with SCBs and HFCs

7.0
4.0
13.6

6.3 1.5
71.8
8.3

75.5
24.5
60.9

17.8

NBFCs 6.4
2.5
Loans and advances
Note: Data for banking sector pertains to FY16 and FY17 for NBFCs (Provisional) and HFCs
1. Others assets for banking system includes fixed assets
2. Cash and Bank balances for banking system also includes balancesBanks
with banks and money at call and short noticeHFCs
3. ‘Loans and advances’ (which are non-current assets) for HFCs include Long term trade receivables, advance tax, L&A to employees, etc,
while ‘Other Loans’ include loans to individuals,Investments Cash
corporate bodies and andcomprises
others bank balances
of both currentOther Loans
and non-current Others
assets (which are
reported separately)

NBFC’s in India’s Financial Landscape 25th October 2017

Borrowings breakup(%) of NBFCs-ND-SI : FY17 P

16.1

3.5

49.2
9.7

21.6

Debenutres Bank borrowings

Note : Data for NBFCs for FY17 are provisional

Commercial paper Inter-corporate borrowings Others

NBFC’s in India’s Financial Landscape 25th October 2017

Public deposits of NBFCs- D, Banks and HFCs

Outstanding deposits (Rs lakh crore) NBFCs- D

Banks FY17
Time deposits 0.31
Demand deposits
108.05
HFCs
95.11
12.94
Deposits with NBFCs stood at Rs 0.31 lkh crores as on 31st March’2017 compared with time

deposits of 95.11 lkh crs in the banking system during the same time period. 0.50

Note : Data for NBFCs for FY17 are provisional

NBFC’s in India’s Financial Landscape 25th October 2017

Credit growth of NBFCs, Banks and HFCs: FY17

28.4

17.1

13
%

5.4

0.6
5

NBFCs-ND-SI
0

Note : Data for NBFCs for FY17 are provisional Banks Private sector Public sector HFCs
banks banks

NBFC’s in India’s Financial Landscape 25th October 2017

Growth rate of credit of major categories of NBFCs

36.3

22.7 22.1 23.1

7.6
%

5.6
0

-10
-3.4
-20
Loan companies
-17.1
NBFCs- IFC NBFCs-MFI AFCs
Note : Data for NBFCs for FY17 are provisional FY16 FY17
Bank credit for consumer durables and vehicles increased by 22% and 13% in FY16 and FY17 respectively

NBFC’s in India’s Financial Landscape 25th October 2017

NBFCs-ND-SI credit, bank credit and HFCs credit as a % of GDP: FY17

51.9

7.9
%

1.0

NBFCs
Note : GDP based on 2011-12 base year, current prices
NBFCs data are provisional
0

Banks HFCs

NBFC’s in India’s Financial Landscape 25th October 2017

Sectoral distribution of credit –NBFCs and Banks : FY17

2.5
5.6

17.7

13.9
22.7
14.7
37.5
NBFCs -
ND - SI Banks
59.6
25.8
Agriculture

Note : Data for NBFCs for FY17 is provisional

Industries Services Retail Others

NBFC’s in India’s Financial Landscape 25th October 2017
Share of MSEs in total credit : FY17

10.5

5.2
8
6
%
4
2

NBFCs
0

Note : Data for NBFCs for FY17 is provisional Banks

NBFC’s in India’s Financial Landscape 25th October 2017

Growth of Infrastructure finance : NBFCs-ND-SI and SCBs

5.6
6
4
2

-2
0.3
0
%

-4

-6

-8 -2.3
FY16

NBFCs
-6
Note : Data for NBFCs for FY17 is provisional
FY17
Banks
NBFC’s in India’s Financial Landscape 25th October 2017
Trend in NPA ratio : end-Mar’17

9.6

10.0

8.0

6.0 5.0

4.0

2.0

0.0
NBFCs
Note : Data for NBFCs for FY17 is provisional
Banks

NBFC’s in India’s Financial Landscape 25th October 2017

Return on Assets of NBFCs, Banks and HFCs: end Mar’17

2.5

2 2.3

1.5
1.9 1.8
1.8

0.5

0 0.4
NBFCs-ND-SI

Note : Data for NBFCs for FY17 is provisional

ROA for HFCs have been calculated by dividing FY17 PAT by average assets for FY16 and FY17
NBFCs-D NBFCs Banks HFCs

NBFC’s in India’s Financial Landscape 25th October 2017

 CRAR of NBFCs and Banks : end-March position ; 2017

25.0

20.0 23.0
22.0
20.0 13.6
15.0
%

10.0

5.0

0.0
NBFCs-ND-SI
Note : Data for NBFCs for FY17 is provisional

NBFCs-D NBFCs Banks

NBFC’s in India’s Financial Landscape 25th October 2017
Thank You

NBFC’s in India’s Financial Landscape 25th October 2017