A PROJECT REPORT ON

STUDY OF NON-BANKING FINANCIAL COMPANIESWITH

SPECIAL REFERENCE TO GOLD LOAN”.

A POJECT SUBMITTED TO

UNIVERSITY OF MUMBAI FOR PARTIAL COMPLETION THE DEGREE

OF BACHELOR IN COMMERCE (BANKING AND INSURANCE)

UNDER THE FACULTY OF COMMERCE

SUBMITTED BY

MISS KAVYA KRISHNA MOOLYA

ROLL NO :- 1911632

UNDER THE GUIDANCE OF:

Dr. RAJASHREE DESHPANDE

PARLE TILAK VIDYALAYA ASSOCIATIONS

MULUND COLEGE OF COMMERCE

S.N ROAD, MULUND (WEST) MUMBAI-400080

ACADEMIC YEAR: MARCH 2020

 A PROJECT REPORT ON

“STUDY OF NON-BANKING FINANCIAL COMPANIES WITH

SPECIALREFERENCE TO GOLD LOAN”.

A POJECT SUBMITTED TO

UNIVERSITY OF MUMBAI FOR PARTIAL COMPLETION THE DEGREE

OF BACHELOR IN COMMERCE (BANKING AND INSURANCE)

UNDER THE FACULTY OF COMMERCE

SUBMITTED BY

MISS KAVYA KRISHNA MOOLYA

ROLL NO :- 1911632

UNDER THE GUIDANCE OF:

Dr. RAJASHREE DESHPANDE

PARLE TILAK VIDYALAYA ASSOCIATIONS

MULUND COLEGE OF COMMERCE

S.N ROAD,MULUND (WEST) MUMBAI-400080

ACADEMIC YEAR: MARCH 2020

DECLARATION BY LEARNER

I, the undersigned Miss, KAVYA KRISHNA MOOLYAhere by, declare

thattheworkembodied in this project work titled, “STUDY OF NON-
BANKINGFINANCIAL COMPANIES WITH SPECIAL REFERENCE TO
GOLDLOAN”forms my own contribution to the research work carried out under
theguidance ofDr. RAJASHREE DESHPANDE. This study is a result of my
ownresearch work has not been previously submitted to any other University for any other
Degree/Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.

I, hereby further declare that all information of this document has been obtained
andpresented in accordance with academic rules and ethical conduct.

Kavya krishna moolya

Certified by

Dr. Rajashree Deshpande

ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and the depth
is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me a chance to do
this project.

I would like to thank my Principal, Dr. SONALI PEDNEKAR for providing the
necessary facilities required for completion of this project.

I take this opportunity to thank our Coordinator,Mrs. SHILPA THAKUR, for her
moral support and guidance.

I would like to express my sincere gratitude towards my project guide Dr.

RAJASHREE DESHPANDEwhose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especiallymy Parents and Peerswho supported
me throughout my project.
INDEX

CHAPTER NO. TITLE PAGE NO.

CHAPTER NO.1 INTRODUCTON
Overview
Definition
Breaking Down
Historical Background
Non-Banking Financial Companies
Types
Business profile
Structural profile of NBFC sector
Norms for NBFCs accepting public
deposits
Scope of NBFC
Present scenario of NBFCs
Future Scenario of NBFCs
Challenges faced by NBFC sector
Criticisms of NBFCs
Why are Non-Banking financial
companies important?
Advantages of NBFCS
Introduction to gold loan
Company profile
Muthoot Finance
Advantages of Gold loan
RBI gold loan regulations for NBFCs
Competitive analysis
CHAPTER 2. RESEARCH METHODOLOGY
Objective
Limitations of research
Sources of data
Sample design
 Problem statement
CHAPTER 3. REVIEW OF LITERATURE
CHAPTER 4. DATA ANALYSIS AND
INTERPRETATION
CHAPTER 5. FINDINGS, SUGGESTIONS
AND CONCLUSION
Findings
Suggestions
Conclusions
STUDY OF NON-BANKING FINANCE COMPANIES WITH

SPECIAL REFERENCE TO GOLD LOAN

CHAPTER 1

INTRODUCTION

Overview:

A Non-Banking Financial Company (NBFC) is a company registered under the

Companies Act, 1956 engaged in the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/securities issued by Government or local authority or
other marketable securities of a like nature, leasing, hire-purchase, insurance business,
chit business but does not include any institution whose principal business is that of
agriculture activity, industrial activity, purchase or sale of any goods (other than
securities) or providing any services and sale/purchase/construction of immovable
property. The NBFC sector is an important part of the Indian financial sector. They
have shown dynamism in delivering innovation and in assisting financial inclusion.

NBFCs typically have several advantages over banks due to their focus on niche
segment, expertise in the specific asset classes, and deeper penetration in the rural and
unbanked markets. However, on the flip side, they depend to a large extent on bank
borrowings, leading to high cost of borrowings and face competition from banks which
have lower cost of funds.

The growing asset size of the NBFC sector has increased the need for risk management
in the sector due to growing interconnectedness of NBFCs with other financial sector
intermediaries. The Reserve Bank of India (RBI) has been in the recent past trying to
strengthen the risk management framework in the sector, simplify the regulations and
plug regulatory gaps so as to prevent regulatory arbitrage between banks and NBFCs.

The Reserve Bank of India released the ‘Revised Regulatory Framework for NBFCs
on November 10, 2014 which broadly focuses on strengthening the structural profile of
NBFC sector, wherein focus is more on safeguarding of the depositors money

1
andregulating NBFCs which have increased their asset-size over time and gained
systemic importance.

Due to subdued economic growth, last two years, have been challenging period for the
NBFCs with moderation in rate of asset growth, rising delinquencies resulting in
higher provisioning thereby impacting profitability. However, comfortable
capitalization levels and conservative liquidity management, continues to provide
comfort to the credit profile of NBFCs in spite of impact on profitability.

List of Top 20 NBFCs in Indian Economy:

SR NBFC CORE SERVICES ASSETS

NO.
1 HDFC Life insurance, $3.44 billion
mutual funds, micro
finance, etc.
2 Power Finance Financial consulting, $2.36 billion
Corporation investment banking,
loan management,
etc
3 Reliance Capital Asset management, $ 1.1 billion
insurance, broking
and distribution, etc.
4 Infrastructure Finance for $ 450 million
Development infrastructure To
Finance Company. projects, corporate $550 million
finance, mutual
funds.
5 Rural Electricity Investment and $ 105 billion
Corporation private banking,
Asset management
6 Shree Global Iron and steel Rs.847cr to
financial services Rs.900cr
7 Shriram Transport Consumer vehicle Rs.21,340cr
Finance finance, city union

2
 finance, micro
finance, etc.
8 Bajaj Holdings Asset management, Rs.13000cr
micro finance, loans
9 M&M Financials Financial services, Rs.17000cr
micro finance, asset
management, etc
10 Muthoot Finance Muthoot Finance Rs.23,000+cr
includes small
businesses, vendors,
farmers, traders,
SME, Business
owners and salaried
individuals
11 LIC Housing Real estate and Rs.500cr to
Finance housing finance and Rs600cr
loans
12 Edelweiss Capital Investment banking, Rs.2,500cr to
brokerage services, Rs.3,000cr
asset management,
micro finance, etc
13 KNG Industries Real estate, oil and Rs.236cr to
gas, power and Rs.230cr
energy
14 Shriram City Gold loans finance Rs.1320cr
and micro finance
etc
15 National Bank of Micro finance for Rs.81220+cr in
Agricultural and rural sector reserves
Rural Development
16 IFCI Loans, equity, micro Rs.31 billion to
finance Rs.32 billion
17 J M Financials Investment banking, Rs.183cr to
institutional equity Rs.200cr

3
 sales, trading,
private and corporate
wealth management,
asset management,
etc.

18 India Info Line Loans and Finance Rs.1130cr

19 Centrum Finance Investment banking, Nil
broking, wealth
management, etc.
20 Tata Capital Consumer finance, $ 50 million to $ 200
Wealth management, million
Investment banking,
etc

Definition

“Non-banking financial companies, or NBFCs, are financial institutions that

provideBanking services, but do not hold a banking license. These institutions are not
allowed to take deposits from the public. Nonetheless, all operations of these
institutions arestill covered under banking regulations”.

Breaking down

'Non-Banking Financial Company ( NBFC)

NBFCs do offer all sorts of banking services, such as loans and credit
facilities,retirement planning, money markets, underwriting, and merger activities. The
number of non-banking financial companies has expanded greatly in the last several
years as venture capital companies, retail and industrial companies have entered the
lending business.

Historical Background

4
Historically, India has followed a financial intermediation-based system where banks,
DFIs and NBFCs played a dominant role. The evolution of the Indian financial system
from somewhat of a constricted and an undersized one to a more open, deregulated and
market oriented one and its interface with the growth process reveals that it is a
conscious one with the State taking the initiative. The banking system forms the core
of the Indian financial system after the nationalization of banks. Driven largely by the
public sector initiative and policy activism, commercial banks have a dominant share
in total financial assets and are the main source of financing for the private corporate
sector. They also channelized a sizeable share of household savings to the public
sector. The financial system outside the banks also exhibits considerable dynamism.
The setting up of the development financial institutions and refinance institutions and
the onset of reforms from about the early ‘nineties’, provide depth to the financial
intermediation outside the banking sector. These developments, coupled with increased
financial market liberalization, have enhanced competition.

Apart from the financial institutions, rapid expansion of NBFCs have taken place in
the eighties and provided avenues for depositors to hold assets and for borrowers to
enhance the scale of funding of their activities. Various types of NBFCs have provided
varied services that include equipment leasing, hire purchase, loans, investments,
mutual benefit and chit fund activities. The financial development in the banking and
nonbanking financial sector supports saving and investment in the economy and
contribute to growth in real activity. By pooling risks, reaping economies of scale and
scope, and by providing maturity transformation, financial intermediation supports
economic activity of the nonfinancial sectors. The emphasis in the approach to the
financial system in the growth process during the 1980s and 1990s has shifted from
channelization of resources by directed credit to their allocation between competing
uses largely determined by market forces. In the wake of the financial crisis of the
2009s, the role of the financial system has been subjected to critical reassessment and
considerations of financial stability have come to occupy equal place, if not higher
with allocative efficiency. The share of banks in total financial assets of banks and
NBFIs has declined over the last three decades.

Non- Banking Financial Companies (NBFCs)

5
 Non-banking finance companies (NBFCs) are fast emerging as an important segment
of Indian financial system. It is an heterogeneous group of institutions (other than
commercial and co-operative banks) performing financial intermediation in a variety
of ways, like acceptingdeposits, making loans and advances, leasing, hire purchase,
etc. They raise funds from the public, directly or indirectly, and lend them to ultimate
spenders. They advance loans to thevarious wholesale and retail traders, small scale
industries and self-employed persons. Thus, they have broadened and diversified the
range of products and services offered by a financial sector.

Gradually they are being recognized as complementary to the banking sector due to
their Customer oriented services, simplified procedures, attractive rates of return on
deposits, flexibility and timeliness in meeting the credit needs of specified sectors etc.

The working and operations of NBFCs are regulated by the Reserve Bank of India
(RBI) within the framework of the Reserve Bank of India Act, 1934 and the directions
issued by it under the Act. As per the RBI Act , a 'non-banking financial company is
defined as :-

i. A financial institution which is a company .

ii. A non-banking institution which is a company and which has as it’s principal business
the receiving of deposits ,under any scheme or arrangement or in any other manner , or
lending in any manner.
iii. Such other non-banking institution or class of such institutions, as the bank may, with
the previous approval of the Central government and by notification in the Official
Gazette, specify.

Under the Act, it is mandatory for a NBFC to get itself registered with the RBI as a
deposit taking company. This registration authorizes it to conduct it’s business as an
NBFC. For the registration with the RBI, a company incorporated under the
Companies Act, 1956 and desirous of commencing business of non-banking financial
institution, should have a minimum net owned fund (NOF) of RS 25 lakh (raised to RS
200 lakhw.e.f April 21, 1999). The term 'NOF' means, owned funds (paid-up capital
and free reserves,minus accumulated losses, deferred revenue expenditure and other
intangible assets) less,
6
 1. Investments in shares of subsidiaries/ companies in the same group /
all other NBFCs.
2. The book value of debenture/bonds/ outstanding loans and advances ,
including hire-purchaseand leasefinance made to, and deposits with,
subsidiaries/companies in the same group, in excess of 10% of the owned
funds.

The registration process involves submission of an application by the company in the

prescribed format along with the necessary documents for RBI's consideration . If the
bank is satisfied that the conditions enumerated in the RBI Act, 1934 are fulfilled, it
issues a 'Certificate of Registration' to the company.Only those NBFCs holding a valid
Certificate of Registration can accept/hold public deposits. The NBFCs accepting
public deposits should comply with the Non-Banking Financial Companies
Acceptance of Public Deposits (Reserve Bank) Directions, 1998, as issued by the bank.
Some of the important regulations relating to acceptance of deposits by the NBFCs
are :-

a) They are allowed to accept/renew public deposits for a minimum period of 12

months and maximum period of 60 months.
b) They cannot accept deposits repayable on demand.
c) They cannot offer interest rates higher than the ceiling rate prescribed by RBI from
time to time.
d) They cannot offer gifts/incentives or any other additional benefit to the depositors.
e) They should have minimum investment grade credit rating.
f) Their deposits are not insured.
g) The repayment of deposits by NBFCs is not guaranteed by RBI.

Types:

The types of NBFCs registered with the RBI :-

7
I. Equipment leasing companies:
i. Equipment leasing company means any company which is carrying on the activity of
leasing of equipment, as its main business, or the financing of such activity.
ii. The leasing business takes place out of a contract between the lessor (lessor means
the leasing company) and the lessee (lessee means a borrower).
iii. Under leasing of equipment business a lessee is allowed to use particular capital
equipment, as a hire, against a payments of a monthly rent.
iv. Hence, the lessee does not purchase the capital equipment, but he buys the right to
use it.
v. There are two types of leasing arrangements, they are:

a. Operating leasing:
In operating leasing the producer of capital equipment offers his product directly to
the lessee on a month rent basis.There is no middleman in operating leasing.
b. Financial leasing:
In finance leasing, the producer of the capital equipment sells the equipment to the
leasing company, then the leasing company leases it to the final user of the
equipment . Hence, there are three parties in finance leasing. The leasing company
acts as a middleman between the producer of equipment and the user of equipment.

II. Hire-purchase finance companies:

a) Hire purchase finance company means any company which is carrying on the
mainbusiness of financing, physical assets through the system of hire-purchase.
b) In hire -purchase, the owner of goods hires them to another party for a certain
period and for a payment of certain installment until the other party owns it.
c) The main feature of hire- purchase is that the ownership of the goods remain with
the owner until the last installment is paid to him. The ownership of goods passes to
the user only after he pays the last installment of goods.

8
 d) Hire-purchase is needed by farmers, professionals and transport group people to buy
equipment on the basis of hire-purchase.
e) It is less risky business because, the goods purchased on hire purchase basis serve as
a securities till the installment on the loan is paid.
f) Generally, the automobile industry needs a lot of hire-purchase finance.

III. Housing finance companies:

a) A housing finance company means any company which is carrying on its main
business of financing the construction or acquisition of houses or development of land
for housing purpose.
b) Housing finance companies also accepts the deposits and lend money only for
housing purposes.
c) Even though there is a heavy demand for housing finance these companies have not
made much progress and only 17 such companies reported to the RBI.
d) The ICICI and the Canara bank tool, the lead to sponsor housing finance companies,
namely Housing Development Corporation Ltd and The Canfin Homes ltd .
e) National housing bank is the apex institution in the field of housing. It promotes
housing finance institution, both on regional and local levels.

IV. Investment Companies:

Investment Company means any company which is carrying on the main business of
acquiring of securities.

a) Investment companies in India can be broadly classified into two types:

i. Holding companies: In case of large industrial groups, there are holding

companies which buy shares mainly for the purpose of taking control over another
institution.
ii. Other investment companies:investment companies are also known as
investment trust. Investment companies collect deposits from public and invest them in
securities.

9
 V. Loan company:
a) A loan company means any company whose main business is to provide finance
through loans and advances .
b) It does not include a hire-purchase finance company or an equipment leasing
company or a housing finance company.
c) Loan company is also known as finance company.
d) Normally the loan companies provide loans to wholesaler, retailers, small-scale
industries, self-employed people etc.
e) Most of their loans are given without any securities. Hence, they are risky.

VI. Mutual benefit financial company:

a) They are the oldest form of non-banking financial companies.
b) A mutual benefit financial company means any company which is notified under
section 620A of the companies act, 1956.
c) It is popularly known as “Nidhi”.
d) Usually, it is registered with only very small number of shares . The value of the
share of often RS.1 only.
e) It accepts deposits from its members and lends only to its members against tangible
securities.

VII. Chit-Fund companies:

a) Chit fund companies are one of the oldest forms of local non-banking financial
institutions in India.
b) They are also known “kuries”.
c) These institutions have originated from South India and are very popular over
there.
d) It helps the persons who save money regularly to invest their savings with good
chances of profits.

10
 e) Chit funds have many defects as the rate of return given each member is not the
same. It differs from person to person, this leads in improper distribution of gains
and losses.

VIII. Residuary non- banking companies:

a) The term “residue” means a small part of something that remains. As the meaning
of the term shows, a residuary company is one of which does not fall in any of the
above category.
b) It generally accepts deposits by operating different schemes to recurring deposits
schemes of banks.
c) The collection of deposits is done at the door steps of depositors through bank
staff, who is paid commission.
d) Many of these companies operate with very small amount of capital.

What action can be taken against persons/financial companies making

false claim of being regulated by the Reserve Bank?

It is illegal for any financial entity or unincorporated body to make a false claim of
being regulated by the Reserve Bank to mislead the public to collect deposits and is
liable for penal action under the Indian Penal Code. Information in this regard may be
forwarded to the nearest office of the Reserve Bank and the Police.

Where can one find list of Registered NBFCs and instructions issued
to NBFCs?

The list of registered NBFCs is available on the web site of Reserve Bank of India and
can be viewed at www.rbi.org..in.

What precautions should a depositor take before placing deposit with

an NBFC?

A depositor wanting to place deposit with an NBFC must take the following
precautions before placing deposits:

11
That the NBFC is registered with RBI and specifically authorized by the RBI to accept
deposits. A list of deposit taking NBFCs entitled to accept deposits is available at
www.rbi.org.in. The depositor should check the list of NBFCs permitted to accept
public deposits and also check that it is not appearing in the list of companies
prohibited from accepting deposits.

NBFCs have to prominently display the Certificate of Registration (COR) issued by

the Reserve Bank on its site. This certificate should also reflect that the NBFC has
been specifically authorized by RBI to accept deposits. Depositors must scrutinize the
certificate to ensure that the NBFC is authorized to accept deposits.

The maximum interest rate that an NBFC can pay to a depositor should not exceed
12.5%. The Reserve Bank keeps altering the interest rates depending on the macro-
economic environment. The Reserve Bank publishes the change in the interest rates on
www.rbi.org.in → Sitemap → NBFC List → FAQs.

The depositor must insist on a proper receipt for every amount of deposit placed with
the company. The receipt should be duly signed by an officer authorized by the
company and should state the date of the deposit, the name of the depositor, the
amount in words and figures, rate of interest payable, maturity date and amount.

In the case of brokers/agents etc. collecting public deposits on behalf of NBFCs, the
depositors should satisfy themselves that the brokers/agents are duly authorized by the
NBFC.

The depositor must bear in mind that public deposits are unsecured and Deposit
Insurance facility is not available to depositors of NBFCs.

The Reserve Bank of India does not accept any responsibility or guarantee about the
present position as to the financial soundness of the company or for the correctness of
any of the statements or representations made or opinions expressed by the company
and for repayment of deposits/discharge of the liabilities by the company.

12
 Is the conducting of Chit Fund business permissible under law?
The chit funds are governed by Chit Funds Act, 1982 which is a Central Act
administered by state governments. Those chit funds which are registered under this
Act can legally carry on chit fund business.
What are money circulation/Ponzi/multi-level marketing schemes?
Money circulation, multi level marketing / Chain Marketing or Ponzi schemes are
schemes promising easy or quick money upon enrollment of members. Income under
Multi level marketing or pyramid structured schemes do not come from the sale of
products they offer as much as from enrolling more and more members from whom
hefty subscription fees are taken. It is incumbent upon all members to enroll more
members, as a portion of the subscription amounts so collected are distributed among
the members at the top of the pyramid. Any break in the chain leads to the collapse of
the pyramid, and the members lower in the pyramid are the ones that are affected the
most. Ponzi schemes are those schemes that collect money from the public on
promises of high returns. As there is no asset creation, money collected from one
depositor is paid as returns to the other. Since there is no other activity generating
returns, the scheme becomes unviable and impossible for the people running
thescheme to meet the promised return or even return the principal amounts collected.
The scheme inevitably fails and the perpetrators disappear with the money.

 Business profile of NBFCs:

Historically, NBFCs have been financing various assets classes ranging from retail,
corporate and infrastructure segment, based upon the business profile. NBFCs are
classified in 8 broad categories. Out of the eight categories, seven are under the
regulatory preview of RBI while the Housing finance companies (HFC) are regulated
by the National Housing Banking (NHB).

Structural Profile of the NBFC sector:

a) Increasing size and systematic importance over the years, the NBFC sector has been
gaining systematic importance. The same can be seen with the rise in share of NBFC
13
 assets as a percentage of bank assets. The share of NBFC assets have steadily grown
from 10.7% of banking assets in 2009 to 14.3% of bank assets.
b) Stronger Regulatory Environment leading to higher capital cover and Better Risk
Managementwith increase in systematic importance, RBI has been tightening the
regulations to manage the risk in the sector and has been prescribing higher capital and
provisioning requirement. RBI also has been emphasizing on higher disclosures by
large size NBFCs as well as deposit taking NBFCs to safeguard public money and
avert any systematic shocks. In addition, the RBI has taken prompt preventive actions
in addressing specific issues to manage systematic risk.
c) Move towards Secured Lending during the credit crisis of 2008-2009, NBFCs saw a
surge in Non- performing Assets (NPAs) in the unsecured lending products like short
term personal loans. As a result, NBFCs which had high exposure to unsecured loans
faced severe losses on account of higher provisioning. Post 2009, most NBFCs have
reduced the proportion of unsecured lending in their portfolio and moved towards
Secured Lending products.
d) Lower Liquidity Risk Another lesson learning by NBFCs from the credit crisis of
2008-2009 was conservative liquidity management. Over the years, NBFCs have
shifted towardsmaintaining conservative Asset Liability Maturity (ALM) profile by
increasing the proportion of long term funding and generally maintaining liquidity
buffers in terms of liquid investments and committed lines from banks.
e) Credit culture which has helped the NBFCs in the retail financing business. Over the
period, the credit bureaus have built sizeable database which will help in strengthening
the lending infrastructure in the long run. High growth in scale of business requires
better management capability as a result most NBFC Sector trends, Regulatory
framework and Way forward 4 NBFCs have not put in professional management terms
to manage business and credit operations.
f) Rising number of large players – backed by strong promoters over the last few years,
the sector has seen rise in the number of large players which are backed by corporate
houses/ private equity investors who wish to participate in the credit growth of the
country but faced stringent regulations and high entry barriers in Indian banking sector.
Many of the large corporate houses and banks have also diversified into lending and

14
 lending related businesses focusing into niche segments. However with a rise in
number of players, the competition in sector has intensified and impact of stuff
competition in the long needs to be observed.
g) Diversification and Mortgage Based lending during last couple of years most of the
large sized NBFCs have diversified in various product segments in order to mitigate
product concentration risk. In the recent past, mortgage finance has emerge as one of
the better performing asset class resulting in most of the large NBFCs diversifying in
mortgage finance including housing loans and loan against property. Also many
NBFCs have set up their housing finance companies in order to focus on this asset
class . Factoring service which is perceived as complimentary to bank finance is
expected to enable the availability of much needed working capital finance for the
small and medium scale industries especially those that have good quality receivables
but may not be in a position to obtain enough bank finance due to lack of collateral or
credit profile. By having a continuous business relationship with the factor in place,
small traders, industries and exporters get the advantage of improving the cash flow
and liquidity of their business as also availing ancillary services like sales ledger
accounting, collection of receivables, credit protection etc. Factoring helps them to free
their resources and have a one stop arrangement for various business needs enabling
smooth running of their business.

 Norms for NBFCs Accepting Public Deposit:

In the public interest and to regulate the credit system in the best interest of India, the
RBI has laid down the following important norms or rules to be followed by NBFCs
accepting public deposits:

1) What constitutes public deposit:

Public deposit includes fixed or recurring deposits which are received from friends,
relatives, shareholders of a public limited company and money raised in issue of
unsecured debentures or bonds. It does not include money from issue of secured
debentures and bonds or from borrowings of banks or financial institutions, deposits

15
from directors or inter-corporate deposits received from foreign national citizens and
from shareholders of private limited companies.

2) Who is allowed to accept deposits from public:

The NBFCs which have net owned capital of less than Rs.25 lakh will not be
permitted to accept deposits from public. In order to raise funds theNBFC can borrow
from some other sources also.
3) NBFCs have to submit Financial Statements:
All NBFCs will have to submit their annual financial statements and returns if they
accept public deposits.
4) Certain deposits are not regulated by RBI:
The RBI has given directors to NBFCs accepting public deposits to regulate the
amount of deposits, rate of interest, time period of deposits, brokerage and borrowings
received by them, the directions do not include amount received or generated by
central bank or state government, local authorities or foreign government. Amount
received from IDBI, ICICI NABARD, electricity board and IFCI are also not included
a firm and shareholders also do not come under the category of amount received for
regulation from RBI.
5) Ceiling (limits on interest):
There is a maximum limit on the rate of interest of deposits. The limit charges with
the RBI directors
6) Period of deposits:
The deposits can be accepted for minimum periods of 12 months and a maximum
period of 60 months.
7) Register of depositors:
The NBFCs have to maintain a register of depositors with details like name, address,
amount, date of each deposit, maturity period and any other details according to the
required by RBI.

16
 8) Credit rating:
To protect the public NBFCs are requested to get themselves approved by the RBI
through the credit rating agencies. The NBFCs which have not owned funds of RS.25
lakhs can obtain public deposits if they are credit rated and they receive a minimum
investment grade for their fixed deposits from an approved rating agency. The NBFCs
have to submit this rating every year to the RBI. The credit rating from the different
agencies is as follows:
 The Credit analysis and Research Limited (CARE) gives the minimum rating of BBB
on triple B rating.
 The investment information and Credit Rating Agency of India LTD. (ICRA) gives
the minimum rating of (MA-).
 The Credit Rating Information Services of India LTD. (CRISIL) and gives a
minimum rating of (FA-).
 FITCH rating India Ltd. Provides (BBB-) as it’s acceptable rating.
If the credit rating is d\below the minimum investment grade the NBFC has to send
report to the RBI within 15 days of receiving the grading. During that time the NBFC
has to stop accepting the deposits and within the 3 years make repayment to the
depositors.

9) Guidelines for Prudential Norms:

Prudential Norms means the rules for income recognition according standards, asset
classification, CRAR rate, etc. Prudential Norma laid by RBI for NBFCs are as
follows:
a) Income recognition:
Income on Non-Performing Asset (NPA) shall be taken into account only when it is
received and on accrual basis. An asset becomes an NPA when it stops to generate
any income.
b) Asset Classification:
NBFCs should classify their loans and advances and any otherforms of credit into
broad groups, namely:

17
 Standard Assets: Standard Assets are those in which there is no default in
repayment of principal or interest. In simple words, a standard asset is not an NPA
asset and is completely risk free.
 A Sub-standard Asset: A sub-standard asset is one which has been classified as
NPA for a period of not more than two years.
 A Doubtful Asset: A doubtful asset is one which has remained as NPA for a
period of more than 2 years.
 Loss Asset: A loss Asset is one where loss has been identified by the NBFC or
auditors the RBI inspection, but the amount has not been written off wholly or partly.
c) Provision for Bad and Doubtful Debts:
NBFCs should make provision for Bad and Doubtful Debts on the basis of the
classification of assets as shown below:

Nature of Assets Provisions to be made

1. Standard asset Nil
2. Substandard asset 10%
3. Loss asset 100%
4. Doubtful assets
To the extent of the advance not covered
realizable value of security. 100%
Doubtful up to one year. 20%
Doubtful between one to 3 years. 30%
More than 3 years. 50%

 Realizable value of security means the value which the banker will get if he
sells it.

d) Capital to risk adequacy ratio (CRAR):

The capital adequacy ratio for NBFCs with net owned funds of Rs.2lakhs is 12% from
March 31 1999.
e) Disclosure of balance sheet:

18
 The NBFCs have to show NPAs, bad and doubtful debts, provision in depreciation
in investments in the balancesheet.

SCOPE OF NBFC:

The scope of NBFCs is fast growing with multiplication of financial services. Some of
NBFCs are also engaged in underwriting through subsidiary unit and by offering allied
financial services including stock broking, investment banking, assets management and
portfolio management. Such as Muthoot Finance, Bajaj Finance, Tata Capital, IFCI,
Power Finance Corporation, etc.

Non-Banking Financial Companies are those companies, which are not banking
companies under the banking regulation Act but carry out financial activities of
providing finance. These companies may or may not accept deposits from the public.
These provide lease finance, housing finance, trade in share, general loan and advance
for share trading, hire purchase specially against automobile.

In recent times non-banking financial companies (NBFCs) have emerged substantial

contributors to the Indian economics growth by supplementing the effort of banks and
other financial institutions. They play a key role in the direction of saving and
investment in wave of rapid industrial development & liberalization of the financial
sector, key financial institution and professional have promoted financial institution to
create have promoted financial institution to create a diversified and competitive
financial system.NBFCs intermediate between saver and investor. These companies
also known as finance companies, lease companies, loan companies etc.

PRESENT SCENARIO OF NBFCs

Overview:

 NBFCs are highly heterogeneous continue to offer wide range of niche and
tailor-made financial services.

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 In terms of relative importance of various activities financed by them, hire
purchase finance is the largest activity, accounting for greater than1/3 rd of total
assets, followed by loans and equipment leasing.
 The number have of NBFCs declined after 2000 due to mergers, closures,
cancellation of licenses, regulatory strictness.
 The maximum rate of interest that NBFCs can pay on their deposits has been
reduced from 12.5% to 11% per annum with effect from March 4, 2003.
 The NPAs of NBFCs has not shown a clear decline over the years.
There has been a decline in the shares of deposits in their total sources of funds
which has made them rely more on market borrowings which has ultimately
caused increase in their cost of funds.
 RBI has decided to impose penalties on NBFCs having deposits of
Rs.50crores and above if they don’t submit periodic returns to RBI.

Contribution of NBFCs in the economy of India:

 Development of sectors like transport and infrastructure.

 Substantial employment generation.

 Help and increase wealth creation.

 Broad base economic development.

 Irreplaceable supplement to bank credit in rural segments.
 Major thrust on semi-urban, rural areas and first time buyers/users.
 To finance economically weaker sections.

 Huge contribution to the state exchequer.

Present scenario of NBFCs in India:

Global credit crisis followed by increase in interest rates in October and November
2008 resulted in widespread crisis of confidence. Chain of events after the collapse of
Lehman Brothers is still fresh in the minds of investors. Non-Banking Finance
Companies (NBFCs) in India were severely impacted due to economic slowdown
coupled with fall in demand for financing as several businesses deferred their
20
 expansion plan. Stock prices of NBFCs’ crashed on the back of rising on performing
assets and several companies closed their operations.

 International NBFCs’ still continue to close down or sell their back end operations in
India.
 The positive news however is that, this crisis has forced NBFCs to improve
their operations and strategies. Industry experts opine that they are much more
mature today than they were during the last decade. Timely intervention of
RBI helped reduce the negative effect of credit crunch on banks and NBFCs. In
fact, aggressive strategies helped LIC Housing Finance to grab new customers
(including customers of other banks) and increase its market share in national
mortgage market. Surprisingly it was able to maintain its profitability in 2009
(around 37%). HDFC, the largest NBFC in India, however experienced a
slowdown in customer growth due to stiff competition, especially from LIC
Housing Finance and tight monetary conditions.

 Other NBFCs that were stable during this period of credit crunch are
Infrastructure Development Finance Company (IDFC).

 Power Finance Corporation (PFC) and Rural Electrification Corporation

(REC). Growth prospects are strong for these companies given the acute
shortage of power in the country and expected increase in demand for
infrastructure projects.

 The segment which was hit hardest was Vehicle Financing. Companies
financing new vehicle purchases.
Experienced a drastic reduction in new customer numbers. Fortunately, since
vehicle finance is asset-based business, their asset quality did not suffer as against
other consumer financing businesses. Contrary to this, Transport Finance, the only
NBFC which deals in second-hand vehicle financing was able to maintain its growth
primarily due to its business model which does not entirely depends on health of the
auto industry.

21
 Factors contributing to growth of NBFCs:
 Stress on Public Sector Units(PSUs).
 Latent credit demand.

 Digital disruption, especially for micro, small and medium enterprises

(MSMEs) and small and medium enterprises (SMEs).
 Distributions reach sectors where traditional banks do not lend.

RBI deposit norms for small NBFCs:

The RBI has tightened the rules governing access to such public deposits. It’s said that
NBFCs with a net owned fund (Not) of between Rs.25 lakh and Rs.2crore, must limit
their public deposits to the level of their net owned funds as against the current ceiling
of 1.5 times the net owned funds. Further for those companies (with NoF of between
Rs.25 lakh and 2crore) that had a capital adequacy ratio of 12% and who enjoyed
credit rating, the current ceiling of 4 times the NoF was being revised to 1.5 times the
NoF. As per RBI statistics, There were 243 companies in 2007 that would probably be
affected by this regulation. Their net owned funds were of the order of Rs.171crores
while the public deposits that they held were about Rs.96crores. This category of
companies constitutes a big chunk in the total category of NBFCs taking deposits that
number about359.

In terms of amount of deposits involved this category of NBFCs is very small

category. Total public deposits of all NBFCs with access to such deposits were of the
order of Rs.2042crores in 2007.These regulations are a part of the RBI’s move to
ensure that NBFCs who accept deposits are adequately capitalized and have minimum
net owned funds.

22
Future scenario of NBFCs:
NBFCs have been playing a very important role both from the macroeconomic
perspective and the structure of the Indian financial system. NBFCs are the perfect or
even better alternatives to the conventional Banks for meeting various financial
requirements of a business enterprise. They offer quick and efficient services without
making one to go through the complex rigmarole of conventional banking formalities.
However to survive and to constantly grow, NBFCs have to focus on their core
strengths while improving on weaknesses. They will have to be very dynamic and
constantly endeavor to search for new products and services in order to survive in this
ever competitive financial market.
Since NBFCs have been kept outside the purview of SARFAESI Act, a reform in this
area is fortifying the faith of the investors and which in turn would greatly contribute to
the growth of this Sector. The coming years will be very crucial for NBFCs and only
those who will be able to face the challenge and prove themselves by standing the test
of time will survive in the long run quite urgently needed.
A suitable legislative amendment extending the operation of the said Act to NBFCs too
would go a long way in fortifying the faith of the investors and which in turn would
greatly contribute to the growth of this Sector. The coming years will be very crucial
for NBFCs and only those who will be able to face the challenge and prove themselves
by standing the test of time will survive in the long run.

23
Macro- Economic Analysis:
The infrastructure NBFC status will allow IDFC to improve fund mobilization and
ease overall funding pressure on the firm. The status will give it higher single-
party/group exposures and borrowing from banks could increase to 20% of net worth.
Non-infrastructure NBFCs can currently raise up to 15% of net worth.
Additionally, the firm’s plan to raise Rs3,500crore over the next 12 months pre-
emptive bid to raise capital and stay relevant with the―SBIs of the wordilytold in the
interview last week. The state-owned State Bank of India is India‘s largest lender.
In the next three years, the opportunity in the infrastructure landscape looks quite
attractive so we think it is a good time to capitalize on the opportunity, he said
estimating that infrastructure lenders could stand lend close to Rs3 trillion over the
next three-four years, especially in power, roads and gas distribution.

Future outlook:

It is estimated that the housing finance industry will be able to maintain a

higher growth in fresh origination of residential home loans
over next three to five years mainly due to increased affordability of the
borrower i.e. ratio of average property price to average annual income, on
account of the falling loan interest rates and decrease in property prices. The
average age of borrowers has declined over the years, while the number of
double-income households has grown significantly thereby enabling them to
borrow higher loan quantum due to increased affordability and repayment
capacity.
The growth drivers will continue to increase demand for self-occupied
residentialhousing; Revival of economy will certainly lead to a steady increase
in monthly incomes across key sectors. Rising proportion of double income
households, renewed confidence in higher income generation, reassurance of
job security and availability of variety of financing options should stimulate
growth of the housing sector.

24
All these factors will further boost the impact of increased affordability, leading to
the sector‘s steady and comfortable growth. Looking forward, LIC Housing
Finance would like to remain focused in end-user segment for growth and
increased profitability and wish to make the coming year, a year of further
consolidation and progress by crossing greater milestones.

Opportunity aplenty for NBFC sector:

We are witnessing fundamental changes in the banking sector. On the one
hand, we have public sector banks with traditionally large share in the market,
grappling with the problem of non-performing assets (NPAs) and at the same
time we have new players entering the industry — such as new universal
banks, small banks and payments banks. In the credit market, existing banks
are also facing competition from non-banking finance companies (NBFCs)
and debt mutual funds.

25
The banking credit industry growth rate fell to a 20-year low of 8.6 per cent in
June 2015 whereas NBFCs almost doubled their growth rate as they expanded
at 18.8 per cent year-on-year during the nine- month period ending December
2015 versus 9.5 per cent during2013-14.
This resulted in again in share for NBFCs in total credit in India from 10
percent to13percent between 2005and2015.According to RBI data, the loan
book of deposit-taking and systemically-important NBFCs was at 11trillion
as of March 2015, three times the book size of □4 trillion, as of
March2010.

Scope for growth:

Within the NBFC space, various sub-segments have emerged more
dominant than others. Mortgages, microfinance and unsecured loans appear to
be driving growth. According to estimates, credit grew at a rapid 30 per cent
plus (year-on-year) for mortgages and 80 per cent plus for microfinance as of
December 2015. Housing finance companies have increased their share of the
overall pie from 26 per cent in FY09 to 38 per cent in FY15. NBFCs also
have a large share in niche segments, such as commercial vehicle finance, the
share estimated to have increased from 42 per cent to 46 per cent in the last
three years ending FY15.
According to a report by BCG, India’s credit-to-GDP ratio stood at 97 per
cent as of FY15 versus 165 per cent in China, 149 per cent in Germany, 244
per cent in the US and 447 per cent in the UK.This implies growth opportunity
for the credit market in India as a whole. Interestingly, for the same year, the
NBFC-credit-to-GDP ratio in India was just 13 per cent, versus 33 per cent in
China, 29 per cent in Germany, 130 per cent in the US and 264 per cent in the
UK. If one overlay on this the fact that the largest segment in the banking
sector is facing some challenges, then the opportunities to grow should be
evenhigher.

26
Non corporate loans:
NBFC credit appraisal systems have held out reasonably well so far, with
GNPAs (gross NPAs) for retail and small and medium enterprises (SMEs) at
around 1-2 per cent. With their intrinsic ability to move fast and tap into
specific customer segments, it seems that NBFCs would be able to meet the
non-corporate needs of the economy, that is, those of SMEs and retail
customers.
With one estimate suggesting that over 50 per cent of micro, small and
medium enterprises (MSMEs) not having access to formal credit, the need
statement cannot be overstated. Other than the opportunity in SME financing,
increased penetration of housing finance will certainly drive double-digit
growth over the next decade. India’s housing finance segment continues to
show massive potential for growth and housing finance companies with 40 per
cent share are clearly leading the way here. Further, as newer customer needs
emerge from a digitally-savvy customer segment, NBFCs could potentially
open up new avenues for growth.
Globally, a concern for regulators has been the size and consequent systemic
risk posed by shadow banking entities. In India, several structural changes
have been instituted by the regulator. These include phasing in of NPA
recognition norms in line with banks and higher capital requirements, along
with dilution of the advantages that NBFCs enjoyed in capital markets-based
lending visa-viz. banks.
Even while the NBFC sector shows better performance, there is wide
dispersion in the performance and the long tail of NBFCs shows a need for
fine-tuning of economic drivers. There are also new entrants eyeing this
sector. NBFCs have become an integral part of our financial system and are
here to stay.
As long as they stick to tight credit standards and focus on the right customer
segments, the growth momentum is expected to continue.

27
Challenges faced by NBFC sector:
a) Funding issue due to the absence of refinancing option:
Banks in India have several options for refinancing such as RBI, NABARD,
EXIM Bank, and SIDBI. Likewise, Housing Financing Companies (HFCs)
also have the refinancing alternative, and it refinances from NHB (National
Housing Bank), the regulator of HFCs.
However, NBFCs have to hinge on banks, competitors, or the capital markets
for raising resources every time. In turn, this could be unfavorable to the
sustainability of the NBFCs growth like in the case of distress. Furthermore,
the flow of funds from these sources could dry up without much notice.

b)Limited sourcing of financing:

It is pertinent to note that the proportion of debentures in NBFCs funding pie
has more than halved from 44 percent in FY08 to 18 percent in FY11. There
is no depth

c) Absence of flexibility in the classification of loan NPAs:

For large corporates, the NPA (Non-Performing Assets) norms are quite
relevant. However, businesses with irregular cash flow have a cascading
impact regarding all the delays in payments.
Although, in the revised categorization, assets are re-categorized; therefore,
classification under NPA and greater flexibility, w.r.t scheduling is much
required.

d)Diminishing banking appetite:

The high dependence of NBFCs on bank funding (over 60 percent of total debt
in FY11) is a major sector-wide structural weakness. The significant 55
percent growth in Bank credit to the board NBFC sector in FY11 (compared
with 23 percent overall credit growth) is being considered by the RBI to be a
potential systematic risk. Also, according to the RBI's subsequent revised
guidelines, from April 1 2011, no segment of bank loans to NBFCs could be
28
 classified as priority-sector loans (excluding those of the recently evolved
new category of NBFC-MFI). These twin factors tend to sharply diminish the
banking sectors appetite for incremental direct lending to NBFCs. The
withdrawal of priority lending eligibility is a major setback for NBFCs which
focus on meeting the funding needs of such ' priority sector' borrowers since
it significantly increases their cost of borrowing from banks, thus severely
restricting NBFC financing to these niche priority sectors. And, to the extent
that banks are unable to directly reach such borrowers, the development of
these priority sectors would be promised.

e) Lack of statutory recovery tool:

After the asset classification norms are revised, something which still lacks is
the recovery tool at par with banks. However, NBFCs today lack statutory
recovery tool available.

f) Limited leverage ratio for NBFCs-ND with assets sizes less than
Rs.500crores:
Small NBFCs are exempted from the maintenance of the Capital Adequacy Ratio
(CRAR). But they can’t exceed the leverage ratio beyond 7 which is quite restrictive.
Furthermore, such NBFCs borrow largely from financial institutions and banks
which in turn carry out due diligence on the NBFCs that borrow.

g) Several representative bodies:

The NBFC sector is at the development stage. Therefore, in the interest of developing
its various segments in a harmony, setting a single representative body could be a
better alternative. However, one must always ensure that every segment is
represented adequately in such an apex body that promotes the balanced growth of
the NBFC sector without any inner conflicts.However, in the present situation, there
are a number of representative bodies. For instance, the Finance

29
 IndustryDevelopment Council for AFCs, Association of Gold Loan Companies for
Gold Loan NBFCs, etc.

h)Removal of Priority Sector Status to Bank Lending to NBFCs

It’s one of the biggest issues that NBFCs face. The Priority Sector status to
BankLending to NBFCs must be stored. Hence, the collaboration model
“wholesaler/retailer” between the NBFCs and Banks ensures the credit flow to
under-served sections of the society. This, in turn, helps NBFCs in creating assets
and wealth in semi-urban and rural parts of the country. However, RBI could specify
a cap to route a maximum of a fixed percentage of the total bank lending priority
sector through NBFC.

i)Minimum mandatory credit rating for deposit-taking NBFC

As per the revised regulatory framework, it is obligatory for NBFCs accepting deposits to
get investment-grade credit. This will make them eligible for accepting public deposits
from any of these six rating agencies- CARE, CRISIL, FITCH Ratings India Pvt. Ltd,
ICRA, SMERA, and Brickwork Ratings India Pvt. Ltd.

In case the rating of any NBFC is downgraded to below the minimum investment grade
rating, then it can’t accept public deposits. Further, it must report the RBI regarding its
position within fifteen working days.

j) Disparate tax treatment

It’s a well-known fact that there exists a big inequality in the tax structures for Banks
vs. NBFCs. For example, TDS (Tax deduction at Source), Dual taxation on
lease/hire purchase, and income recognition on NPAs. However, the current legal
framework for NBFCs doesn’t allow a tax deduction for the non-performing assets.

Criticisms of NBFCs:
Recently, micro finance has come under fire in the state of Andhra Pradesh due to
allegations of MFIs using coercive recollection practices and charging usurious
30
interest rates. These changes related in the state government’s passing of the Andhra
Pradesh Microfinance Ordinance on October 15, 2020. The ordinance requires MFIs to
register with the state government the power, sue moto, to shut down MFI activity.
Why are Non-Banking Financial Companies important?
India’s financial services sector is huge. It is not just comprised of commercial banks,
but also non-banking financial companies (NBFCs). These firms offer a wide array of
financial services like loans, chit-funds, and are different from banks. NBFCs are often
small players that largely go unnoticed. However, they are still important to the
economy, especially in a developing country like India where 70% of the population
lives in rural areas.
P Vijaya Bhaskar, Executive Director of the Reserve Bank of India, explained NBFC
companies are game-changers that are very important to the economy. Here’s how:
Size of sector:The NBFC sector has grown considerably in the last few years despite
the slowdown in the economy. As of March 2013, it accounted for 12.5% of the
country’s Gross Domestic Product (GDP) – a measure of the size of the economy. This
is up from 8.4% in March 2006. However, this only counts NBFCs with assets more
than Rs 100 crore. “If the assets of all the NBFCs below Rs 100 crore are reckoned,
the share of NBFCs’ assets to GDP would go further.

Growth:
In terms of year-over-year growth rate, the NBFC sector beat the banking sector in
most years between 2006 and 2013. On an average, it grew 22% every year. Even
when the country’s GDP growth slowed to 6.3% in 2011-12 from 10.5% in 2010-11,
the NBFC sector clocked a growth of 25.7%. This shows, it is contributing more to the
economy every year.

Profitability:
NBFCs are more profitable than the banking sector because of lower costs. This helps
them offer cheaper loans to customers. As a result, NBFCs’ credit growth – the
increase in the amount of money being lent to customers – is higher than that of the

31
banking sector. Credit grew an average 24.3% per year for NBFCs as against 21.4%
for banks. This shows that more customers are opting for NBFCs.

Infrastructure Lending:
NBFCs contribute largely to the economy by lending to infrastructure projects, which
are very important to a developing country like India. But they require large amount of
funds, and earn profits only over a longer time-frame. As a result, these are riskier
projects. This deters a lot of banks from lending to infrastructure projects. In the last
few years, NBFCs have contributed more to infrastructure lending than banks. 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%.

Promoting inclusive growth:

NBFCs cater to a wide variety of customers – both in urban and rural areas. They
finance projects of small-scale companies, which is important for the growth in rural
areas. They also provide small-ticket loans for affordable housing projects. All these
help promote inclusive growth in the country.

Benefits of NBFCs
Though the NBFCs have been around for a long time, they have recently gained
popularity amongst investors, since they facilitate access to credit for semi-rural and
rural India where the reach of traditional banks has traditionally been poor.
NBFCs have also had a major impact in developing small business in rural India
through local presence and strong customer relationship. Usually the loan officers in
such NBFCs know the end customer or have strong, “Informal” understanding of the
credibility of the borrower and are able to structure their loans appropriately. Few of
the advantages of NBFCs are listed below:

32
Advantages of NBFCs are as follows:
1. Can provide loans and credit facilities.
2. Trading in money market instruments.
3. Wealth management such as managing portfolios of stocks and shares.
4. Underwriting stock and shares and other obligations
5. Provides retirement planning.
6. Advise companies in merger and acquisition.
7. Proper feasibility, market or industry study for companies.
8. Funding private education.
9. Supporting investment in property.
10. Discounting services e.g. discounting of instruments.

Commercial banks v/s NBFCs

Sr no Commercial banks NBFCs

1 In case of commercial banks, a In case of NBFCs, there is no

cheque can be issued against bank facility to issue chequesagainst bank
deposits. deposits.
2 Commercial banks offer lesser rate NBFCs offer higher rate of interest
of interest on deposits and charge on deposits and charge higher rate
less rate of interest on loans as of interest on loans as compared to
compared to NBFCs. commercial banks.
3 Commercial banks can enjoy the NBFCs are not given such facilities.
benefit of certain facilities like
deposits insurance cover facilities,
refinancing facilities etc.
4 Commercial banks hold a variety NBFCs specialize in one type of
of assets in the form of loans, cash asset. For e.g. Hire purchase
credits, bills of exchange, companies specializes in consumer
overdraft, etc. loans while housing finance
companies specializes in housing

33
 only.
5 Commercial banks are regulated NBFCs are regulated by different
by Banking Regulations Act, 1949 regulations such as SEBI,
and RBI. Companies Act, National Housing
bank, Unit Fund Act and RBI.

34
INTRODUCTION TO GOLD LOAN:

India is one of the largest consumers of gold in the world. As per the World Gold
Council (WGC), the annual gold demand in India from 1987 until 2016 has increased
by 804%. And the trend does not seem to die anytime soon. The precious metal other
than being used for industrial, commercial and investment purposes can also be used to
get a loan at the time of a financial emergency. In fact, the gold loan is one of the
easiest and fastest ways to access funds when it matters the most.

Even if you have a low credit score but ample amounts of idle gold in your locker, the
gold loan can be the monetary solution for you. With the growing popularity of gold
loan every year, it is important to know not only what gold loan is but also how it
works, gold loan interest rates, and other related details. The demand for financial
assistance can arise for anyone; simply the reasons might differ from person to person.
The process of borrowing and lending is intricate; the individual who is borrowing
wants the money without any hassle, and the individual or institution lending it wants
guarantees about repayment. Here borrowing directly relates to the Loans taken. The
term Loan is defined a debt evidenced by a note which specifies, among other things,
the principal amount, interest rate and date of repayment1.There are various types of
Loans available in the market. But at the time of financial need a person looks for
immediate and hassle- free liquidity or monetary assistance from near and dear ones or
for any financial Loan lenders in the market for borrowing. For those borrowers, the
immediate Loan form can be a Personal Loan or a Gold Loan.

Traditionally, both the Loans were available and dominated by unorganized Loan
lenders. A Personal Loan is given by Pawn broker and moneylender and Gold Loan
from jewellers as well as pawn brokers. Since 1991, owing to the entry of various
Banks and Non-Banking, Financial Companies (NBFCs)in the Personal Loan segment
has changed the Personal Loan provision scenario. The professional employed person
prefers to take a Personal Loan from Public or Private Banks and avoid borrowings
from the local Pawn brokers. Today they are influenced by buying decision for
Personal Loan as well as Gold loan. The decision-making is determined by profiles
depends upon buyers characteristicswhich include social, culture, lifestyle, roles and

35
status. It also depends upon the personal factors like Income, Age, Education Loan
Borrowers, as lenders have started offering a comprehensive range of Personal Loans.
At the same time, post 2008, Gold Loans has emerged as Organized financial solutions
that can be adapted to suit the changing needs and circumstances.

MEANING:

The gold loan, also referred as a loan against gold, is a secured loan that a borrower
takes from a lender in lieu of gold ornaments such as gold jewelry. The loan amount
sanctioned to you by lenders is generally a certain percentage of the gold’s value. You
can repay it through monthly installment after which you get your gold articles back.
Unlike other secured loans such as a home loan or car loan, there are no restrictions on
the end use of gold loans. So whether you need to fund a wedding, family vacation or
your child’s education, it is a great way to meet your sudden money requirement.
Moreover, a lot of private and nationalized banks along with NBFCs offer gold loans
at affordable interest rates.

Gold Loan:

A Gold Loan is a secured Loan taken by depositing gold as collateral. So far, the Gold
Loan market was dominated by non-banking finance companies, but gradually
Organized banks have also started entering the business thereby giving a clear
indication of its viability as an effective Loan product. A Borrower is a person who
takes a Loan from the Loan lender. The Gold Loan market in India is broadly
classified into two categories, namely Organized Sector and Unorganized Sector.

The loan amount sanctioned to you by lenders is generally a certain percentage of the
gold’s value. You can repay it through monthly installment after which you get your
gold articles back. Unlike other secured loans such as a home loan or car loan, there
are no restrictions on the end use of gold loans. So whether you need to fund a
wedding, family vacation or your child’s education, it is a great way to meet your
sudden money requirement. Moreover, a lot of private and nationalised banks along
with NBFCs offer gold loans at affordable interest rates.

36
Personal Loan:

A personal loan is money borrowed from a bank, credit union or online lender that you
pay back in fixed monthly payments, or installments, typically over two toseven years.
Lender rates can range from 6% to 36% APR. Most personal loans are“unsecured” —
not backed by collateral. A secured loan backed by something you own is typically
cheaper, but you can lose the asset if you default. You usually can use the money for
any reason.

Unless you can qualify for a 0% intro period credit card, rates on personal loans are
typically cheaper than those on credit cards, and the limits on how much you can
borrow are usually higher. If you have high balances on multiple high-interest credit
cards, a debt consolidation loan can roll your debts into one payment at a lower rate.
Lenders make their decisions based on factors including credit score, credit report and
debt-to-income ratio. Not surprisingly, consumers with excellent credit receive the
lowest rates, but some lenders offer loans to customers with scores 600 or lower.
Consumers who don’t qualify for unsecured loans may be offered secured or co-signed
loans. You should compare rates from multiple lenders before choosing. The loan with
the lowest APR is the least expensive — and therefore, usually the best choice.

Most lenders allow you to see estimated rates without affecting your credit score. Some
loan marketplaces allow you to easily compare several offers at once. If you qualify,
you may receive your money as soon as the next day.

Gold loan vs personal loan:-

Gold loan is a secured loan. Personal loan is an unsecured loan.

Documentation: Quick loan approvals Documentation: Compared to gold loan

and disbursals, with minimum it requires at least a 15 day period. After

37
 documentation. the proper documentation, depending
upon the credit score, the loan is
disbursed or cancelled.
Loan to value (LTV): Multitude of loan Loan to value (LTV): Loan amount
options with higher LTV's depends upon one’s payback capacity.

Non-bankable customers are also served. Compulsory Bank Customer.

Convenient hours of operations. The process takes time for the operation.
Better operating cost structure vice versa
– Banks. Includes proceeding charges
and other charges during the process.
Flexibility in provision of very small and Not very small amounts are given as
very large loan amounts. loans or nor very huge amounts are
given. Depends upon the policy range of
loans, amount of every bank.

On the basis of the above points one can conclude that gold loan has emerged as a

convenient Loan option as compared to Personal Loan for many reasons are.

 India is one of the biggest markets for gold and Gold Loan. According to World
Gold Council, India accounts for 10%of total world gold stock, of which rural India
accounts for 65% of the total gold stock. For Indians, gold is not just a commodity,
but an auspicious metal that they buy for various purposes on different occasions.
 There has always been a high demand for gold in India, irrespective of prices .
During 2001- 2012, the annual demand for gold remained relatively stable at around
700 to 900 tones despite the constant rise in prices during the last ten years.
 The most important factor is the Rate of Interest and procedures involved in
Personal Loans. Gold Loan appears to be hassle free.
 The Rate of Interest is important factor in both Personal loan as well as Gold Loan.
The prevailing Rate of Interest of Gold Loan and Personal Loan is as follows.

38
 Prevailing Public banks NBFC Jewellers Pawnbroker Chit-fund
rate of interest

Rate of 12.99%- 13.45- 13.55-25% - -

interest given 15.00% 24%
for gold loan

Rate of 15-17% 15-17% - 19.25-19.75 15-17%

interest on
personal loan

The study on Rate of Interest is a perpetual study it keeps on changing as per the Banks
or Financial Institution as well as credit market conditions. Therefore the above
prevailing Rate of Interest is for the year 2012-2013, which might have been same for
previous year or may be same next year. The changes in the Rate of Interest is the
continue process.

COMPANY PROFILE

MUTHOOT FINANCE

Muthoot Finance is one of the largest NBFC in India. It is number one when it comes
to selling gold coins.

1. Establishing Year: 1939

2. Core services: Muthoot Finance includes small businesses, vendors,
farmers, traders, SME business owners, salaried individuals.
39
 3. Total Assets: Rs23,00Crores+
4. Employees and Operations: 30,000+ with over 4,400 branches all over
the country
5. Head office: Kochi, India
6. Website: www.muthootfinance.com

 About us
We provide personal and business loans secured by gold jewellery, or Gold Loans,
primarily to individuals who possess gold jewellery but could not access formal credit
within a reasonable time, or to whom credit may not be available at all, to meet
unanticipated or other short-term liquidity requirements.
Muthoot Precious Metals Corporation, one of the group companies of Muthoot M
George Group was established in May 2006 with the specific objective of promoting
Gold and Silver coins for gifting/investment . We have introduced 99.9% pure (24
carat) gold coins–“True Gold” in 1 grams, 2 grams, 4 grams, 8 grams. And gold bars in
10 grams, 20 grams and 50 grams . All our Gold coins are available in tamper proof
Blister packing with certificate of purity . Silver Coins of 24 carat with 999 purity in
50 grams and 100 grams are also available.
Silver coins are delivered in small acrylic pack. Coins are minted from 999 purity
gold/silver bars.
Our Gold/ Silver coins are competitively priced as per the rates prevailing on the
International Bullion Market on a day to day basis. Amount for the gold coins are
accepted through the branches of Muthoot Finance Limited which is the flagship
company of the Muthoot Finance Group throughout India.

 Key services
a) Gold loan
b) Gold and Silver Coins
c) Money transfer
d) Foreign Exchange
e) Travel agency Services

40
 f) Wealth Management services
ATMs

The main features of Muthoot gold loan:

 Quick disbursement of loan amount.

 Very responsive customer care services.
 You can avail a loan amount of as low as Rs.1,500.
 There is no cap in the maximum loan amounts.
 No charges for prepayment of the loan amount.
 Gold is evaluated by trusted in-house agents.
 Assured custody of the gold ornaments against which the loan amount is
availed.

VALUES OF THE MUTHOOT FINANCE:

Being a prominent venture of the Muthoot Group, Muthoot Finance Ltd. carefully and
passionately imbibes the values of the former. It takes pride in its strong foundation,
which is deeply rooted in the following pillars:
Ethics:
Muthoot’s main aim is to put the needs of its customers first before anything else. The
Company strives to provide them with the best quality of service under the Muthoot
Brand Umbrella and is doing so with a smile.
Values:
Accountability for all our operations and services, and towards the society makes Muthoot
a socially responsible and intelligent citizen. Its empire has grown by leaps and bounds
on the basis of these values. The times may change, but its values will remain
unchanged.
Reliability:

41
With an unblemished track record throughout the markets that it serves; and across
national as well as global boundaries, Muthoot Finance values its commitment to
customer-service.
Dependability:
Muthoot Finance does not judge itself by the profit it makes but by the trust and
confidence that people have had in it for over 125 years. With over 6 million people
having turnedtowards Muthoot, to help them in their hour of need, Muthoot feels that
this has been possible only because of its core guiding principle.
Trustworthiness:
Muthoot pledges loyalty in its operations, fairness in its dealings and openness in its
practices. The Company embraces policies and practices that fortify trust.
Integrity:
The value is innate to a corruption-free atmosphere and an open work culture. At
Muthoot Finance Ltd., therefore, it cultivates transparency as a work ethic.
Goodwill:
Muthoot Finance has 6 million outstanding loan accounts spread across the country.
The Company serves around 80,000 customers each day. With an unmatched goodwill,
the Company shoulders the responsibility of creating a deserving brand image.

BENEFITS OF NBFCs’ PRESENCE IN THE GOLD LOAN SPACE:

Core focus:
The primary focus of the gold loan NBFCs is to provide gold loans. Thus, NBFCs can
focus more on ensuring customer delight through better and faster customer service. A
higher concentration onone product allows a proper structuring of the offerings and
adopts faster corrective measures to meet the changing needs and behavior of the
customer.
Branch network:
Branches play a significant role in building an institutions brand image. A wide

42
 network of branches enables NBFCs to be closer to the customer. Location and access
to branches are key criteria for customers choosing a service provider. This expansion
strategy by NBFCs led to significant customer addition.
Faster turnaround time:
Superior service creates loyalty and deeper customer relationships. At the same
time, lack of appropriate service can destroy those relationships. Gold loans also enjoy
an advantage of having a quick-turnaround time of NBFCs. This is achieved without
any compromise on documentation discipline and KYC compliance requirements.

Transparent and Standard Operating Practices:

NBFCs offer a transparent transaction capturing all the terms clearly in the loan
document and operate with standard operating procedures, which could provide
enhanced customer comfort.
Flexible Repayment Option:
Customers get a trouble-free loan period where he is not troubled for any payment of
equated monthly installment, rather, would be allowed to make payment of interest and
principal on closure of the loan.
Resources availability:
NBFCs have access to organized credit and hence, do not face any constraints. The
unorganized sector operates on proprietary funds, which limits its ability to lend and
on better terms.
Value to the Customer:
Customers stay with a service provider if they pay a price, which they deem fair for
quality of the products they receive. Customers expect to pay an appropriate price for
the services they receive, not necessarily the lowest. NBFCs have been able to run on
this philosophy and have been offering loans at rates of interest lower than the
unorganized segment.
Low-cost structure:
The Company has built a network with a minimum investment corresponding to the
potential of business in which it is going to operate. Employees are sourced locally and

43
are provided training to deliver various skills keeping the operating cost low. This has
enabled the Company to reach the break-even level faster, and thereby start
contributing to its bottom line. This also provides downside protection in terms of
closing down the operation in case desired level of business is not achieved.

 Why should one invest in gold?

a) Investment in Gold is a better option than any other investment. As the gold price
is always in the upward trend for the past many years.
b) East liquidity. One can easily convert their gold to currency at any moment of time.
c) The increase in gold price is far more than the inflation rate.

 Why should one buy gold coins from Muthoot?

a) Price is lower than our competitors while we offer the same purity.
b) We offer the facility of installment payment.
c) The ease and efficiency in dealing with Muthoot.

 Knowing our Roots

These values were inculcated when the companies where formed, with the vision of
‘creating an organization capable of serving the versatile needs of growing Indian
financial market’. The purpose at hand is to identify and utilize untapped sections of
the market and reach out to as wide as audience as possible.
The focus of the company is on creating liquidity with an asset class, namely gold, that
has the largest consumer market in India. We see it as one of the pre-eminent ways of
creating wealth in the economy. With over 6 million loan accounts in its loan portfolio,
Muthoot Finance is recognized as a pioneer in gold financing . Undoubtedly, gold
funding is our niche; nonetheless our lendings are not restricted to gold loans. An
assorted asset portfolio impels us on the road to pioneer a competent financial market.

 The Larger Picture

At Muthoot Finance, we understand the responsibility that rests on our shoulders.
Being a company with an increasing asset base, we take upon ourselves the onus of
44
ensuring smoother process of monetary transactions, whether they are money transfer,
gold loans or gold bonds. Being entrusted with the purpose of delivering value enables
us to consider each customers need as unique. We cater to gold loan requirements
varying from a principal loan amount of Rs.10,00,000 (1 crore). This is instrumental in
accomplishing our objective of holistic growth for the economy.

 Numbers speak
Trusting numbers alone would be a myopic view of estimating our growth. However
they do give an insight into our strength. We have deployed 25,000 people in all over
4400 branches spread over 21 states and 4 Union Territories. With such rapid growth
potential, Muthoot Finance is a major market player dedicated to make a positive
impact on countless people, ranging from farmers to salaried employees seeking
financial aid. A diversified portfolio of assets is what sets us apart from the
competition. It is accentuated by the unbridled trust that our customers have bestowed
upon us over the years. It is this mutual trust that has, in turn, and over the years,
created the long relationships between Muthoot Finance and its invaluable customers.
Such conviction is indeed humbling.
Being India’s largest gold loan service provide, safeguarding the deposits of gold
ornaments is our primary concern. A flexible interest rate policy is what helps us cope
with volatile markets. Our gold loan range starts from Rs. 1,500 and stretches up to Rs.
1 Crore. Serving over 81,000 customers daily, we assist almost every section of the
society in obtaining quick cash for leveraging their dreams.

  Rate of Interest
All other
Scheme Slab periods Kerala
Branches
Up-to 1 month 14% p.a. 14% p.a. 14% p.a.
Muthoot
>1 up-to 3 months 18% p.a. 18% p.a. 18% p.a.
Bestvalue >3 up-to 6 months 21% p.a. 21% p.a. 21% p.a.
>6 up-to 12 24% p.a. 24% p.a. 24% p.a.
Loan(MBL)        
  Months      
45
 Up-to 1 month 12% p.a. 24% p.a. N.A
Muthoot Mahila
>1 up-to 3 months 15% p.a. 15% p.a. N.A
Loan >3 up-to 6 months 20% p.a. 20% p.a. N.A
>6 up-to 12 months 24% p.a. 24% p.a. N.A
Muthoot Super
Up-to 12 months 21% p.a. 22% p.a. 23% p.a.
Loan (MSL)

Muthoot Premier Up-to 12 months 20% p.a. 21% p.a. 22% p.a.

Muthoot Up-to 3 months 18% p.a. 18% p.a. 18% p.a.

Advantage loan
(MAL) >3 up-to 6 months 21% p.a. 21% p.a. 22% p.a.
>6 up-to 12 months 24% p.a. 24% p.a. 24% p.a.

Muthoot High Up-to 3 months 16% p.a. 16% p.a. 16% p.a.
value loan(MHL)
>3 up-to 12 months 18% p.a. 18% p.a. 18% p.a.
Muthoot
Overdraft Scheme 12 months 19% p.a. 19% p.a. 19% p.a.
(MOS)
Muthoot
Installment 6-12 months 21% p.a. 21% p.a. 21% p.a.
Scheme (MIS)

Interest is charged on monthly compounding basis. Documentation charge of

Rs.1,500/- is chargeable for limits sanctioned under MOS scheme. Late payment
charges are applicable for loan under MIS scheme @ 24% p.a. for delay in payment of
EMIs.

Processing charges are applicable for loans under MHL Scheme as below:

Kerala & Other South Indian 0.50% of the loan amount irrespective of the
Branches Amount

46
 All Other Branches 1% of the loan amount for loans below Rs.10
lakhs

0.5% of the loan amount for loans of Rs.10 lakhs

and above and upto Rs. 25 lakhs
0.25% of loan amount for loans of Rs. 25 lakhs
and above.

Penal interest @ 2% p.a. is chargeable in addition to the interest as above on loans

outstanding for more than 12months.

Advantages of Gold Loan:-

 Gold loan doesn’t demand any certificate to show your salary or income and even
no credit card history is required. Thus even unemployed and non-working people
can go for gold loan.
 Unlike any other unsecured loan, gold loan doesn’t require many papers, only few
documents such as ID proof and address proof is enough to avail for such loans.
 One of the main advantages of gold loan is it’s low interest rates. Usually loan over
gold is provided at the interest of 15-21% per annum and this is quite low compared
to personal loan available at interest rate of 15-26% per annum.
 In rural areas Agricultural loan against Gold is also available for agriculturist at very
nominal rate of Interest of 7-8%, proof of agricultural document needs to be
provided.
 Gold Loan is the most simple and convenient forms of loan because here all you
need to do is pledge your gold with a bank or finance company and get up to 80% of
the market value of the gold as a loan.
 Borrower will be given an option to pay only interest during the entire term and at
the end of the tenure you can pay complete borrowed amount in single shot.
 In case of gold loan processing time is very less. Usually bank take just few hours to
complete the process where as in case of NBFCs ( Non-Banking Financial

47
 Companies) a few minutes are enough for the same. So for immediate financial help
this is the best option.
 No depreciation of underlying assets : Unlike other secured loans the underlying
assets in the gold loan is not subject to depreciation. At the same time, unlike land,
it is the liquid assets and the transaction costs involved when enforcing the security
are minimal.
 Gains for the wider economy: India has the world’s largest stock privately held gold
with informed estimates ranging from 15,000 to 20,000 tones. When people borrow
against gold ( Technically called ‘monetization’), the impact is to set in motion a
whole new chain of economic activity.

Changes associated with gold loan:

 Loan processing charge: While some of the service providers may waiver these
charges, some banks do charge a processing fee.
 Valuation Charge: These are the charges to be paid to the valuator. These charges
are also specific to the service provider and those having in-house valuators do not
charge any extra amount for valuation.
 Late payment penalty: Most of the service providers charge late payment penalty
and this too can vary from one institution to the other.
 Pre-payment penalty: Most of the service providers do not charge a penalty for
repayment before the loan tenure is over. But some may still have this charge in
place .
 It is advisable to check with the loan provider before taking the loan. These charges
could charge the amount that you may finally receive.

Advice on Gold loans:

 Go for gold loan if you are confident of returning the money in time otherwise, you
will be penalized and all your pledged gold will come under the control of bank or
finance company from where you taken a Gold Loan.

48
 While opting for gold loan check the interest rates in various banks and private
finances. If you go for private lenders then better to go with one who has been in
this business for many years.

RBI's gold loan regulation for NBFC:

The Reserve Bank of India (RBI) on Monday tightened regulations governing non-
banking finance companies (NBFCs) lending against gold jewellery.

The new rules include strict documentation for high value loans against gold and
prohibition on misleading advertisements by NBFCs such as offering availability of
gold loans in a matter of 2-3 minutes.

The guidelines are broadly based on the January recommendations of an expert panel
set up by RBI, headed by K.U.B. Rao. The RBI, however, did not accept the
recommendation of the panel for higher loan-to-value (LTV) ratio on gold loans.

The LTV ratio, or the amount that can be lent against gold, has been maintained at
60%. This means for gold worth Rs100 offered as collateral, lenders can give loans up
to Rs60.

Further, NBFCs should also proportionally value while deciding the LTV on jewellery
of lower purity of gold, RBI said. Also, NBFCs financing against the collateral of gold
must insist on a copy of the PAN card of the borrower for all transaction above Rs5
lakhs and all high value loans of Rs1 lakh and above must only be disbursed by
cheque, RBI said. The apex bank has clearly stipulated that NBFCs should not issue
misleading advertisements like claiming the availability of loans in a matter of 2-3
minutes.

RBI has also asked NBFCs to make the auction process of the gold more transparent
by disclosing the details of auction process in the annual report, including full details
of the value fetched in the auction.

The Reserve price for the pledged ornaments should not be less than 85% of the
previous 30 day average closing price of 22 carat gold as declared by the Bombay
Bullion Association Ltd, an industry body, RBI said.
49
50
Operational learning:

Role of staff engaged in a normal branch process:

 Security Guard
 Customer care executive
 Valuer 1 and 2
 Branch Manager

Steps to be followed while appraising gold:

 Sort gold items according to solid, chains and others.

 Confirm the purity with the help of touch Stone and acid test.
 Note down result in following format:
 Pass out gold to valuer2 for revaluation.
 Suggest lower loan amount to BM.
Steps to be followed while sealing of gold:
 Fill in the details on the packet
 Insert the gold and appraisal sheet in the packet
 Fix the sticker
 Sign on the sticker (BM and valuer1)
 Affix the seal on sticker
 Keep the gold packet in vault in serial order mentioning the GL number (to
and from.

Finance:
Muthoot Finance is subsidiary of Muthoot Group was established in 1939, and is
primarily involved in the Financial sector of the country. Muthoot Finance falls under
the category of Non-Banking Financial Company (NBFCs) of the RBI guidelines. The
company has more than 2038 branches spread across 23 states of the country and is the

51
largest gold loan company in India. Muthoot Finance, according to the IMaCS
Research and Analytics Industry Reports.
‘Muthoot Gold Power' is the lifestyle product of Muthoot Finance aimed at mobilizing
the Household gold in India which is estimated to be more than 15000 tonnes. Muthoot
Finance according to it’s company website has “the largest gold loan portfolio in the
country”. Muthoot also provides various financial services such as Insurance
distribution, Wealth management, Foreign Exchange, Money transfer and Vehicle and
Asset finance. Muthoot Finance was selected as one of the Top 10 finance companies
to work for in India. Muthoot Finance privately placed 4% of its paid up capital to
Private Equity players – Bearings India and Matrix Partners India for Rs 1.57 billion,
hence valuing the earlier privately held company at over $1 billion.
Affordable housing finance:
Incorporated in 2013, Muthoot Homefin (India) Limited is a Housing Finance
company (HFC) registered with the National Housing Bank. The company has its
Corporate Office in Mumbai, and operates primarily in the Western and Central states
of India. In an effort to promote the Indian government's initiative of Housing for all,
Muthoot Homefin operates primarily in the affordable housing segment, wherein the
loans are below Rs.30 lakhs. Muthoot Homefin has a long-term credit rating of AA-
(ICRA) and a short-term rating of P1+ (ICRA).
Equipment finance:
Incorporated in 1992, Muthoot Vehicle & Asset Finance is a public company engaged
in providing vehicle loans. The company operates primarily in South India. The
Reserve Bank of India classifies it as a Deposit taking Asset Finance Company.
Other financial services:
The securities brokerage business of the group is undertaken through the subsidiary
Muthoot Securities. It operates over 65 business centers in Kerala, Tamil Nadu,
Andhra Pradesh and Karnataka. The company offers Equity & Currency trading,
online trading, Portfolio Management Services, Depository services, Mutual
funds, PAN card services and Market Research. Muthoot Precious Metals Corporation
(MPMC) was established in May 2006, the company sells coins & bars of 999 Pure 24
Carat gold and silver throughout India. They carry out the sales of these bars and coins
52
through more than 4250 branches of Muthoot Finance. MPMC imports gold
bullion from Switzerland and converts them into gold coins of smaller denominations
so as to suit the investment requirements of people from different income groups. The
group provides wire transfer services through the branch network of Muthoot Finance
since 2002. As of December 2012, there are 7 inward remittances that Muthoot
Finance offers Western Union, Xpress Money, Instant Cash, Remit, Trans-
fast, MoneyGram, Global Money.

In 2013, the group also acquired a majority stake in an NBFC in Sri Lanka operating
under the brand name of Asia Asset Finance Limited. Asia Asset Finance primarily
provides loans to small businesses as well as Gold Loans. The group expanded its Gold
Loan business to the UK, wherein it operates under the brand name Muthoot Finance
UK. In 2014, the group also acquired a majority stake in a Microfinance company
operating under the brandnameBelstar Investments.

Competitive Analysis

 Manappuram Finance Limited:

Manappuram finance Ltd is a non-banking financial company (NBFC) situated in
Valapad, Thissur, Kerala state. Manappuram Finance also facilitates gold loan within 5
minutes. It helps to draw instant Cash by subscribing gold ornaments and jewellery. It
provides loan at higher points, based on purity, net weight of gold. The candidate must
have one recent ID-Voter ID/ Ration Card/ Driving license/ Passport. No time-
consuming formalities involved. Manappuram has over 4190+ branches across 25
states, a staff strength of over 190,000+ people.

53
 1. Type: Public company
2. Industry: Non-banking financial company (NBFC).
3. Founded : 1949
4. Headquarters : Valappad, Thrissur, Kerala, India.
5. Products : Online Gold Loan, Gold loan, Forex & Money transfer, SMS
Finance, Commercial Vehicle loan.
6. Number of employees: over 17,500
7. Website: http://www.manappuram.com

 Union gold loan:

Union gold loan provides credit facility to needy farmers. The lending rate is Rs 1800
per gram gold ornaments. Based priority sector like agricultural purposes. Under non-
priority sector for basic necessities for unforeseen expenses. Loan amount
consumption purposes is up to Rs. 2000/- The Non- Priority Sector loan amount is
Max. Rs.5 lacs.

1. Type: Public Sector Undertakings Enterprise

54
2. Industry: Banking, Financial services
3. Founded: 11 November 1919, 100 years ago.
4. Headquarters: Mumbai
5. Products: Consumer banking, corporate banking, finance and insurance,
Investment banking, mortgage loans, private banking, wealth
Management.
6. Number of employees: 35,514
7. Website: www.unionbankofindia.co.in
HDFC Gold loan:
 HDFC gold loan term loan provides instant loans. Regular interest on loan is
being granted. Identity Proof like Passport Copy/ Voters ID card/ Driving License
along with proof like Ration card/ Telephone Bill/ Electricity Bill/ Rental Agreement/
Passport copy/ Trade license / Shop and Eat License / Sales Tax certificate, 2 passport
size photographs

\
1. Type: Private
2. Industry: Banking, Financial services
3. Founded: August 1994, 25 years ago
4. Headquarters: Mumbai, Maharashtra, India
5. Products: Credit cards, consumer banking, banking, finance and insurance,
Investment banking, mortgage loans, private banking, private
banking, private equity, wealth management.
6. Number of employees: 104,154
7. Website: www.hdfcbank.com

55
 SBI Gold loan:
SBI Gold loan is loan which satisfies as a biggest advantage to overcome crisis and is a
personal loan phenomena. It has low interest rate. The loan amount of RS.10 lakh is
attained by the customer. It also provides gold loan for farmers for agricultural
necessities. The main documents required for applying gold loans are:
 Letter of witness in case of illiterate borrowers.
 Two passport size photograph a of the borrower
 All the gold ornaments that are to be as mortgage for the loan. .

1. Type: Public
2. Industry: Banking, Financial services
3. Founded: 1 July 1955 as State Bank of India
4. Headquarters: State Bank Bhawan, M.C.road, Nariman point, Mumbai,
Maharshtra,India.
5. Products: Retail banking, corporate banking, investment banking, mortgage
Loans, private banking, wealth management, credit cards,finance Insurance.
6. Employees: 2,57,252
7. Website: sbi.co.in
STUDY OF NON-BANKING FINANCE COMPANIES WITH
SPECIAL REFERENCE TO GOLD OAN
CHAPTER 2
RESEARCH METHODOLOGY

56
RESEARCH OBJECTIVE:
1. To study the concept of NBFC's providing gold loans.
2. To study the growth and development of NBFCs in India.
3. To find the reasons for choosing gold loans over conventional personal loans.
4. To know the purpose for availing gold loans by the respondents.
5. To study about consumer awareness and satisfaction about operational
services and procedures of NBFCs providing gold loans.
Limitations of study:
1. The study is restricted only for the Indian companies and other countries
performance is ignored.
2. It was very difficult and challenging to get the actualborrowers of Gold loan,
Personal loan and others. To overcome this challenge the research has randomly
selected the respondents as a sample for the study and then classified in actual and
prospective borrowers.
3. Considering the growth of NBFCs in India, commercial banks are developing
and giving a tough competition to NBFCs in financial services.
Sources of data:
My source of data comprises of primary as well as secondary data.
Primary data:
I have collected primary data through questionaire. It includes six questions to 50
different people in my locality. Questions being asked to literate people.
Secondary data:
 Books and newspapers.
 E-papers
 Company websites
 Through internet
SAMPLE DESIGN:
In this project, I used probability method of simple random sampling for sampling
data.
Experienced people where randomly questioned about the project topic.

57
Sample size consisted of few groups of peoples from my locality, also social units such
as my family, society, friends, etc.
Survey on fifty people has been conducted by distributing questionaires and stating
them the objective of the project.
PROBLEM STATEMENT:
a) NBFCs in India have been always been at disadvantage due to lack of uniform
practices and absence of level playing field.
b) Borrowing rate for NBFCs is much higher than for bank financial institution.
c) NBFCs are facing stiff competition from the bank both public and new private
sector banks. Public sector banks enjoy low deposit cost due to vast distribution
network and it have occupied a majority share in housing finance where as private
bank such as ICICI group are actively engaged in retail assets financing. This
increased competition is certainly going to affect the business risk profile of
NBFCs.
d) The poor assets quality of NBFCs is another challenge before them. Poor recovery
of loan & subsequent write-off mean that balance sheet of various financing
companies reflect a higher percentage of over-dues in comparisons of Total assets.
This has affected their equity & profitability which led to their debt instrument
being downgraded.

STUDY OF NON-BANKING FINANCE COMPANIES WITH

SPECIAL REFERENCE TO GOLD LOAN

CHAPTER 3

REVIEW OF LITERATURE

Literature Review:

An attempt is being made in this chapter to review the literature concerning the
growth, organization and performance of the NBFCs in India. This gives an
opportunity to know the contributions of author and scholars in the field. This may
help us in assessing the relevance of their contributions for this study.

58
1. Raj (1999)
In their research, In India, up to the 1980s, the dominant fear of market failure has
provided the rationale for state intervention in the financial system’s allocative role.
The 1st 85-year Plans, by and large, have ignored the role of the financial system in the
development process (Patra and Roy, 2002). It has been realized that the Indian
financial system, though extensive, had only a limited role to play in terms of
allocative efficiency under a regime, which prevented proper pricing.

2. Gurley and Shaw (1960)

In their research they propounded a theory of finance that encompassed the theory of
financial institutions and analyzed the role of financial intermediaries. They divided
financial intermediaries into two main groups monetary and nonmonetary. Monetary
institutions like banks create money and non-monetary intermediaries like non-banking
intermediaries do not create money. The tremendous growth of NBFIs resulted in the
diversifications and proliferation of financial assets.

3. Goldsmith (1969)
In their research he was the first to recognize the role of financial intermediaries in the
growth process. He emphasized the role of financial intermediaries in the
institutionalization of savings and channelizing them to productive uses.

4. Shankar (1996)
In their research, a study pointed out that the success of NBFCs depends on their
agility with which resources are raised and productively deployed in the competitive
environment, where not only are the number of players large but also they are
financially sound.

5. Rengarajan (1997)
In their research they observed that both from the macroeconomic perspective and the
structure of the Indian Financial services, the role of NBFCs have become increasingly

59
 important. The main task before the NBFCs is therefore to play an expanded role so as
to accelerate the pace of growth of financial market, including the credit market and
provide wider choice to investors. One of the problems of the banking system on
account of subsidized social banking are addressed, the banks would have a level
playing field which may enable them to compete with NBFCs with increased levels of
efficiency.

6. Levine etal(1999)
In their research they found that economic growth was substantial in countries where
the financial intermediaries were well developed. The study revealed in the case of
India that if the NBFCs had raised their percentage of finance to the private sector
(which was relatively low) to the average for developing countries, it would have
benefited by an accelerated growth in real per capital GDP of about 0.6% points per
year. Hence, there is no alternative to nurturing and developing this sector to be able to
attain the desired sophistication of the financial market .

7. Shollapur (2005)
analyzed that the NBFCs constituted a significant part of financial systems and
compliment the service provide by commercial bank in India. The efficiency of
financial services and flexibilities helped them build a large body of client including
small borrower and bigger corporate establishment.

8. Amita (1997)
In their research they conducted a study on financial performance of NBFCs in India
for the period from 1985-86 to 1994-95. In this study concluded that different
categories of NBFCs behave differently and it is entrepreneur’s choice in the light of
behavior of some the parameters which go along with the category of NBFC.

9. Vittas (1997)
60
 In their research it opines that creating new marketable securities in the area of leasing,
factoring and venture capital NBFIs create long-term financial resources and provide a
strong stimulus to the development of capital market.

10. Lakshmi (1998)

In their research it was explained the role of NBFCs and stated that their success was
due to markedistribution capabilities, customer relation management, operating culture
and quick processing of loans.

11. Sorab (1999)

In their research stated that the main areas of operations of NBFCs were hire purchase,
leasing and auto financing. The study estimated that nearly 60% of all trucks sold in
India were through hire purchase schemes. Almost 99% of second hand trucks and
taxis exchange hands through NBFC support and 75% of two - wheelers and 25% of
white goods are sold with NBFC finance.

12. Gayathri and Madhusudhanan (2000)

In their research it observed NBFCs increased their deposit base aggressively by
offering attractive rates of interest and reaching the far flung areas. The matter of
interest differential was a motivating factor for transfer of deposits from commercial
banks to NBFCs.

13. Vaidyanathan (2001)

In their research it observed that the role of non- banking sector in the credit delivery
system in both manufacturing and service sectors like trade, construction, hotels and
restraints, transport etc was significant and they played a more dominant role
compared to the commercial banks.

14. Hussain and Shahiduzzaman (2002)

61
 In their research they focused on the role played by nonbanking sector in the economic
development of the country and identifies the underlying problems existed within the
sector.

15. Kantawala’s (2002)

In their research the study attempted to examine the financial performance of different
groups of NBFCs in terms of profitability, leverage and liquidity. Study found that
different categories of NBFCs behave differently and it is the entrepreneur’s choice in
the light of behavior of some the parameters that go along with the category of NBFC.

16. Balachandran (2006)

In their research the study on NBFCs has revealed that in the financial market,
different financial products are available which provide on effective payment and
credit system and thereby facilitate the channelizing of funds from savers to investors
in the economy and thus the NBFCs play an important role in Indian financial system.
The researcher has also traced the growth of NBFCs from 7000 in 1981 to 40,000 in
1995. Deposits in these NBFCs have been growing at a much higher rate than with
commercial banks.

17. Dubey and Shubhashish (2007)

In their research theyanalyzed that NBFC’s in India had a great revolution after 1991
liberalization which led to simple regulatory mechanisms and allowance to greedy
investors to park their money with NBFC’s. With more customers’ base and unwise
investments started rising to have large profitability. This in turn leads to weak not
compatible with strong players and fading of golden era for NBFC’s.

18. Jafor (2009)

In their research they stated that the NBFCs have been playing a very significant role
in the present day rigorous money-market conditions. They are serving the nation by
62
 supporting the economic reconstruction and giving a booster to industrial production.
They are engaged into the business of providing loans and advances of small amounts
for a short-period to small borrowers. The NBFCs play an important role in
channelizing these savings into investment. They have supplemented the role played
by the banks.

19. Sundaram (2010)

In their research they analyzed the growth, profitability and Financial Performance of
NBFCs. The researcher suggested that the RBI must exercise full control over the
NBFCs like that of its control over commercial banks, since these companies are
growing very fast as that of banks.

20. V P Nandkumar (2013)

In their research, It was learnt by Indian companies that lending against gold jewellery
is comparatively less risky than other commodities, because of emotional connect with
it and default rate would be less even if gold prices fall. When gold prices fall in April
2013 by 15%, even than there was no chaos in the industry and gold lenders were not
in losses. This episode posed a question, “is India’s attitude to gold is changing.”

21. V. Padmaja& Dr. K. Prince Paul Antonin (1990)

In their research their Study says that, the level of perception ( positive / negative) on
the gold loan offered by scheduled commercial banks is not influenced by customers
experience with jewel loan borrowing , further customers purpose for availing gold
loan differ according to gender of the borrowers. Another analysis resulted from their
study is that private agencies / NBFC’s provides higher value for the gold and are
easily available but they do charge higher Rates.

22. ArtiVerma.V (2012)

In their research according to her study, A consumer perception on gold loan with
reference to Thane region could observe some grievance and complaints against
NBFC’s like not explaining Penalty clause while availing gold loan, documentary

63
 evidence available to the borrower should be much more comprehensive, A single day
delay in paying interest on principal, borrower is pushed to higher rate of interest,
Auctioning procedure should me much more transparent.

23. Halil (2011)

In their research it was analyzed the financial performance of those non-bank finance
companies which are providing the services of investment advisory, asset
management, leasing and investment finance for 2 years from 2008 to 2009. Ratio
analysis method has been used to analyze the. The study concluded that the financial
performance of NBFCs was better in 2008 as compared to the overall decline in 2009
caused by many factors. Suresh (2011) investigated the performance of NBFCs in
India (other than banking, insurance, and chit fund companies) during the year April
2008–March 2009. Study highlighted that Financial and Investment Companies’
growth in income, main as well as other, decelerated during the period and growth of
total expenditure also decelerated but it was higher than the income growth.

24. Sornaganesh (2013)

In their research it investigated the fundamental analysis of NBFC in India to analyze
the profitability position of 5 sample NBFC companies, like STF, SF, BF, and M and
MF for the period from April 2008 to March 2012, using Ratio Analysis. The study
revealed that SF has performed better in terms of Earnings Per Share but STF and
M&MF are far better than other in NPM.

25. Perumal and Satheskumar (2013)

In their research they studied on the topic “NBFCs” analyzing the Balance Sheets and
income statements of two sample companies, viz., Sundaram Finance Limited and
Lakshmi General Finance Limited for the period 2007–2012 using primary and
secondary data. The study was performed using various statistical techniques such as
average, standard deviation, co-efficient of variation, trend analysis, index number, etc.
and concluded that the contribution of NBFCs to economic development is highly
significant.

64
26. Kumar and Naresh (2013)
In their research it conducted a study using CAMEL ranking approach to assess
relative performance of Indian public sector banks. The study observed that there is
significant difference between the mean values of CAMEL ratios of public sector
banks. It is found that the top two performing banks are Bank of Baroda and Andhra
Bank because of high capital adequacy and asset quality. The study recommends that
banks has to improve its management efficiency, asset, earning quality and liquidity
position.

27. Kumar and Kumar (2013)

In their research they highlighted that though ranking of ratios is different for different
banks in State Bank group. But there is no statistically significant difference between
the CAMEL ratios. It signifies that the overall performance of State Bank group is
same; this may be because of adoption of modern technology, banking reforms and
recovery mechanism. SBI needs to improve its position with regard to asset quality and
capital adequacy, SBBJ should improve its management efficiency and SBP should
improve its earning quality.

28. Kumar and Afroze (2014)

In their research revealed that Loans, Management Efficiency, Liquidity and
Sensitivity have statistically significant influence on the capital adequacy of private
sector banks. However, the independent variable asset quality has negligible influence
on capital adequacy of Indian private sector banks. Moreover, the study reveals that the
Indian private sector banks maintain a higher level of capital requirement than
prescribed by Reserve Bank of India.

29. Padmavati and Sanjeev (2014)

In their research they applied capital adequacy, assets quality, management, earning,
liquidity, systems and controls (CAMELS) model on the secondary data Indian old
private sector banks the period from 2007 to 2012. The study reveal that 6 banks out of
65
 13 selected banks have shown good and excellent financial performance. Tamil Nadu
Mercantile Bank secured first position in terms of overall composite ranking followed
by Federal Bank. On the basis of CAMELS criteria Tamil Nadu Mercantile Bank,
Federal Bank and Nainital Bank have shown excellent financial performance. On the
contrary Catholic Syrian Bank, ING Vysya Bank and Dhanalakshmi Bank were worst
performing banks in terms of financial performance.

30. Bharti and Bhavani (2016)

In their research it expressed that Reserve Bank of India recommended two
supervisory rating models named as CAMELS and capital adequacy, assets quality,
compliance, systems and controls for rating of Indian commercial, private and foreign
banks operating in India. The study examined each parameter of CAMELS system by
review of literature and empirical studies.

66
STUDY OF NON-BANKING FINANCE COMPANES WITH
SPECIAL REFERENCE TO GOLD LOAN
CHAPTER 4
DATA ANALYSIS AND INTERPRETATION
Questionaire

Age No. of respondents Percentage

18-25 53 85.48

25-35 4 6.45

35-45 4 6.45

Above 45 1 1.61

Interpretation:
In the above pie diagram, age group of18-25 have more of respondents up-to 53
individuals. And that of 25-35 and 35-45 are same of 4 respondents and only 1
respondent is included in Above 45 age group.

67
 Gender No. of respondents Percentage

Male 25 40.32

Female 37 59.68

Other 0 0

Interpretation:
25 out of 62 respondents are female, the other respondents are male and the option for
others where Nil.

68
 Employment status No. of respondents Percentage

Student 36 58.06

Employee 23 37.10

Business 1
1.61

Other 2 3.23

Interpretation
In the above diagram the number of respondents of students are 36 as employment
status and the others of employee are 23 for business, only 1 individual is there and for
others there are 2 respondents.

69
 NBFCs providing gold No. of respondents Percentage
loan

Yes 36 58.06

No 26 41.94

Interpretation:
Total 36 number of individuals out of 62 where knowing about NBFCs providing gold
loan and the rest 26 individuals where not known about them.

70
 Consuming gold loan No. of respondents Percentage
service
Yes 14 22.58

No 48 77.42

Interpretation:
According to the survey out of 62 respondents only 14 individuals are consuming gold
loan and the rest 48 individuals are not consuming gold loan.

71
 Company No. Of respondents Percentage

Bajaj finserv Ltd 2 3.23

Muthoot finance 8 12.90

SBI 2 3.23

Manappuram 3 4.84

Other 24 38.71

Not Answered 23 37.10

INTERPRETATION:
In the above chart different NBFCs providing gold loan is mentioned and thus from
Bajaj finance and SBI 2 individuals have taken gold loan, through muthoot finance 8
individuals have taken gold loan and from Manappuram only 3 individuals are
consuming gold loan and the rest 24 are for others and 23 individuals have not
answered.

72
 Speed of dealing No of respondents Percentage

Satisfied 19 30.65

Dissatisfied 2 3.23

Neither satisfied nor 30 48.39

dissatisfied

Not answered 11 17.74

Interpretation:
According to the survey 19 individuals out of 62 are satisfied by the speed of dealing
of NBFCs , 2 are dissatisfied, 30 individuals have selected neither satisfied and nor
dissatisfied and 11 individuals have not answered.

73
 Difficulties No. of respondents Percentage

To get finance 24 38.71

To find suitable premises 4 6.45

To be independent 7 11.29
entrepreneur
Others 18 29.03

Not Answered 9 14.52

In the above table major difficulty faced is to get finance, thus 24 respondents have
selected to get finance, 4 individuals for finding suitable premises, 7 individuals have
selected to be an independent entrepreneur and 18 are for others and rest 9 have not
answered.

74
 Banks No. of respondents Percentage

NBFCs 24 38.71

Commercial Banks 18 29.03

Others 20 32.26

Interpretation:
In the above table 24 individuals have responded for NBFCs,18 for commercial banks
and rest 20 are for others for the procedure for getting loans.

75
 Awareness No of respondents Percentage

Yes 33 53.23

No 25 40.32

Not answered 4 6.45

Interpretation:
33out of 62 respondents were aware about the factors considered by lenders while
providing project financing and the 25 individuals where not knowing and the 4
individuals have not answered.

76
 Selection No of respondents Percentage

Agree 49 79.03

Disagree 1 1.61

Neither agree nor disagree 11 17.74

Not answered 1 1.61

Interpretation:
Interest rate have been the main factor when selecting a personal loan as 49 individuals
have selected for agreed according to the research, only 1 individual have disagreed
11individuals have neither agreed nor disagreed and 1 individual have not answered.

77
 Banks No of respondents Percentage

NBFCs 20 32.26

Commercial banks 21 33.87

Others 16 25.81

Not answered 5 8.06

Interpretation:
For services 20 individuals have selected NBFCs, 21 respondents have selected
commercial banks and 16 for others and 5 individuals have not answered.

78
 Banks No. of respondents Percentage

Commercial banks 20 32.26

NBFC 24 38.71

Other 13 20.97

Not Answered 5 8.06

Interpretation:

In the above table as future preference 20 individuals are for commercial banks , 24 for
NBFCs , 13 have selected others and 5 individuals have not answered.

79
STUDY OF NON-BANKING FINANCE COMPANIES WITH

SPECIAL RFERENCE TO GOLD LOAN

CHAPTER 5

FINDINGS, SUGGESTIONS AND CONCLUSION

Findings:

 Non-Banking Finance Companies covers many financial segments which may

be difficult to cover by consumer banks.Every Non-Banking financial companies
have to maintain their NPA.
 NBFC sector consist of many sub sectors, there is rivalry among the financial
companies which are the parts of different sectors as buyers are very flexible here.
 In the research sample unit is segmented into five categories namely.
18-25, 25-35, 35-45, Above 45.From the above table it is found that a sample unit
consist of maximum of 85.48% respondents from the age group of 18-25, followed
by 6.45 % respondents from the age group of 25-35 and minimum representation of
respondents is 6.45% in the age group of 35-45, and only 1.61% respondents of the
age group of above 45.
 In the research, the gender ratio of female is more than the ratio of male. The gender
responses of female are 59.68% which is more than the responses of male that is
40.32%.
 The employment status of the respondents is taken as one of the important factors.
In this research the occupation is classified into various categories such as Student,
Employee, Business, and other. From the above pie chart and table it is clear that,
total respondents under the study is 58.06% of students, 37.10 % of employees,
1.61% of business and for others are 3.23%.
 In the research it is found that 58.06% of respondents were aware about the NBFCs
and the rest of 41.94% of respondents were unaware.

80
 In the research how many people are consuming the gold loan service? So 22.58%
of respondents are consuming gold loan and remaining 77.42% of respondents are
not consuming gold loan.
 With the help of the survey individuals consuming gold loan from different
companies where found. In the research the companies included where Bajaj
finance ltd having 3.23% of respondents, Muthoot finance with 12.90% of
respondents, SBI same as Muthoot finance 3.23% of respondents and Manappuram
with 4.84% of respondents and the rest where others with 38.71% respondents and
37.10% of individuals didn’t answered.
 The research maintained the speed of dealing of the NBFCs and the 30.65% of
respondents were satisfied by the speed of dealing, less number of individuals were
dissatisfied percentage is 3.23% and 48.39% respondents where neither satisfied nor
dissatisfied and the rest 17.74 didn’t answered.
 The difficulties faced while setting up a new business is a major problem. 38.71%
of respondents selected to get finance as a difficulty, 6.45% respondents to find
suitable premises, 11.29% of respondents to be an independent entrepreneur,
29.03% for others and 14.2 have not answered.
 In the research the segment for who provides an easy procedure for getting loans
includes NBFCs, Commercial banks and others. The responses for NBFCs were
more as compared to commercial banks. 38.71% responses were there for NBFCs,
29.03% for commercial banks and the rest 32.26% are for others.
 The question interest rate is the main factor when selecting a business? So 79.03%
of respondents agreed, 1.61% of individuals disagreed and the rest of 1.61% of
individuals didn’t answered.
 In the research for the financial services 32.26% selected NBFCs as preferable,
33.87% respondents for commercial banks, the others included 25.81% of
respondents and the 8.06% of individuals have not answered.
 The question asked in the research, for future from whom would you prefer to take
persona loan from or invest in? So 32.26% of respondents selected commercial,
38.71% for NBFCs, 20.97% are for others and 8.06% of individuals have not
answered.

81
 Suggestions:

I would like to recommend the following in respect of the whole study:

1. Most of the people are not much aware of the NBFCs providing gold loan services
and its benefits, so NBFC companies can take general awareness of gold loan services
plan to the customers. NBFC companies should maintain the customer satisfaction.

2. There is a lack of new customer addition in the branches of NBFCs, only existing
customer comes to respective branches for gold loan so it is important to increase the
awareness about the benefits of gold loan in respective areas.

3. Some promotional activities should be maintained for the awareness of the customer.

4. For taking loans whether personal, education loan , home or gold loan, take a look on
loan policies of NBFCs as it has lower interest rates as compared to commercial banks.

5. Financing and investments can be done quickly taking the help of NBFCs like
Muthoot Finance, Manappuram gold loan etc.

6. Importance and accessibility of NBFC deposits has to be put into practice. This is
urgently required among the urban areas where awareness is relatively higher but
technical understanding about product is an area of concern.

7. The rural and underdeveloped areas where even basic financial services are less
available can also be considered but would require more infrastructure strength.

8. If you like the services of NBFCs do recommend to others.

82
a.

83
 Conclusions

From the above whole study we can conclude that:

1. NBFCs are major financial institutions in the Indian economy and play important role
in development of Indian financial system. People of India have less trust on NBFCs
with compare to banking sector but it provides high return to the depositors.
2. RBI has given the rules, regulation and guidelines for NBFCs but not giving
guarantee for repayment of deposits to the depositors in the case of insolvency. As a
result the depositors are not insured by any insurance companies though it is regulated
by reserve bank of India, which is major drawback of the NBFCs
3. Still it lacks popularity in small localities, but due to fast pace of growth of NBFCs it
will soon attain the major popularity in every corner of the world.

4. Since commercial banks are more popular normally people’s prefer the banks to
obtain the financial services.

5. The fact that some NBFCs were found abusing their position in the 1990s seems to
have scared the regulators. The answer lay in better regulation, supervision and
prudential norms. The RBI has now strengthened its machinery of registration and
supervision and extended prudential norms to NBFCs. Denying access to deposits
would be the end for NBFCs, on the contrary, the RBI should apply its mind to
strengthening the functioning of NBFCs by facilitating better access to market and
extending its credit reach

6. The time has come for the RBI to address NBFCs as a class. They are proven
instruments of efficient and customer-friendly outreach in the credit space not only for
consumer durables, but also housing and transport, besides infrastructure. These are
also critical areas in which the Government is vitally interested as part of boosting
economic growth. I hope the regulators will not forget that their role is not only to
regulate but to spur the growth of the economy. The NBFCs' request to be allowed to
continue to accept public deposits deserves to be nurtured, not restricted by regulators.

84
 BIBIOGRAPHY:
LINKS:-

 http://www.archieve.india.gov.in/business/business_fnancing/non_banking.php

 http://www.dnb.co.in/BFSISectorInIndia/NonBankC2.asp

 http://online2pdf.com/pdf2word

 http://www.pfcindia.com/Content/FinancialPoliciesProducts.aspx

 http://www.careratings.com/upload/NewsFiles/SplAnalysis/NBFC%20Sector
%20Report.pdf

 http://www.muthootfinance.com/upload/Muthoot-Finance-Annual-Report-2014-15-
final-0509_2015.pdf?8cd2bc

REFERENCE BOOKS:

 Business Aspects in Banking and Insurance

 Investment Banking (by Tappan Jindal)

85
ANNEXURE

QUESTIONAIRE

1. Name
2. Age
a) 18-25
b) 25-35
c) 35-45
d) Above 45
3. Gender
a) Male
b) Female
4. Employment status
a) Student
b) Employee
c) Business
d) Other
5. Have you heard about the NBFCs providing gold loan?
a) Yes
b) No
6. Are you consuming the gold loan service?
a) Yes
b) No
7. If yes, from which company you have taken gold loan?
a) Bajaj finserv ltd
b) Muthoot finance
c) SBI
d) Manappuram
e) Other
8. Speed of dealing?

86
a) Satisfied
b) Dissatisfied
c) Neither satisfied nor dissatisfied
9. What are the difficulties you face while setting up new business?
a) To get finance
b) To find suitable premises
c) To be independent entrepreneur
d) Others
10. Who provides an easy procedure for getting loans?
a) NBFCs
b) Commercial banks
c) Others
11. Are you aware of the factors considered by the lenders before providing your
project financing?
a) Yes
b) No
12. Interest rate is the main factor when selecting a personal loan?
a) Agree
b) Disagree
c) Neither agree nor disagree
13. Whose financial services are more preferred?
a) NBFCs
b) Commercial banks
c) Others
14. For future from whom would you prefer to take personal loan from or invest
in?
a) Commercial banks
b) NBFCs
c) Other

87
88