Financial Foresights)

Financial Foresights
VOL. NO. 3 ISSUL NO. 5 Q4 IY 12-13

Vicus, Rccc|icn an |rui|icn
FEDERATION OF INDIAN CHAMBERS OF COMMERCE AND INDUSTRY
|nus|rqs Vcicc fcr Pc|icq Cnangc
Role of NBFCs in promoting
inclusive growth
About FICCI
LslalIished in 1927, IICCI is lhe Iargesl and oIdesl apex lusiness organisalion in
India. Ils hislory is cIoseIy inlervoven vilh Indias slruggIe for independence, ils
induslriaIizalion, and ils energence as one of lhe nosl rapidIy groving gIolaI
econonies. IICCI has conlriluled lo lhis hisloricaI process ly encouraging delale,
arlicuIaling lhe privale seclors vievs and inuencing poIicy.
A non-governnenl, nol-for-prohl organisalion, IICCI is lhe voice of Indias lusiness
and induslry. IICCI dravs ils nenlership fron lhe corporale seclor, lolh privale
and pulIic, incIuding SMLs and MNCs, IICCI enjoys an indirecl nenlership of over
2,5O,OOO conpanies fron various regionaI chanlers of connerce. IICCI provides a
pIalforn for seclor specihc consensus luiIding and nelvorking and as lhe hrsl porl of
caII for Indian induslry and lhe inlernalionaI lusiness connunily.
DISCLAIMER
AII righls reserved. The conlenl of lhis pulIicalion nay nol le reproduced in vhoIe or in parl vilhoul
lhe consenl of lhe pulIisher. The pulIicalion does nol verify any cIain or olher infornalion in any
adverlisenenl and is nol responsilIe for producl cIain and represenlalion.
ArlicIes in lhe pulicalions represenls personaI vievs of lhe dislinguished aulhors. IICCI does nol
accepl any cIain for any viev nenlioned in lhe arlicIes.
Acknowledgments
We thank our Partners
Partner Exchange
Industry Insights Partner
Contents
1. PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2. INDUSTRY INSIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Promoting Inclusive Growth Role of Non-Banking Finance Companies - 10
Mr. Snacninra Na|n, Grcup C|O, Rc|igarc |n|crpriscs ||.
Role of NBFCs in promoting inclusive growth 13 -
Mr. Pina|i Ranjan Mi|ra, Hca-Crcai| Opcra|icns, Ananqa |inancc
Role of NBFC-MFIs in promoting inclusive growth 17 -
Mr. Cnanra Snc|nar Gncsn, Cnairman c Managing Dircc|cr, 8annan
Role of - NBFCs in promoting inclusive growth 21
Ms. Arcnana S 8nargata, |xccu|itc Dircc|cr, Canara 8an|
Mr. Suman Cncunurq, Dircc|cr - |inancia| Scc|cr Ra|ings, CR|S|| |imi|c
Mr. Tnampq Kurian, Ai|icna| Gcncra| Managcr c A|| |nia Hca, Agricu||ura| c
|inancia| |nc|usicn Dcp|, |ccra| 8an|
Mr. 8inu Anan|n, Prcsicn|, ||MR
MIssIng LInks In IndIa's MIcrnnancc Dcbatcs 36 -
Mr. V.P. Nana|umar, MD c C|O, Manappuram |inancc ||. c
Prcmc|cr Dircc|cr, |qui|as Micrcfnancc |nia Pt|. ||.
NBFC-MFI: The Beacon of Financial Inclusion 41 -
Mr. A|c| Prasa, Cnicf |xccu|itc Offccr, Micrcfnancc |ns|i|u|icns Nc|ucr| (M||N)
Role of - NBFC in inclusive growth 45
Mr. Asnisn Kumar Rcq, Cnicf Gcncra| Managcr, Rura| 8usincss, S|a|c 8an| cf |nia,
Criticality of NBFCs in Indias infrastructure creation 48 -
Mr. Hcman| Kancria, CMD - Srci |nfras|ruc|urc |inancc ||.
Mr. S C Ka|ia, |crmcr |xccu|itc Dircc|cr, Unicn 8an| cf |nia
3. THE POLICY PULSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Banking Sector 58 -
Capital Markets Sector 62 -
Insurance Sector 65 -
4. FICCIS DATA CENTRE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Indian Economy-An Update 70 -
Investment Banking Updates 73 -
Markets Watch 78 -
5. FINANCIAL SECTOR EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Synopsis of Past Events 79 -
6. FINTAINMENT SECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Preface
IICCIs 'IinanciaI Ioresighls is IICCIs IinanciaI seclors agship
research lased inilialive vhich ains lo faciIilale a conprehensive
forun for diaIogue anongsl lhe Indian Inc. and lhe Covernnenl
lherely providing necessary direclions lo poIicy nakers and
lusiness processes. CurrenlIy in ils lhird year, lhis Digesl has gone
a Iong vay in providing invaIualIe inpuls for IICCIs exlensive
nelvork of induslry nenlers and slakehoIders on various lopics
concerning lhe IinanciaI Seclor in India. The currenl issue of our
Digesl viII focus on lhe RoIe of NICs in pronoling incIusive
grovlh.
Non-anking IinanciaI Conpanies (NICs) forn an inlegraI parl
of lhe Indian hnanciaI syslen. They have leen very inslrunenlaI
in conlriluling lo lhe Covernnenls agenda of hnanciaI incIusion
ly hIIing lhe inporlanl gap of suppIying credil lo relaiI cusloners
in lhe reIaliveIy under-served and un-lanked areas. They pIay an
aclive conpIenenlary roIe lo lhe lanking syslen ly lroadening
access lo hnanciaI services, enhancing conpelilion and
diversihcalion of lhe hnanciaI seclor. Hovever, lhe slory of NIC
seclor in India has leen a slory of under-reguIalion foIIoved ly
over reguIalion, due lo lhe drafl guideIines on NICs leing
reIeased ly RI recenlIy. The induslry slakehoIders are of lhe
opinion lhal lhese guideIines, if inpIenenled viII prove reslriclive
of grovlh and viII hanper lhe efhcienl funclioning of lhe seclor.
Iurlhernore, il nay aIso sellack lheir Iasl niIe conneclivily lo
lhe under lanked connunily and hence lheir conlrilulion lo lhe
overaII econonic deveIopnenl of lhe counlry.
Il is in lhis conlexl lhal lhrough lhe voice of sone of Indias
Ieading nanes in lhe hnanciaI seclor, ve viII lake a cIoser Iook
al NICs vilhin lhe lroad franevork of anking and IinanciaI
Inslilulions lo Iook al lhe presenl and fulure roIes of lhe NICs
in lhe Indian hnanciaI seclor and lhe neasures lhal couId le
laken lo oplinize lheir conlrilulion lherelo vilh speciaI focus on
pronoling 'IncIusive Crovlh.
We Iook forvard lo your vievs and suggeslions lo heIp us
inprove lhe conlenl of lhe digesl and nake il nore reIevanl and
infornalive.
Dr. A. Didar Singh
Secretary General
FICCI
Industry Insights
In association with
10
Role of NBFCs in promoting inclusive growth
Industry Insights
T
he focus of pronoling incIusive
grovlh is loday a lop priorily
for aII incIuding lhe hnanciaI
reguIalor. This is slenned ly lhe
facl lhal hnanciaI, econonic, poIilicaI
and sociaI slaliIily Iies in pronoling
hnanciaI incIusion lo ensure lhal aII
slrala of sociely gel langilIe lenehl
of lhe underIying econony. Lfhcienl
paynenl nechanisns, access lo credil,
cosl efhcienl producls are sone of
lhese lenehls.
Non-anking IinanciaI Conpanies
(NICs) have nade greal progress in
lhe Iasl len years and are assisling in
neeling lhe diverse hnanciaI needs of
lhe econony. In doing so, NICs have
inuenced lhe direclion of savings
and inveslnenl of lhe cusloners and
lhe resuIlanl capilaI fornalion has
lecone essenliaI for Indias econonic
grovlh and deveIopnenl.Al presenl,
Promoting Inclusive Growth Role
of Non-Banking Finance Companies
NBFCs are playing
a vital role in
furthering the cause
of pnancla| lnc|uslon
Mr. Shachindra Nath, Croup CLO, ReIigare Lnlerprises Lld.
11
Industry Insights
lhere are 12,375 NICs in India vilh
an assel lase of grealer lhan INR 6,5OO
liIIion a grovlh fron INR 347 liIIion
in 1997-98. NICs as a vhoIe accounl
for 12.3 of assels of lhe lolaI hnanciaI
syslen. y focusing on lhe SnaII and
Mediun Lnlerprises (SML) seclor and
groving nicrohnance, NICs are
pIaying a vilaI roIe in furlhering lhe
cause of hnanciaI incIusion.
Focus on SME
The snaII and nediun enlerprises
(SMLs) loday conslilule a very inpor-
lanl segnenl of lhe Indian econony
andaccounl for around 95 per cenl of
lhe induslriaI unils. The SML seclor
accounls for 45 percenl of nanufaclur-
ing oulpul and 4O per cenl of exporls.
As such, grovlh of lhis seclor is in-
porlanl for lhe econonic and sociaI
deveIopnenl of lhe counlry. AIlhough
SMLs have leen groving in size and
inporlance, lhey oflen Iack access lo
lineIy and adequale credil, lo neel lhe
vorking capilaI needs, incur high cosl
of credil, are lechnoIogicaIIy lackvard
and aIso Iack adequale infraslruclure
and skiIIed nanpover. Wilh aIlerna-
live sources of hnancing - such as, pri-
nary equily narkels, privale equily,
and venlure capilaI - renaining cIosed
lo SMLs due lo Iack of inveslor inler-
esl, grealer access lo funds lhrough h-
nanciers viII drive lheir grovlh.
NICs have energed as a slrong h-
nanciaI inlernediary in naking hnan-
ciaI services accessilIe lo a vider sel of
cusloner segnenls incIuding SMLs.
NICs have exlended hnance lo SMLs
ly having a range of producls lhal suil
lheir needs in lheir porlfoIio. Aparl of
providing Ioan againsl properly, in-
novalive producls inlroduced for lhe
SML seclor incIude used/ second hand
vehicIes hnancing, recondilioned ve-
hicIes hnancing, lhree-vheeIer hnanc-
ing, conslruclion equipnenl hnanc-
ing and secured/ unsecured vorking
capilaI hnancing.
MIcrnnancc
Microhnance is considered as a
separale calegory under NICs, vilh
approxinaleIy 5O nicrohnance insli-
lulions regislered vilh RI as NIC-
MII (Microhnance Inslilulions). Mi-
crohnance offers poor peopIe access lo
lasic hnanciaI services such as Ioans,
savings, noney lransfer services and
nicro-insurance-aII inporlanl for in-
sliIIing lhe savings and inveslnenl
phiIosophy for lhe poor. Microhnance
has allenpled lo hII lhe void Iefl le-
lveen nainslrean connerciaI lanks
and privale noney Ienders and has
energed as a fasl groving enalIer
for access lo hnanciaI services for lhe
poor.
WhiIe aInosl 4O of lhe popuIa-
lion of India does nol have access lo
lanking services, MIIs have leen alIe
lo creale aclive lorrover accounls of
cIose lo 15 niIIion vilh an oulslanding
porlfoIio of INR 14,7O2 crore. Civing
capilaI lo lhe ruraI poor generales seIf-
enpIoynenl, vhich in lurn pronoles
incIusive grovlh.
Affordable Housing
Anolher area vhere NICs are
nudging lhe incIusive grovlh agenda
is AffordalIe Housing. Large NICs
are selling up unils lo exlend snaII-
lickel Ioans lo hone luyers largeling
Iov-incone cusloners across lhe
counlry. Iirn are offering Ioans of INR
2-6 Iakh lo lorrovers vilh nonlhIy
incone of INR 6,OOO - 12,OOO vho
hnd il difhcuIl lo lorrov fron lhe
connerciaI lanks. Iirns offer easier
knov-your cusloner (KYC) norns
such as reIaxalion in docunenlalion
requirenenls lo faciIilale easy access
lo Iov-incone lorrovers.
Innovative Business
Models
One of lhe najor chaIIenges under
incIusion has leen addressing lhe Iasl
NBFCs have emerged
as a strnng nancIa!
intermediary in
makIng nancIa!
services accessible
to a wider set of
customer segments
including SMEs.
NBFCs have extended
nancc tn 5MEs by
having a range of
products that suit
their needs in their
portfolio
12
Industry Insights
Shachindra Nath
Group CEO
Religare Enterprises Ltd.
Mr. Shachindra Nalh (Croup Chief Lxeculive Ofhcer) ReIigare Lnlerprises
Lld. carries lhe overaII responsiliIily for Ieading aII pivolaI operalions and
lusinesses of lhe group. He has leen associaled vilh ReIigare since lhe year
2OOO and has leen inslrunenlaI in luiIding various lusinesses under lhe
ReIigare unlreIIa fron scralch.
His slralegic agiIily coupIed vilh hands on approach has leen a key lo
ReIigares grovlh and success over lhe years. Wilh a career span of nore
lhan 2O years, Shachindra is a highIy acconpIished professionaI lacked ly an
exenpIary acadenic record. He is a Universily rank hoIder for his acheIors
degree in Lav fron lhe anaras Hindu Universily, Varanasi. He aIso venl on
lo pursue a Iosl Craduale dipIona in InleIIecluaI Iroperly Righls fron lhe
Anily Lav CoIIege, DeIhi.
Irior lo joining ReIigare, Shachindra has vorked in lhe nanufacluring and
IinanciaI services seclor in various capacilies. A greal nolivalor and Ieader,
vhen nol al vork he Ioves lo read, conlrilule lo coIunns, lraveI and spend
line vilh his faniIy.
niIe conneclivily prolIen. NICs
have innovaled and crealed lusiness
nodeIs lo exlend lheir services lo as
nany viIIages as possilIe. Large pIay-
ers have appoinled snaII franchisees
lo exlend lhe geographicaI spread and
penelralion ly providing a share of
lhe prohl lo lhe franchisees.
Anolher nodeI adopled is siniIar
lo lhe lusiness correspondenl nodeI.
NICs appoinl lusiness associales,
vhich aides in increase in spread vilh-
oul opening physicaI lranches and
such associales have underslanding
of lhe IocaI condilions and cusloners
needs.
Conclusion
Any allenpl lo expand hnanciaI in-
cIusion is essenliaIIy a snaII slep in a
Ionger journey and India needs lo lraveI
on lhis journey lo lecone a gIolaI pIay-
er. IncIusive grovlh viII acl as asource
of enpovernenl and aIIov peopIe lo
parlicipale nore effecliveIy in lhe eco-
nonic and sociaI process.
13
Industry Insights
inclusive growth
N
ICs (non-lanking hnance
conpanies) are regislered
conpanies conducling lusi-
ness aclivilies siniIar lo reguIar lanks
in severaI nallers. Their lanking op-
eralions incIude naking Ioans and
advances avaiIalIe lo consuners and
lusinesses, acquisilion of narkelalIe
securilies, Ieasing of hard assels Iike
aulonoliIes, hire-purchase and insur-
ance lusinesses. Hovever, in nany
vays, lhey differ fron connerciaI
lanks. Ior exanpIe,
NICs cannol accepl denand -
deposils (deposils lhal can le
vilhdravn al innediale nolice),
They cannol issue cheques lo -
cusloners,
The deposils vilh lhen are nol -
insured ly lhe DICCC,
Dell recovery lrilunaIs are nol -
avaiIalIe lo NICs.
NBFCs complement banks
In thc nancIa! scrvIccs
industry
NICs have lradilionaIIy conpIe-
nenled lhe connerciaI lanks and
have prevenled lhe concenlralion of
credil risk in lanks. They have aIso ca-
lered lo a cIass of lorrovers vho are
oflen considered unlankalIe. These
sel of cusloners do nol usuaIIy faII
in lhe high incone or niddIe incone
lrackels. Moreover, lhese cIienls nay
nol le alIe lo pass lhe lanks lesl of
credilvorlhiness in lerns of an ad-
equale credil score.
ConnerciaI lanks (even lhe pulIic
seclor lanking space) have used lheir
Mr. Pinaki Ranjan Mitra, Head-Creadil Operalions, Ananya Iinance
NBFCs have
traditionally
complemented the
commercial banks and
have prevented the
concentration of credit
risk in banks
14
Industry Insights
presence in ruraI and seni urlan
areas predoninanlIy for deposil
raising and neeling priorily seclor
largels sel ly lhe Reserve ank of
India (RI). Hovever, due lo lusiness
and vialiIily conpuIsions, lanks did
nol pursue credil off lake in ruraI and
seni-urlan areas vilh equaI inlensily.
Oflen, lanks senior nanagenenl has
vieved hnanciaI incIusion efforls in
ruraI areas as a kind of CSR aclivily.
Il is aIso evidenl lhal aIlhough lhe
lolaI lank advances in lhe counlry
has sveIIed handsoneIy in lhe pasl
lvenly years, lhe anounl of Ioan
oulslanding vilh Iesser lickel size
(for inslance, Iess lhan Rs.25,OOO) has
nol increased vilh lhe sane vigour.
Hence, il seens lhal lhe nosl credil-
slarved segnenl of lhe sociely has
renained oul of favour vilh lanks in
lerns of credil deIivery.
NICs are increasingIy hIIing lhese
gaps Iefl ly lanks in ruraI/seni-ruraI
narkels and even in sone urlan
cenlres. NICs have aIso crealed a
najor inpacl in deveIoping snaII
and nicro lusinesses lhrough lheir
IocaI presence and slrong cusloner
reIalionships.
NICs have oflen Ied hnanciaI
producl innovalion, especiaIIy in
lerns of neeling hnancing needs of
lhe under-served segnenls of sociely,
snaII enlerprises and ruraI househoIds.
They have laken Iead in offering snaII
lickel personaI Ioans, hnancing of
lvo vheeIers/lhree vheeIers, farn
equipnenl hnancing, and Ioans
for purchasing used connerciaI
vehicIes/nachinery. The speed of
credil deIivery of NICs is lypicaIIy
nuch fasler lhan lhal of lhe lanks. In
addilion, NICs heIp in expanding
lhe reach of credil deIivery lo lhe far
corners of lhe counlry, especiaIIy lo
lhe under-served narkels.
NBFCs role in promoting
inclusive growth:
Though lhe NICs have leen
around for a Iong line, lhey have
recenlIy gained popuIarily since lhey
faciIilale reIialIe and affordalIe access
lo credil for seni-ruraI and ruraI India
vhere lhe reach of lradilionaI lanks
has nol leen consislenl. One can safeIy
say lhal NICs have proved lo le a
vilaI Iink in lhe pronolion of hnanciaI
incIusion.
NICs conslilule aInosl 76
1
of lhe
Rs.12O liIIion nicrohnance induslry in
lhe counlry. The eslinaled denand for
nicrohnance is nuch higher lhan lhe
presenl IeveI of nicrocredil suppIy.
The eslinaled denand for nicrocredil
in India is nearIy a lhousand liIIion
rupees
2
(lhis nay le a conservalive
eslinale). According lo a WorId ank-
NCALR survey, aloul 7O of lhe ruraI
poor do nol have a lank accounl and
aloul 87 have no access lo credil
fron a fornaI source
3
. India has lhe
highesl nunler of househoIds in lhe
vorId (nearIy 145 niIIion) lhal are
excIuded fron lhe lanking syslen
4
. In
viev of lhese hgures, lhe inporlance
of lhe roIe of NICs can never le
undereslinaled. The NICs in lhe
nicrohnance donain offer services
al lhe cIienls doorslep. Loan ofhcers
fron MII NICs usuaIIy coIIecl lhe
KYC docunenls fron lhe cIienls
hones, dislurse Ioans al lhe doorslep
of lhe cusloners and even coIIecl
lhe veekIy or nonlhIy repaynenl
inslaIInenls al lhe cIienls or al her/his
neighlours house. ConnerciaI lanks
have usuaIIy found il unvialIe lo reach
oul lo lhis sel of cIienls lecause of lhe
Iov lickel size of such lransaclions and
lhe proporlionaleIy high lransaclion-
reIaled expenses. Hovever, NICs
have found a vay oul ly providing
such cuslonized services lo individuaI
cIienls in a group selling. Ior exanpIe,
a NIC offering nicrohnance viII
lypicaIIy provide a snaII Ioan of Rs.
1O,OOO-Rs.15,OOO lo a vonan cIienl lul
vouId consider each of lhese cIienls as
a parl of a Iarger unil (caIIed a cenler)
conprising 15-3O cIienls. WhiIe lhese
snaII unsecured Ioans (essenliaIIy lo
neel cIienls vorking capilaI needs)
heIp lhe cIienls and lheir househoIds,
lhe group-lased nodeI of Iending
heIps lhe NICs lo resoIve lhe high
________________________________________________________________________________________________________
1
hllp://vvv.sann.eu/`q=india.Accessed on 15lh.March, 2O13.
2
Vijay Mahajan: ReluiIding a Slronger Microhnance Seclor in India, IulIished on }uIy 26, 2O12, hllp://knovIedge.vharlon.upenn.edu/
india,Accessed on 15lh.March, 2O13.
3
hllp://nezzanine.ifnr.co.in/for-inveslors/nicro hnance as an inveslnenl opporlunily, Accessed on 15lh.March, 2O13.
4
Ierfornance and SuslainaliIily of Microhnance Inslilulions in India, hllp://vvv.ains-inlernalionaI.org, Accessed on 14lh.March
2O13.
15
Industry Insights
lransaclion cosl prolIen and keeps
lhese NICs prohlalIe in lheir
operalions. Such services are nol
reslricled ly usuaI vorking hours and
lhe exilIe hours of Ioan dislursenenl
and coIIeclions does nol disrupl lhe
Iov-incone cusloners nornaI lrade
or lusiness aclivily. MII NICs
have oflen inpIenenled innovalive
praclices lo offer leller cIienl service.
Ior exanpIe, MII NICs have found
vays lo shorlen lhe line spenl al
group neelings, naking lhen nore
convenienl for lheir cIienls. Sone
of lhese NICs are laiIoring lheir
producls lo lheir cIienls cash ovs,
and are aIso offering add-on producls
such as housing and educalion
Ioans. MII NICs have sulslanliaIIy
increased lhe avaiIaliIily of credil lo
lhe ruraI and seni-urlan popuIalion,
vhiIe nainlaining a rolusl IeveI of
recovery perfornance.
The roIe of MII NICs in lhe
enpovernenl of vonen in ruraI
areas and in urlan sIuns can nol
le overIooked. These NICs have
aIso crealed a Iarge nunler of jol
opporlunilies for lhe IocaI youlh (MII
NICs lypicaIIy enpIoy young nen
and vonen fron Iov-incone faniIies
vilh educalionaI lackground of
Secondary or Higher Secondary IeveIs
for lhe IieId Ofhcer posilions in lhe
lranches). These IieId ofhcers have
an inlinale knovIedge of lheir end-
cusloners requirenenls and have a
slrong 'infornaI underslanding of
lhe crediliIily of lhe lorrover and are
alIe lo slruclure lheir credil producls
approprialeIy.
TradilionaIIy, NICs have pIayed
a very inporlanl roIe in suslaining
relaiI-IeveI consunplion in severaI
crilicaI induslries (lvo vheeIers,
lraclors, consuner duralIes,elc.). If
NICs do nol provide credil supporl
for such relaiI-IeveI consunplion, a
Iarge najorily of purchasers of such
producls vouId nol le alIe lo afford
such purchases or vouId le al lhe
nercy of high-cosl, expIoilalive,
infornaI and enlireIy unreguIaled
sources of hnance.
Need to recognize NBFCs
rn!c In thc nancIa!
inclusion agenda
Il is ralher unforlunale lhal lhe
poIicynaking eslalIishnenl in lhe
counlry does nol fuIIy recognize
lhe crilicaI roIe pIayed ly NICs in
pronoling hnanciaI incIusion. The
ofhciaI agenda on hnanciaI incIusion
IargeIy excIudes NICs. AIlhough
lhe RI does recognize lhe roIe of
NICs in sone of ils poIicy papers, il
apparenlIy considers lhe connerciaI
lanking syslen as lhe nain vehicIe
for pronoling hnanciaI incIusion.
Ior exanpIe, RI guideIines on lhe
C (usiness correspondenl) nodeI
excIudes aII NICs. There is loo nuch
reguIalory noise leing generaled on
reguIaling NICs, lul very IillIe efforl
is nade lo creale a nore enalIing
environnenl for deveIopnenl of
NICs. Sone of lhe slale governnenls
have gone lo lhe exlenl of lrealing
NICs as noney Ienders under lhe
slale Money Ienders Acl. Ior inslance,
lhe harsh neasures laken ly lhe
Andhra Iradesh governnenl in IY
2O1O-2O11 againsl MII NICs nol
onIy posed severe prolIens for lhe
NICs in lhal slale, lul aIso cul off
vilaI suppIy of affordalIe and lineIy
credil lo lhe nicrohnance lorrovers in
lhe slale and pushed Iakhs of vonen
lorrovers lo revisil lhe expIoilalive
IocaI noneyIenders.
NICs oflen Iive vilhoul lhe access
lo a Iender of Iasl resorl. There is an
urgenl need for a rehnance vindov
for NICs. There is aIso a need for
IileraI lank funding for NICs al
conpelilive rales.The securilizalion
guideIines issued ly RI has reslricled
securilizalion of receivalIes and is nol
originalor friendIy.
Olher issues Iike laxalion aIso creale
an uneven pIaying heId for NICs.
WhiIe lhe Incone Tax Acl aIIovs
deduclions lo lanks and HICs for
non-recognilion of incone on NIAs-
lhis lenehl is nol avaiIalIe lo NICs.
MuIlipIe laxalion of hnanciaI Iease
and hire purchase lransaclions(VAT,
Service lax, TDS,elc.) does nol nake
Iife sinpIe for NIC ovners and
nanagers.
There is nol nuch reguIalory cIarily
on recovery nechanisns avaiIalIe
lo NICs. NICs are nol covered
While the Income
Tax Act allows
deductions to banks
and HFCs for non-
recognition of
income on NPAs-
thIs bcnct Is nnt
available to NBFCs
16
Industry Insights
under SARIALSI Acl, nor are lhe Dell
recovery lrilunaIs avaiIalIe lo NICs.
The way ahead:
The need of lhe hour is a reaIislic
reaIignnenl of lhe reguIalory regine
vilh lhe Iong-lern inleresls of NICs.
A roadnap for lhe deveIopnenl of
NICs shouId le pul in pIace ly
lhe governnenl and RI afler due
consuIlalions vilh lhe represenlalive
lodies of NICs. RenovaI of lhe
inequilalIe reslriclions on NICs and
a proper recognilion of NICs roIe
in lhe counlrys hnanciaI incIusion
agenda are innedialeIy required.
These neasures, vhen laken, viII
heIp lhe governnenls agenda
of encouraging a nore incIusive
econony.
Mr. Iinaki Ranjan Milra, Heads lhe Credil Operalions of Ananya Iinance for incIusive
grovlh (an NIC in lhe hnanciaI incIusion donain). He is invoIved in Credil operalions,
reIalionship nanagenenl vilh parlner inslilulions across India, capacily-luiIding,
poIicy design, slralegy fornuIalion and advocacy vork. LarIier he has vorked for
Covl. of India in lhe pension, insurance, sociaI proleclion, process reengineering and
change nanagenenl donains. He vorked as a RegionaI Connissioner in Covl. of
Indias Minislry of Lalour & LnpIoynenl. He has 14 years of pulIic service experience
and nearIy 4 years of experience in lhe privale seclor. He has spoken al differenl
nalionaI and inlernalionaI foruns on hnanciaI incIusion, nicrohnance and pension.
RecenlIy, he aulhored lhe India counlry reporl on savings & credil cooperalives for lhe
London-lased ConnonveaIlh Secrelarial.
He sludied al IIM (Ahnedalad), Universily of Texas al Auslin (USA) & }avaharIaI
Nehru Universily (Nev DeIhi).
Pinaki Ranjan Mitra
Head-Creadit Operations
Ananya Finance
17
Industry Insights
Role of NBFC-MFIs in promoting
inclusive growth
eing a lrue cilizen ve aII feeI

proud of lhe facl lhal, India is
lhe 3rd Iargesl econony (on
lasis of III) in lhe vorId. The average
annuaI grovlh rale of lhe econony
has leen 5.9 (1951-2O12), vhich is
very inpressive for any deveIoping
counlry.ul vhen ve Iook deeper
il is reveaIed India ranks 136lh in
Hunan DeveIopnenl Index, oul of
187 counlries and il ranks 132nd oul
of 187 counlries in Cender InequaIily
Index (lolh done ly UNDI).
So lhere Iies a gap, a divide vhich
can onIy le falhoned if lhe lenehls
of econonic grovlh are dislriluled
anong lhe popuIalion. More so vhen
il is a knovn facl lhal lop 5 rich
househoIds in our counlry ovns 38
and lollon 6O ovn 5 of lhe lolaI
assel of lhe counlry.
As per NSSO survey Indellness
of farner househoIds, 2OO3, 51 of
ruraI househoId do nol have access lo
credil. In lhis 87 of lhe non-indelled
househoIds are snaII and narginaI
househoIds. According lo lhe sludy in
2OO3 oul of 5.96 crore non cuIlivaling
househoIds, 4.6 crore vere hnanciaIIy
excIuded. y 2O15, aInosl 45 niIIion
urlan househoIds are expecled lo
le in lhe Iess- lhan-Rs 2 Iakh incone
calegory, for vhich hnanciaI incIusion
viII le reIevanl. If ve Iook al lhis
fron poinl of viev of sociaI disparily,
63.69 of scheduIe casl househoIds
are non-indelled. Hence even vilhin
excIusiveness lhere Iies excIusivily.
Mr. Chandra Shekhar Ghosh
Chairnan & Managing Direclor, andhan
NBFCs have so
far played a very
slgnlpcant ro|e ln
development of the
country by taking
pnancla| roducts
to under banked and
unbanked, rural mass
and people having
small enterprises
18
Industry Insights
The vay in vhich poverly Iine is
dehned in India is aIso very hunlIing.
Though WorId ank decides lhe Iine
al $ 1.25/day, in India il is Rs.28.35/
day in urlan area and Rs.22.42/day in
ruraI area.
So lhe queslion is if lhe enlire
anounl is spenl on food (if al aII il
can le squeezed in), hov olher lasic
necessilies of lhe poor viII le laken care
of` In lhis silualion lhere is alsoIuleIy
no queslion of deveIoping enlerprise.
Il nay le said, lhey can lorrov. The
queslion is, fron vhere and hov`
anks have crilicaI roIe in laking
hnanciaI services lo renole corners
of India. As lhe charl shovn leIov
depicls lhal over years (2OO4-2O12), lhe
nunler of lank lranches, laking ruraI
and seni urlan area logelher had
6O share of lolaI nunler of lranches
across India. The sane charl shovs lhal
lhe nunler of lranches in ruraI area
has shovn a sleady decIine over years,
lhough around 4O of aII lranches
leIonged lo ruraI areas. Hence ve nay
concIude lhal reach is nol a prolIen,
vhich IogicaIIy queslions lhe efhciency
of credil dislursaI of ruraI lranches.
Nov if ve Iook al calegory vise
credil exlended ly lanks, ruraI
areas have received lhe Ieasl and nol
onIy lhal, il aIso regislered nininaI
grovlh over lhe years. The nunler of
lranches is highesl in lhese areas lul
credil porlfoIio is snaIIesl, fron vhich
il can le inferred lhal lanks are nore
focused on deposil laking and Iess
on exlending credil in ruraI and seni
urlan areas. Moreover Iack of producl
innovalion (snaII lickel size producl)
and docunenlalion hassIes nake
lanks Iess allraclive lo lhis parlicuIar
segnenl.
SHC seclor once considered lo
le onIy vay oul for poor is nov in
decIining spiraI, so as lhe cooperalive
seclor (as per seclor reporl ly Skoch
Ioundalion). Hence NIC-MIIs are
leconing nore reIevanl considering
lhe prevaiIing condilion in lhe Indian
econony.
Microhnance is nol a recenl
phenonenon in India. Crovlh of lhe
nicrohnance during lhe Iasl decade
has leen around 1OO.Al presenl lhere
are around 2.26 crore lorrovers, Ioan
porlfoIio of 18,OOO crore and nore lhan
25O nicrohnance inslilulions incIuding
12 NICs. 8O of lhe Ioan porlfoIio is
heId ly NIC-MIIs. RoIe of NIC-
MIIs lecone even nore proninenl as
SHC-MIIs and Cooperalive MIIs are
in decIining spiraI.
NICs have so far pIayed a very
signihcanl roIe in deveIopnenl of lhe
counlry ly laking hnanciaI producls lo
under lanked and unlanked, ruraI nass
and peopIe having snaII enlerprises,
vho usuaIIy cannol provide coIIaleraI.
Il has nol sulsliluled anking seclor,
ralher il has conpIenenled lhe sane,
nore so due lo priorily seclor Iending
guideIines issued ly RI. During lhe
period 2OO6-2O11, lhe NIC seclor
has grovn 2.6 lines al lhe rale of
21 CACI. In hnanciaI year 2O11
NIC-MIIs accounled for 13.2 of
oulslanding advance and 13.78
of assels of lanking syslen. ank
exposure lo NICs has increased fron
Rs.62, 3O8 crore in IY 2OO6 lo Rs.183,
839 crore in IY 2O11 (a CACR
of 24).
There are cerlain characlerislics
of NIC-MIIs vhich lhe lradilionaI
lanking seclor Iacks. They undersland
lhe need of lheir cIienls very veII and
are exilIe enough lo design producls
accordingIy. They are speciaIized in
lhe geography as lheir operalions
louch Iives of lenehciaries, crealing a
lond lelveen lhe lvo. Hence lhey can
judge lhe credilaliIily of lhe lorrover
nore accuraleIy, vhich in lurn reduce
lhe risk in lhe porlfoIio.
We nusl renenler lhal neaning
of incIusion in nol nereIy providing
credil lo lhe poor. Il nay le dehned
as faciIilaling econonic opporlunilies
lo aII vilhoul any lias. Il is aIso aloul
reducing disparily across gender, sociaI
groups and geographicaI lerrilories.
Chart 1: Pcrccntagc nf bank branchcs, arca wIsc c!assIcatInn
(source: RBI data base)
Chart 2: Credit disbursed in billion Rs. across segments (Source:
RBI database)
19
Industry Insights
NIC-MIIs have lo funclion as a
pIalforn for poor lo parlicipale and
gel lenehled fron lhe grovlh of lhe
counlry. Oljeclive of lhis parlicipalion
leing overaII veIIleing of peopIe and
nol jusl increase in faniIy incone.
DeveIopnenl of hunan capilaI is
anolher area vhere NIC-MIIs can
pIay a najor roIe. y deveIoping skiII
ve nay incuIcale in lenehciaries,
suslainalIe vays of use of lhe hnanciaI
producls.
Mosl of lhe 22.56 niIIion presenl
lorrovers of NIC-MIIs in India
are vonen. IredoninanlIy Ioans are
leing dislursed in groups. Croup
fornalion, parlicipalion in group
aclivily and exposure lo nanaging
hnance is giving vonan nuch needed
conhdence lo lecone seIf-reIianl. The
access lo hnanciaI producls is heIping
lhen procIain lheir posilion, hrsl in
lheir faniIies and lhen in lhe sociely.
So il is nol unconnon lo vilness,
vonen coning logelher lo sland
againsl alrocilies neled oul lo any of
lheir group nenler.
Sane is lhe case for andhan, nosl of
lhe 4 niIIion lorrovers leing vonen.
andhan is presenlIy vorking across a
vide geography having foolprinl in 18
slales and union lerrilories, operaling
lhrough around 17OO lranches.
TolaI oulslanding Ioan presenlIy
is around 4OOO crore. andhans
nodeI of vonan enpovernenl
and poverly aIIevialion is lased on
a carefuIIy caIilraled lIending of
credil pIus vilh nicrohnance. This
is vhy andhan gravilaled lovards
deveIopnenlaI inlervenlions in 2OO6.
Aparl fron lhe provision of nicro
credil ,lhese inlervenlions for lhe
poor ain al ushering in an inlegraled
lransfornalion in lhe connunily in
lerns of nol jusl credil avaiIaliIily lul
aIso aIIied areas Iike heaIlh avareness
,propagalion of educalion ,IiveIihood
generalion ,skiII deveIopnenl elc. and
a progranne ained excIusiveIy for
lhe pooresl of poor. These aclivilies
are carried oul ly andhan Konnagar,
lhe deveIopnenl enlily of andhan.
IoIIoving is lhe score card for andhan
as on Ielruary, 2O13-
andhan SchooI of DeveIopnenl
Managenenl (SDM) vas eslalIished
in Ielruary 2O11. Recognizing lhe need
of veII lrained professionaI, vilh high
IeveI of slandardizalion of praclice
al ground IeveI, lhis inslilulion vas
slarled for capacily deveIopnenl. TiII
dale 4341 youlh has parlicipaled in lhe
progranne.
During lhe journey of andhan ve
reaIized lhal nany of our lorrovers
are arlisans. Handicrafl and handicrafl
is a decenlraIized and highIy Ialour
inlensive. Many a line lhey are
forced lo Iook for sone olher avenue
of IiveIihood as lhe denand for lhe
arlifacls and handIoon producls.
Sonelines lhere is aIso issue vilh
lhe quaIily of producl. InvoIvenenl
of niddIenen and lheir cIoul over
lhe narkel oflen Ieave lhe arlisl vilh
neager paynenl. Hence andhan has
laken an assignnenl vilh high priorily
lo prove skiII up gradalion, design
deveIopnenl, hnanciaI supporl and
narkeling opporlunily lo lhe arlisans
Iiving in lhe renole corners.
Taking LI and ML progranne
a slep ahead, andhan Crealion,
lhe fashion and IifeslyIe deslinalion
aining lo acconpIish narkel Iinkage
for indigenl arlisans opened ils doors
on Seplenler 27, 2O12.Il ains lo luiId
a suslainalIe IiveIihood oplion for lhe
arlisans as ve go on adding slores lo
lhis chain.
y sharing aclivilies of andhan,
I jusl vanl lo poinl oul lhal roIe
of NIC-MIIs nol necessariIy le
reslricled lo hnanciaI aclivilies aIone.
We can do nuch nore if our approach
is hoIislic.
CurrenlIy Iol of efforl is leing
pul forlh lo lring sone discipIine
in lhe seclor. Il is inporlanl as lhe
vuIneraliIily of lhe largel group is high
vhich in lurn expose lhe nicrohnance
organisalions lo risks.
Though reguIalory franevork is
leing dehned for NICs and NIC
-MIIs, lhere are enlilies providing
nicrohnance services in forn of seclor
25 conpanies, socielies, lrusls, NCOs
and cooperalives are presenlIy nol
under purviev of lhese reguIalions.
ul if lhe sane Iav is appIied across
aII such organisalions il nay nol le
juslihed for snaII organisalions as
lheir conpeliliveness viII le eroded.
This viII aIso reslricl nev pIayers fron
enlering inlo lhe arena, vhich is highIy
undesiralIe.
Table 1: A brief of the development programme run by Bandhan
(data as on February, 2013)
Development Program (in Numbers)
1 Sludenl under andhan Lducalion Irogran (LI) 17,858
2 enehciaries under andhan HeaIlh Irogran (HI) 4OO,75O
3 IaniIies under Targeling Hard Core Ioor Irogran (THI) 17,249
4 SkiII DeveIopnenl Trainees under LnpIoying The UnenpIoyed Irogran (LUI) 1,624
5 enehciaries under andhan LiveIihood Ironolion and Markel Linkage Irogran (LI & ML) 371
6 IaniIies under Micro Lnlerprise DeveIopnenl & IinanciaI Lducalion Irogran (MLD & IL) 2,OOO
20
Industry Insights
CurrenlIy lhere is no cIarily lelveen
jurisdiclion of slale and CenlraI
governnenl. The queslion is vhelher
lhe slales conlinue lo have lheir ovn
sel of ruIes and reguIalions. If lhere is
any dispule lelveen lhe lvo vho viII
resoIve lhe prolIen`
Anolher issue vhich I feeI need
furlher delale is having a cap on
nargin and inleresl rale. Ior exanpIe
if a MII vanls lo provide service in
hiIIy lerrains of HinachaI Iradesh
onIy, hov lheir operalions viII le
suslained. Al lhe sane line for lhe
Iarger MIIs, vho have econonies of
scaIe, il nay le reslriclive lo innovale
nev producls, lhus Iiniling lhe choice
of lorrovers.
There is aIso a need for cenlraIized
grievance redressaI nechanisn for
lolh MIIs and lorrovers. In reaIily
il is very difhcuIl lo gauge lhe IeveI
of indellness of a lorrover. They do
nol sulnil lax relurns, hence lhere
is no proof for incone. Lxlending
priorily seclor Ioan lo such lorrovers
al presenl conpIeleIy depend on
judgnenl of operalions lean.
NICs are aIIoved lo raise equily
fron narkel lul NIC-MIIs are nol.
This increases lhe dependency of lhe
MIIs on inslilulions Iike NAARD
and SIDI. As lhere is nol nuch
access lo equily narkel lhere is high
dependency on Ioan fron anks.
Iosl Andhra Iradesh issue, lanks
have shovn reIuclance in Iending. I
lhink lhis is line lhal lhe governnenl
connissions an excIusive funding
lody for MIIs, inslead of naking
SnaII Induslries & DeveIopnenl ank
of India soIeIy responsilIe for il. The
funding lody can le concepluaIised
lo noliIise funds fron lanks and
agencies Iike lhe WorId ank. This viII
Iead lo Iovering of lorroving cosl and
Iending rales.
To concIude no one shouId expecl
lhe seclor lo grov nore lhan 2O-25
for lhe nexl coupIe of years. The era of
fancy grovlh rales has gone lecause ve
are sliII doing lhe adjuslnenls vilh lhe
nev operalionaI guideIines. Once lhe
seclor lecones slalIe, ve can see high
grovlh rales again. MIIs have reached
aloul 2.26 crore lorrovers, lul lhis is
Iess lhan 5 of lhe lolaI requirenenl.
So, opporlunilies are huge and I expecl
a coupIe of very signihcanl years Iying
ahead for lhe seclor during vhich
lhe seclor viII shape up and fulure
direclions viII le sel.
I think this is time
that the government
commissions an
exclusive funding
body for MFIs,
instead of making
Small Industries
& Development
Bank of India solely
responsible for it
Chandra Shekhar Ghosh
Chairman & Managing Director
Bandhan
Senior Ashoka IeIIov Mr. Chandra Shekhar Chosh is lhe Chairnan & Managing
Direclor of andhan, lhe Ieading MII in India. Mr. Chosh aIso adorns lhe
Coverning oard of Sa-Dhan and Associalion of Microhnance Inslilulions-
Wesl engaI (AMII-W). He has lhe dislinclion of leing one of lhe Connillee
Menlers of lhe Core Tean lhal SIDI forned for ils Iarlner MIIs lo advice in
lhe poIicy naking process. Mr. Chosh is a nenler of 'Slale LeveI Reviev & Co-
ordinalion Connillee on Credil DeIivery Innovalions consliluled ly NAARD,
'IinanciaI IncIusion and Microhnance and 'anking and Iinance connillees
of ASSOCHAM and SociaI DeveIopnenl & Connunily Affairs Sul-Connillee
consliluled ly Confederalion of Indian Induslries (CII). He has aIso joined as a
nenler of IinanciaI IncIusion Connillee consliluled ly IICCI and lhe Managing
Connillee of CCI.
He hoIds an M.Sc. in Slalislics and has allended lhe HS-ACCION Irogran on
Slralegic Leadership for Microhnance al Harvard usiness SchooI.
References:
IinanciaI incIusion has energing urlan opporlunily, Anjana ChandranouIy, 4/11/2O11 URL: hllp://vvv.lhehindulusinessIine. 1.
con/induslry-and-econony/lanking/arlicIe26O3739.ece,
Kenny KIine, Sanladarshan Sadhu. Microhnance in India: A Nev ReguIalory Slruclure. Cenlre for nicrohnance. URL:hllp://vvv. 2.
cenlre-for-nicrohnance.org
Silualion Assessnenl Survey for Iarners: Indellness of Iarner HousehoIds. NSS 59lh round. URL:hllp://pIanningconnission.nic. 3.
in/seclors/agri_hlnI/Indellness2Oof2Ofarner2OhousehoId2O592Oround2O2OO3.pdf
AnnuaI Reporl 2O11-12.andhan IinanciaI Services Ivl Lld. 4.
RI dalalase. Tine series pulIicalion. hllp://dlie.rli.org.in/DIL/dlie.rli`sile=pulIicalions 5.
Microhnance Inslilulion Nelvork (MIIN), Micro neler .Novenler 2O12 issue. 6.
Reporl of lhe key advisory group on lhe NICs. Covernnenl of India, Minislry of Iinance, deparlnenl of hnanciaI services, 31sl 7.
}anuary 2O12. URL:hllp://hnanciaIservices.gov.in/reporls/Reporls2O_NICs.pdf
21
Industry Insights
T
he canvas of hnanciaI syslen
in India porlrays a piclure of
pIayers of differenl hues and
diverse opporlunilies-ConnerciaI
lanks lolh in IulIic and Irivale sec-
lors, Ioreign anks, IulIic Seclor Ii-
nanciaI Inslilulions, RegionaI RuraI
lanks, NICs, Co-operalives, NCO/
Trusls purveying nicro credil elc.
AII vorking vilhin a lroad & slurdy
franevork of lhe reguIalors, vhich
has seen lhe counlry successfuIIy
vealhering lhe hnanciaI slorn a fev
years lack-lhe joIls leing feIl even
nov across lhe vorId.
Non anking IinanciaI Conpanies
(NICs) pIay a cruciaI roIe in
lroadening access lo hnanciaI
services, enhancing conpelilion and
diversihcalion of lhe hnanciaI seclor.
They are undoulledIy conpIenenlary
lo lhe lanking syslen, capalIe of
alsorling shocks and spreading risks
al lines of hnanciaI dislress. The
diverse IegaI forns and conslilulions
of NICs underIine lheir diverse
deveIopnenl roIe in hnanciaI and
non-hnanciaI segnenls. Ior inslance,
lhe infraslruclure deveIopnenl
Iike road and porl, a cornerslone of
grovlh, funded ly separale group of
NICs.
NICs have lradilionaIIy focused
on cusloner segnenls vhich vere
nol served ly lanks Iike nicro,
snaII and nediun enlerprises
(MSMLs), funding of connerciaI
vehicIes incIuding oId vehicIes, farn
Role of NBFCS in Promoting
Inclusive Growth
Ms. Archana S Bhargava, Lxeculive Direclor, Canara ank
NBFCs play a crucial
role in broadening
access to pnancla|
services, enhancing
competition and
dlterslpcatlon of
the pnancla| sector.
They are undoubtedly
complementary to
the banking system,
capable of absorbing
shocks and spreading
risks at times of
pnancla| dlstress
22
Industry Insights
equipnenls viz. lracking, harveslers,
elc. Ioan againsl shares, funding of
pIanl and nachinery, elc.
NICs lypicaIIy are speciaIized
vehicIes -lolh in lerns of producls and
lhe geographies in vhich lhey operale.
This speciaIizalion provides lhen a
unique franevork lo assess lhe risk
in lhe underlaken lusiness. A nuch
cIoser narkel avareness provides lhen
lhe aliIily lo rale lorrovers, nonilor
lhen, price lhe reIalive credil suilalIy
and effecl recoveries fron lhen.
NICs aIso provide credil for
cerlain seclors vhich are nol served
ly lanks and IinanciaI Inslilulions
lecause anks/IIs do nol have
adequale narkel reIalionships and
infraslruclure for lhe sane. Sone of
lhese seclors are:
(a) Used Trucks
(l) Used passenger vehicIes
(c) Consuner duralIe Ioans
(d) IersonaI Loans
(e) Iunding lo lhe SnaII & Mediun
Lnlerprises (SML Seclor) vhich do
nol have access lo inslilulionaIized
funding, elc.
TradilionaIIy, lhese seclors vere
hnanced enlireIy ly lhe unorganized
hnanciers al exorlilanl high inleresl
rales. In lhe Iasl 1O years, vilh lheir
relaiI slrenglh, NICs have rendered
signihcanl service ly exlending
credil lo lhese seclors. Nov lanks
and hnanciaI inslilulions are avaiIing
of lhe reach and experlise of NICs
for enpIoying funds in lhese seclors
lhrough NICs. This has lroughl in
Iol of funds inlo lhese seclors, lherely
reducing inleresl rales.
Slrong underslanding of cusloner
segnenls and aliIily lo deIiver
cuslonized producls
The aliIily of NICs lo produce
innovalive producls in consonance
vilh needs of lheir cIienls is veII
recognized. This, in addilion lo lhe
proxinily lo lhe cIienls, nakes lhe
NICs dislincl fron ils lanking seclor
counlerparls. In a shorl period of line,
NICs have lecone narkel Ieaders
in nosl of lhe relaiI hnance segnenls
Iike connerciaI vehicIes, car hnancing
and personaI Ioans. In lhe Iasl decade
or so, lhe Indian relaiI hnance narkels
have seen severaI nev producls
leing deveIoped and inlroduced ly
NICs. The foIIoving are sone cases
in poinl - Used vehicIe hnancing,
SnaII lickel personaI Ioans (ST-IL),
Three-vheeIer hnancing, Loan againsl
shares, Ironoler funding, IulIic issue
hnancing (IIO hnancing) and Iinance
for lyres and fueI.
NICs have a signihcanl econonic
roIe, especiaIIy servicing lhe under-
lanked and unlanked popuIace and
geographies. ringing lhe diverse sel
of NICs under reguIalion ralher lhan
curlaiIing lheir operalions , vouId
heIp orderIy grovlh of lhe seclor.
The NIC enconpasses nany
differenl lypes of hnanciaI conpanies,
vhich are aII suljecl lo lhe reguIalory
requirenenls. Many nicrohnance
inslilulions have recenlIy regislered as
NICs lo lake advanlage of access lo
capilaI narkels. Il is underslood lhal
Microhnance inslilulions operaling as
NICs accounl for lhe greal najorily
of lhe nicrohnance narkel in India,
vilh aloul 5O NICs responsilIe for
8O percenl of aII nicrohnance Ioans
(ly oulslanding porlfoIio).Hovever
lhe focus of lhis paper viII le lhe
nicro hnance segnenl & NICs roIe
for lvo reasons-one, il affecls grealesl
segnenl of our popuIalion (hnanciaIIy
excIuded) and second, il has specihc
reguIalions lhal are seen as inporlanl
in lhe aflernalh of crisis in nicro
hnance seclor a coupIe of years lack.
Financial exclusion of the
Marginalized-critical role
of Micro Finance
The poor and narginaIized conlinue
lo le vilhoul lanking and hnanciaI
services, aIlhough sone signihcanl
progress has leen nade ly lhe lanks
in lhe Iasl 4-5 years. Micro hnance
envisages various hnanciaI services-
lhrifl/savings/ credil and Insurance
aII envisaged lo provide neans
lovards econonic enpovernenl.
In lhe Indian conlexl, nicro hnance
essenliaIIy denoles nicro credil
lhal can generale econonic aclivily,
snoolhen consunplion and provide
proleclion againsl shocks in IiveIihood
occupalion.
Over lhe years Micro hnance has
pIayed an inporlanl roIe in addressing
lhe gap lo hnanciaI incIusion. Micro
Iinance Inslilulions are uniqueIy
posilioned lo faciIilale hnanciaI
incIusion and provide hnanciaI services
lo reIaliveIy poorer and vuIneralIe
seclions, effecliveIy lridging lhe
suppIy gaps of ConnerciaI anks.
The MIIs have an added advanlage
of relaining excIusive focus on nicro
hnance unIike lhe connerciaI anks
vhich have diverse funclionaIilies.
23
Industry Insights
Recognition of NBFC-in
Micro Finance
The space for nicro hnance in in-
cIusive grovlh has gol a loosl vhen
RI recognized lhe roIe of NICs in
nicro hnance seclor and as effeclive
Micro Iinance Inslilulions. The RI
recognized Non-anking IinanciaI
Conpany - Micro Iinance Inslilulion
(NIC-MII)as a separale enlily vide
reguIalory guideIines of Dec2O11 in
addilion lo lhe olher forns of NICs
naneIy i. Assel Iinance Conpany
(AIC) ii. Inveslnenl Conpany (IC)
iii. Loan Conpany (LC) iv. Infraslruc-
lure Iinance Conpany (IIC) v. Core
Inveslnenl Conpany (CIC) vi. Infra-
slruclure Dell Iund- Non- anking
IinanciaI Conpany (IDI-NIC)
RI had cone oul vilh specihc
guideIines vilh regard lo such NIC-
MII , a non-deposil laking NIC(olher
lhan a conpany Iicensed under Seclion
25 of lhe Indian Conpanies Acl, 1956)
lhal fuIhIs cerlain condilions on
nininun Nel Ovned Iunds of Rs.5
crore. (vilh reIaxalion for NIC-MIIs
regislered in lhe Norlh Laslern Region
of lhe counlry, lhe nininun NOI
requirenenl shaII sland al Rs. 2 crore)
and nol Iess lhan 85 of ils nel assels
leing in lhe nalure of quaIifying
assels.
Rcgu!atInn nn nancIa!
asscts-MIcrn nancc scctnr
The reguIalion lroughl on MIIs
posl MaIegan reporl focused on
slrenglhening and videning deIivery
of nicro credil lo lhe househoIds
vilh Iover incone and a neasure
lo kick slarl an econonic venlure.
The prescriplion incIuded providing
Iriorily seclor slalus and hence leller
ov of funds fron anks lo MIIs
incIuding NIC-MIIs, incIude a cap
on lhe lorrovers incone (Rs. 6O,OOO
in ruraI areas and Rs. 1,2O,OOO in olher
areas), a cap on lhe Ioan anounl of
Rs. 35,OOO in lhe hrsl Ioan cycIe and
Rs. 5O,OOO lhereafler, a cap on lhe
lolaI indelledness of a lorrover of
Rs5O,OOO, nininun Ioan lenure of 24
nonlhs for Ioans in excess of Rs15,OOO,
no coIIaleraI for Ioans and hnaIIy
nininun 75 of lhe MIIs Ioans lo
le for incone generalion. In addilion,
lanks are required lo ensure lhal MIIs
nainlain a nargin (difference lelveen
Iending rale and cosl of funds) cap
of 12 and inleresl cap of 26 for
MII Ioans (inleresl cap excIudes 1
processing fee).
Il is feIl lhal lhe reguIalions shouId
encourage lhe MIIs lo consciousIy
expIore vays lo reduce cosls, for
exanpIe ly grealer use of lechnoIogy,
and experinenlalion vilh nev
lusiness nodeIs such as forlnighlIy
repaynenl. This is lound lo creale a
vin-vin proposilion lo lhe MIIs and
lhe peopIe loo.
The ReguIalor has recenlIy given
operalionaI exiliIily lo NIC-MIIs
in lerns of pricing lhal provide lhe
rale of inleresl on individuaI Ioans
exceeding 26,lhe naxinun variance
pernilled for individuaI Ioans
lelveen lhe nininun and naxinun
inleresl rale cannol exceed 4 per cenl.
This neasure is sel lo ensure lhal in
a Iov cosl environnenl, lhe uIlinale
lorrover viII lenehl, vhiIe in a rising
inleresl rale environnenl lhe Iending
NIC-MIIs viII have sufhcienl Ieevay
lo operale on vialIe Iines.
The RI guideIines issued recenlIy
in Ielruary 2O13 on Iair Iraclice
Codes for NICs vilh specihcs for
NIC-MIIs aIso have sel lhe lone for
inproved funclioning environnenl,
a posilive neasure lo luiId up
conhdence of narginaIized seclions in
lhe approach of lhese Inslilulions,
In lhe parlicuIar conlexl of MIIs,
lhere is oflen a viev lhal reguIalions,
parlicuIarIy vilh pricing and
porlfoIio size slipuIalions on NICs
are danpeners for grovlh of Micro
Iinance seclor- lhere is a perceplion
lhal lhey are ollrusive ralher lhan
leing faciIilalors & enalIers.
Il is aIso vorlh noling lhal RI has
reassessed lhe reconnendalions of
lhe MaIegan Connillee, redehned/
rehned sone of lhe reconnendalions
of lhe Connillee Iike-
Iroporlion of QuaIifying Assels -
for Iriorily seclor cIassihcalion
reduced lo 85 fron lhe
Connillees reconnendalion of
9O
Raising lhe cap on Ioan fron -
Rs.25,OOO/- as olhervise recon-
nended ly lhe Connillee lo
Rs.35,OOO/- for hrsl line assis-
lance and uplo Rs.5O,OOO/- in
respecl of sulsequenl cycIes of
assislance
DifferenliaI Iricing cap of 1O -
spread over lhe cosl of Iunds for
Iarge MIIs and 12 for snaIIer
MIIs vas reconnended ly lhe
24
Industry Insights
Connillee-RI has slipuIaled
a uniforn spread of 12 for aII
MIIs
Againsl a cap of 24 -
reconnended ly lhe Connillee,
RI has slipuIaled a cap of 26.
Thus, il can le seen lhal RI has
given sone Ieevay for MIIs in lerns
of spread, inleresl cap.
A recenl reporl sulnilled ly a
connillee chaired ly Usha Thoral, a
forner Depuly Covernor of lhe RI,
olserves lhal NICs have assels un-
der nanagenenl of USD 15O liIIion
(Rs.75OOOO crores). The Connillees
drafl guideIines offer reconnenda-
lions on hov lhey shouId le lrealed ly
reguIalors lased on lhe aclivilies lhey
are engaged in, and lhe size of lheir
laIance sheels.
SaIienl reconnendalions incIude,
lhal nay lring operalionaI freedon lo
snaIIer NICs and aIso reguIale Iarger
NICs lhal nay have a syslenic risk
inpacl.
Assel CIassihcalion & Irovisioning
norns- The NIA provisioning norns
viII le nade siniIar lo lanks in a
phased oul nanner. 12O days norn
shaII le appIied fron 1sl ApriI, 2O14
lo 31sl March, 2O15 and lhereafler 9O
days. Iurlher, lhe provisioning for
slandard assels fron O.25 lo O.4O of
lhe oulslanding anounl v.e.f. March
31, 2O14 for aII NICs.
Enhancing Tier I capital &
Wider disclosure norms
If accepled, lhis nay pave lhe palh
lo leller reguIalion and grovlh for
an induslry segnenl lhal has ensured
enlrepreneurship anongsl segnenls
of sociely lhal vere for decades
deprived.
NBFC for inclusive growth
y reaching oul lo lhe poorer
segnenls of sociely NICs can le
serving lhe principIe of 'hnanciaI
incIusion -They have reduced lhe
inuence of lradilionaI Ienders ly
offering a fair and Iegilinale funding
channeI lo individuaIs and snaII
lusinesses in addilion lo increasing
access lank funding. Their aplilude
lo assess and nanage risk has aIso
deIivered lhe Iasl niIe conneclivily in
lhe hnancing process.
Il is dislurling lo knov lhal eel of
peopIe are enlering for nicro-hnance
lo earn lhe noney. Il has lo le a Iov
cosl nodeI & onIy lhe peopIe vilh
passion in lheir hearl shouId venlure
for lhis. Here lhe lickel size is very Iov
& lhe prohls nininaI. The operalion of
lhe MII shouId le done on lhe regionaI
IeveI vilh lhe supporl of lhe IocaI
peopIe ly lhe use of IocaI Ianguage. Il
vonl le oul of pIace lo nenlion lhal
Shree Kshelra DharanslhaIa RuraI
DeveIopnenl Irojecl (SKDRDI),
Trusl, has leen doing a narveIous
service lo lhe hunanily.
WhiIe credil ov lo nosl seclors
sIoved dovn in recenl years, fund
ovs lo lhe farn seclor renained
IargeIy unaffecled, can le allriluled lo
suppIenenlary roIe of NICs lo lhal
of lhe anking syslen.
Il is apparenl lhal NICs have
pIayed a very vilaI roIe in lhe econony.
They have leen al lhe forefronl of
calering lo lhe hnanciaI needs and
crealing IiveIihood sources of lhe
so- caIIed un-lankalIe nasses in lhe
ruraI and seni-urlan areas. Through
slrong Iinkage al lhe grassrools IeveI,
lhey have crealed a nediun of reach
and connunicalion and are very
effecliveIy serving lhis segnenl. There
is cerlainIy an econonic roIe lhal lhe
NICs are lo fuIhII.
Archana S Bhargava
Executive Director
Canara Bank
Ms Archana S hargava is lhe Lxeculive Direclor of Canara ank since 1/4/2O11.
A lopper in schooI and coIIege - lolh for gradualion and IC. She vas lhe recipienl
of NalionaI Science TaIenl SchoIarship and UCC SchoIarship for 5 years. She has
had an iIIuslrious career vilh IN vhich she joined as a Managenenl Trainee
and vorked in various posilions, incIuding credil and an inlernalionaI slinl in
UK. She vas inslrunenlaI in drafling lhe VISION 2O13 docunenl. She has von
avards and aIso a recipienl of cash incenlive under CoI Cash Incenlive Schene for
nerilorious perfornance for successive years. She vas associaled vilh Shri I L
Tandon - Managenenl Curu - in conpiIalion of a look on 'Hislory of anking and
parlicipaled in severaI gIolaI seninars and conferences. She has videIy lraveIed lo
USA, Lurope, Soulh Africa, MiddIe and Iar Lasl. Al Canara, her porlfoIio, anongsl
olhers, Large Corporale and InlernalionaI anking, Iriorily Credil and IinanciaI
IncIusion, IinanciaI Managenenl and Sulsidiaries, Risk Managenenl. She has a
speciaI passion for sociaI lanking
Micro Finance
Institutions are
uniquely positioned
tn facI!Itatc nancIa!
inclusion and provide
nancIa! scrvIccs tn
relatively poorer and
vulnerable sections
25
Industry Insights
Introduction
Non-lanking hnanciaI conpanies
(NICs) have an inporlanl roIe lo
fuIhII in lhe Indian hnanciaI seclor.
The segnenl is a helerogeneous group
of conpanies calering lo individuaIs,
snaII lusinesses, and corporale cIienls.
Reserve ank of India (RI) cIassihes
NICs inlo nuIlipIe calegories,
incIuding assel hnance, nicro-hnance,
Ioan and inveslnenl conpanies, and
infraslruclure hnance conpanies. Ior
lhis arlicIe, ve focus on relaiI NICs
and highIighl lheir roIe in calering lo
lhe unlanked lorrover calegory.
IinanciaI incIusion is lhe process of
ensuring lhe access of veaker seclions
of sociely and Iov-incone groups lo
appropriale hnanciaI producls and
services al an affordalIe cosl in a fair
and lransparenl nanner. IinanciaI
incIusion has lecone one of lhe nosl
crilicaI aspecls in India loday in lhe
conlexl of lroad-lased, incIusive
grovlh, enpIoynenl generalion and
sociaI deveIopnenl.
Banks efforts towards
nancIa! Inc!usInn nccd tn
be supported by NBFCs
The lanking seclor in India has leen
naking efforls lo enhance hnanciaI
incIusion vilh lhe aclive guidance
of, and supporl fron, Covernnenl
of India and lhe RI. Nunerous
inilialives of lhe RI over lhe years,
such as lhe nalionaIisalion of lanks,
priorily seclor Iending requirenenls,
Iead lank schene, eslalIishnenl of
regionaI ruraI lanks, service area
Mr. Suman Chowdhury, Direclor - IinanciaI Seclor Ralings
CRISIL Liniled
The penetration of
forma| pnancla|
services is still far
lower than the desired
|ete|. A slgnlpcant
proportion of the
households, especially
in rural areas, remain
outside the coverage
of the formal banking
system
26
Industry Insights
approach, and lhe seIf-heIp group-lank
Iinkage progranne, have increased
lhe access of lhe poorer segnenls of
sociely lo lhe lanking syslen. The
lranch nelvork of lanks in India has
increased signihcanlIy lo nore lhan
89,OOO as of 2O12 fron around 8,OOO in
1969.
Hovever, lhe penelralion of fornaI
hnanciaI services is sliII far Iover
lhan lhe desired IeveI. A signihcanl
proporlion of lhe househoIds,
especiaIIy in ruraI areas, renain oulside
lhe coverage of lhe fornaI lanking
syslen. Il is eslinaled lhal aloul 4O
per cenl of Indians Iack access even lo
lhe sinpIesl fornaI hnanciaI services.
The najor larriers lo serve lhe veaker
seclions, aparl fron socioecononic
faclors such as Iack of reguIar incone,
poverly, and iIIileracy, are lhe Iack
of reach, higher cosl of lransaclions
and line laken lo provide services.
Iroducls designed ly lanks are oflen
nol laiIored lo suil lhe needs of Iov-
incone faniIies.
Il is in lhis conlexl lhal lhe roIe of
NICs in lhe hnanciaI seclor needs
lo le anaIysed. CRISIL leIieves lhal
relaiI NICs can pIay a signihcanl
roIe in supporling and conpIenenling
lhe hnanciaI incIusion efforls of lhe
lanking seclor. NICs cusloner
prohIe lypicaIIy incIudes seIf-
enpIoyed individuaIs and snaII
lusinesses vho conlrilule lovards
suslainalIe and lroad-lased grovlh
of lhe Indian econony.
NBFCs continue to sustain
healthy growth in retail
nancc
The NIC seclor has aIready
energed as a slrong hnanciaI
inlernediary in lhe relaiI hnance space.
The seclor has vilnessed a conpound
annuaI grovlh rale (CACR) of 28 per
cenl in assels under nanagenenl over
2OO9-1O (refers lo hnanciaI year, ApriI
1 lo March 31) lo 2O12-13 (L) and is
IikeIy lo suslain such heaIlhy grovlh
over lhe nediun lern.
NICs have luiIl up a signihcanl
presence across relaiI assel cIasses and
lorrover segnenls. The segnenl has
a narkel share of over 7O per cenl in
lhe connerciaI vehicIe (CV) hnancing
segnenl (excIuding unorganised
sources of hnance). The conlinuing
slrucluraI shifl in lhe CV induslry
lovards Iighler and snaIIer vehicIes,
coupIed aIong vilh lhe sleady
expansion in lhe used CV segnenl,
has enalIed relaiI NICs lo nainlain
a slrong posilion in lhis segnenl.
The lorrovers in lhese segnenls are
IargeIy snaII lruck operalors vilh no
signihcanl access lo lanking services.
One of lhe key drivers of grovlh
for relaiI NICs has leen lhe sleady
expansion in lhe goId Ioan and lhe
Ioan againsl properly (LAI) segnenl.
In lhe goId Ioan segnenl, NICs
lorrovers are lypicaIIy lhose vilh
snaIIer incones Iooking lo lridge
lheir shorl-lern cash nisnalches.
The lorrovers in lhe LAI segnenl
are usuaIIy snaII lusiness ovners
Iooking al hnancing lheir lusiness
ly Ieveraging lheir exisling properly.
These snaII lusinesses generale
enpIoynenl and are, lherefore,
inporlanl for lroad-lased incIusive
grovlh and econonic deveIopnenl of
lhe counlry.
In CRISILs viev, high penelralion
in seni-urlan and ruraI areas, producl
and process innovalion, and conlinued
focus on core lusinesses, conlinue lo
le lhe key enalIers of sleady grovlh
and conpelilive posilioning of NICs
in relaiI hnance.
In CRISILs viev, lhe core slrenglhs
of NICs Iie in lheir sizealIe presence
in seni-urlan and ruraI areas (Tier III
and leIov Iocalions) and lheir slrong
1846
2466
3257
3904
4680
0
1000
2000
3000
4000
5000
Mar-10 Mar-11 Mar-12 Mar-13 (E) Mar-14 (P)
R
s
.

B
i
l
l
i
o
n
0
20
40
60
80
100
P
e
r

c
e
n
t
Vehicle Finance Gold loans Corporate/SME LAP
LAS Personal Loans Others
CRISIL believes
that the major
retail NBFCs have
strengthened their
underwriting and
collection systems
after the delinquency
pressures they
witnessed over the
two years ended
2008-09
27
Industry Insights
underslanding of regionaI dynanics,
vhich enalIes lhen lo luiId slrong
cusloner reIalionships. This, coupIed
vilh producl innovalion and superior
producl deIivery, has enalIed
NICs lo enhance lheir conpelilive
posilioning in lhose narkels. RelaiI
NICs have slrenglhened lheir
presence in lhe seni-urlan and ruraI
areas vhere relaiI hnance penelralion
is Iov, 6O per cenl of lheir lusiness
accrues fron lhese areas. WhiIe lanks,
especiaIIy pulIic seclor lanks, have
a signihcanl presence in lhese areas,
lhey have renained IargeIy focussed
on noliIising relaiI IialiIilies.
Civen lheir deeper underslanding
of cusloner needs, NICs conlinue
lo focus on producl innovalion and
cuslonising producl offerings. This
heIps NICs nainlain lheir niche
posilioning and gives lhen an edge
over lanks. A cIassic exanpIe of
producl innovalion is lhe luiIding
of lhe organised narkel in used-
vehicIe hnancing, a segnenl IargeIy
unlouched ly lanks. SiniIarIy,
NICs have luiIl a scaIalIe lusiness
nodeI in goId hnancing, despile
lanks Iongslanding presence in lhis
segnenl. An exanpIe of cuslonisalion
is lhe slrucluring of nonlhIy
inslaIInenls vhiIe accounling for
seasonaIily of cash ovs, in lhe case
of conslruclion equipnenl Ioans.
SiniIarIy, in lhe case of goId Ioans
and LAI, NICs provide superior
deIivery ly oplinising lurnaround
line on Ioan dislursaIs.
CIearIy, a signihcanl faclor in lhe
grovlh seen in NICs is a graduaI
sulslilulion of lhe credil lypicaIIy
exlended ly lhe unorganised seclor,
lherely conlriluling lo lhe hnanciaI
incIusion agenda.
The assel quaIily of NICs has
inproved sleadiIy afler lhe signihcanl
delerioralion vilnessed lelveen
2OO7-O8 and 2OO9-1O. Losses in relaiI
unsecured Ioans had Ied lo a spurl in
NIAs during lhis period. Cross NIAs
in lhe seclor has sleadiIy decIined lo
1.6 per cenl as on March 31, 2O12 fron
3.7 per cenl as on March 31, 2OO9. The
inprovenenl has leen driven ly a
slrucluraI shifl in assel conposilion
lhrough lransilion lovards secured
assel cIasses, inproved assel quaIily
noniloring nechanisns, and a
favouralIe lusiness environnenl.
CRISIL leIieves lhal lhe najor re-
laiI NICs have slrenglhened lheir
undervriling and coIIeclion syslens
afler lhe deIinquency pressures lhey
vilnessed over lhe lvo years ended
2OO8-O9. WhiIe a conlinued veak
nacro-environnenl nay inpacl

Banks NBFCs
Semi-
Urban &
Rural,
30%
Urban &
Metro,
70%
Semi-
Urban &
Rural,
60%
Urban &
Metro,
40%
RctaI! nancc busIncss nf NBFCs- Kcy grnwth cnab!crs

Trend in Overall Gross NPA
3.5
2.0
1.6
1.9
2.0 - 2.2
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
P
e
r

c
e
n
t
NBFCs have strengthened their processes and systems to manage
IntrInsIc rIsks In bnrrnwcrs' crcdIt prn!cs
28
Industry Insights
repaynenl capaliIily in a fev assel
cIasses, incIuding CVs, over lhe ne-
diun lern, assel quaIily, unIike in
lhe earIier period, is IikeIy lo renain
resiIienl.
Sone of lhe key sleps laken
ly NICs lo slrenglhen lhe risk
nanagenenl syslens and processes
are as foIIovs:
Origination and
Underwriting:
Lover reIiance on lhe direcl -
saIes associale (DSA) channeI for
sourcing
Conhrnalion of credil hislory -
fron Credil Infornalion ureau
of India Liniled (CIIL) dala,
vherever appIicalIe
Lxisling cusloners as guaranlors -
for exisling cusloners
Credil appraisaI process in-house -
Iocus on underslanding lhe -
lusiness and cash ovs of lhe
lorrover
Rigorous process for assel -
vaIualion and vaIidalion
Collection and portfolio
monitoring
Selling up of Iarge heId-lased -
coIIeclion leans vhich nainlain
direcl conlacl vilh lorrovers
Iro-aclive noniloring of lhe -
deIinquency luckels ly lhe
nanagenenl lean
IIacing lhe responsiliIily of iniliaI -
coIIeclions on lhe saIes lean
LslalIishing separale coIIeclion -
verlicaIs for separale deIinquency
luckels
RelaiI NICs prinariIy caler lo
lorrovers vhose credil prohIes are
inlrinsicaIIy vuIneralIe. Hovever,
lhey have leen alIe lo niligale such
lorrover IeveI risks, as denonslraled
ly lheir lrack record in lhese assel
cIasses. A leller underslanding of
lhe lorrover segnenls and lheir
lusinesses have enalIed lhe NICs lo
aIign lheir syslens and processes vilh
lorrover lehaviour and faciIilaled
a suslainalIe grovlh in severaI relaiI
assel cIasses.
Regulatory framework
to ensure stability and
continuing origination of
priority sector loans by
NBFCs
WhiIe relaiI NICs conlinue lo have
good grovlh polenliaI, lhe seclor is
expecled lo face cerlain chaIIenges as il
nakes lhe lransilion lo lhe nexl grovlh
phase. The reguIalory franevork for
NICs is leing graduaIIy lighlened,
so as lo aIign lhen vilh lhose for lhe
lanking seclor. WhiIe NICs vouId
need lo reaIign lheir lusiness nodeI
vilh lhe evoIving reguIalions, leller
cIarily on lhe reguIalory franevork
vouId provide conforl lo lhe
slakehoIders and slrenglhen lhe seclor
in lhe Iong lern.
As per CRISIL eslinales, 18 per cenl
of NICs AUM vas securilised or
assigned as on March 31, 2O12, nosl
of vhich vas sulscriled ly lanks.
WhiIe a sulslanliaI porlion of lhe
securilised lransaclions conprised
connerciaI vehicIe (CV) pooIs,
never producl segnenls such as Ioan
againsl properly and SML Ioans are
aIso leing increasingIy securilised.
This is prinariIy lecause assels
originaled ly NICs are eIigilIe lo
le cIassihed under priorily seclor
Iending, given lheir lorrover prohIes,
lherely assisling lanks in fuIhIIing
lheir priorily seclor connilnenls as
per RI reguIalions. The quanlun of
such securilisalion voIunes, hovever,
had seen a decIine in 2O11-12 due lo
uncerlainlies regarding lhe revised
securilisalion and priorily seclor
guideIines. The hnaIisalion of lhese
revised guideIines in 2O12-13 has
heIped lo resune priorily seclor Ioan
luy-ouls ly lhe lanks, prinariIy
lhrough lhe pass lhrough cerlihcale
(ITC) roule.
Diversity of resource
prn!c a kcy rcquIrcmcnt
for sustainable growth in
NBFCs
Lnsuring avaiIaliIily of adequale
dell funding al conpelilive cosls is a
key chaIIenge for NICs. WhiIe lank
Iending is expecled lo conlinue as a
najor source of funding for lhe seclor,
exposure conslrainls nay reslricl
lanks fron increasing lheir exposures
lo lhe seclor in a suslainalIe nanner.
The lanks exposure lo lhe NIC
seclor has increased lo nearIy 5 per
cenl of advances as of March 2O12
fron 2.2 per cenl as of March 2OO5.
In order lo nainlain lheir grovlh,
NICs viII, lherefore, have lo Iook lo
diversify lheir resource prohIe and lap
aIlernale sources in lhe narkel such as
lhe dell narkels.
29
Industry Insights
Suman Chowdhury
Director - Financial Sector Ratings
CRISIL Limited
Sunan Chovdhury joined CRISIL in 2OO8 and is presenlIy responsilIe for
hnanciaI seclor ralings. In lhis roIe, he Ieads a lean of anaIysls, lhal rales Iarge
corporales across lhe hnanciaI seclor. This incIudes lanks, non-lank hnance
conpanies, housing hnance conpanies, hnanciaI inslilulions and capilaI narkel
enlilies.
His key responsiliIilies aIso incIude Iending fulure direclion on credil quaIily
lhrough research arlicIes and opinions. Sunan has overaII experience spanning
15 years in credil ralings, risk and research.
IreviousIy, he vas Depuly CeneraI Manager, Credil Risk group al ICICI
ank, vhere he handIed lhe corporale credil risk porlfoIio for cIienls across
seclors such as infraslruclure, conslruclion, cenenl, engineering, capilaI goods,
leIecon, nedia, infornalion lechnoIogy and chenicaIs.
Sunan hoIds a I.C.D.M. (MA) in Iinance and Lcononics fron Indian
Inslilule of Managenenl (IIM), KoIkala and a acheIors degree in MechanicaI
Lngineering fron Indian Inslilule of TechnoIogy (IIT), Kharagpur.
Conclusion
CRISIL leIieves lhal NICs have
graduaIIy energed fron lhe lanks
shadov, and eslalIished a slrong
and independenl idenlily in lhe relaiI
hnance space over lhe pasl hve years.
RelaiI NICs viII nainlain lheir sleady
grovlh lrajeclory, lacked ly lheir aliIily
lo innovale, reach oul lo under-served
cusloners in seni-urlan and ruraI
geographies, and resiIience lo econonic
cycIes. WhiIe a lighlening reguIalory
franevork viII lesl lhe aliIily of
NICs lo reaIign lheir lusiness nodeIs
and resource raising chaIIenges vouId
need lo le addressed, CRISIL leIieves
lhal NICs viII conlinue lo conslilule
a crilicaI hnanciaI inlernediary in
lhe Indian relaiI hnance space vilh a
slrong nandale lo faciIilale incIusive
grovlh.
30
Industry Insights
A
s Mahalna Candhi said lhe
lesl of every pulIic poIicy
decision or innovalion
shouId le hov is lhis going lo lenehl
lhe Iess priviIeged peopIe in lhe
counlry. RoIe of anks and NICs
in pronoling incIusive grovlh shouId
aIso le vieved againsl lhis nessage.
Indian econony has leen vilnessing
high rales of grovlh in lhe Iasl fev
years. Iinancing requirenenls have
aIso risen connensurale vilh lhe
nonenlun and viII conlinue lo
increase in order lo supporl and
suslain lhe lrenendous econonic
grovlh. NICs have leen pIaying
a conpIenenlary roIe lo lhe olher
hnanciaI inslilulions incIuding lanks
in neeling lhe funding needs of
lhe econony. They heIp lo hII lhe
gaps in lhe avaiIaliIily of hnanciaI
services lhal olhervise occur in lank-
doninaled hnanciaI syslen. The gaps
are in regards lo lhe producl as veII as
cusloner and geographicaI segnenls.
NICs over lhe years have leen
pIaying a signihcanl roIe calering lo lhe
hnanciaI needs and crealing IiveIihood
sources lo lhe unlanked nasses in lhe
ruraI and seni-urlan areas. Through
slrong Iinkage al lhe grass rools IeveI,
lhey have crealed lheir ovn narkel
segnenl and conlinue lo grov aIong
vilh connerciaI lanks. Thus, NICs
have aII lhe key allrilules lo enalIe lhe
governnenl and reguIalor lo achieve
inclusive growth
Mr. Thampy KurIan, AddilionaI CeneraI Manager &
AII India Head, AgricuIluraI & IinanciaI IncIusion Depl,
IederaI ank
NBFCs have
been playing a
complementary role
to the other pnancla|
institutions including
banks in meeting the
funding needs of the
economy
31
Industry Insights
lhe nission of hnanciaI incIusion in lhe
given line. NICs have scored nany
in lhe areas of granuIar reach and credil
deIivery lo lhe lollon of cusloner
pyranid. NICs conslilule aInosl
66 of lhe nicrohnance (MI) seclor
and covered 5O of ruraI unlanked
areas. The cusloner lase covered ly
NICs are expecled lo reach 5O niIIion
peopIe ly 2O13 groving al a CACR of
43 vilh an expecled Ioan porlfoIio
of 6 lUSD. (Source: Recenl reporl on
nicrohnance ly InleIIecap, a research
hrn speciaIizing in nicrohnance). RoIe
pIay of NIC in hnanciaI incIusion
pIans has leen nore inporlanl in lhe
alove circunslances.
NICs are povered ly faclors
Iike exiliIily, lineIiness in neeling
credil needs and Iov operaling cosl.
Over a period of line, lhese NICs
evoIved inlo a helerogeneous group
of inslilulions lhal perforned hnanciaI
inlernedialion in a variely of vays Iike
accepling deposils, naking Ioans and
advances, Ieasing, hire purchase, elc.
They are Ieaders in hnanciaI producl
innovalion. They are aIso successfuI
in nainlaining a favouralIe risk and
revard ralio.
NICs pIay an inporlanl roIe in
deveIoping snaII lusiness in ruraI In-
dia lhrough IocaI presence and slrong
personaIized cusloner reIalionships.
UsuaIIy lhe Ioan ofhcers in such N-
ICs knov lhe end cusloner or have
a slrong 'infornaI underslanding of
lhe crediliIily of lhe lorrover and are
alIe lo slruclure lheir Ioans appropri-
aleIy. Wilh lhe nexl vave of grovlh
in India expecled lo cone fron lhe
seni-ruraI and ruraI seclor, lhe unique
access of NICs lo lhese seclor puls
lhen in a greal posilion lo lenehl fron
lhis grovlh. As evidence of lheir al-
lracliveness, CoIdnan Sachs loughl
a 2O slake in Sriran Credil for 75
nUSD in Q1 2OO8. Ioreign Inslilu-
lionaI Inveslors ('III) are aIso selling
up lheir ovn NICs in India lo offer
corporale lanking and privale lank-
ing operalions.
Role of NBFC in Financial
Inclusion
IinanciaI incIusion is lhe process of
ensuring access lo appropriale hnan-
ciaI producls and services needed ly
vuIneralIe groups such as veaker sec-
lions and Iov-incone groups al an af-
fordalIe cosl in a fair and lransparenl
nanner ly nainslrean inslilulionaI
pIayers. IinanciaI incIusion has le-
cone one of lhe nosl crilicaI aspecls
in lhe conlexl of incIusive grovlh and
deveIopnenl. The inporlance of an
incIusive hnanciaI syslen is videIy
recognized in poIicy circIes and has
lecone a poIicy priorily in nany
counlries. SeveraI counlries across
lhe gIole nov Iook al hnanciaI incIu-
sion as lhe neans lo nore conpre-
hensive grovlh, vherein each cilizen
of lhe counlry is alIe lo use earnings
as a hnanciaI resource lhal can le
pul lo vork lo inprove fulure hnan-
ciaI slalus and adding lo lhe nalions
progress. NICs have leen conpel-
ing vilh and conpIenenling lhe ser-
vices of connerciaI lanks for a Iong
line. IniliaIIy inlended lo caler lo lhe
needs of snaII savers and inveslors,
NICs have lurned inlo inslilulions
al par vilh lanks. Hovever, NICs
are dislincl fron lanks as lheir regu-
Ialion and supervision is nuch Iover
as conpared lo lanks. Ior inslance, in
lhe naller of CRR/SLR, Deposil insur-
ance coverage and rehnance faciIilies
fron lhe RI. NIC has laken a sand-
vich posilion and slands in lelveen
connerciaI anks and noney Ienders.
NICs charge inleresl Iesser lhan of
noney Ienders lul higher lhan con-
nerciaI lanks. They nornaIIy con-
cenlrale on shorl lern Ioans especiaIIy
goId Ioans. They adopl a differenliaI
inleresl regine in vhich rale of inler-
esl viII le Iesser in lhe iniliaI nonlh
and afler lhal rale of inleresl charged
viII le very high. Due lo lheir cIose
reIalionship vilh lhe cIienls, unof-
hciaI allilude, Iesser fornaIilies and
quick service NICs earn good repu-
lalion in lhe ruraI foIks and lurden of
inleresl rale is nornaIIy negIecled ly
cusloners. They aIso underlake fund
lransfer services and lraveI assislance,
share lrading elc. aIong vilh nornaI
funclion.
There is a huge need for credil in
lhe ruraI seclor in India. Agenda of
IinanciaI IncIusion has leen pushing
forvard ly RI and Covl. of India
aggressiveIy lo reach oul lanking
faciIilies lo unlanked areas. RoughIy
245 niIIion peopIe do nol have a lank
accounl. This incIudes snaII and
narginaI farners, IandIess Ialourers,
nicro enlrepreneurs in lhe ruraI and
seni-urlan areas. In order lo curl lhe
nenace of diversion of sulsidy and
lo ensure reaching lhe sulsidy lo reaI
lenehciaries, govl. has decided lo roule
aII sulsidy lhrough lank accounls and
32
Industry Insights
Thampy Kurian
Additional General Manager & All India Head
Agricultural & Financial Inclusion Dept
Federal Bank
}oined IederaI ank in 1976. Afler having lasic lranch
experience, look roIe pIay in HR Depl Iooking afler lransfer,
pronolion and recruilnenl for aloul 1O years. Then, had 12
years of experience in lhe heId as ranch Head. Afler lhis,
headed KoIhapur Region, jusl afler laking over of Canesh ank
of Kurundvad ly IederaI ank. Nexl assignnenl vas al Large
Corporale Advance Depl al Munlai.
IresenlIy heading AgrcuIluraI & IinanciaI IncIusion Depl.
lhe process has aIready leen slarled.
In lhe process of educaling lhe ruraI
nasses on lasic lanking halils, govl.
aIso inlended lo save lhen fron lhe
cIulches of noney Ienders.
Summing up
Large nunler of NICs carrying on
diverse lusinesses poses reguIalory
chaIIenge given lheir groving size.
ReguIalions have lo le suiled lo
diverse aspecls of various lusinesses
and slrenglhened lo increase lhe lrusl
and lransparency in lhe seclor. There
is, hovever, a slrong perceplion lhal
lhere nay le in lhe counlry a Iarge
nunler of unregislered and lherefore
unreguIaled NICs in urlan as veII as
ruraI geographies, vhich is difhcuIl lo
le eslinaled. Therefore, lhe reguIalory
and supervision nechanisn for lhe
NIC seclor need lo le videned and
slrenglhened. ReguIalor shouId lake
appropriale sleps lo incIude NICs
lo aII IinanciaI IncIusion progrannes
as a slalulory norn and creale an
environnenl so lhal anks and NICs
can co-exisl slaliIised econony.
33
Industry Insights
inclusive growth
I
ndia has a checkered hislory vhen
il cones lo access lo hnanciaI
services. WhiIe najor slrides have
leen acconpIished in expanding
lhe size of lhe hnanciaI seclor, ve
have nol covered credilIe ground in
lerns of access lo hnanciaI services
for individuaIs, househoIds and
enlerprises. AII efforls in lhe pasl have
reIied aInosl enlireIy on lanks, naneIy
connerciaI lanks, cooperalive lanks
and regionaI ruraI lanks as lhe lorch-
learers for crealing access, and have
overvheIningIy inlerpreled access
lo nean access lo a lank accounl in
order lo save, as veII as access lo
a cheap source of credil in order lo
avoid usury in lhe hands of lhe IocaI
noney Iender. WhiIe lank-Ied credil
inlernedialion vas channeIIed under
lhe aegis of priorily seclor Iending
schenes vhere a nandalory Iending
largel of 4O of nel lank credil has
leen in pIace for over lhree decades,
lhis has achievedonIy nixed resuIls,
vilh grave concerns regarding lhe
quaIily of assels. OnIy 51
1
of lhe
Indian popuIalion has lank accounls,
and lhe Iiniled uplake of inveslnenl,
pension and insurance producls Ieaves
nuch lo le desired.
Il is in lhis lackdrop lhal lhe Iale
Mr. Bindu Ananth, Prcsicn|, ||MR
Policy thrust has been
strongly dis-incentivising
banks from partnering with
NBFCs, and instead, has
been continuing to nudge
banks to open their own
branches and originate
assets through their own
staff and agents
________________________________________________________________________________________________________
1
asic SlalislicaI Relurns of ScheduIed ConnerciaI anks in India-VoIune 4O and Census Dala 2O11
34
Industry Insights
199Os and 2OOOs vilnessed lhe grovlh
of speciaIised non-lank hnanciaI con-
panies (NIC). These NICs can le
lroadIy divided inlo lhree calego-
ries lased on lhe funclions lhey per-
forned: (a) Iarge and nediun-sized
NICs such as IDIC focused on serv-
ing lhe needs of lheinfraslruclure
seclor, (l) nediun and snaII-sized
NICs focussedon speciaIised assels
such as lvo-vheeIers and jeveI Ioans
in urlanareas and lraclors in ruraI ar-
eas, and (c) a reIaliveIy nev calegory
of NICs, lypicaIIy nicrohnance in-
slilulions (NIC-MII), focused on
servingIov-incone househoIds. Mosl
of lhese inslilulions have reIied on lhe
lanking channeI for vhoIesaIe fund-
ing, vhich lhey lhen on-Ienl lo lheir
specihc consuner segnenls. esides
lanks, a fev NICs have aIso success-
fuIIy lapped capilaI narkels for lheir
funding needs, lhe energence ofassel
lacked securilisalion (AS) lransac-
lions has aIIoved speciaIised NICs
lo receive funding lased on lhe under-
Iying assel quaIilyand credil ralings.
AS has leen inslrunenlaI in suppIy-
ing assels lo lhe lanking syslen, and
has eslalIished ilseIf as a credilIe so-
Iulion for lolh lanks in search of such
assels, and NICs in search of nuch-
needed funds. Il is nolevorlhy lhal lhe
grovlh rales and assel quaIily oflhese
NICs have lypicaIIy leen rolusl -
lhis is IargeIy due lo proxinily lo lh-
ecusloner and speciaIised originalion
praclices.
Hovever, poIicy lhrusl has leen
slrongIy dis-incenlivising lanks fron
parlnering vilh NICs, and inslead,
has leen conlinuing lo nudge lanks
lo open lheir ovn lranches and
originale assels lhrough lheir ovn
slaff and agenls (despile veII-knovn
operaling chaIIenges and serious
issues vilh assel quaIily). A case
in poinl is lhe reslriclions in pIace
lhal prevenl NICs fron leconing
usiness Correspondenls lo lanks.
AIso perlinenl in lhis regard is lhe ruIe
lhal prevenls NICs fron offering
goId Ioans al Ioan-lo-vaIue nore lhan
6O, vhiIe aIIoving lanks lo do lhe
sane. We leIieve lhal lanks and
NICs nusl le seen as carrying oul
conpIenenlary roIes, ralher lhan le
considered as enlilies in conicl vilh
each olher:
Rn!c In nancIa! Inc!usInn: 1. To
legin vilh, NICs reach oul lo
cusloners lhal have lradilionaIIy
leen oulside lhe fornaI lanking
syslen. NICs lhal have deveI-
oped exlensive reach lo unlanked
consuners, lul provide lheir ser-
vices lhrough slaff sourced and
lrained fron IocaI laIenl. WhiIe
ensuring lhal lhis lrings in IocaI
inleIIigence and insighl, il aIso
provides a lrenendous cosl ad-
vanlage - IocaI laIenl fron lhe
viIIage or seni-urlan area viII le
avaiIalIe al pay scaIes Iover lhan
conparalIe hunan resources
in Iarger, lig cily lanks, as veII
as non-IocaI hunan resources
lhal are slaffed lo nanage ruraI
lranches of Iarge lanks. Their Io-
caI presence cIose lo cusloners
enalIes NICs lo deIiver hnan-
ciaI services lhal respond lo feIl
cusloner needs and aIso leller
nonilor lheir porlfoIios. In viev
of lhese dislincl fealures, NICs
can le a poverfuI channeI lo drive
hnanciaI incIusion in India.
Bcncts nf a bank-NBFC nrIgIna- 2.
tion model: Non-deposil laking
NICs are aInosl enlireIy reIianl
on lhe lank narkel for vhoIesaIe
funds and lherefore are effecliveIy
naluraI exlensions of connerciaI
lanks, even for credil. The roIe
of Iarge connerciaI lanks, given
lheir size and capilaIisalion, can le
seen as aggregalors responsilIe
for nanaging Iarge credil porlfo-
Iios lhal are in lurn originaled ly
severaI speciaIised NIC origi-
nalors vho are de-faclo, cIoser lo
lhe cusloner. Once approached
fron lhis vievpoinl, lhe conpIe-
nenlarily lelveen lhe lank and
lhe NIC-MII is slrong. If NICs
can le seen as naluraI inlernediar-
ies lelveen lanks and unlanked
popuIalions, lhen lhe lank can
decide vhich NICs il vanls lo
engage vilh lhrough an inlernaI
process of due diIigence, as veII as
lhrough hrsl Ioss defauIl guaran-
lees provided ly lhe NICs.
Containing systemic risk in 3.
NBFCs: A connon concern raised
againsl lhe recognilion of NICs
roIe as an inporlanl inlernediary
for hnanciaI incIusion is a fear lhal
NICs Iack nany 'safely fealures
lhal are in pIace for lanks such as
CRR, SLR or deposil insurance.
Hovever, il nusl le poinled
oul lhal lhese are non-deposil
laking NICs and lherefore are
nol pernilled lo access pulIic
deposils - lhis is a very inporlanl
35
Industry Insights
design fealure fron a syslenic
slaliIily vievpoinl lecause lhese
inslilulions are inherenlIy riskier
vilh IocaI concenlralion fealures.
In lhe alsence of pulIic deposils,
NICs depend on lanks and
lhe capilaI narkels for lheir
vhoIesaIe funding, and lhese
inslilulions nov have lhe righl
incenlives lo reguIale NICs -
i.e. lo ensure lhal lhe NICs are
veII run in order lo Iend lo lhen.
In addilion, lhere are prudenliaI
norns for capilaI and governance
Iaid oul ly lhe RI (such as lhe
CRAR requirenenl of 15 for
non-deposil laking NICs),
vhich provide usefuI lenchnarks
for furlher quaIily assessnenl
of NICs ly inveslors.NICs
canlhus le lhe innovalors and risk
lakers lhal cushion lanks fron
credil Iosses and cosls arising
fron never lusinesses, lhrough
lheir addilionaI capilaI and lheir
Iover-cosl deIivery slruclure.
WhiIe nicro-prudenliaI reguIalions
can le used lo slrenglhen lhe roIe
lhal NICs can pIay, lhere is a need
for a uniforn consuner proleclion
reguIalion for aII hnanciaI services
provision, irrespeclive of vhelher il
is underlaken ly lanks, NICs or
any olher inslilulionaI forns. Such
a universaI consuner proleclion
Iav viII ensure lhal consuner
veIfare is given ulnosl regard lo
irrespeclive of lhe nalure of hnanciaI
inlernedialion.
Transaction cost for a loan ofRs. 10,000
Model Minimum CRAR Transaction Cost
2
IulIic Seclor ank - CenlraI ank of India
3
9 32.37
Irivale Seclor ank - ICICI ank 9 21.56
NIC-MII 15 8.74
________________________________________________________________________________________________________
2
Transaclion Cosl as a of Ioan size
3
Rangarajan Connillee sludied hve lranches of The CenlraI ank of India and eslinaled lhal lhe lransaclion cosl lolaI as per cenl
of Ioans up lo Rs.25OOO for lhe hve lranches range fron 12.26 lo 14.21 and lhe average lransaclion cosl vorks oul lo 12.95. The
lransaclion cosl for advances up lo Rs.1OOOO vas nol avaiIalIe. In order lo nake conparison lelveen lhe differenl nodeIs, ve have
approxinaled lhis hgure for CenlraI ank of India, using hgures avaiIalIe on ICICI for Rs 25OOO as veII as Rs.1OOOO Loans. The reporl
eslinales lhal for a Ioan size of Rs.25OOO, lhe lransaclion cosl cones lo 8.62 for ICICI ank, vhereas for Ioan of Rs.1OOOO, il is higher
al 21.56 (2.5 lines lhe hgure for lhe Rs.25OOO Ioan). Using lhe sane ralio for CenlraI ank on India, ve have arrived al lhe hgure of
32.37 (2.5 lines 12.95) as lhe lransaclion cosl for advances up lo Rs.1OOOO for CenlraI ank of India.
Bindu Ananth
President, IFMR
indu Ananlh is currenlIy lhe Iresidenl of IIMR Trusl and has heId lhal posilion
since }anuary 2OO8. In lhis capacily, she aIso chairs lhe oards of aII inveslee
conpanies of IIMR Trusl. Irior lo lhis, indu vorked in ICICI anks nicrohnance
lean lelveen 2OO1 and 2OO5 and vas head of lhe nev producl deveIopnenl lean
vilhin lhe RuraI anking Croup in 2OO7.
She has an under-graduale degree in Lcononics fron Madras Universily and
Maslers Degrees fron lhe Inslilule of RuraI Managenenl (IRMA) and Harvard
Universilys }ohn. I. Kennedy SchooI of Covernnenl. She is a IeIIov of lhe CIolaI
Lcononic Sociely.
indu has pulIished in lhe Lcononic and IoIilicaI WeekIy, OLCD Trade Iaper
Series and lhe SnaII Lnlerprise DeveIopnenl }ournaI. She is aIso a nenler of lhe
IICCI laskforce on hnanciaI incIusion.
36
Industry Insights
Mr. V.P. Nandakumar, MD c C|O, Manappuram |inancc ||. c
Prcmc|cr Dircc|cr, |qui|as Micrcfnancc |nia Pt|. ||.
Missing Links in Indias
MIcrnnancc Dcbatcs
I
ndias Micro Iinance
Inslilulions (MIIs) conlinue
lo reeI under lhe lody lIovs
inicled in Andhra Iradesh
during 2O11. Wilh lhe inposilion
of a cap on lheir Iending rales, and
a poIilicaI eslalIishnenl IargeIy
indifferenl lo lheir pIighl, lheir
fulure is lIeak. Il is lrue lhal a Iol
has leen said and vrillen aloul
il IaleIy, neverlheIess, poverfuI
argunenls in supporl of lhe
nicrohnance nodeI have leen
Iefl unsaid.
Financial inclusion at zero
cost
Ior sociaI and econonic poIicies
lo vork, lhey need lo le rooled
in prevaiIing reaIilies. A vision
of an ideaI vorId, hovsoever
conpeIIing, is nol an adequale
foundalion. Today, Iarge seclions
of lhe peopIe, parlicuIarIy in
ruraI areas, are excIuded fron
lhe organised hnanciaI seclor
and conlinue lo le dependenl on
IocaI noneyIenders. When MIIs
expand lheir lusiness, lhe peopIe
Today, large sections
of the people,
particularly in rural
areas, are excluded
from the organised
pnancla| sector
and continue to be
dependent on local
moneylenders
37
Industry Insights
vho lypicaIIy cone inlo lheir
foId are lhose vho eilher have no
access lo credil, or lhose vho vere
dependenl on IocaI noneyIenders
al a high cosl.
y exlending lhe reach of lhe
organised hnanciaI seclor lo lhe
hilherlo unlankalIe seclions
of sociely, MIIs perforn a vilaI
service lo lhe econony. Whal is
nore, lhey do il al IillIe or no cosl lo
lhe exchequer. efore lhe induslry
vas Iaid Iov ly lhe lroulIes, il
vas reporled lhal Indias MIIs
had provided hnance lo 2O niIIion
poor peopIe Iong denied access lo
reguIar lank funds. A siniIar efforl
al hnanciaI incIusion driven ly lhe
governnenl vouId necessariIy
invoIve a huge sulsidy eIenenl
and vouId sliII le unallraclive lo
connerciaI lanks given lheir high
cosls and Iov rales of recovery
(as lhe record vilh governnenl
sponsored schenes shovs).
Iulling il lIunlIy, vhal lhe MIIs
pronised lo save for lhe counlry is
aII lhe noney lhal viII nov forn
parl of lhe nexl vrile-off cycIe
(or perhaps lhe nexl Ioan-vaiver
announcenenl).
The multiplier effect
Thal lhe nicrohnance nodeI
hoIds polenliaI lo lransforn lhe
deveIopnenl process is sonelhing
ve have nol grasped fuIIy. Il arises
fron lhe nuIlipIier effecl of lhe
higher Ioan repaynenl rales. When
recovery rales are cIose lo 1OO
percenl, il inpIies lhal a given IeveI
of a deveIopnenlaI aclivily can
le hnanced year afler year, vilh
onIy lhe iniliaI capilaI oulIay, and
vilhoul need for repIenishnenl.
In conlrasl, in a nodeI vhere
recovery rales are Iov, say 5O
percenl, haIf lhe funds are Iosl
in each cycIe of dislursenenl.
This Iosl porlion is necessariIy
lo le nade good year afler year
fron lhe laxpayers funds. And
each line il happens, ve deny
resources lo olher vilaI seclors, Iike
infraslruclure, educalion or heaIlh.
As an exercise in deveIopnenl,
il is inherenlIy conlradiclory
lecause success in inproving
lhe Iives of ils largel group is
condilionaI upon resources leing
conlinuousIy drained avay fron
lhe resl of lhe produclive econony.
Over decades, lhe cunuIalive,
conpounded cosl lo lhe econony
is crippIing. The price is paid in lhe
forn of depressed grovlh vhich
lhen feeds inlo ilseIf lo lecone
a vicious circIe. Ils no vonder
lhal India is sliII sluck in lhe Iov-
incone land vhen, over lhe Iasl 6O
years, ve shouId have gradualed
lo lhe niddIe-incone group.
Abnnrma! prnts arc
normal
The econonisl Schunpeler
poinled oul lhal lechnoIogicaI
innovalion oflen creales lenporary
nonopoIies, aIIoving hrns lo
nake alnornaI prohls for a line.
Hovever, vilh lhe rise of rivaIs and
inilalors, lhese alnornaI prohls
vanish. Schunpeler vas convinced
lhal lenporary nonopoIies vere
necessary in order lo provide
lhe incenlives needed lo deveIop
nev producls and processes.
Microhnance is acluaIIy an exanpIe
of an oulslanding innovalion lhal
had puIIed up recovery rales in
lhis lusiness unleIievalIy cIose
lo 1OO percenl. The correcl poIicy
response vas nol lo cap lheir
earnings (and lighlen lhe screvs
on innovalion) lul lo have focused
on crealing a IeveI-pIaying heId
vilh leller reguIalion and ly
encouraging conpelilion and nev
enlranls.
Interest rates not too high
When conpared lo lhe
connerciaI lanks, lhe inleresl
rales charged ly MIIs appeared
very high. Hovever, as poinled
oul oflen enough, lo lhe person on
lhe ground lhis conparison has
IillIe neaning. The apl conparison
is nol vilh lhe connerciaI lanks
lo vhich lhey Iack access, lul vilh
lhe IocaI noneyIenders on vhon
38
Industry Insights
lhey depend even loday. esides,
for snaII lickel and shorl lenure
Ioans, vhal counls is lhe inleresl
paid in alsoIule lerns, nol lhe
annuaIised percenlage lhereof.
As lhe noled coIunnisl
Svaninalhan A. Aiyer poinls oul
|Donl cap Microhnance Iending
rales, Lcononic Tines, Seplenler
22, 2O1Oj, A vegelalIe vendor
lorrovs Rs 3OO lo luy vegelalIes
vhoIesaIe, seIIing lhese for Rs 45O.
Lven if he pays 1OO per year
inleresl on his Ioan of Rs 3OO, il
anounls lo jusl 9O paise/day, a
negIigilIe porlion of his prohls.
Here is anolher perspeclive lo
lhis every day exanpIe. A sinpIe
caIcuIalion shovs lhal lhe vendor
earns a slaggering 5O percenl
relurn every day, anounling lo an
annuaIised relurn of 15OO percenl
assuning 3OO vorking days.
SureIy, vhen an aclivily felches
15OO percenl relurns, an inleresl
rale of even 1OO percenl cannol le
lhe crushing lurden ils nade oul
lo le.
Had lhe MIIs leen aIIoved
lo ourish, ils IikeIy lhal lheir
lorrovers loo vouId have gained
in slalure over lhe years vilh
Ioans of increasing lickel sizes, Iess
slringenl supervision requirenenls,
and nore spaced oul repaynenls.
Al lhis poinl, il vouId have lecone
vorlhvhiIe for lhe lanks lo slep in.
Does il seen far-felched` WeII, fev
vouId renenler lhese days lhal
vhen ceII phones cane lo India, ve
paid as nuch as Rs.16 per ninule
of airline. Had lhe governnenl
slepped in vilh an earIy cap on
caIIing rales, Indias leIecon
revoIulion vouId have ended even
lefore il legan.
Prnts In MFIs arc gnnd
The oullreak of prejudice againsl
MIIs had nuch lo do vilh lhe
successfuI IIO of SKS Microhnance
and lhe exceplionaI vaIualions il
connanded. Under lhe gIare of
nedia scruliny, il vas reveaIed
lhal sone of lhe Iarger MIIs vere
naking exlraordinary prohls.
Opinion nakers vere quick lo
poinl a hnger al high inleresl rales
as lhe source of lhese prohls. In lhe
conlexl of Indias conlinuing Iove
affair vilh egaIilarianisn, il did
nol lake Iong for lhe inpression
lo gain currency lhal poor peopIe
vere leing rulhIessIy expIoiled.
IronicaIIy, lhe facl lhal prohls
vere nade vas acluaIIy lhe lesl
nevs lo cone oul of lhis aclivily.
MIIs are nol aIIoved lo raise
deposils fron lhe pulIic. Al lhe
sane line, capilaI requirenenls
are slringenl. When prohls are
nade and relained, lhey can
allracl furlher inveslnenl vhich
gives lhen lhe aliIily lo scaIe up,
expand reach and lring nore of
lhe poor inlo lheir foId. Wilh Iov
IeveIs of prohls, fresh inveslnenls
vouId nol le forlhconing and
grovlh is slunled.
There is anolher perspeclive lo
lhis issue of excessive prohls. Large
MIIs operale vilh high IeveIs of
lransparency vhere lransaclions
are rouled lhrough lhe looks. As
lhese MIIs expand lheir reach,
lhey dispIace lhe unorganised
seclor and effecliveIy push lack lhe
fronliers of lhe paraIIeI econony.
This is a vilaI service lo lhe
econony vhose najor lenehciary
is lhe governnenl. Ior inslance,
SKS Microhnance reporled a IT
of Rs.267.7 crores in IY 2O1O, a
lhird of vhich vas lransferred
lo lhe governnenl as incone lax
(Rs.92.9 crores). In olher vords,
lhe governnenl earned cIose lo a
hundred crore rupees fron sone of
lhe pooresl peopIe of India. If lhere
are noraI quaIns aloul earning
prohls fron lhe poor, sureIy lhe
IogicaI slarling poinl vouId le a
nechanisn lo refund lhis anounl
lo lhe lorrovers. A lack of lhe
enveIope caIcuIalion shovs lhal
effeclive inleresl rales vouId
slraighlavay have cone dovn ly
lelveen lvo and lhree percenlage
poinls had lhe incone lax paid ly
39
Industry Insights
SKS Microhnance (in IY 2O1O) leen
refunded lo ils lorrovers lhrough
an inleresl sulvenlion.
Suicides in perspective
The reporled suicides anong
nicrohnance lorrovers vere
dislurling indeed. Theres no
doull lhal queslionalIe praclices
foIIoved ly recovery agenls had
aggravaled nallers and lhere vas
a crying need for a code of conducl
enforced ly a reguIalor vilh leelh.
Al lhe sane line, suicides nay
aIso have lo le considered in lhe
conlexl of lhe average suicide rale
for lhe popuIalion segnenl as a
vhoIe. Afler aII, lhe Iarger MIIs
had a huge nenlership lase. SKS
Microhnance, for inslance, had
aloul sevenly Iakh nenlers al
one line. Assuning an average
rale of suicide of 2O per 1OO,OOO of
popuIalion, aloul 14OO lorrovers
vouId IikeIy have connilled
suicide even vilhoul any exlra
dislress allrilulalIe lo lhe aclions
of lhe nicrohnance Iender.
IncidenlaIIy, lhe suicide rale in
KeraIa has occasionaIIy nudged 3O
per 1OO,OOO of popuIalion.
Unnecessary duplication
MIIs have acquired a core
conpelency in sul-prine Iending.
InporlanlIy, lheir Ioan recovery
rales and overaII prohlaliIily
had eslalIished lhal lhe lusiness
nodeI vas suslainalIe. Under
lhese circunslances, il vas in lhe
inleresls of lhe connerciaI lanks
lo piggylack on lhe infraslruclure
crealed ly lhe MIIs even if lhe
lorrover ends up paying a higher
inleresl rale. The higher cosl lo
lhe lorrover is nore lhan nade
up ly lineIy avaiIaliIily and ease
of access. Moreover, as discussed
alove, lhe rale of inleresl expressed
as an annuaIised percenlage is nol
lhe overriding consideralion ils
nade oul lo le.
There is no doull lhal lhe MIIs
had prohled ly Iaying hands on
cheaper funds fron lhe lanks
under lhe priorily seclor Iending
roule. ul lhis vas as nuch a favour
lo lhe lanks lhal are olhervise
under conpuIsion lo depIoy lheir
ovn resources inlo nicro Iending.
Wilhoul lhe aliIily lo nalch lhe
cosl slruclures and recovery rales
of MIIs, il is lound lo le a Ioss-
naking proposilion for lanks.
The struggle ahead
One of Indias earIy faiIures vas
lhal having arrived al nispIaced
nolions aloul lhe inconpaliliIily
of privale econonic aclivily vilh
lhe pulIic good, ve venl ahead
and inposed arlihciaI curls on lhe
privale seclor, even as lhe pulIic
seclor vas yel lo prove adequale
lo lhe chaIIenge. Likevise, curling
lhe MIIs cannol le a good hrsl
slep vhen lhe experience vilh lhe
connerciaI lanks shovs lhal lhey
are nol up lo lhis chaIIenge.
The reason vhy lhe nicroh-
nance nodeI vorks leller in lhe
recovery of Ioans lo lhe poor is
lhal incenlives and disincenlives
inherenl in lhe nodeI serve lo in-
sliI a sense of responsiliIily in lhe
lenehciaries. Wilhoul responsiliI-
ily, even lhe lesl of inlenlions are
undone. Il is a hunan faiIing lhal
connerciaI lanks are up againsl
vhen lhey gel inlo nicrohnance-
or any olher concessionaI credil
schenes for lhe poor-on lheir
ovn accounl. Under pressure, lhe
physicaI largels are nel, lul lhe
evenluaI oulcone is inferior for
everyone concerned.
The reason why
thc mIcrnnancc
model works better
in the recovery of
loans to the poor is
that incentives and
disincentives inherent
in the model serve
to instil a sense of
responsibility in the
bcnccIarIcs
40
Industry Insights
Today, as lhings sland, lhe grealer
sellack is nol lhe cap of 26 percenl
on naxinun Iending rales lul lhe
addilionaI slipuIalion capping lhe
nargin rale al 1O percenl for lhe
Iarger MIIs. (Ior MIIs vilh Ioan
porlfoIios leIov Rs. 1OO crore, il is
capped al 12 percenl.) The nargin
rale is lhe difference lelveen lhe
rale al vhich MIIs lorrov fron lhe
lanks and lhe rale al vhich lhey
Iend. A cap dehned in lhese lerns
has lhe perverse inpacl of denying
due conpelilive advanlage lo lhe
efhcienlIy run MIIs lhal succeed
in Iovering lheir lorroving cosl.
Moreover, afler accounling for
lhe 6 lo 7 percenl of non-inleresl
operaling expenses, added lo
vhich is capilaI adequacy, lad
dells and incone lax, lhe relurn
on assels is neagre and hoIds
no encouragenenl lo polenliaI
inveslors.
AII lhis is nol lo gIoss over lhe
aluses lhal have laken pIace, or
lo deny lhal nicrohnance in India
vas anyvay due for a course
correclion. ul, il is aIso evidenl
lhal lhe nanner in vhich evenls in
AI vere aIIoved lo gel oul of hand
anounls lo a speclacuIar ovn goaI.
Recenl nedia reporls fron lhe slale
speak of noneyIenders gelling
lack lo lusiness vilh a lang nov
lhal lhe MIIs have leen siIenced.
Had lhe silualion leen handIed
vilh a IillIe nore hnesse, lhe
inleresls of nicrohnance lorrovers
couId have leen prolecled vilhoul
having lo vreck lhe induslry.
SadIy, lhal vas nol lo le and lhe
laly vas lhrovn oul vilh lhe
lalhvaler. We are nov faced vilh
an uphiII slruggIe ahead.
V P Nandakumar
Managing Director and CEO
Manappuram Finance Ltd.
Shri V.I. Nandakunar is lhe Managing Direclor and CLO of Manappuran
Iinance Lld. lased al VaIapad (Thrissur Dislricl), KeraIa.
Manappuran Iinance Lld. is Indias hrsl Iisled and hrsl credil-raled goId
Ioan conpany. Il vas aIso lhe hrsl corporale enlily in India lo nake an enlry
inlo lhe goId Ioan lusiness. Manappurans origins go lack lo 1949 vhen il
vas founded in VaIapad ly his falher V.C. Iadnanalhan. Ils aclivily vas
nainIy noney Iending carried oul on a nodesl scaIe. Shri Nandakunar
look over lhe reins of lhis singIe ranch lusiness in lhe year 1986 vhen his
falher expired.
Since lhen, il has leen a slory of unparaIIeIed grovlh and Shri Nandakunars
Ieadership has leen inslrunenlaI in scripling lhe slory. Manappuran
Iinance Lld. vas incorporaled in 1992 and in a shorl span of line il lecane
lhe hrsl NIC fron KeraIa lo gel a Cerlihcale of Regislralion issued ly lhe
Reserve ank of India, one of lhe very hrsl NICs fron KeraIa lo go for a
pulIic issue, lhe hrsl NIC fron KeraIa lo issue lonus shares in lhe ralio
1:1 in 2OO7, lhe hrsl KeraIa lased NIC lo receive Ioreign InslilulionaI
Inveslnenl (in 2OO7), and lo ollain lhe highesl shorl lern credil raling of
A1+ fron ICRA and I1+ fron CRISIL.
Today, lhanks lo his vision and drive, and lhe lean of professionaIs he has
assenlIed around hin, Manappuran Iinance Lld. is a pan-India presence
vilh aloul 3,2OO lranches across 26 Indian slales and UTs, and nore lhan
21,OOO enpIoyees on ils roIIs. The conpany has Assels under Managenenl
(AUM) of aloul Rs.11,OOO crores.
Shri V.I. Nandakunar vas lorn in 1954 and hoIds a posl graduale degree
in science vilh addilionaI quaIihcalions in anking and Ioreign Trade. He
is a recipienl of nany avards and recognilions.
Mr. V.P. Nana|umar is MD c C|O cf Manappuram |inancc ||. an a prcmc|cr ircc|cr cf |qui|as Micrcfnancc |nia
Pt|. ||., Cncnnai. Tnc ticus arc pcrscna|.
41
Industry Insights
NBFC-MFI: The Beacon of Financial
Inclusion
I
n lhe hislory of IncIusive anking,
2OO6 vas a niIeslone year. Ior lhe
hrsl line ever, lhe Reserve ank of
India (RI) dehned lhe lern 'IinanciaI
IncIusion. This dehnilion descriled
hnanciaI incIusion as lhe process of
ensuring access lo appropriale hnan-
ciaI producls and services needed ly
aII seclions of sociely in generaI and
vuIneralIe groups such as veaker
seclions and Iov incone groups in
parlicuIar al an affordalIe cosl in
a fair and lransparenl nanner, ly
nainslrean inslilulionaI pIayers.
Whal nay have pronpled lhe RI
lo lake lhis 'dehnilionaI slep viII
renain a naller of sone specuIalion.
NonelheIess, vhal is cIear is lhal since
lhe 195Os, a nunler of pulIic poIicy
inilialives vere laken ly lhe RI and
lhe Covernnenl of India (CoI) lo lake
lanking lo lhe nasses. Slarling vilh lhe
push given lo lhe Slale ank of India
and ils sulsidiaries in lhe Iale 195Os for
opening ruraI lranches, deveIopnenl
of lhe co-operalive lanking slruclure,
lhe hisloric nalionaIisalion of lanks
in 1969, luiIding up a cadre of ank
Ofhcers devoled lo RuraI anking, lhe
Lead ank Schene, crealion of RRs,
priorily seclor Iending (ISL) norns,
service area approach, SeIf HeIp
Croups, usiness Correspondenls,
aII have leen neasures designed lo
pronole vhal ve nov caII hnanciaI
incIusion. Yel, 45 per cenl of Indians
do nol have access lo deposil accounls
and 81 per cenl do nol have credil
accounls. Moreover, lhere is onIy one
lank lranch per 14,OOO peopIe across
Mr. Alok Prasad, Chief Lxeculive Ofhcer,
Microhnance Inslilulions Nelvork (MIIN)
Indias multi-tier
pnancla| archltecture
includes over ~12,000
NBFCs, an extensive
institutional
framework,
contributing to more
than 10% of the assets
of the tota| pnancla|
system
42
Industry Insights
lhe proverliaI 6 Iakh viIIages vhere
haral Lives. And, ruraI lranches of
scheduIed connerciaI lanks (SCs),
incIuding RRs nunler jusl over
33,OOO.
Indias nuIli-lier hnanciaI archi-
leclure incIudes over ~12,OOO NICs,
an exlensive inslilulionaI franevork,
conlriluling lo nore lhan 1O of lhe
assels of lhe lolaI hnanciaI syslen.
This sel of inslilulions offer a vide
speclrun of producls and services
ranging fron produclive nicrocredil
Ioans, hnancing vehicIes, hire purchase
soIulions, energency personaI Ioans,
vorking capilaI Ioans, consuner Ioans,
norlgages, Ioans againsl securilies lo
inveslnenl advisory and dislrilulion
of hnanciaI producls, elc. In lerns of
lheir scaIe and oulreach, NICs have
earned a unique posilion in Indias
hnanciaI syslen ly nol onIy offering
heaIlhy conpelilion lul conpIenenl-
ing lhe services of ScheduIed Con-
nerciaI anks (SCs) as dedicaled
inlernediaries for providing hnanciaI
producls and services.
A seclion of NICs are focussed
on providing appropriale, incIusive h-
nanciaI producls and services, lo aII
seclions of lhe sociely in generaI and
vuIneralIe groups such as veaker
seclions and Iov incone groups in
parlicuIar al an affordalIe cosl in a
fair and lransparenl nanner These
NICs are naned Microhnance In-
slilulions (MIIs). LarIier MIIs vere
lroadIy reguIaled under lhe generaI
Direclions as appIicalIe lo aII NICs.
Hovever, in Dec, 2O11, lhe RI an-
nounced lhe crealion of a nev calego-
ry of inslilulions caIIed NIC-MIIs.
The Direclions issued ly lhe RI on
2nd Dec, 2O11, have pul in pIace a reg-
uIalory franevork vhich lakes inlo
accounl lhe speciaI roIe and characler-
islics of lhis cIass of inslilulions. The
NIC-MIIs are connilled lo pronol-
ing hnanciaI incIusion in aIignnenl
vilh poIicy agenda of lhe reguIalor
and lhe CoI. Wilh a slrong focus and
capaliIily of reaching oul lo lhe 'lol-
lon of lhe pyranid (OI) segnenls,
lhey increasingIy see lhenseIves as
inlegraI lo lhe nalionaI hnanciaI archi-
leclure. They aIso see lhenseIves as
crilicaI pIayers for deIivery of hnanciaI
producls/services lo lhe un-served
and under-served nenlers of sociely.
Operaling across lhe counlrys Ienglh
and lreadlh, providing a key hnanciaI
Iink lo lhe pooresl seclions of lhe pop-
uIalion nol yel covered ly lhe lanking
syslen, lhe NIC- MIIs have, over
lhe pasl decade, crealed a ruraI lranch
nelvork of aloul 1O, OOO lranches
across 517 of lhe 653 dislricls vilh over
3O niIIion cIienls - of vhon over 9O
are vonen. As per RIs Handlook
of Slalislics, IY 2O11, lhe oulslanding
Ioans of SHCs pIus MIIs coIIecliveIy
forned 1.47 of lank credil and 4.34
of priorily seclor Ioans. And, over 22
of aII snaII lorrover accounls are vilh
MIIs vhich is higher lhan lhe nunler
of such accounls vilh SCs or RRs.
SlalislicaIIy or olhervise, il is inpos-
silIe lo deny lhal nicrohnance seclor
is a signihcanl conponenl of lhe hnan-
ciaI archileclure of India. NIC-MIIs
have found a niche and lransforned
vhal nainslrean hnanciaI inslilulions
deen an olIigalion inlo a vialIe and
scaIalIe lusiness Ieveraging lhe lroika
of opporlunily, innovalion, and enler-
prise.
NIC-MIIs have uIlra-Iov opera-
lions cosl, produclivily and efhciency
as lhree of lheir core conpelilive ad-
vanlages. MIIN, lhe induslry associa-
lion for NIC-MIIs eslinales lhal lhe
average slaff cosl for MIIs is sul Rs
1 Iakh per annun, conpared lo over
Rs 5 Iakh per annun for an enlry IeveI
lank ofhcer. MIIs, al lheir peak, en-
pIoyed around 1OO,OOO Ioan ofhcers,
none of lhen vilh fancy and expen-
sive degrees lul nalric pass viIIage
youlh lrained exlensiveIy on lhe skiII
sel required for deIivery of doorslep
hnanciaI services. MIIs focus on voI-
une and nol vaIue. An average MII
Ioan ofhcer calers lo aloul four hun-
dred vonan cIienls al lheir doorslep,
lypicaIIy on a veekIy lasis. Ils a IillIe
knovn facl, lul MIIs are loday a najor
enpIoynenl generalor in ruraI India.
MIIs do nol depIoy expensive Ieg-
acy infornalion lechnoIogy syslens
lul use inleroperalIe open source
nanagenenl infornalion syslens ef-
fecliveIy Ieveraged ly vireIess hand-
heIds, incIuding noliIes. Over lhe
pasl 24 nonlhs, MIIN has faciIilaled
lhe crealion of lhe hrsl ever RI ap-
proved dedicaled credil lureau ained
al inproving credil risk nanagenenl
and adherence lo lhe quaIifying assel
crileria Iaid ly lhe RI. Over 75 niI-
Iion Ioan accounls for over 3O niIIion
lorrovers are nov on lhe dalalases
of lvo credil lureaus. And, lhis has
leen achieved in a space of aloul 18
nonlhs, an achievenenl unparaIIeIed,
gIolaIIy.
MFIs do not focus
only on extending
loans but also
provide livelihood
support services.
A!nngsIdc, nancIa!
literacy is woven
into the client
relationship which
allows them to get
more empowered
43
Industry Insights
Over 9O cIienleIe of MIIs is vonen
consliluling daiIy vage earners, sea-
sonaI earners, and lhe nuIli-lasking
seIf-enpIoyed housevife. MIIs pro-
vide an aIlernale, affordalIe, doorslep
source of credil al rales prescriled ly
lhe RI. The lorrovers use nicroIoans
for a variely of incone generalion ac-
livilies Iike aninaI huslandry, handi-
crafls, nicroenlerprises, elc.
MIIs do nol focus onIy on exlending
Ioans lul aIso provide IiveIihood sup-
porl services. AIongside, hnanciaI Iil-
eracy is voven inlo lhe cIienl reIalion-
ship vhich aIIovs lhen lo gel nore
enpovered.
Hovever, nany crilics have nol veI-
coned lhe nolion of poor paying for
credil vhen Ioan vaivers and sulsidies
are lhe norn. On 16lh Ocloler 2O1O,
vilh one deadIy slroke, lhe Andhra
Iradesh Covernnenl allenpled lo de-
raiI Indias nicrohnance seclor ly lhe
pronuIgalion of lhe Andhra Iradesh
Micro Iinance Inslilulions (ReguIalion
of Money Iending) Acl, 2O1O vhich in
lhe opinion of severaI IegaI Iuninaries
is uIlra-vires lhe Conslilulion. The RI
posilion as arlicuIaled in lhe afhda-
vil hIed in lhe Andhra Iradesh High
Courl is cIear and forlhrighl. The foI-
Ioving exlracls fron lhe RI afhdavil
are nolevorlhy:
NICs leing reguIaled sinuIla- -
neousIy ly lhe RI and Slale Cov-
ernnenl viII resuIl in duaI regu-
Ialion lherely adverseIy affecling
lhe funclioning of lhe NIC-MIIs
and lhe inleresl of lhe pulIic,
In case of NICs, lhe RI has -
excIusive pover lo reguIale and
supervise lhen. The provisions of
lhe inpugned Acl are uIlra vires
lhe conslilulion of India so far as
il deaIs vilh NICs
Since lhe MIIs vhich are nol reg- -
islered under lhe inpugned Acl
(AI MII Acl), cannol recover lhe
Ioans granled ly lhen, il vouId
adverseIy affecl lhe hnanciaI con-
dilions of RI-reguIaled NIC
MIIs.
The Andhra Iradesh Micro Iinance
Inslilulions (ReguIalion of Money
Iending) Acl 2O1O lroughl MII acliv-
ily lo lhe proverliaI screeching haIl.
Repaynenls dropped fron 98+ lo
around 5. HaIf a dozen MIIs vere
adnilled inlo corporale dell reslruc-
luring progran. Dell and equily ovs
lo lhe seclor reduced lo a lrickIe. Inde-
pendenl surveys ly respecled research
lodies provide inleresling reveIalions.
Sone of key concIusions have leen
lhal cIienls vere happy vilh MIIs and
in alsence of MIIs lhey have had lo go
lack lo lhe noney Ienders, and over
9O of lhe cIienleIe is keen lo repay
if MIIs legin servicing lheir viIIages
again.......and so on.
MIIs are adapling lo lhe alove chaI-
Ienge, endorsing lransparency nea-
sures, diversifying porlfoIios across
slales, enlracing lechnoIogy, Iever-
aging lhe credil lureau and Iovering
lheir cosl of operalions even furlher.
A conprehensive MIIN sludy done
over a lhree nonlh period for lhree
hnanciaI years IYO9-12 gives vaIu-
alIe poinlers lo vhere lhe seclor is
headed. Non AI lased MIIs have
succeeded in conlaining lhe inpacl of
AI crisis and are focused on scaIing
up. AI MIIs vhich faced an exislen-
liaI crisis are nov shoving dehnile
signs on overconing lhe sane. Non-
AI MIIs, vilhoul or very Iiniled ex-
posure lo AI, grev lheir porlfoIio ly
25 vilh inproved efhciency and
hnanciaI perfornance. Mediun and
Large non-AI MIIs increased ly 34
and 45 respecliveIy vilh share of
non-AI MIIs in lhe induslrys lolaI
cIienl lase has increased fron 31 lo
45. The induslry vhich vas precari-
ousIy concenlraled in Soulh India has
diversihed. Non-AI MIIs nov have
over 5O share in lhe porlfoIio - vhich
vas onIy 27 in IY O9-1O. In lerns of
dislursenenls, non-AI MIIs conlril-
uled lo 68 of lhe lolaI dislursenenls
Iasl year. The Induslry nov has nuch
Iarger spread across regions in slales
of TaniI Nadu, Karnalaka, Wesl en-
gaI, Orissa, Maharashlra, MI, Cujaral,
Ullar Iradesh and ihar. The porlfo-
Iio quaIily ninus Andhra Iradesh MII
porlfoIio renains heaIlhy vilh IAR 3O
sul 2. Aloul 33 of MIIN nenlers
conducled off-laIance sheel lransac-
lion, conpared lo onIy 6 in IY O9 -
1O. olh equily and dell funding lo
lhe seclor has resuned and lhe ov is
graduaIIy slrenglhening.
Microhnance Inslilulions Nelvork
(MIIN) is nodeIIed as a SeIf-ReguIa-
lory Organizalion for lhe Microhnance
Inslilulions (NIC-MIIs) - conslilu-
lionaIIy, slrucluraIIy and funclionaIIy
vilh ils ye-Lavs slaling: To acl as
a seIf-reguIalory organizalion for lhe
nicrohnance seclor and lo reguIale lhe
lusiness of nicrohnance as carried on
44
Industry Insights
ly ils nenlers. As lhe CLO of MIIN,
I feeI slrongIy lhal lhe induslry has
vealhered lhe slorn veII and is nov
poised for lhe nexl phase of grovlh.
The Approach lo lhe TveIflh Iive
Year IIan (2O12-17) nenlions lhe roIe
of MIIs in Iinancing Irivale Invesl-
nenl as consliluenls of lhe hnanciaI
syslen capalIe of noliIizing house-
hoId savings and aIIocaling lhen ef-
hcienlIy lo neel lhe equily and dell
needs of lhe fasl expanding privale
corporale seclor. Il furlher nenlions
(2.2O) revilaIizalion of lhe nicro h-
nance and olher innovalive hnanciaI
inslilulions for pIaying a roIe in lhe
grovlh of hxed capilaI. The Reporl of
Reserve ank of India (IY 2O11) nen-
lions lhal access lo hnanciaI producls
is conslrained ly severaI faclors vhich
incIude: Iack of avareness aloul
lhe hnanciaI producls, unaffordalIe
producls, high lransaclion cosls, and
producls vhich are inconvenienl, in-
exilIe, nol cuslonized and of Iov
quaIily. Microhnance and hnanciaI Iil-
eracy pIay pivolaI roIes in addressing
lhese issues.
The Microhnance Inslilulions (De-
veIopnenl & ReguIalion) iII 2O12 is
currenlIy under exaninalion of lhe
Slanding Connillee on Iinance of
IarIianenl. This iII provides a con-
prehensive IegaI franevork of regu-
Ialion for lhe nicrohnance induslry.
Il nakes lhe RI as lhe overarching
reguIalor for aII calegories of MIIs -
and nol jusl lhe NIC-MIIs. Il aIso
provides for NalionaI, Slale IeveI and
Dislricl IeveI Advisory CounciIs so as
lo ensure lhal aII slakehoIders have a
roIe in lhe deveIopnenl of lhe seclor.
The earIy enaclnenl of a nalionaI Mi-
crohnance Iav viII Iead lo lhe orderIy
grovlh of lhis crilicaI induslry and
prolecl il fron unvarranled IocaI IeveI
inlerference.
NIC-MIIs do nol cIain lo re-
nove poverly. ul, lhey do have a
good cIain lo lringing affordalIe
hnanciaI access lo lhe unlanked
and under-lanked 65O niIIion
Indians.
Alok Prasad
CEO- ChIcf ExccutIvc Ofccr
Micro Finance Institutions
Network (MFIN)
Microhnance Inslilulions Nelvork (MIIN) is lhe prinary represenlalive lody and
lhe SeIf-ReguIalory Organizalion (SRO) for lhe Reserve ank of India (RI) reguIaled
NIC-Microhnance Inslilulions NIC-MIIs. The Associalion currenlIy has a
nenlership of 47 NIC MIIs vhich, on an aggregale lasis, conslilule over 9O
of lhe nicrohnance lusiness in India (excIuding SHCs). MIINs prinary oljeclive
is lo vork lovards lhe rolusl deveIopnenl of nicrohnance seclor, ly pronoling
responsilIe Iending, cIienl proleclion, good governance and a supporlive reguIalory
environnenl.
Mr. AIok Irasad is a veleran lanker vilh over 3O years of lolh pulIic and privale seclor
lanking and hnanciaI services experience. He vas fornerIy lhe Counlry Direclor of
Cili Microhnance Croup (India) and lhe Head of Slralegy, usiness DeveIopnenl
for lhe CIolaI Consuner Croup Cililank India. Irior lo joining Cililank Mr. Irasad
served vilh dislinclion in lhe RI for over 15 years across various deparlnenls
of lhe ank. He vas aIso a nenler of lhe slarl-up lean of lhe NalionaI Housing
ank, a slalulory lody vhoIIy ovned ly RI, vhere he pIayed a pivolaI roIe in lhe
fornuIalion of poIicies for lhe deveIopnenl of lhe housing hnance seclor in India.
Mr. Irasad, recenlIy, served on lhe Connillee sel up ly lhe Minislry of Iinance,
Covernnenl of India, for drafling of lhe Micro Iinance iII for India.
45
Industry Insights
Role of NBFC in Inclusive Growth
I
ncIusiveness, lhey say lrings
overaII parlicipalion and pronoles
a cohesive lurnaround. In sinpIe
vords, incIusive grovlh signihes lhal
aII segnenls of popuIalion are reaping
lhe revards of overaII grovlh, vhich
is reecled in inprovenenl in quaIily
of Iife across aII seclions of popuIalion.
WhiIe India conlinues lo le anong lhe
vorIds faslesl groving econonies, il
faces a lig chaIIenge as hov lo provide
an enalIing inslilulionaI slruclure
vhich couId lake care of lhe hnanciaI
needs of snaII savers, inveslors and
aIso caler lo lhe credil requirenenls of
excIuded popuIalion.
The connerciaI lanks have pIayed
a key roIe in our counlry lo pronole
incIusion vilhin lhe franevork
provided ly reguIalors and
Covernnenl. UndoulledIy, a slrong
and effeclive reguIalion has leen a key
slrenglh of our lanking syslen, vhich
IargeIy renained unaffecled during
lhe sul-prine crisis vorId over. Over
lhe years, NICs have aIso found
a conpeling space aIong vilh lhe
connerciaI lanks. UnIike connerciaI
lanks, NICs have lhrived on
accounl of sonevhal Iax and nuIlipIe
reguIalors lherely providing lhen
nore freedon lo hx lheir connerciaIs
lo charge lo lheir cusloners.
This aparl, a very inporlanl faclor
vhich has vorked in favor of NICs
is lheir cIose conlacl vilh lhe peopIe
and sinpIe vays of responding lo
cusloners requirenenls. The lanks
are generaIIy knovn lo le over-
zeaIous on KYC norns and lhey insisl
on naxinun possilIe docunenlary
evidence lo supporl lheir papers
Mr. AshIsh Kumar Rny
Chief CeneraI Manager, RuraI usiness, Slale ank of India
NBFCs have thrived on
account of somewhat
lax and multiple
regulators thereby
providing them more
freedom to px thelr
commercials to charge
to their customers
46
Industry Insights
and Ioan docunenlalion. Hovever,
NICs have a exilIe syslen of
operaling and nosl excIuded peopIe
hnd an easy access lo Ioans fron
NICs. Mosl of lhe assel hnancing
NICs has caplured lhe narkel on
accounl of lheir narkel inleIIigence,
sinpIe and spol sanclion of Ioans vilh
a nininun of paper vork. A Iarge
chunk of excIuded popuIalion, vhich
depends heaviIy on unorganized and
non-inslilulionaI sources of hnance,
lecones a sofl largel for such NICs.
The key driver for such segnenl of
popuIalion is avaiIaliIily of nicro
hnance irrespeclive of cosl. And,
inlereslingIy, neilher lhe provider nol
lhe laker of Ioans is conpIaining.
NICs have aIso pIayed a najor
roIe lo loosl road lransporl seclor ly
providing hnance for acquisilion of
lrucks, lransporl vehicIes, lraclors,
elc. noslIy in ruraI and seni-urlan
cenlres. These avenues have aIso
provided seIf-enpIoynenl lo a Iarge
nunler of ruraI popuIalion. The relaiI
nanaged credil porlfoIio of NICs
slood al Rs 2.96 Iac crore al lhe end
of March 2O12, vhich vas dislriluled
across connerciaI vehicIes (29),
goId Ioans (17), norlgage Ioans
(16), conslruclion equipnenl (1O),
cars (15), unsecured Ioans (8) and
lraclor Ioans (3). And, gross NIAs
for lhe NIC induslry slood al 1.56
al lhe end of lhe previous hnanciaI
year.
In our counlry, lhere are huge
opporlunilies for inslilulions lhal
can pronole incIusive grovlh ly
providing Iasl niIe conneclivily.
NICs lhough aclive in various parls
of lhe counlry, need lo Iearn fasl fron
lheir pasl experiences and presenl a
lransparenl inage lefore lhe sociely.
Reporls of sone NICs duping
innocenl inveslors and induIging in
fouI pIay, lend lo dislorl lhe inage of
MII nelvork. Such enlilies have done
nore harn and raised concerns aloul
lheir roIe, and efhcacy of lheir hnanciaI
nodeI. This has Ied lo a lighlening
of reguIalions lo curl naIpraclices
adopled ly NICs and lring nore
lransparency in lhe syslen.
There is sliII a lig queslion nark
over lhe cusloners charging nodeI
adopled ly NICs in parlicuIar
conlexl lo Andhra Iradesh vhere
MIIs vere reporledIy resorling lo
unfair, harsh and coercive neasures lo
enforce recovery of lheir exorlilanlIy
priced Ioans provided lo lhe poor and
unpriviIeged seclion of sociely. The
consequences of Andhra Microhnance
Acl vere lound lo le lough and nany
MIIs had lo curlaiI lheir operalions.
Iosl Andhra, a sIev of neasures vere
announced and lhe nosl inporlanl
leing lhe nev calegory of NIC-MII
coning inlo pIay. The cIienl lase of
MIIs as on 31sl March 2O12 vas 26
niIIion and lheir lolaI porlfoIio around
Rs 21OOO crore.
RecenlIy, RI has vide circuIar
daled Iel 18, 2O13 has issued fresh
guideIines on lhe procedure for
redressaI of grievance againsl NICs
vhich requires aII NICs lo dispIay al
aII lheir lranches/ofhces fron vhere
lhey are doing lusiness, lhe delaiIs
of lhe grievance redressaI ofhcer
leIonging lo lheir conpany. In Dec
12, RI has cone oul vilh proposed
reguIalions on NICs vhich provides
for exlensive corporale governance
conlroIs on NICs, parlicuIarIy for
Iarge NICs, raises CapilaI adequacy
requirenenl lo 12 Tier 1 capilaI in
case of caplive NICs and sensilive
assel NICs, higher risk veighls for
capilaI narkel and CRL exposures,
and increased provision for slandard
assels.
The purpose of RI lighlening
reguIalions is lo curl lhe y-ly-
nighl operalors. The reguIalions on
NIC MIIs have lroughl in leller
conpIiance IeveI and seIf-reguIalion
nechanisn. The leller lhe reguIalion
- nore lransparenl viII le lhe
funclioning of lhe enlilies. Therefore,
NICs need lo rise lo lhe expeclalions
of nol onIy lhe reguIalor lul aIso lhe
pulIic al Iarge in order lo generale
a cIose londing vilh lhe peopIe.
These enlilies have lhe capacily and
capaliIily lo handIe cIienleIe provided
lheir funclionaI unils al lhe grass
rool IeveI dispIay fairness and avoid
nisseIIing of hnanciaI services. The
reguIaled enlilies are nov nore sure
aloul lheir roIe and lhe expeclalion of
lhe reguIalor, and, lherefore, lhey can
vork nore freeIy vilhin lhe anlil of
reguIalory franevork.
In our counlry, lhere are NICs,
vhich have enconpassed a huge cIienl
lase lhrough connunily parlicipalion
inilialives. Their aclivilies invoIve a
nix of charilalIe and lransfornalion
agenda vhich connecls vilh lhe
peopIe al Iarge and encourages higher
parlicipalion al aII IeveIs. The IeveI
of incIusion is very high anong lhe
connunily and il suslains for a Iong
lenure provided sufhcienl doses of
47
Industry Insights
IiveIihood prograns are incIuded.
Micro-Iending has lo nove fron
nere consunplion lo IiveIihood
and incone generalion avenues,
as olhervise reaI lransfornalion
cannol lake pIace. UndoulledIy, lhe
avaiIaliIily and adequacy of credil is
nusl for inproving Iiving slandards
of unpriviIeged popuIalion lul il is
nol lhe soIe conponenl for grovlh lo
happen. The inprovenenl in heaIlh,
sanilalion, chiId educalion, nulrilion,
elc, is a conlinalion of faclors vhich
uIlinaleIy lrings enpovernenl of
peopIe.
The aII-incIusive grovlh horizon
has enough space lo acconnodale
aII heaIlhy pIayers in lhe hnanciaI
arena of lhe counlry. Their roIe and
inporlance lecones aII lhe nore vilaI
vhen one considers lhe Iinilalions of
lhe Covernnenl and lhe lradilionaI
hnanciaI seclor in deIivering on lhis
counl. Indeed, lhere is a slrong opinion
lhal lecause of lheir conlrilulion lo
lhe econony, lhe NICs shouId enjoy
lhe sane enalIers lhal a hnanciaI
inslilulion al lhe olher end of lhe
speclrun, enjoys.
The all-inclusive
growth horizon has
enough space to
accommodate all
healthy players in
thc nancIa! arcna
of the country
AshIsh K Rny
Chief General Manager
(Rural Business)
State Bank of India
Mr. Roy, currenlIy posled as Chief CeneraI Manager RuraI usiness vilh Slale
ank Of India joined lhe lank as Irolalionary Ofhcer on 18.1O.1976. He is a .
Con Craduale and aIso has a C.A.I.I. degree (Cerlihed Associale of lhe Indian
Inslilule of ankers). A career lanker, having nore lhan 3 decades of lanking
experience, Shri Roy has heId inporlanl assignnenls in lhe lank. He vas aIso
depuled ly lhe lank lo lhe OLCD counlries for advanced lraining in agricuIlure.
He is a nenler of severaI connillees sel up ly DIS and RI, in lhe areas of
AgricuIlure, Iriorily Seclor Iending, and IinanciaI IncIusion. His responsiliIily
incIudes Iooking afler lhe anks agricuIlure porlfoIio serviced lhrough a nelvork
of 9,7OO ruraI and seni-urlan lranches spread over 14 CircIes of lhe ank
and laking forvard SIs IinanciaI IncIusion inilialives lhrough a lechnoIogy-
enalIed channeI of 34,OOO Cusloner Service Ioinls (CSIs) of lhe anks usiness
Correspondenls across lhe counlry.
Under his Ieadership lhe lank has von nany avards sone of vhich are The
Skoch IinanciaI IncIusion Avard 2O13 for lesl Kiosk anking ModeI, IinanciaI
Lxpress Avard for inilialive in IinanciaI IncIusion 2O13, AgricuIlure Leadership
Avard 2O12 fron AgricuIlure Today under DeveIopnenl Leadership calegory.,
Minislry of RuraI DeveIopnenl, COI, avarded Cerlihcale of LxceIIence for
ank s proaclive roIe in eslalIishing RuraI SeIf LnpIoynenl Training Inslilules
across lhe counlry during lhe year 2O11- 12, esl IT driven Innovalion Avard in
anking in lhe counlry fron NASSCOM, avarded lo AICV, RR sponsored
ly SI and IMLCI Avard for oulslanding perfornance al NalionaI LeveI for
2O11- 12.
48
Industry Insights
A
l lhis junclure lo reslarl
lhe grovlh engine in our
counlry, enphasis nusl le
on slinuIaling doneslic denand and
scaIing up lhe produclive capacily
of lhe econony. This duaI oljeclive
can onIy le achieved ly expediling
infraslruclure crealion. Carrying
capacily of Indias infraslruclure
has reached a saluralion poinl.
This caIIs for capacily crealion and
infraslruclure inveslnenls lo lhe
lune of USD 2OO liIIion are envisaged
annuaIIy over lhe nexl 5 years. III
has energed as a doninanl lrend in
Indias infraslruclure crealion process
and 5O of lhe inveslnenl is expecled
lo cone fron lhe privale seclor.
In India, hnancing of infraslruclure
has leen predoninanlIy done ly
connerciaI lanks. ul lanks aliIily
lo lake exposure in infraslruclure
is Iiniled as lhe y are conslrained
ly secloraI caps and aIso lhere
are prolIens due lo assel-IialiIily
nisnalch as lank deposils are lypicaIIy
shorl-lern vhiIe infraslruclure needs
Iong lern resources. NICs, especiaIIy
lhe Assel Iinance Conpanies (NIC-
AICs) and Infraslruclure Iinance
Conpanies (NIC-IICs), pIay a
crilicaI roIe in suppIenenling and
conpIenenling lanks efforls. Indias
infraslruclure seclor has nunerous
nicro, snaII and nediun enlerprises
(MSMLs) lo vhon lig projecl
deveIopers sul-conlracl vork Iike
conslruclion, lransporlalion, elc. Such
MSMLs conslilule lhe lacklone of lhe
India Crovlh Slory. UnforlunaleIy,
Criticality of NBFCs in Indias
infrastructure creation
Mr. Hcmant KannrIa, CMD - Srei Infraslruclure Iinance Lld.
NBFCs, especially
the Asset |lnance
Companies
(NB|C-A|Cs) and
Infrastructure Finance
Companies (NBFC-
l|Cs), |a a crltlca|
role in supplementing
and complementing
banks efforts
49
Industry Insights
a signihcanl seclion of such MSMLs
conlinues lo renain oulside lhe
purviev of lhe lanking syslen, noslIy
due lo lheir snaII prohIes and nany
of lhen leing scallered in renolesl
corners of lhe counlry vhere lanking
service is unavaiIalIe. Il is lhe NICs
vho lridge lhis gap ly calering lo lhe
hnance needs of such MSMLs. Thus,
aparl fron conlriluling lo lhe process
of infraslruclure crealion, NICs are
aIso pronoling 'hnanciaI incIusion.
Despile lhis, NICs have lo operale
vilhin very slringenl reguIalions
and are al a cIear disadvanlage vis-
a-vis lanks vhiIe carrying oul lheir
funclions. Il is inperalive lo provide
lhese NICs a pIaying heId vilh lhe
lanks.
RI had consliluled a speciaI
connillee under forner RI Depuly
Covernor Snl. Usha Thoral lo Iook
inlo lhe operalionaI and reguIalory
paranelers of NICs. This connillee
cane oul vilh a reporl againsl vhich
induslry had provided feedlack.
Afler laking inlo consideralion lhe
induslry feedlack, RI cane oul vilh
proposed guideIines for NICs in
Decenler 2O12.
Il has leen proposed lhal NICs
le lroughl under siniIar guideIines
vhich govern lanks. Hovever, lhere
is need for lhorough delale and
discussion lelveen governnenl and
induslry lefore ve proceed lovards
adopling such guideIines. I feeI lhal
lhe proposed guideIines can severeIy
inpede NIC operalions. There has
lo le sone degree on parily lelveen
NICs and lanks lefore lhey are aII
covered under siniIar guideIines.
Al Ieasl lhe foIIoving issues deserve
allenlion :
(I) Nil TDS
Seclion 194A of lhe Incone Tax Acl
provides for TDS al lhe rale of 1O
on paynenl of inleresl (excIuding
inleresl on securilies) lo a residenl.
Sul-seclion 3 of Sec. 194A provides
for non-appIicaliIily of Sec. 194A in
sone cases vhich incIudes lanking
conpanies lo vhich anking
ReguIalion Acl appIies. Hovever,
such exenplion has nol leen exlended
lo NICs. ResuIlanlIy, in conlrasl lo
lhe niI TDS rale enjoyed ly lanks on
lheir inleresl receipls, NICs inleresl
receipls are suljecl lo a TDS rale of
1O. Though NICs have lhe oplion
lo appIy for a Iover vilhhoIding
cerlihcale under Sec. 197 of lhe I. T.
Acl, praclicaIIy il lecones difhcuIl lo
ollain lhis cerlihcale given lhe huge
nunler of cusloners (in nany cases
in lhousands).
The inleresl conponenl of Ioan
LMIs receivalIe lo NICs is aIso
suljecl lo TDS. In addilion, in an ever-
dynanic groving lusiness scenario, il
is praclicaIIy inpossilIe lo predicl lhe
voIune and nunler of nev cusloners
and coIIecl delaiIs regarding nane,
addresses, exposure, TAN, elc. of lhe
cusloners. Therefore, exlensive paper
vork and adninislralion coupIed vilh
huge coIIeclion cosls invoIved in lhe
issue of Iarge nunler of cerlihcales,
hIing quarlerIy relurns, elc. nake
lhe enlire TDS coIIeclion quile coslIy.
AIso nany a lines, lhe TDS eslinaled
for advance lax conpulalions acluaIIy
lurns oul lo le nuch Iover lhan vhal
is acluaIIy deducled ly lhe cusloners,
resuIling in refund cIains. Celling
refund can oflen lecone a line-
consuning affair.
Il is lherefore IogicaI lo exlend lhe
lenehl of 'NiI TDS lo NIC-AICs and
NIC-IICs as veII under Sec. 194A.
(II) Coverage under
SARFAESI Act
anks and IIs have leen nolihed
under lhe Acl, giving lhen lhe aliIily
lo nove againsl defauIling lorrovers
and secure lheir assels. SulsequenlIy,
specihed housing hnance conpanies
(HICs) have aIso leen nolihed under
lhe Acl. ul NICs have nol leen
nolihed under lhis Acl.
In order lo prolecl lhe inleresl of
inveslors, NICs shouId le lroughl
vilhin lhe purviev of lhe SARIALSI
Acl. As per lhe Acl, RI can do lhis ly
vay of a nolihcalion.
(III) Tax provisions
pertaining to NPA
deduction
AIlhough NICs are aIso reguIaled
ly lhe RI jusl Iike lanks and olher
NBFCs have to
operate within very
stringent regulations
and are at a clear
disadvantage vis-
-vis banks while
carrying out their
functions
50
Industry Insights
IIs, lhe Incone Tax Iavs lreal NICs
differenlIy, insofar as provisioning
for NIAs, lad and doullfuI dells are
concerned.
(a) Under seclion 36(1)(viia) of
Incone Tax Acl, onIy lhe lanks and
IIs enjoy deduclion on provisions for
lad and doullfuI dell. A deduclion of
7.5 of gross lolaI incone is aIIoved
as expenses for lanks, if provision for
lad and doullfuI dells is nade as per
RI direclions, and for IIs lhe hgure
is 5. InlereslingIy, even lhe foreign
lanks are aIIoved lhe lenehls under
lhis seclion of I. T. Acl, lul lhe NICs
are excIuded.
In alsence of specihc incIusion of
NICs in Sec. 36(1)(viia) of I. T. Acl,
provision for NIA nade in lerns
of RI prudenliaI norns does nol
conslilule an expense for purposes of
I. T. Acl. So enlire provisioning as per
RI prudenliaI norns is disaIIoved
for purposes of conpuling laxalIe
incone of NICs. Thus, NICs are
suljecled lo higher laxalion conpared
lo lanks and olher IIs and are al a
cIear disadvanlage.
Such discrininalions lelveen
NICs and lanks nusl le eIininaled.
This inconsislency nay le resoIved
ly incIuding NICs aIso in Sec. 36(1)
(viia) of I. T. Acl so lhal lhe lenehls
are aIso exlended lo NIC-AICs and
NIC-IICs. The sane is aIready in lhe
proposed Direcl Tax Code (DTC) 2O1O.
(l) anks, IIIs and pulIicIy Iisled
conpanies are aIIoved deduclions in
incone lax up lo a cerlain percenlage of
lheir reserves. Since enlilies Iike NIC-
IICs and NIC-AICs are conlriluling
lo lhe process of infraslruclure crealion
Iike lhe lanks, lhey shouId aIso le
aIIoved lhis lenehl even if lhey are
unIisled.
(c) Irovisions under seclions 115}A
and 115} of lhe I. T. Acl vere anended
vilh relrospeclive effecl slarling fron
AY 1998-99 and 2OO1-O2 respecliveIy.
Wilh lhe anendnenls, any dininulion
in vaIue of an assel shouId le added
lo lhe 'ook Irohl for caIcuIalion of
MAT.
The inpacl of lhis change is
parlicuIarIy severe on NICs as
provisions nade for lad-dells/ non-
perforning assels (NIAs) are added lo
lhe 'ook Irohl, lhal loo fron lhe AY
1998-99. Nol onIy does lhis nean re-
opening of assessnenl of lhe previous
years, lul aIso a possilIe Incone Tax
denand on accounl of lhe Ioans vhich
NICs nighl nol recover. SinpIy
pul, lhis inpIies furlher incone lax
IialiIilies on Iosl assels. This has pul
lhe hscaI heaIlh of NICs under
pressure, and nay Iead lo exlinclion of
sone NICs.
CerlainIy lhis vouId nol have leen
lhe inlenl of Iinance Minislry as :-
The ludgel nenorandun -
inlended lo inpose MAT onIy
on lhe ilens 'leIov lhe prohl
Iine Iike deferred lax provisions,
dividend dislrilulion lax, elc.
Iurlher, for lhe NICs, lhe -
provision for NIAs is nol nereIy
a provision for unascerlained
IialiIily, lul is an adninislralive
expense, vhich is a charge on lhe
Irohl & Loss.
This nay le resoIved ly suilalIy
anending lhe expIanalions lo seclions
115}A and 115} of lhe I. T. Acl, lo
excIude aII provisions nade on
accounl of NIAs / lad and doullfuI
dells.
Aparl fron lhe alove-nenlioned
poinls, il has leen proposed lhal non-
deposil laking NICs viII quaIify for
regislralion if and vhen ils hnanciaI
assels aggregale a nininun of Rs.
25 crore and conslilule 75 and
alove of ils lolaI assels and hnanciaI
conslilules 75 or alove of ils lolaI
incone. This slep acluaIIy proposes
lo lake a chunk of lhe snaIIer NICs
oulside lhe reguIalory purviev of
RI. This is a hugeIy relrograde slep,
lecause vilhoul regislralions such
snaII NICs vouId virluaIIy lecone
unlouchalIes. Il has lo le kepl in nind
lhal lhese snaII NICs are calering lo
lhe hnanciaI needs of lhose segnenls of
lhe popuIalion vho sliII renain oulside
lhe coverage of lhe lanking syslen.
This vouId go againsl governnenls
phiIosophy of 'incIusive grovlh and
hnanciaI incIusion viII le heaviIy
conpronised. The grovlh of MSMLs
viII le scullIed and lhis, in lurn, viII
adverseIy inpacl econonic grovlh.
Lven vorse, lhis viII provide a hIIip lo
lhe cuIlure of usurious noneyIenders
vhich viII onIy increase lhe agony
of lhe unlanked segnenls. IdeaIIy,
non-deposil laking NICs of any size
shouId le aIIoved lo gel regislered
and lhey shouId alide ly aII ruIes and
reguIalions.
IresenlIy NICs need lo nainlain
CRAR of 15 and lhe Tier I conponenl
is 7.5 (for NIC-AICs) and 1O
for NIC-IICs. WhiIe lhe proposed
guideIines caII for increase in Tier I
capilaI for seIecl cases, I feeI al Ieasl
for NIC-AICs and NIC-IICs il is
51
Industry Insights
inporlanl lo nainlain slalus quo. As
il is, NICs access lo funds is Iiniled
vis-a-vis lanks, lhus lheir aliIily lo
Ieverage shouId nol le curlaiIed.
As regards source of funds, NICs
depend lo a Iarge exlenl on exlernaI
connerciaI lorrovings (LC). LCs
are Iong-lern funds avaiIalIe al
conpelilive rales and NICs on-Iend
lhese funds lo neel lhe hnance needs
of MSMLs. Hovever, lhe access lo LC
is suljecl lo cerlain reslriclive cIauses.
WhiIe recenlIy lhe LC vindov has
leen eased lo sone exlenl, lhere is sliII
furlher scope for reIaxalion. NIC-
AICs in parlicuIar are suljecl lo lhe
foIIoving reslriclions :
(i) Reslriclion on usage of LC
funds onIy for hnancing inporled
equipnenl for use in infraslruclure
projecls ly NIC-AICs
The infraslruclure & conslruclion
equipnenl (ICL) induslry in India
is groving, so is lhe nunler of
doneslic ICL pIayers. Lven severaI
foreign ICL pIayers are aIso selling
up nanufacluring lases in India.
Hovever, as per presenl condilions
NIC-AICs are aIIoved lo uliIize
LC funds onIy on inporled ICL.
This nakes IillIe sense in lhe currenl
circunslances. There is a slrong case
for aIIoving NIC-AICs lo uliIize
LC for hnancing of doneslicaIIy
nanufaclured equipnenl as lhis
vouId provide a slrong hIIip lo lhis
induslry.
(ii) NICs are aIIoved lo access
LC lhrough lhe approvaI roule
WhiIe olher corporales are aIIoved
lo access LC under lhe aulonalic
roule, NICs are aIIoved lo access
LC onIy lhrough lhe approvaI roule.
Keeping in nind lhe high cosl of
doneslic funds and lhe urgency lo
creale infraslruclure assels, NICs,
especiaIIy NIC-AICs and NIC-
IICs, shouId le aIIoved lo access LC
under lhe aulonalic roule.
(iii) LCA credil le aIIoved lo NIC-
AICs vilhoul average nalurily
condilionaIily
As per exisling ILMA guideIines,
average nalurily for LC accessed ly
NICs is slipuIaled al 5 years, vhereas
in nosl cases lhe average nalurily of
LCA-lacked assels Iike infraslruclure
equipnenl vorks oul lo le Iess lhan 5
years. Therefore, governnenl shouId
encourage NIC-AICs lo access LC
under lhe OLCD consensus (vhich
delernines average nalurily period
as per lhe lype of assel).
efore I concIude, I vouId Iike lo
louch upon lhe issue of nev lank
Iicenses vhich generaled a Iol of luzz.
When lanking Iicenses vere given ly
lhe RI lo privale pIayers aloul 16
years ago, vhiIe lhe najorily faiIed
lo pul up a nodesl shov, lhere vere
a fev oulslanding success slories loo.
The ones vhich succeeded, say for
exanpIe HDIC ank, vere alIe lo do
so lecause lhey vere alIe lo idenlify
vhal lhe lhen exisling doneslic and
foreign lanks vere nol doing veII
or nol doing al aII, and accordingIy
gear up lo roII oul lhose services and
do lhose leller lhan lhe olhers. Thus,
lhey vere alIe lo idenlify a niche for
lhenseIves and creale nev lusiness
segnenls vhich evenluaIIy lecane
crovded due lo lheir success. India
is loday al a junclure vhere scaIing
up of infraslruclure hnancing and
expansion of hnanciaI incIusion are
lvo urgenl needs. In lhis lackdrop, a
lank aspiranl vhich can pIay a posilive
roIe in hnancing of infraslruclure,
especiaIIy ruraI infraslruclure, nay
le alIe lo curve oul a niche for ilseIf.
Nov lhal lhe lank Iicense guideIines
are oul, I feeI lhal NIC-AICs and
NIC-IICs, vhich neel lhe eIigiliIily
crileria, are perhaps ideaI candidales
for nev lank Iicense.
Hcmant KannrIa
Chairman & Managing Director
Srei Infrastructure Finance Ltd.
Mr. Henanl Kanoria is lhe Chairnan and Managing Direclor of Srei Infraslruclure
Iinance Lld. eginning as an equipnenl hnancing conpany in 1989, Srei has expanded
inlo a hoIislic infraslruclure inslilulion offering a vide speclrun of infraslruclure
producls and services ranging fron hnancing of infraslruclure equipnenl and projecls,
projecl advisory, fund nanagenenl, inveslnenl lanking and projecl deveIopnenl &
nanagenenl.
Sreis shares are Iisled on aII najor slock exchanges in India and aIso in London. Sreis
equipnenl hnancing lusiness is lhrough a joinl venlure vilh NI Iarilas, one of
lhe Iargesl gIolaI lanks. Sreis leIecon lover infraslruclure lusiness, vorIds Iargesl
independenl leIecon lover conpany, is a joinl venlure vilh lhe repuled Tala Croup
of India. Srei Sahaj, lhe Iargesl ruraI IT infraslruclure conpany vilh over 24,OOO
cenlres calering lo around 3OO niIIion peopIe, provides various 2C and C2C services
incIuding e-Iearning courses. Wilh an enpIoyee-slrenglh of aloul 8,OOO in lhe group
loday, il has assels under nanagenenl vorlh nore lhan USD 6 liIIion.
Mr. Kanoria has heId lhe posilion of Chairnan of IICCI NalionaI Connillee
on Infraslruclure and is presenlIy CounciI Menler of Indo-Cernan Chanler
of Connerce. He has leen on lhe oard of Covernors of Indian Inslilule of
Managenenl (IIM) - KoIkala, vas a Menler of RegionaI Direcl Taxes Advisory
Connillee, Covernnenl of India and had served as Iresidenl of CaIculla Chanler
of Connerce.
52
Industry Insights
inclusive growth
Mr. 5 C Ka!Ia, Iorner Lxeculive Direclor, Union ank of India
I
l is acknovIedged ly aII & sundry
lhal suslainalIe nodeI of deveIop-
nenl is feasilIe onIy lhrough In-
cIusive grovlh. Il is in lhis conlexl lhal
Covernnenl Of India has accorded
lop nosl priorily lo lhe agenda of In-
cIusive grovlh & IinanciaI IncIusion.
IncIusive grovlh does nol onIy inpIy
lhe lenehls of grovlh leing dislrilul-
ed equaIIy & evenIy, il is parlicipalion
of aII seclions & regions of sociely in
lhe grovlh slory & lheir reaping lhe
lenehls of lhe grovlh.
Non-anking IinanciaI Conpanies
(NICs) lhrough ils presence in ru-
raI & seni urlan areas have energed
as inporlanl pIayer in pronoling
lhe agenda of incIusive grovlh in
lhe dynanic Indian hnanciaI nar-
kel ly reaching oul lo popuIace in
un-lanked/under-lanked areas.
CurrenlIy, lhe RI cIassihes N- -
ICs inlo 7 calegories as
foIIoving:
Assel hnance conpany (AIC) -
Inveslnenl conpany (IC) -
Loan conpany (LC) -
Infraslruclure hnance conpanies -
(IIC)
Core inveslnenl conpanies (CIC) -
Infraslruclure dell fund-Non- -
lanking hnance conpany (IDI-
NIC)
Non-lanking hnance conpany- -
Micro hnance inslilulion (NIC-
MII)
Inclusive growth does
not only imply the
benepts of grouth
being distributed
equally & evenly; it
is participation of all
sections & regions of
society in the growth
story & their reaping
the benepts of the
growth
53
Industry Insights
As per Reporl of lhe Key Advisory
Croup on lhe Non-anking Iinance
Conpanies (2O12), NICs have grovn
sulslanliaIIy and are rendering vaIu-
alIe services lo lhe un-lanked and
under-lanked popuIalion of lhe coun-
lry. Lven RI appoinled Thoral Con-
nillee has Iauded lhe roIe of NICs in
lhe econonic grovlh of lhe counlry.
NICs have leen innovalors in hnan-
ciaI services, designing producls and
services cuslonized lo lhe needs of
lhe largel cusloners. In addilion lhey
have crealed a suilalIe operalionaI
slruclure lo nake lhe lusiness nodeIs
vialIe. They have heIped expand lhe
hnanciaI services narkels lo lhe inleri-
ors of lhe counlry and never producls
and services.
According lo lhe RI Working
Croup (Chairnan: KU Rao), al a line
vhen hnanciaI incIusion is a najor
poIicy goaI, lhe services rendered ly
lhe goId Ioans NICs, vhich are a
parl of lhe organised Ioan narkel are
conlriluling in a reasonalIe neasure
lo caler lo lhe lorroving requirenenls
of a needy seclion of lhe sociely.
Advantages of NBFCs:
In lhe conlexl of IncIusive grovlh,
NICs have dislinclive advanlages
Iike
Coverage of far-ung areas -
Lasy and convenienl node of de- -
Iivery, even al lhe doorslep and
al inlervaIs convenienl lo lhe lor-
rover vhich nakes il nore allrac-
live lhan lhe fornaI seclor.
More convenienl coIIeclion of -
Ioans according lo cash-ov of
lorrover conpared lo rigid sys-
len in connerciaI lanks
Vasl knovIedge aloul cusloner -
preferences and priorilies in ruraI
and seni-urlan areas. As a resuIl,
lhey design cuslonised producls
vhich fuIhIIs aInosl aII needs of
lhe largel group. Thus operaling
nodeI of NICs is considered as
perfecl for calering lo lhe needs of
seIecl segnenls.
Brief Background
NICs serve lhal parl of lhe India
vhere lhe hnanciaI services have Iin-
iled access and lanks are far lehind in
rendering lhese services due lo prof-
ilaliIily conslrainl, high risk associ-
aled and inaliIily of poor lorrovers lo
provide physicaI coIIaleraI for raising
Ioans. Therefore, as a faciIilalor, il has
lhe polenliaI lo hII lhe crilicaI gap Iefl
ly fornaI hnanciaI inslilulions in pro-
viding hnanciaI services lo Iov incone
groups.
NICs aIso pIayed a very usefuI roIe
in funding Indias econonic grovlh. In
nany vays, lhey have leen Ieaders in
hnanciaI producl innovalion and have
pIayed an effeclive roIe in funding
econonic grovlh, especiaIIy in lerns
of neeling hnancing needs of lhe
under-served and un-lankalIe cIass,
snaII enlerprises and ruraI segnenls
of sociely. Iroducl innovalion vhiIe
nainlaining assel quaIily is a speciaI
slrenglh of NICs, vhich gives lhen
a conpelilive edge.
Functioning of NBFCs:
NICs have leen operaling various
lusinesses under sound econonics.
Many lusinesses slarled ly lhe sec-
lor have Ialer leen laken up ly lanks
and lecone reguIar lanking services.
Ior inslance, car hnancing, vhich vas
slarled ly NICs has nov lecone
one of lhe Iarger revenue slreans for
lanks. The NICs lhenseIves have
nov noved on lo hnancing second-
hand cars. Olher lusinesses, naneIy,
infraslruclure hnance, assel hnance,
hire purchase and, in lhe recenl pasl,
nicrohnance have leen lhe najor ar-
eas of operalions for NICs. Addi-
lionaIIy, NICs pIay a supporlive roIe
in lhe econony and aIso in hnanciaI
incIusion and lherefore need lo le en-
couraged.
How the NBFCs can
contribute in inclusive
growth?
IncIusive grovlh, in lodays era, is
inperalive for suslainalIe deveIop-
nenl. In lhe currenl scenario, nain-
laining high grovlh is onIy soIulion
for crealing gainfuI enpIoynenl op-
porlunilies and vhich reduces pov-
erly. In olher vords, grovlh shouId
le incIusive. Hovever, for achieving
IncIusive grovlh, one has lo allain
lhe IinanciaI IncIusion vhere each
person can access lhe lasic hnanciaI
services and lhus conlrilule lo lhe
overaII grovlh. These lvo lerns are
inler-connecled. UnforlunaleIy, India
ranks Iov in lhe Index of IinanciaI In-
cIusion
1
(India hoIds 27lh rank in lhe
sanpIe size of 54 nalions). Therefore,
poIicy focus shouId le on lhe allaining
higher hnanciaI incIusion vhich viII
furlher loosl lhe agenda of IncIusive
Crovlh.
________________________________________________________________________________________________________
1
Index of IinanciaI IncIusion- Mandira Sarna (}une 2OO8)
54
Industry Insights
Role of NBFCs in Inclusive
Growth
Sone of lhe econonic roIes pIayed
ly NICs are:
a. Serving unbanked segments: N-
ICs have lradilionaIIy focused on
cusloner segnenls vhich vere nol
served ly lanks Iike nicro, snaII and
nediun enlerprises (MSMLs), fund-
ing of connerciaI vehicIes incIuding
oId vehicIes, farn equipnenls viz.
lracking, harveslers, elc. Ioan againsl
shares, funding of pIanl and nachin-
ery, elc.
b. Specialization: NICs lypicaIIy are
speciaIized vehicIes -lolh in lerns
of producls and lhe geographies in
vhich lhey operale. This speciaIizalion
provides lhen a unique franevork lo
assess lhe risk in lhe underlaken lusi-
ness. A nuch cIoser narkel avareness
provides lhen lhe aliIily lo rale lor-
rovers, nonilor lhen, price lhe reIa-
live credil suilalIy and effecl recover-
ies fron lhen.
c. Exclusive Service: NICs aIso pro-
vide credil for cerlain seclors vhich
are nol served ly lanks and IinanciaI
Inslilulions lecause anks/IIs do nol
have adequale narkel reIalionships
and infraslruclure for lhe sane. Tra-
dilionaIIy, lhese seclors vere hnanced
enlireIy ly lhe unorganized hnanciers
al exorlilanl high inleresl rales. In
lhe Iasl 1O-12 years, vilh lheir relaiI
slrenglh, NICs have rendered sig-
nihcanl service ly exlending credil lo
lhese seclors. Nov lanks and olher h-
nanciaI inslilulions are avaiIing of lhe
reach and experlise of NICs for en-
pIoying funds in lhese seclors lhrough
NICs. Sone of lhese seclors are:
Used Trucks -
Used passenger vehicIes -
Consuner duralIe Ioans -
IersonaI Loans -
Iunding lo lhe SnaII & Me- -
diun Lnlerprises (SML Seclor)
vhich do nol have access lo in-
slilulionaIized funding, elc.
d. Strong understanding of customer
segments and ability to deliver
customized products: The aliIily
of NICs lo generale innovalive
producls in Iine vilh needs of lheir
cIienls is veII recognized. This gives
lhe NICs dislincl advanlage in
lanking seclor. In a shorl period of
line, NICs have lecone narkel
Ieaders in nosl of lhe relaiI hnance
segnenls Iike connerciaI vehicIes, car
hnancing and personaI Ioans, elc. In
lhe Iasl decade or so, lhe Indian relaiI
hnance narkels have seen severaI
nev producls leing deveIoped and
inlroduced ly NICs. The foIIoving
are sone cases in poinl - Used vehicIe
hnancing, snaII lickel personaI Ioans
(ST-IL), Three-vheeIer hnancing,
Loan againsl shares, Ironoler funding,
IulIic issue hnancing (IIO hnancing)
and Iinance for lyres and fueI.
e. Employment Creation: The NICs
aIso engaged in hnancing physicaI
assels and resuIlanl crealion of a Iarge
nunler of jols - vhich supporls and
slrenglhens econonic aclivilies across
seclors, and pIay a crilicaI roIe as an
effeclive inslrunenls of credil deIivery
parlicuIarIy in lhe snaII and relaiI
seclors of lhe econony.
Drawbacks
This seclor conslilules higher -
syslenic risk due lo heavy
dependence on pulIic funds
vhich anounls lo approxinaleIy
58 of aII funding lo lhe seclor.
The rale of inleresl charged ly -
lhe NICs depends upon lhe
cosl of funds, cosl of deIivery
and paynenl, cosl of purchasing
lad dells and cosl of nargins.
Ior econonic vialiIily and
suslainalIe grovlh, lhey need
lo charge inleresl rale covering
lhese cosls. Various sludies
conducled on lhis aspecl indicale
lhal NICs nornaIIy charge
higher inleresl rale for lheir
suslenance.
Conclusion
Civen lhe inporlanl roIe -
pIayed ly NICs as innovalors,
serving un-lanked and under-
lanked geographies and
cusloner segnenls and services
nol provided ly lanks, and
generalion of enpIoynenl,
elc., il is inperalive lhal lhe
grovlh and deveIopnenl of
lhe seclor le accorded sone
degree of priorily. Wilh
adequale reguIalory oversighl of
syslenicaIIy inporlanl NICs,
inpIenenlalion of prudenliaI
norns, reguIar reporling and
noniloring, elc., NICs nay le
Iooked al pIaying a Iarger parl
in lhe hnanciaI services seclor.
In lhe Iong run, such reguIalory
franevork viII ensure orderIy
grovlh and reduces uncerlainly.
On lhe assel IialiIily fronl, Iover -
cosl of lorroving and lhus
55
Industry Insights
nininaI inleresl rales can le
achieved lhrough idenlihcalion
of innovalive lechniques. The
cosl of deIivery and coIIeclion
of paynenl, vhich forns a
najor conponenl of cosl, can le
reduced sulslanliaIIy ly using
lhe Connon Service Cenlres,
vhich can le shared ly olher
agencies aIso. The seclor shouId
nake aII allenpls lo reduce
lhe rale of inleresl ly neans of
efhciency enhancing innovalions
vilh lhe aid of lechnoIogy.
In shorl, NICs have lo conlinu- -
ousIy reinvenl lhenseIves in or-
der lo conlinue lo pIay an inpor-
lanl & pivolaI roIe in pronoling
agenda of IncIusive grovlh & Ii-
nanciaI IncIusion going forvard.
NBFCs may be looked
at playing a larger
part In thc nancIa!
services sector
5 C Ka!Ia
Former, Executive Director
Union Bank of India
Mr. KaIia has leen a career anker for nearIy four decades. A CoId nedaIisl Iosl
Craduale in IoIilicaI Science, Mr. KaIia joined ank of aroda in 1973 and vorked in
severaI capacilies up lo lhe IeveI of CeneraI Manager in ank of aroda liII 2OO8 vhen he
vas appoinled as Lxeculive Direclor of Vijaya ank ly Covernnenl of India. Mr. KaIia
aIso served as Lxeculive Direclor of Union ank of India liII his superannualion in 2O11.
Mr. KaIia has leen nenler of various connillee consliluled ly Covernnenl of India,
Reserve ank of India & Indian ank Associalion. He has rich Corporale Covernance
experience having served on oards of various anks and connillee (incIuding lhal of
Doneslic & Overseas sulsidiaries of ank of aroda) & olher inslilulions. Having served
in London and Maurilius and having carried oul Hone ofhce inspeclions in various
overseas jurisdiclion in ank Of aroda, Mr.KaiIa aIso has rich inlernalionaI experience.
Iosl relirenenl. Mr. KaIia has served as nenler of lhe connillee consliluled ly
Reserve ank of India on Iriorily Seclor Lending and Advisor & Head Dell Markels CeII
consliluled ly DIS, Minislry of Iinance, Covernnenl of India under lhe aegis of IIICL.
He is currenlIy nenler of Lnpovered Connillees on LxlernaI ConnerciaI orrovings
consliluled ly Reserve ank of India and Menler of anking and Iinance Connillee of
Indian Merchanl Chanler, Munlai lesides leing on lhe oard of sone conpanies.
The Policy Pulse
58
The Policy Pulse
Important announcements by RBI
RBI rc!cascs na! guIdc!Incs fnr ncw bank
license
The Reserve ank of India has issued lhe nuch-availed
guideIines for nev lank Iicences, aIIoving corporales and
pulIic seclor enlilies vilh sound credenliaIs and a nininun
lrack record of 1O years lo enler lhe lanking lusiness.
The Reserve ank, vhich has Iaid dovn an eIalorale
'hl and proper crileria, has nol excIuded any calegory
Iike lrokerages, reaI eslale conpanies fron enlering inlo
lhe lanking space as has leen advocaled ly lhe Iinance
Minislry.
The nininun paid-up capilaI for selling up a lank
has leen pegged al Rs 5OO crore.The cap on lhe foreign
inveslnenl, incIuding IDI/III and NRI, has leen sel al 49
per cenl.
As per norns nolihed ly RI, on receipl of Iicence,
pronoler has lo slarl operalions vilhin one year and Iisl
lhe conpany vilhin lhree years of connencenenl of lhe
lusiness.
AIso, nev lanks shouId open al Ieasl 25 per cenl of
lranches in unlanked ruraI cenlres.
Those seeking lo sel up a lank vouId have lo sulnil
appIicalions ly }uIy 1, 2O13. The RI viII dispIay nanes of
appIicanls on ils Welsile.
efore granling Iicences, RI vouId seek feedlack
aloul appIicanls fron olher reguIalors, enforcenenl,
invesligalive agencies Iike I-T Deparlnenl, CI, LD, as
deened appropriale.
The ruIes issued are lhe cuIninalion of lhree-year process.
RI viII nov legin laking appIicalions for lank Iicenses for
lhe hrsl line in a decade.
Al presenl, lhere are 26 pulIic seclor lanks and 22 privale
seclor lanks. OnIy 35 per cenl of Indias aduIl popuIalion
has accounls vilh lanks and olher hnanciaI inslilulions as
conpared lo a gIolaI average of 5O per cenl. Il is 41 per cenl
in case of deveIoping econonies.
IoIIoving lhe granl of Iicence, lhe pronoler group, vhich
couId le a pulIic seclor enlily as veII, viII le required lo
sel up a vhoIIy-ovned Non-Operalive IinanciaI HoIding
Conpany (NOIHC).
The NOIHC is ained al prolecling lhe lanking operalion
fron exlraneous faclors Iike olher lusiness of lhe Croup
i.e., connerciaI, induslriaI and hnanciaI aclivilies nol
reguIaled ly hnanciaI seclor reguIalors.
Lxisling non-lanking hnanciaI conpany (NIC) viII le
eIigilIe lo appIy for a lank Iicence.
If considered eIigilIe, NICs nay le pernilled lo pronole
a nev lank or converl lhenseIves inlo lanks, il said.
According lo norns, lhe lusiness pIan has lo le reaIislic
and vialIe and shouId address hov lhe lank proposes lo
achieve hnanciaI incIusion.
The nev enlily viII have lo conpIy vilh lhe priorily
seclor Iending largels and sul-largels as appIicalIe lo lhe
exisling doneslic lanks, il said.
anks pronoled ly groups having 4O per cenl or nore
incone fron non-hnanciaI lusiness viII require RIs prior
approvaI for raising paid-up voling equily capilaI leyond
Rs 1,OOO crore for every lIock of Rs 5OO crore.
The guideIines said lhe NOIHC viII hoId lhe lank as
veII as aII lhe olher hnanciaI services enlilies of lhe group
reguIaled ly RI or olher hnanciaI seclor reguIalors.
The generaI principIe is lhal no hnanciaI services
enlily heId ly lhe NOIHC vouId le aIIoved lo engage
in any aclivily lhal a lank is pernilled lo underlake
deparlnenlaIIy, il said.
The hoIding conpany viII le regislered as a non-lanking
hnance conpany (NIC) vilh lhe RI and viII le governed
ly a separale sel of direclions issued ly RI.
The NOIHC and lhe lank shaII nol have any exposure
lo lhe pronoler group. The lank shaII nol invesl in lhe
equily or dell capilaI inslrunenls of any hnanciaI enlilies
heId ly lhe NOIHC, RI said.
Wilh regard lo corporale governance, lhe nev guideIines
said al Ieasl 5O per cenl of direclors of lhe NOIHC shouId
le independenl direclors.
The corporale slruclure shouId nol inpede effeclive
supervision of lhe lank and lhe NOIHC on a consoIidaled
lasis ly RI, il said.
As regards procedure for granl of lank Iicence, RI said
appIicalions viII le screened ly lhe cenlraI lank ilseIf lefore
leing forvarded lo lhe high IeveI advisory connillee for
furlher scruliny.
The Connillee, lo le consliluled shorlIy ly lhe RI,
viII sulnil ils reconnendalions lo lhe Reserve ank. The
decision lo issue an in-principIe approvaI for selling up of
a lank viII le laken ly lhe cenlraI lank.
Monetary Policy
RI in ils nid quarler reviev of Monelary IoIicy on 19lh
March, 2O13 reduced lhe repo rale ly 25 lasis poinls fron
7.75 lo 7.5. Il Iefl aII olher key rales unchanged.
Other news
Loans to PPP infra projects to be treated as secure
loans: RBI
The RI has announced lhal suljecl lo cerlain
condilions, Ioans lo IulIic Irivale Iarlnership (III)
projecls in lhe infraslruclure seclor vouId le lrealed
Banking Sector
59
The Policy Pulse
as secured Ioans. This neans lhal lhe cosl of hnancing
lhese projecls viII cone dovn, and going forvard, lids
vouId lecone Iover, Ieading lo nore inveslnenl and
nore conpelilion.
Basel III norms for Indian banks from April 1:
RBI
The Reserve ank of India (RI) viII soon issue a
nolihcalion for lhe inpIenenlalion of lhe aseI III capilaI
reguIalions ly Indian lanks fron ApriI 1, 2O13. Though lhe
aseI III norns, as an inlernalionaI accounling slandard for
lanks, vere lo cone inlo force fron }an 1,2O13, lhe cenlraI
lank rescheduIed lhen lo ApriI 1, 2O13 giving Indian
lanks four nonlhs lo inprove lheir capilaI adequacy in
confornily vilh lhe nev norns. anks viII require high
IeveI of capilaI as credil viII lecone nore expensive. In
accordance vilh aseI III norns, Indian lanks viII have lo
nainlain lheir capilaI adequacy ralio al 9 as againsl lhe
nininun reconnended requirenenl of 8.
Govt wants PSBs to consider separate credit limit
The governnenl vanls lhe pulIic seclor lanks (ISs) lo
consider a separale exposure Iinil for credil lo renevalIe
energy projecls lo inprove fund ov inlo lhis capilaI-
inlensive induslry.
Loans lo lhe pover seclor have seen consislenl grovlh,
lul lanks lradilionaIIy give preference lo convenlionaI
pover projecls ralher lhan renevalIe energy unils. anks
exposure lo lhe pover seclor rose lo Rs 4.O7 Iakh crore
in }anuary 2O13 fron Rs 3.28 Iakh crore in March 2O12,
according lo lhe Reserve ank of India (RI).
Considering lhe inporlance of pronoling renevalIe
energy sources, lanks couId consider carving oul a
separale secloraI exposure Iinil. This, according lo lhe
hnance ninislry, couId le eilher lhrough prescriling an
independenl exposure Iinil, or having a sul-Iinil vilhin
lhe exposure Iinil for lhe pover seclor.
Public sector banks to clean books before raising
funds to tackle higher NPA issue
IulIic seclor lanks viII have lo cIean up lheir looks
lefore lhey can lap pulIic funds as lhe hnance ninislry is
loughening ils slance on lheir high non-perforning assels.
The ninislry fears lhal high NIAs viII resuIl in poor
vaIualion of lhe ISs, nany of vhich are gearing lo raise
equily in lhe nev hnanciaI year lo neel lhe higher capilaI
requirenenls under lhe aseI III norns lhal are sel lo kick
in fron 2O13-14.
Slale-run lanks gross non-perforning assels (NIAs) as
a percenlage of deposils have risen lo 4.18 ly Decenler
2O12 conpared lo 3.22 a year ago. Worried over lhe rise
in NIAs, lhe hnance ninislry has aIready caIIed for delaiIs
of recovery of lad Ioans and vrile-offs in lhe pasl six years.
We have soughl expIanalion fron lanks if lhe vrile-off
anounl is nore lhan lhe recovery nade,
RBI extends deadline for issuance of new format
cheques
The RI loday asked lanks lo issue nev cheque looks
onIy under lhe nev fornal and gave lhen line liII }uIy-end
lo vilhdrav lhe oId fornal cheques.
AII cheques currenlIy vilh cusloners in lhe oId fornal
(non-Cheque Truncalion Syslen) viII conlinue lo le vaIid
for anolher four nonlhs (lhe earIier deadIine vas March
31).
The Reserve ank aIso said lhe syslen of posl daled
cheques and paynenl via Lqualed MonlhIy InslaIInenl (
LMI), in eilher lhe oId or nev fornal, viII le lanned fron
nov vherever eIeclronic delil faciIilies are avaiIalIe.
RBI launches study on banks active in selling
gold coins
The Reserve ank is conducling a sludy on lanks lhal
acliveIy seII goId coins or veaIlh nanagenenl producls, lo
check possilIe syslenic risks and pIug IoophoIes.
Seeking lo check denand of goId, a RI Working
Croup had Iasl nonlh proposed a sIev of neasures Iike
nandalory quoling of IAN nunlers for high-vaIue
purchases, reslriclion on goId Ioans and check on NIC
lranches deaIing vilh goId Ioans.
esides, il had suggesled Iinils on inporls of goId ly
lanks and olher governnenl agencies Iike MMTC and STC,
vhich accounl for aloul 56 per cenl of lhe lolaI inporl of
lhe precious nelaI.
Partner Exchange
60
CoId inporls renained a najor concern for lhe reguIalors
and lhe governnenl as lhe inlound shipnenl increased in
recenl years and vere vaIued al USD 42 liIIion in lhe ApriI-
}anuary period of lhe currenl hscaI.
CoId inporls for enlire 2O11-12 hscaI vas USD 56.3
liIIion.
The rising goId inporl is pulling pressure on lhe Currenl
Accounl Dehcil (CAD), vhich had louched a record high of
5.4 per cenl in lhe }uIy-Seplenler period.
Core banking must for co-op banks by Dec 31:
RBI
The Reserve ank of India (RI) has nandaled a deadIine
for Urlan Co-operalive anks (UCs) lo inpIenenl lhe
core lanking soIulions (CS) ly Decenler 31, 2O13. In case
of any non-conpIiance, UCs nay le slripped of sone
faciIilies in lerns of reguIalory approvaIs.
Impose limit on global transactions of cards, RBI
tells banks
In order lo check frauds, lhe RI has asked lanks lo
inpose nonelary Iinil for inlernalionaI lransaclions on
credil and delil cards and refrain fron issuing cards vilh
gIolaI access unIess specihcaIIy soughl ly lhe cusloner.
AII lhe aclive nagslripe inlernalionaI cards issued ly
lanks shouId have lhreshoId Iinil for inlernalionaI usage.
The lhreshoId shouId le delernined ly lhe lanks lased
on lhe risk prohIe of lhe cusloner and accepled ly lhe
cusloner ly }une 3O, 2O13.
TiII lhe line of conpIelion of lhe process a lhreshoId Iinil
nol exceeding $5OO nay le pul in pIace for aII delil cards
and aII credil cards lhal have nol leen used for inlernalionaI
lransaclions in lhe pasl.
The nolihcalion has leen issued foIIoving cyler allacks,
vhich according lo RI has lecone nore unprediclalIe.
LIeclronic paynenl syslens are leconing vuIneralIe lo
nev lypes of nisuse, il is inperalive lhal lanks inlroduce
cerlain nininun checks and laIances lo nininise lhe
inpacl of such allacks and lo arresl or nininise lhe
danage, il said.
Crop loans: Private Banks get interest subvention
booster
Crop Ioan lorrovers, vho vere hilherlo gelling credil
fron nalionaIised lanks, can nov lurn lo privale lanks loo
for supporl.
The Iinance Minislers announcenenl exlending inleresl
sulvenlion on shorl-lern crop Ioans lo privale lanks
vouId nake crop Ioan rales fron lhese lanks conpelilive.
This viII aIso ensure lhen a IeveI-pIaying heId aIong vilh
lheir pulIic seclor counlerparls.
Inleresl sulvenlion is an inleresl sulsidy. The Covern-
nenl has leen providing 2 per cenl inleresl sulvenlion on
crop Ioans lo pulIic seclor lanks. This is nov leing exlend-
ed lo privale lanks
The oId privale seclor lanks had leen seeking lhe
lanking reguIalors heIp lo gel lhe Iinance Minislry exlend
lhe inleresl sulvenlion lo lhen for sone line nov.
The nove is expecled lo heIp such of lhose oId privale
lanks, vhich have lheir lranches in cIose vicinily of pulIic
seclor lank lranches in ruraI areas.
Regulator wants local branches of foreign banks
registered as Indian subsidiaries
The Reserve ank of India is noving cIoser lo naking
sulsidiarisalion of foreign lanks operalions in India a
reaIily ly naking il nandalory for nev inlernalionaI lanks
lo connil in vriling lheir viIIingness lo converl inlo a IocaI
unil vhen Indian reguIalions change.
The cenlraI lank has nade lhis a precondilion for al Ieasl
lvo inlernalionaI lanks-NalionaI AuslraIian ank and
Weslpac anking Corp, according lo lhe Ialesl Iicensing
condilions for foreign lanks seeking lo legin operalions in
India.
The aclion, coning nore lhan lvo years afler lhe RI hrsl
signaIIed ils inlenlion lo ask foreign lanks lo incorporale
IocaI unils lo ring-fence lhen fron gIolaI risks, nay veII le
a signihcanl slep in lhe lanking reguIalors key unhnished
lask of ensuring hnanciaI seclor slaliIily.
The governnenl has aIIoved a one-line exenplion fron
lax if lranch ofhces of foreign lanks converl inlo a IocaI
conpany, renoving a najor olslacIe lo conversion.
AII inlernalionaI lanks in lhe counlry, fron Slandard
Charlered lo Ciligroup, operale as lranches of lheir
overseas parenls, Ieaving lhen exposed lo lhe veaknesses
of lhe parenl conpany.
ank lranches are currenlIy nol separale IegaI enlilies,
and hence do nol have a specihed capilaI lase or a loard
of direclors. ul once lhey are incorporaled as sulsidiaries,
lhese unils viII have lheir ovn capilaI lase and give lhe
lanking reguIalor a leller handIe in
RBI sets up panel to address exporters credit
issues
The RI has sel up a lechnicaI connillee lo exanine
The Policy Pulse
61
The Policy Pulse
difhcuIlies faced ly exporlers lo gel lank credil and suggesl
sleps lo ralionaIise lransaclion cosl and renove proceduraI
lollIenecks.
The connillee viII le chaired ly RI Lxeculive Direclor
C Iadnanalhan.
Lxin ank, LCCC (Lxporl Credil Cuaranlee
Corporalion), seIecl lanks, Iederalion of Indian Lxporl
Organisalion (IILO), Indian anks Associalion (IA) and
Ioreign Lxchange DeaIers Associalion of India (ILDAI)
viII represenl lhe connillee.
The connillee viII reviev lhe exisling poIicies/
procedure reIaling lo lank hnance for exporls and suggesl
neasures lo inprove lineIy, adequale and hassIe free ov
of credil lovards vorking capilaI, capilaI expendilure and
olher requirenenls of lhe seclor, and, in parlicuIar SML
unils.
The connillee viII evaIuale and suggesl vays lo inprove
hnanciaI supporl lo exporl seclor fron aIlernalive sources
such as facloring, inleresl sulvenlion, exporl advance fron
exlernaI sources.
AIso, lhe paneI viII assess efhcacy of exporl supporling
lodies such as Lxin ank, LCCC, ralionaIise lransaclion
cosl i.e. lank charges, paynenl of olher fees lo inprove
lransparency.
Anong olhers, il viII suggesl neasures lo sinpIify and
ralionaIise exisling procedures of docunenlalion, exanine
speciaI needs of exporling unils Iocaled in speciaI econonic
zones, requirenenl of nerchanling lrade, reviev process of
reaIisalion or repalrialion of exporl proceeds.
Il viII aIso suggesl neasures for risk niligalion, hedging,
snoolhing of accounling issues, invoicing of exporlers
in Indian rupee, exanine capaliIilies and energing
requirenenl of lhe syslen and lank slaff lo inprove
services lo exporlers.
RI has asked lhe connillee lo sulnil ils reconnenda-
lions ly ApriI 3O. Il has aIso inviled connenls and sug-
geslions fron lhe slakehoIders unliI Ielruary 28, 2O13.
5upcr-rcgu!atnr fnr nancIa! scctnr mnntcd
ISLRC proposed a unihed reguIalor for narkels,
insurance, connodilies and pensions. Il proposed lo keep
lanking oul of ils purviev, lul onIy lenporariIy.
The paneI, vhose proposaIs couId change lhe hnanciaI
Iandscape of India, aIso suggesled hve addilionaI agencies,
incIuding an appeIIale lrilunaI lhal vouId sulsune lhe
Securilies AppeIIale TrilunaI (SAT).
The suggeslions vere nade ly lhe IinanciaI Seclor
LegisIalive Reforns Connission, forned in March 2O11 lo
revrile and harnonise hnanciaI seclor Iavs.
The connission, headed ly relired Suprene Courl judge
N Srikrishna, said RI vas lhere for nonelary poIicy and
enforcing Iavs in lhe lanking seclor. This syslen shouId le
relained, il said, lul onIy for nov.
When lhe unihed reguIalor, lo le caIIed lhe Unihed
IinanciaI Agency (UIA), gol sone experience, lhe paneI
said, RI shouId le nerged vilh il. The paneI suggesled
lhal lhe Securilies and Lxchange oard of India (Seli), lhe
Insurance ReguIalory and DeveIopnenl Aulhorily (Irda),
lhe Iension Iund ReguIalory and DeveIopnenl Aulhorily
(IIRDA) and lhe Iorvard Markels Connission (IMC) le
sulsuned under UIA.
Il suggesled doing avay vilh a nuIlipIe-agency slruclure
for foreign capilaI inovs. Ioreign direcl inveslnenl (IDI)
poIicy is nov franed ly lhe Deparlnenl of InduslriaI
IoIicy and Ironolion. ul lhe proposaIs are cIeared ly lhe
Ioreign Inveslnenl Ironolion oard, afler cIearances fron
olher agencies.
The hnaI reporl is aIso IikeIy lo suggesl a sunsel cIause of
1O years for hnanciaI seclor Iavs. Though lhe proposaI vas
nol parl of lhe approach paper reIeased in Ocloler 2O12, lhe
connission had indicaled sone IegisIalions vere olsoIele
and irreIevanl in lhe currenl conlexl.
The approach paper had proposed noving fron eighl
hnanciaI reguIalory agencies lo seven, lo achieve econonies
of scope and scaIe.
esides UIA, RI and lhe appeIIale lrilunaI, lhe four
agencies proposed are: The ResoIulion Corporalion lo
valch hnanciaI hrns lhal have nade inlense pronises
lo househoIds and inlervene vhen lhe nel vorlh of such
hrns nears zero, lhe IinanciaI RedressaI Agency lo address
consuner conpIainls againsl hnanciaI seclor conpanies, an
Independenl Dell Managenenl Ofhce, and lhe IinanciaI
SlaliIily and DeveIopnenl CounciI, lolh vilh slalulory
povers.
The Securilies AppeIIale TrilunaI (SAT) nighl le
sulsuned under lhe IinanciaI Seclor AppeIIale TrilunaI,
lo hear appeaIs againsl RI on reguIalory funclions,
lhe Unihed IinanciaI Agency, decisions of lhe IinanciaI
RedressaI Agency and sone eIenenls of lhe vork of lhe
ResoIulion Corporalion.
The approach paper had aIso said lhere vas a need for
separaling lhe adjudicalion funclion fron lhe nainslrean
aclivilies of a reguIalor, lo achieve grealer separalion
of povers. Il had slressed independence of reguIalors,
as lhe governnenl has lhe pover lo issue direclions lo
reguIalors.
The connission proposed lhis pover le renoved. Il vas
in favour of lenporary capilaI conlroIs lased on econonic
condilions, ralher lhan opling for pernanenl deconlroI.
In his udgel speech 2O13-14, Chidanlaran had said
lhe Cenlre vouId acl quickIy and decisiveIy on lhe
reconnendalions of lhe connission. He aIso proposed
consliluling a slanding counciI of experls lo anaIyse lhe
inlernalionaI conpeliliveness of lhe hnanciaI seclor,
periodicaIIy exanine lhe lransaclion cosls of doing lusiness
in lhe Indian narkel, and lo provide inpuls lo governnenl
for aclion.
62
Shares gifted to immediate relatives not to trigger
open offer
Shares gifled lo innediale reIalives, incIuding spouse
and in-Iavs, vouId nol lrigger open offer olIigalions on
lhe pronolers of a conpany. SLI has nade ils posilion
cIear in lhis regard lhrough an inlerprelive Ieller soughl
ly cerlain pronoler enlilies of nedia group D Corp. The
Ieller vas issued in Augusl 2O12 lul SLI nade il pulIic
loday afler lhe expiry of 9O-day secrecy cIause soughl ly lhe
conpany. esides lIood reIalions, innediale reIalives as
dehned ly lhe narkel reguIalor vouId aIso incIude spouse
and lrolher-in-Iav, sisler-in-Iav anong olhers. According
lo norns, any direcl or indirecl acquisilion of shares
anounling lo 25 per cenl or nore slake in a Iisled conpany,
or a conlroI over lhe largel conpany, lriggers a nandalory
open offer ly lhe acquirer for pulIic sharehoIders.
SEBI asks companies to use electronic mode to
make payments
SLI in a circuIar said lhal Iisled conpanies can uliIise
eIeclronic paynenl nodes approved ly lhe Reserve ank
for cash paynenls, such nodes incIude LIeclronic CIearing
Service (LCS), NalionaI LIeclronic CIearance Service (NLCS)
and NalionaI LIeclronic Iund Transfer (NLIT). The circuIar
vouId heIp in ensuring nore lransparency in narkel
deaIings and is ained al curling nisuse of inveslor funds.
To ensure cash paynenls are done lhrough lhe eIeclronic
node, conpanies are required lo keep lank accounl delaiIs
of inveslors. Conpanies can opl for physicaI paynenl
inslrunenls for paying cash lo lhe inveslors if lhere are
prolIens in eIeclronic node such as lhose reIaled lo MICR
(Magnelic Ink Characler Recognilion) and IISC (Indian
IinanciaI Syslen Code).
SEBI allows FIIs to use government, corporate
bonds as collateral
In a nove lhal vouId heIp loosl ov of overseas funds
inlo Indian capilaI narkels, SLI aIIoved IIIs lo offer
governnenl securilies and corporale londs as coIIaleraIs
for lheir cash and derivalive lransaclions on lhe slock
exchanges. IIIs vere so far pernilled lo offer cash and
foreign sovereign securilies vilh lop-grade 'AAA raling in
derivalive segnenl, vhiIe foreign sovereign securilies vilh
AAA raling and governnenl securilies vere aIIoved in lhe
cash segnenl.
SEBI issues product labelling for Mutual Funds
In a nove lhal vouId heIp inveslors assess lhe risk
associaled vilh lhe schenes, SLI has issued a franevork
on 'producl IaleIIing vilh coIour coding for nuluaI funds
Capital Markets Sector
(MIs) fron }uIy. The guideIines vouId le effeclive fron
}uIy 1, 2O13, for aII exisling and forlhconing schenes. These
guideIines vere lased on a Connillees reconnendalions
lhal vas sel up lo address lhe issue of nis-seIIing and
exanine lhe syslen of producl IaleIIing lhal vouId provide
inveslors an easy underslanding of lhe kind of producl/
schene lhey are invesling in and ils suilaliIily lo lhen.
SEBI tweaks stock exchange arbitration
mechanism
SLI issued a circuIar, vherein il has lveaked lhe slock
exchange arlilralion nechanisn lo faciIilale seIeclion
of arlilralors lhrough an aulonalic process. Arlilralion
nechanisn is a dispule resoIulion process lelveen narkel
pIayers such as lrokers, sul-lrokers, cIearing nenlers
and deposilories. Under lhe nev process, lhe enlire Iisl
of arlilralors enpaneIIed vilh slock exchanges shaII le
pooIed and nade pulIicIy avaiIalIe. This connon pooI of
arlilralors viII le chosen ly an aulonalic process vhere
neilher lhe parlies lo lhe arlilralion nor lhe concerned
slock exchanges viII le direclIy invoIved.
SEBI allows debenture trustees to seek credit
rating details
SLI issued a circuIar vherein il asked lhe credil raling
agencies (CRAs) lo share vilh lhe delenlure lruslees
aII reIevanl infornalion aloul lhe ralings assigned ly
lhen for dell securilies and aloul lhe issuers of such
inslrunenls. Wilh lhis neasure, SLI has enalIed a lvo-
vay infornalion sharing arrangenenl lelveen lhe CRAs
and Delenlure Truslees (DTs) lo heIp lhen effecliveIy
discharge lheir respeclive funclions. So far, onIy DTs vere
required lo share infornalion regarding lheir cIienls vilh
lhe CRAs.
Rajya Sabha passes SEBI Bill for appointing SAT
head
The Policy Pulse
63
Rajya Salha passed a iII seeking lo lroaden lhe
crilerion for appoinlnenl of Iresiding Ofhcer of lhe
Securilies AppeIIale TrilunaI (SAT), a slalulory lody lhal
adjudicales on appeaIs againsl orders passed ly SLI. The
SLI (Anendnenl) iII, 2O13, seeks lo incIude lhe crilerion
of appoinling a relired High Courl judge having heId lhe
posilion for seven years for heading lhe TrilunaI. As per
lhe exisling crileria, onIy a serving or relired Suprene
Courl judge or Chief }uslice of a High Courl can head lhe
TrilunaI, lul lhe Covernnenl is hnding il difhcuIl lo hII
lhe sIol.
SEBI forms panel on insider trading
SLI has forned a paneI lo reviev insider lrading ruIes
lo curl lhe rising nenace of lhe iIIegaI praclice. }uslice N.
K. Sodhi, forner chief juslice of Karnalaka High Courl and
forner presiding ofhcer of lhe Securilies AppeIIale TrilunaI
(SAT) has leen appoinled as lhe paneIs chairnan. In
1992, insider lrading ruIes vere nolihed lo deler conpany
ofhciaIs and olhers fron naking prohls or avoiding Iosses
ly lrading on conhdenliaI infornalion. Since lhen lhere
have leen severaI anendnenls lo lhe reguIalions, and lhe
judiciaI paradign loo has evoIved. The allenpl lhis line
viII le lo furlher curl disparily in infornalion and non-
lransparency in deaIings lo prolecl inveslors conhdence in
slock narkels. esides, lhe paneI viII suggesl vays lo aIign
lhe ruIes nore vilh inlernalionaI praclices.
5EBI nntIcs rcgu!atInns tn sct up 5RO fnr MF
distributors
In a nove lo reguIale nuluaI fund dislrilulion lusiness,
SLI nolihed reguIalions on }anuary 8, 2O13 lo sel up a SeIf
ReguIalory Organisalion (SRO) lo nonilor dislrilulors
of nuluaI fund and porlfoIio nanagenenl producls. The
decisions foIIoved concerns aloul nuluaI fund dislrilulors
in India nol leing reguIaled and lhere having leen various
conpIainls againsl lhen for nis-seIIing of producls lo
lhe inveslors. IresenlIy, lhe dislrilulors need lo regisler
vilh Associalion of MuluaI Iunds in India (AMII) and
lheir regislralion can le canceIIed ly AMII for vioIalion
of a prescriled Code of Conducl or for any olher naIahde
praclice.
SEBI alters consent mechanism norms
SLI has franed a nev sel of guideIines for consenl
order nechanisn and varned lhal any corporale house,
hovever lig il nay le, caughl for serious nisconducls viII
le severeIy deaIl vilh.
SEBI tweaks Infra-debt rules
SLI has nade reIaxalions lo lhe Infraslruclure Dell
Iund (IDI) reguIalions ly videning lhe dehnilion of
slralegic inveslors lo incIude syslenicaIIy inporlanl
NICs and Iong-lern foreign inslilulionaI inveslors. Il aIso
pernilled IDIs lo invesl in any pulIic hnanciaI inslilulions
or infraslruclure hnance conpanies. CurrenlIy, such funds
have lo le kepl in cash or noney narkel funds. Anong
olher lhings, SLI aIso exlended lhe nev fund offer period
for IDIs lo 45 days fron 15 days and nade reIaxalions in
lhe Iinils in leIov-inveslnenl grade inveslnenls.
SEBI to regulate all investment advisors
SLI issued lhe hnaI reguIalions for inveslnenl advisers
in India on }anuary 22, 2O13. Under lhe nev norns, aII
inveslnenl advisers viII le reguIaled ly SLI and aII enlilies
engaged in advising on hnanciaI producls viII le required
lo gel regislered vilh il. To ensure nore lransparency, lhe
nev reguIalions require inveslnenl advisers ~ lanks, non-
lanking hnanciaI conpanies (NICs) and corporales ~
vouId have lo segregale lheir inveslnenl advisory services
fron olher aclivilies. Inveslnenl advisers aIso have lo
discIose lhe fee received for lheir advice on a parlicuIar
hnanciaI producl. To le an inveslnenl adviser, corporale
lodies need lo have a nininun vorlh of Rs 25 Iakh vhiIe
lhe lhreshoId IeveI vouId le Rs 1 Iakh for individuaIs. SLI
has given a line period of one year for exisling inveslnenl
advisers lo conpIy vilh necessary capilaI adequacy
requirenenls.
SEBI may mandate scrutiny of small companies
IPO fund use through monitoring agency
SLI pIans lo nake il nandalory for conpanies vilh an
The Policy Pulse
Partner Exchange
64
issue of Iess lhan 5OO crore lo appoinl a noniloring agency
lo keep lrack of lhe use of funds. The noniloring agency
viII have lo provide up-lo-dale infornalion of lhe end use
of lhe noney raised liII such line lhe funds have leen fuIIy
uliIized. Al presenl, onIy conpanies vilh an issue size
of alove 5OO crore have lo appoinl a noniloring agency,
usuaIIy a lanker lo lhe issue. The lhinking al SLI is lo nov
lring issues of a size snaIIer lhan or equaI lo 5OO crore in
lhe noniloring agency foId.
SEBI asks market intermediaries to comply with
ASBA norms
In a circuIar issued ly SLI on 23rd }anuary 2O13, il
direcled aII narkel inlernediaries lo conpIy vilh lhe
various guideIines reIaled lo AppIicalion Supporled ly
Iocked Anounl (ASA) faciIily. ASA faciIily aIIovs lhe
appIicalion noney lo renain lIocked in lhe appIicanls
lank accounl liII lhe line lhe shares are acluaIIy aIIolled in
lhe pulIic offers. Il eIininales any deIays reIaled lo refunds
for lhe unaIIolled shares. IniliaIIy, lhe faciIily vas offered
lo relaiI inveslors onIy and vas given lo olher inveslors in
2OO9.
This circuIar shaII le appIicalIe for Red Herring
Irospeclus/ Irospeclus/Leller of Offer hIed vilh Regislrar
of Conpanies/ Slock Lxchanges, as lhe case nay le, on or
afler March 1, 2O13.
FII limit for government, corporate bonds raised
The governnenl increased lhe III inveslnenl Iinil in
governnenl and corporale londs ly USD 5 liIIion each and
lhe Iinils nov sland al USD 25 liIIion and USD 5O liIIion
respecliveIy. In corporale londs, haIf of lhe inveslnenl
Iinil is reserved for londs issued ly infraslruclure
conpanies. In governnenl securilies, IIIs can invesl as
nuch as $1O liIIion in any paper. Ior lhe renaining Iinil,
lhe governnenl expanded lhe scope of inveslors and said
$15 liIIion of londs can le invesled ly IIIs, sovereign
veaIlh funds, nuIliIaleraI agencies, foreign cenlraI lanks
and pension, insurance and endovnenl funds.
5EBI mndIcs nnrms fnr sharc sa!c thrnugh
auction route
On }an 25, 2O13, SLI issued nodihed guideIines for
Offer for SaIe (OIS) nechanisn or auclion roule, preferred
ly conpanies lo ofoad shares in order lo conpIy vilh
nininun sharehoIding norns. To nake lhe OIS process
nore lransparenl, SLI has said lhal indicalive price of lhe
offer shouId le discIosed lhroughoul lhe lrading session
and lhe sane shouId le caIcuIaled on lhe lasis of aII vaIid
lids/orders.
AIso, in lhe upconing OIS issues, lhese inveslors can nov
lid vilhoul naking fuII upfronl paynenls and viII aIso
le aIIoved lo pIace orders vilhoul deposiling lhe nargin
anounls. Hovever, inveslors vho lid vilhoul upfronl
nargins viII nol le aIIoved lo canceI or revise dovnvards
lheir price or quanlily. AIso, such lrades viII le sellIed on
a T+2 lasis (lransaclion dale pIus lvo days). Inveslors vho
lid vilh 1OO per cenl nargin anounl, hovever, viII le
aIIoved lo nodify or canceI lheir orders and lheir lrades
sellIed lhe nexl day.
SEBI issues guidelines for separate debt segment
on bourses
As parl of ils efforls lo loosl lhe counlrys corporale
dell narkel, SLI has cone oul vilh guideIines for selling
up a separale dell segnenl on lourses vhere enlilies Iike
lanks and pension funds can aIso execule lrades. The
dell segnenl vouId provide separale lrading, reporling,
nenlership, cIearing and sellIenenl ruIes.
5cbI Issucs ru!cs nn IdcntIcatInn nf bcnccIa!
ownership
SLI has issued guideIines vherein il has asked narkel
enlilies, incIuding slock lrokers and nuluaI funds, lo lake
reasonalIe neasures lo idenlify lhe uIlinale lenehciaries
of lheir cIienls, as parl of efforls lo ensure nore lransparency
in securilies narkel. Il has direcled aII lhe narkel enlilies
lo idenlify lhe naluraI person, vho, vhelher acling aIone
or logelher uIlinaleIy has a conlroIIing ovnership inleresl.
ConlroIIing ovnership refers lo enlilies having nore lhan
25 per cenl of shares or capilaI or prohls in a conpany. In
lhe case of a parlnership, associalion or lody of individuaIs,
lhe lhreshoId IeveI lo le descriled as conlroIIing ovnership
is nore lhan 15 per cenl of lhe capilaI.
Seli has exenpled fron verifying idenlilies if lhe cIienl
or lhe ovner of lhe conlroIIing inleresl is a conpany Iisled
on a slock exchange, or is a najorily-ovned sulsidiary of
such a conpany.
Mergers, demergers need Sebi clearance
SLI has issued a circuIar on 'Schene of Arrangenenl
under lhe Conpanies Acl, 1956 - Revised requirenenls
for lhe Slock Lxchanges and Lisled Conpanies. To
prolecl ninorily sharehoIders inleresls, SLI has said lhal
henceforlh, conpanies seeking lo gel Iisled afler nerger
or denerger viII have lo ollain ils prior approvaI aIong
The Policy Pulse
65
The Policy Pulse
IRDA asks insurers to have anti-fraud policy
The Insurance ReguIalory and DeveIopnenl Aulhorily
(Irda) has asked insurance conpanies lo pul in pIace
procedures for fraud deleclion and ils conlroI and lo have
a loard-approved anli-fraud poIicy. According lo induslry
eslinales, insurers Iose 1O-15 per cenl of lheir preniun
incone due lo frauds.
IRDA comes out with framework for monitoring
insurance frauds
IRDA has cone oul vilh a franevork for noniloring
frauds in lhe insurance seclor and asked insurers lo carry
oul due diIigence on lheir slaff, incIuding agenls.
Slaling lhal such fraud reduces consuner and sharehoIder
conhdence and can affecl lhe repulalion of individuaI
insurers and lhe insurance seclor as a vhoIe, lhe IRDA
asked insurers lo Iay dovn procedures for noniloring and
earIy deleclion of frauds.
IRDA revises norms for life insurance products
has revised lhe norns for lradilionaI Iife insurance producls
al ils loard neeling. The insurance producls vouId nov
have nandalory nininun dealh lenehl and nininun
surrender vaIue. The Iife insurance producls have aIso
leen aIigned vilh lhe pension producls in sone aspecls
of lenehls, lhe IRDA chief said adding lhal lhe ain vas
lo enhance cusloner proleclion keeping in viev lhe Iong-
lern nalure of Iife insurance producls.
IRDA: Insurcrs tn npcn 25% ncw nfccs In sma!!cr
areas
Insurance seclor reguIalor IRDA has proposed lo nake il
nandalory for insurers, vho have leen in lusiness for 1O
years, lo open al Ieasl 25 per cenl of nev ofhces in areas lhal
have a popuIalion Iess lhan 1,OO,OOO.
IRDA introduces File and Use procedure for life
products
Insurance Sector
vilh approvaI fron lhe slock exchanges (SLs) and lhe High
Courl.
SLI is of lhe viev lhal granling Iisling pernission or
exenplion fron lhe requirenenls lased on such appIicalions
nay nol le in lhe inleresl of ninorily sharehoIders.
Rajiv Gandhi Scheme: SEBI extends new fund
offer to 30 days
SLI has aIIoved nuluaI funds lo accepl inveslor funds
in nev offers under lhe nevIy inlroduced Rajiv Candhi
Lquily Savings Schene (RCLSS) for 3O days, as againsl a
15-day sulscriplion period in olher schenes. The reIaxalion
has leen nade onIy for nuluaI fund schenes under RCLSS,
a governnenl inilialive ained al allracling snaII inveslors
inlo lhe capilaI narkel. esides lhis, lhe linefrane for
RCLSS nuluaI funds aIIocaling lhe refund noney and
issuance of slalenenls ly nuluaI fund houses vouId le 15
days fron lhe cIosure of lhe iniliaI sulscriplion.
SEBIs discussion paper on buyback through
open market purchase
SLI has pul oul a discussion paper on 'Iroposed
nodihcalions lo lhe exisling franevork for luy lack
lhrough open narkel purchase. Sone of lhe proposaIs in
lhe discussion paper are lo nandale 5O per cenl as nininun
quanlily for luylack, reduce lineIine for conpIelion of
luylack fron one year lo lhree nonlhs, posl luylack
olIigalions- Iiniling conpanies fron raising capilaI for
lvo years, disincenlive for nol conpIeling lhe luy-lack
progranne- conpanies vho are unalIe lo luylack 1OO per
cenl viII nol le aIIoved nol le aIIoved lo cone lack vilh
anolher luylack for one year and Iinil for open narkel
offer- nandaling luylack of 15 or nore of (paid up
capilaI + free reserve) lo le done onIy ly lender offer.
SEBIs circular on Amendments to ESOP
Guidelines and Equity Listing Agreement
SLI has issued a circuIar on Anendnenls lo SLI
(LnpIoyee Slock Oplion Schene and LnpIoyee Slock
Iurchase Schene) CuideIines, 1999 and Lquily Lisling
Agreenenl. Through lhis circuIar, Iisled conpanies have
leen prohililed fron franing LSOS/LSIS Schenes vhich
invoIve acquisilion of securilies fron secondary narkel,
vilh a viev lo prevenl frauduIenl and unfair praclices of
deaIing in ovn securilies ly conpanies. Il is aIso indicaled
lhal lhe exisling LSOI/LSIS schenes are lo le aIigned lo
SLI guideIines ly }une 3O, 2O13.
66
To fasl-lrack lhe approvaI nechanisn, insurance seclor
reguIalor IRDA re-inlroduced lhe process of aulonalic
cIearance lo Iife insurance producls. Il said in a circuIar
lhal lhe process ...requires lhe insurers lo sulnil a copy of
poIicy docunenl vilh poIicy scheduIe under IiIe and Use
appIicalion...in respecl of aII producls hIed fron ApriI 1,
2O13 onvards.
IRDA standardises health insurance
In order lo renove anliguily and confusion regarding
lhe cIain process, inlerprelalion of heaIlh insurance lerns
and nanes and procedures reIaled lo crilicaI iIInesses
across insurance conpanies, lhe Insurance ReguIalory and
DeveIopnenl Aulhorily of India has cone oul vilh nev
guideIines.
The guideIines Iay dovn slandard dehnilions of 46
connonIy-used heaIlh insurance lerns such as day-care
lrealnenl, co-paynenl, doniciIiary hospilaIs, elc. They
aIso slandardise pre-aulhorisalion and cIain forns lo
slreanIine processes al aII slages. The guideIines specify
11 diseases and procedures as crilicaI iIInesses.
IRDA brings back auto clearance process for life
products
To fasl-lrack lhe approvaI nechanisn, insurance seclor
reguIalor Irda re-inlroduced lhe process of aulonalic
cIearance lo Iife insurance producls. The Insurance
ReguIalory and DeveIopnenl Aulhorily (Irda) said in a
circuIar lhal lhe process ...requires lhe insurers lo sulnil
a copy of poIicy docunenl vilh poIicy scheduIe under IiIe
and Use appIicalion... in respecl of aII producls hIed fron
ApriI 1, 2O13 onvards.
IRDA bans life cover with highest NAV
guarantee
Insurance ReguIalory and DeveIopnenl Aulhorily (Irda)
viII lan highesl nel assel vaIue (NAV) guaranleed Iife
insurance producls and pul oul lhis nolihcalion shorlIy,
said } Hari Narayan, chairnan.
Highesl NAV-guaranleed producls pronise lo pay lhe
highesl vaIue lhe fund achieves during a cerlain period
of hve or seven years. Hovever, lo nainlain lhal NAV
consislenlIy, insurers have lo lake risks ly invesling in
slocks aggressiveIy. This couId Iead lo undue risks. The
producl had lecone lhe Iargesl seIIing unil-Iinked Iife
insurance poIicies afler nev guideIines cane in 2O1O.
IRDA hikes equity exposure limit of insurers to
15 percent
Insurance conpanies can nov hoId up lo 15 percenl
slake in any conpany, up fron 1O percenl al presenl, as lhe
seclor reguIalor IRDA pernilled raising of lhe inveslnenl
Iinil. The decision cones on lhe lack on Iinance Minislry
pilching for raising equily inveslnenl Iinil for insurance
lehenolh LIC lo up lo 3O percenl.
IRDA allows standalone health insurers to use
life insurance agents for sales
SlandaIone heaIlh insurance conpanies can nov seII heaIlh
cover lhrough Iife insurance agenls of olher conpanies as
veII. TiII nov slandaIone heaIlh insurers couId avaiI lhe
services of Iife insurance agenls afler converling lhen inlo
conposile agenls in cunlersone nanner as per Insurance
ReguIalory and DeveIopnenl Aulhorily (IRDA) norns.
Insurers allowed to buy up to 15% stake in
companies
The IRDA raised lhe exposure an insurance conpany
can lake in lhe equily of conpanies. The reguIalor said
depending upon lhe size of lheir conlroIIed fund, insurers
can pick up 12 percenl and 15 percenl slake in a conpany.
The cap vas earIier sel al 1O percenl.
IRDA proposes to lower solvency margin to 145
pc for insurers
Insurance reguIalor proposed lo lring dovn soIvency
nargin requirenenl lo 145 per cenl againsl lhe exisling
norn of 15O per cenl fron nexl hscaI suljecl lo adequale
provision for risky inveslnenls.
IRDA raises third-party motor cover premium
raised lhe preniun of lhe nandalory lhird parly nolor
insurance cover ly over 1O lo 2O across calegories. The
The Policy Pulse
Partner Exchange
67
preniun rales appIicalIe lo nolor lhird parly IialiIily
insurance lusiness viII le effeclive fron ApriI 1.
A naxinun increase of 2O in lhird parly preniun
has leen aIIoved for privale cars, cals and lhe goods
carrying vehicIes-pulIic carriers vhiIe lhe increase of lhe
sane for lvo vheeIers vouId le IillIe over 18. Hovever
lhe insurance reguIalor has reduced lhe lhird parly nolor
preniun for goods carrying vehicIes-privale carriers ly
1.3 as conpared lo lhe currenl rales.
IRDA looking at two-year policies to improve
cover
To pIug lhe prolIen of a Iarge nunler of vehicIes run-
ning vilhoul cover, lhe Insurance ReguIalory DeveIopnenl
Aulhorily is pilching lo nake nolor lhird parly insurance
poIicies vaIid for lvo years, fron lhe exisling one-year
lern.
Life insurers to have standard form for
policyholders: IRDA
To lring aloul unifornily and lransparency in poIicies
soId ly Iife insurers, IRDA has asked aII Iife insurers lo adopl
a slandard forn for poIicyhoIders seeking insurance cover.
The oljeclive of lhis reguIalion is lo provide for a slandard
proposaI forn for individuaI poIicies in Iife insurance lhal
has an inluiIl exiliIily for seeking speciaIised infornalion
lhal is producl specihc lo a parlicuIar producl calegory,
IRDA said in a nolihcalion.
IRDA to review broker norms
is sel lo overhauI norns for insurance lrokers soon. Il has
consliluled a connillee headed ly Suresh Malhur, Senior
}oinl Direclor, IRDA, lo reviev lhe enlire insurance lrokers
reguIalions, 2OO2.
Insurers, IRDA to launch awareness campaign
In a lid lo creale avareness for insurance needs and
on insurance producls for heaIlh, nolor, hone and lraveI
insurance, lhe CeneraI Insurance CounciI (CIC) vilh
supporl fron IRDA is sel lo slarl ils avareness canpaign
on leIevision, nevspaper and olher nedia channeIs vilh a
lolaI ludgeled spend of Rs 16 crore.
Ior lhe canpaign, lhe insurance reguIalor viII fund 75
per cenl vhiIe lhe renaining 25 per cenl viII le funded ly
lhe generaI insurance conpanies.
IRDA halves compulsory ceding by domestic
general insurers to GlC Re
The Insurance ReguIalory and DeveIopnenl Aulhorily has
reduced lhe requirenenl of conpuIsory ceding of doneslic
generaI insurers lo CeneraI Insurance Corp. of India.
The olIigalory cession lo le pIaced ly generaI insurers
vilh lhe nalionaI reinsurer has reduced fron 1O lo 5.
This nove has leen laken lo creale nore roon for privale
and foreign reinsurers in lhe counlry.
IRDA tweaks investment norms for insurance
companies
Irda lveaked norns for insurance conpanies lo invesl
lheir funds in differenl narkel inslrunenls Iike governnenl
securilies and corporale dell lo channeIise Iong lern
savings in infraslruclure seclor.
Life insurance conpanies can nov le invesled in cenlraI
governnenl securilies vhich shouId nol le Iess lhan 25
per cenl of lhe lolaI corpus, IRDA said in a nolihcalion.
Hovever, lhe lolaI inveslnenl in cenlraI governnenl
securilies, slale governnenl securilies and olher approved
securilies cannol le Iess lhan 5O per cenl laken logelher.
Al lhe sane line, il has aIIoved Iife insurers lo invesl in
housing and infraslruclure londs, vilh ralings of nol Iess
lhan AA ly credil raling agencies. The lolaI inveslnenl in
lhe calegory viII nol le Iess lhan 15 per cenl.
On pension funds, lhe guideIines said noney generaled
fron lhen viII le invesled in lhe governnenl londs, up
lo 4O per cenl of lhe fund vaIue, vhiIe nol nore lhan 6O
per cenl vouId le invesled in olher approved inslrunenls.
As for inveslnenls in ULII funds, lhe guideIines said lhal
al Ieasl 3O per cenl of lhe fund vaIue vouId le invesled
in governnenl securilies and 5 per cenl can le invesled in
housing and infraslruclure londs. The renaining can le
invesled in lhe olher approved inveslnenl calegories.
General insurers can bring out an IPO, post 10
years of operation
has hnaIised lhe norns for iniliaI pulIic issue (IIO) ly
generaI insurers and said lhal onIy lhose vho have leen in
operalion for 1O years, viII le enlilIed lo lring oul an IIO.
Non-linked variable products, Ulips to be treated
on a par
The guideIines have caIIed for non-Iinked varialIe
insurance producls (index-Iinked producls) lo le lrealed
al par vilh unil-Iinked producls (UIips). The insurers have
leen given line liII }une 3O 2O13 and Seplenler 3O, 2O13 lo
re-hIe lheir group and individuaI producls respecliveIy.
The ceiIing for hrsl year connissions has leen pul al 15
for lhe hrsl year for a 5 year lern, 3O for 1O years and 35
for 12 years or nore (4O for insurers aged Iess lhan 1O years).
If lhe poIices are procured ly direcl narkeling, Irda said lhal
no connission viII le aIIoved for direcl narkeling.
IRDA pub!Ishcs vc kcy rcfnrms In gazcttc
(Irda) has pulIished in lhe gazelle of India hve key reforns
reIaled lo lhe seclor, incIuding nev guideIines for insurers
and reinsurers. The reforns are: Inveslnenl reguIalions
for insurers, Irda (Iife insurance-reinsurance) reguIalions,
pIaces of lusiness reguIalions, Irda appoinled acluary
anendnenl reguIalions and reguIalions for lhe slandard
proposaI forn.
The Policy Pulse
FICCIs Data Centre
70
Indian Economy-An Update
Economic Scenario
CDI regislered ils decade Iov grovlh rale of 4.5 per cenl
in lhe lhird quarler of IY 2O12-13. Il is a signihcanl decIine
in lhe econonys grovlh perfornance conpared vilh pre-
vious lvo quarlers of lhe currenl hscaI year. AII lhree sec-
lors in lhe econony, naneIy agricuIlure, nanufacluring
and services, faiIed lo signihcanlIy conlrilule lo lhe overaII
CDI grovlh hgure.
AgricuIlure grovlh, in Q3 IY 2O13-14, furlher deceIer-
aled lo 1.1 per cenl, fron lhe previous quarler, oving lo lhe
conlinualion of poor nonsoon. AIlhough, grovlh is consis-
lenl vilh lhe hrsl lvo quarlers of lhe currenl hscaI year, il
is inadequale vhen conpared lo 4.1 per cenl grovlh rale
regislered in lhe sane quarler Iasl year.
InduslriaI grovlh in Q3 IY 2O12-13 has leen reasonalIe.
AII induslriaI aclivilies, excepl nining and quarrying, reg-
Kcy EcnnnmIc IndIcatnrs
CDI 4.5 - Q3, 2O12-13
5.3 - Q2, 2O12-13
III 2.4 (}anuary, 2O13)
1.O (CunuIalive grovlh ApriI-}anuary, 2O12-13)
WII Inalion () AII Connodily: 6.84 (Ielruary, 2O13)
AII Connodily: 6.62 (}anuary, 2O13)
AII Connodily: 7.31 (Decenler, 2O12)
AII Connodily: 7.24 (Novenler, 2O12)
Inleresl Rales* CRR: 4.OO p.a
ank Rale: 8.5O p.a.
Reverse Repo Rale: 6.5O
Repo Rale: 7.5O
Lxchange Rale 54.O9 (INR/DoIIar), 7O.49 (INR/Luro)
82.46 (INR/Iound), 57.14 (INR/1OO }ap. Yen)
Scurcc. MOSP|, R8|
|igurcs as cn Marcn 26, 2013
Industry
Rate of GDP at Market Prices (%)
(at 2004-05 prices)
2012-13 (Q2) 2012-13 (Q3)
Irivale IinaI Consunplion Lxpendilure (IICL) 6O.8 61.7
Covernnenl IinaI Consunplion Lxpendilure (IICL) 11.1 12.1
Cross Iixed CapilaI Iornalion (CICI) 33.8 32.4
Change in Slocks 3.5 3.1
VaIualIes 1.9 1.9
Lxporls 25.2 22.7
Less Inporls 37.5 32.2
Discrepancies 1.2 -1.6
GDP at market prices 100.0 100.0
Scurcc. MOSP|
FICCIs Data Centre
71
islered higher grovlh rales in Q3 IY 2O12-13, conpared
lo lhe previous quarler of lhe currenl hscaI. Crovlh in
lhe nanufacluring seclor in Q3 slood al 2.5 per cenl and
eIeclricily, gas and valer suppIy regislered 4.5 per cenl.
Conlraclion in grovlh vas experienced onIy in nining &
quarrying vilh (-) 1.4 per cenl grovlh. SiniIar uplick in lhe
III index, conpared vilh lhe previous lvo quarlers, is aIso
indicalive of lhe salisfaclory perfornance of induslry in lhe
lhird quarler of IY 2O12-13.
Crovlh in aII conponenls of lhe services seclor increased
al a reIaliveIy sIov pace in lhe lhird quarler of IY 2O12-13.
Crovlh regislered for Conslruclion (5.8 per cenl), Trade,
holeIs, lransporl and connunicalion (5.1 per cenl), Ii-
nance, Insurance, ReaI Lslale & usiness Services (7.9 per
cenl) and Connunily, SociaI & IersonaI Services (5.4 per
cenl) are Iover lhan lhe grovlh for Q2 of currenl year as
veII as Q3 of IY 2O11-12.
Consunplion expendilure, lolh privale and governnenl,
has increased in reaI lerns for Q3 IY 2O12-13. A decIine in
governnenl expendilure is IikeIy in lhe fourlh quarler of
2O12-13, oving lo lhe governnenls efforls al reducing lhe
hscaI dehcil for lhe currenl year.
Share of inveslnenl in CDI is al ils Iovesl in lhe lhird
quarler, conpared lo lhe hrsl lvo quarlers in IY 2O12-13.
In0atInn
HeadIine inalion or WhoIesaIe Irice Index (WII) ina-
lion has shovn furlher noderalion in lhe Iasl lvo nonlhs
of }anuary and Ielruary (6.62 and 6.84 per cenl respec-
liveIy), conpared vilh lhe hrsl lhree quarlers of IY 2O12-
13. MonlhIy inalion has ranged lelveen 7.24 per cenl
and 8.O7 per cenl during lhe hrsl lhree quarlers. Iaclors
vhich supporled lhe slaliIizalion of prices, in Q3 of 2O12-
13 incIude revivaI of soulh-vesl nonsoon in lhe Ialler haIf,
decIine in prices of freeIy priced fueI producls and nelaIs
in Iine vilh sone noderalion in lheir gIolaI prices and a
range-lound exchange rale
1
. WII has risen in Ielruary (IY
2O12-13) essenliaIIy due a sleep rise in LIC prices and a
sleady increase in prices of pelroI and dieseI. Rale of ina-
lion in LIC vas 26.21 per cenl in Ielruary, conpared vilh
4.28 per cenl in }anuary.
HonlIe Iinance Minisler of India announced lhe gov-
ernnenls connilnenl lo ensure hscaI consoIidalion vhiIe
presenling lhe Union udgel 2O13-14. LarIier eslinale of
hscaI dehcil for IY 2O12-13 vas pegged al 5.3 per cenl. This
has nov leen reduced lo 5.2 per cenl. In effecl, il crealed
an opporlunily for nonelary easing ly lhe CenlraI ank.
CenlraI ank, in ils nid-quarler reviev of nonelary poIicy
has responded vilh a 25 lasis poinls cul in lhe repo rale lo
loosl grovlh. Hovever, onIy nonelary easing viII nol suf-
hce in pushing grovlh upvards. SuppIy lollIenecks (such
as projecl cIearances and reguIalory lollIenecks) vouId
have lo le renoved. One nay, lherefore, nol expecl any
signihcanl rale cul in lhe coning nonlhs of currenl year
2O13.
FIsca! DccIt
The revised eslinale for lhe hscaI dehcil for IY 2O12-13,
al 5.2 per cenl, is a veIcone announcenenl ly lhe HonlIe
Iinance Minisler of India. Il has aIso leen acknovIedged
ly lhe governnenl lhal lhe hscaI dehcil, even al lhis IeveI,
is nol suslainalIe. Therefore, il is lhe governnenls ain lo
reduce il furlher lo 4.8 per cenl in lhe sulsequenl hscaI year
of 2O13-14.
The inproved eslinale of governnenls hscaI condilion
in IY 2O12-13 is lased, prinariIy, on lhe reduclion in gov-
ernnenl expendilure. Moodys, a credil raling agency, in
ils currenl reporl has caIIed lhe quaIily of reduclion in gov-
ernnenl expendilure sul-oplinaI, lecause governnenl
has capped ils capilaI expendilure al 6 per cenl againsl lhe
ludgeled largel of 29 per cenl. Moreover, huge gap in ac-
luaI (18 per cenl) and ludgel eslinales (-13 per cenl), of
grovlh in sulsidy spending, vouId nake lhe hscaI condi-
lion increasingIy vorse. Lvidences
vilh regard lo conlainnenl of sulsidies are fev: furlher
increase in dieseI prices, aIready done once earIier in lhe
year, is uncerlain, Direcl Cash Transfer schene, vhich
couId polenliaIIy pIug lhe sulsidy Ieakages, vouId aIso
need line lo lake effecl. On lhe revenue fronl, Iover eco-
nonic grovlh of 4.5 per cenl regislered in lhe lhird quarler
of lhe currenl hscaI vouId aIso add hscaI slress, due lo ils
negalive inpacl on lax revenues.
Afler laking lhe alove faclors in lo consideralion, vhich
couId slie lhe laIance lelveen governnenl revenue and
________________________________________________________________________________________________________
1
RI Third Quarler Reviev - 2O12-13
FICCIs Data Centre
72
expendilure in lhe currenl hscaI, il vouId le correcl lo con-
cIude lhal hscaI largel, sel ly lhe governnenl, nay nol le
easy lo allain.
Currcnt Accnunt DccIt
Currenl Accounl Dehcil (CAD) neasures lhe difference
lelveen a counlrys exporls and inporls of goods, services
and lransfers. Indias CAD has vorsened sulslanliaIIy in
lhe currenl hscaI year. CAD/CDI ralio for lhe hrsl lvo
quarlers recorded 3.9 per cenl and 5.4 per cenl respecliveIy,
vhich is far leyond lhe conforl IeveI of any econony. As
per RIs Monelary IoIicy Reviev Q3 2O12-13: Lxpecla-
lions, CoId forned aloul 55.6 per cenl and 47 per cenl of
currenl accounl dehcil in Q1 and Q2 of IY 2O12-13. Keep-
ing in viev, lhe sulslanliaI conlrilulion of goId inporls in
lhe overaII currenl accounl dehcil, governnenl has recenl-
Iy raised lhe inporl duly on goId fron 4 per cenl lo 6 per
cenl., lo curl goId inporls.
HonlIe Iinance Minisler of India, in his ludgel speech,
aIso expressed deep concern aloul Indias excessive depen-
dence on inporls of oiI, coaI and goId. As a soIulion, he
offered foreign inveslnenl, lhrough Ioreign Direcl Invesl-
nenl (IDI), Ioreign InslilulionaI Inveslnenl (III) and Lx-
lernaI ConnerciaI orrovings (LCs), as lhe onIy aIlerna-
live, in order lo conlain lhis lurgeoning dehcil. In viev of
lhe aIready accunuIaled dehcil of $38.7 liIIion in lhe hrsl
haIf of lhe currenl hscaI, and an anlicipaled increase in lhe
second haIf, lhe Iinance Minisler quoled a requirenenl of,
approxinaleIy, $75 liIIion of foreign inveslnenl in lhe cur-
renl as veII as lhe forlhconing hscaI year.
Dala reIeased ly Reserve ank of India (RI), for lhe lhird
quarler of lhe currenl hscaI, provides leslinony lo lhe con-
cerns expressed ly lhe Iinance Minisler. CAD has nolched
a record hgure of 6.7 per cenl of CDI for Q3 IY 2O12-13.
An addilion of US$ 32.6 iIIion, in lhe lhird quarler, lo lhe
aIready high dehcil in currenl accounl, has laken lhe accu-
nuIaled hgure lo US$ 71.7 liIIion during ApriI-Decenler
2O12. This accounls for 5.4 per cenl of CDI, vhereas il vas
4.1 per cenl in lhe sane period Iasl year, ApriI-Decenler
2O11-12. Widening lrade dehcil, oving lo inconsequenliaI
grovlh in nerchandise exporls and conlinued grovlh in
oiI and goId inporls, has conlriluled signihcanlIy in ex-
panding lhe currenl accounl dehcil.
Partner Exchange
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73
> India slipped fron lhe lhird largeled nalion lo
lhe sixlh in AsIa PacIc rcgInn fnr 1Q 2O13 vilh
$5.9ln, dovn consideralIy conpared lo $22.1ln
announced in 1Q 2O12
> India Outbound M&A voIune increased
narginaIIy ly 7 lo $828n in 1Q 2O13 fron
$774n for lhe hrsl quarler of 2O12. Hovever, deaI
aclivily for lhe siniIar period dropped fron 38
deaIs lo 24 deaIs in 1Q 2O13
> India Inbound M&A voIune nore lhan doulIed
lo $3.6ln in 1Q 2O13 fron lhe $1.6ln for lhe sane
period in 2O12
> ConverseIy, India Doneslic M&A voIune
dropped consideralIy ly 89 lo $2.3ln in 1Q
2O13, conpared lo $2O.5ln for 1Q 2O12. DeaI
aclivily vas aIso on a Iov of 173 deaIs conpared
lo 328 deaIs for 1Q 2O12
Pos. Advisor Value $m # Deals % Share
1 Morgan Stanley 1,850 1 31.6
2 Jefferies & Company 1,850 1 31.6
3 BNP Paribas 148 1 2.5
4 Rothschild 108 2 1.8
5 Deutsche Bank 108 1 1.8
6 Kotak Mahindra Bank Ltd 106 2 1.8
7 Axis Bank 71 2 1.2
8 GCA Savvian Advisors LLC 68 1 1.2
9 Avendus Capital Pvt Ltd 41 1 0.7
10 Systematix Corporate Services Ltd 37 2 0.6
India Announced M&A Advisory Ranking 1Q 2013
Pos. Advisor Value $m # Deals % Share
1 China 37,823 668 51.9
2 South Korea 10,118 182 13.9
3 Malaysia 7,539 166 10.3
4 India 5,861 222 8.0
5 Hong Kong 2,494 80 3.4
6 Singapore 2,266 81 3.1
7 Indonesia 1,730 64 2.4
8 Macao 1,194 4 1.6
9 Thailand 1,060 41 1.5
10 Taiwan 943 44 1.3
SE Asia M&A Ranking by Target Nationality 1Q 2013
Investment Banking Updates
Mergers & Acquisitions
In associalion vilh
FICCIs Data Centre
74
0
5
10
15
20
25
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2009 2010 2011 2012 2013
$bn India M&A Volume
Domestic Inbound Outbound
> Indian ECM voIune slood al $5.8ln via 38 deaIs
for 1Q 2O13, a 4 decrease on lhe $6.1ln raised in
1Q 2O12
> IPO volume lolaIed $87n (via 11 deaIs) in 1Q
2O13, dovn 48 fron lhe $167n raised for lhe
sane period in 2O12
Follow-on - voIune aIso dropped narginaIIy
ly a percenl lo $5.7ln in 1Q 2O13 conpared
lo $5.8ln raised in 2O11. Hovever nunler of
deaIs rose lo 27 deaIs in 2O13 conpared lo 16
deaIs for lhe sane period in 2O12
> NTPCs $2.2ln foIIov-on via lookrunners
CItI, Gn!dman 5achs, Dcutschc Bank, Kntak
Mahindra, Morgan Stanley and State Bank of
India is lhe Iargesl LCM lransaclion for India for
lhe hrsl quarler of 2O13
Equity Capital Markets
Date Issuer Sector Deal Type Deal Value ($m) Bookrunners
7Feb NTPC Ltd Utility & Energy FO 2,160
MS, GS, CITI, DB, KOTAK,
SBI
29Jan Axis Bank Finance FO 1,027 AXIS, CITI, JPM
1Feb Oil India Ltd Oil & Gas FO 591 CITI, HSBC, KOTAK
20Feb
Shriram Transport
Finance Co Ltd
Finance FO 305 GS
22Mar
Steel Authority of
India Ltd SAIL
Metal & Steel FO 279
AXIS, DB, HSBC, JPM,
KOTAK, SBI
11Mar WNS Holdings Ltd
Professional
Services
FO 185 BoAML, WELLS FARGO
20Feb
Jaiprakash Power
Ventures Ltd
Utility & Energy FO 175 CS
4Mar Bajaj Finance Ltd Finance FO 135 JM FINANCIAL
8Feb
Indiabulls Financial
Services Ltd
Finance FO 128 BoAML, UBS
15Mar
National Aluminium
Co Ltd Nalco
Metal & Steel FO 116 AXIS, IDFC, SBI
Top 10 ECM Deals in 1Q 2013
FICCIs Data Centre
75
> India DCM issuance for lhe hrsl quarler of 2O13
reached $16.5ln raised via 123 deaIs, up 27 on
lhe $13.Oln raised in 1Q 2O12 aIso narking lhe
highesl quarlerIy voIune on record
> Corporate IG and Agency londs accounled for
64 and 25 of lhe lolaI DCM voIune vilh
$1O.6ln and $4.1ln, respecliveIy for 1Q 2O13
Bharti Enterprises Ltd. - Ied lhe offshore issuer
lalIe for 1Q 2O13 vilh a 24 share, vhiIe
Power Finance Corp lopped lhe doneslic
issuer ranking vilh a 21 share
> India Domestic DCM voIune reached INR558.3ln
in 1Q 2O13, up 3 fron lhe INR541.2ln raised in
1Q 2O12. Aclivily vas sIighlIy dovn lo 111 deaIs
in 2O13 fron lhe 113 recorded for 1Q 2O12
> International issuance for 1Q 2O13 recorded an
aII-line high quarlerIy voIune of $6.3ln, aInosl
lhrice lhe 1Q 2O12 voIune of $2.4ln. DeaI aclivily
aIso doulIed lo 12 deaIs in conparison lo 6 deaIs
for lhe hrsl quarler of 2O12
Debt Capital Markets
0.0 0.5 1.0 1.5 2.0 2.5 3.0
Chemicals
Professional Services
Metal & Steel
Technology
Telecommunications
Construction/Building
Mining
Utility & Energy
Oil & Gas
Finance
$bn
India ECM Volume by Top 10 sectors
1Q 2012 1Q 2013
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
2009 2010 2011 2012 2013
#
$bn
India ECM Volume
IPO FO Equity Linked #Deals
0
2
4
6
8
10
12
14
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2009 2010 2011 2012 2013
#
$bn
India International DCM
Corp FIG SSA #Deals
0
100
200
300
400
500
600
2009 2010 2011 2012 2013
INR bn India Domestic Corporate vs FIG
Corp FIG
Pos. Bookrunner Parents Value ($m) No. %share
1 AXIS Bank 2,142 41 13.0
2 Standard Chartered Bank 1,831 23 11.1
3 ICICI Bank 1,214 24 7.4
4 HSBC 1,137 15 6.9
5 Trust Investment Advisors 1,011 50 6.1
6 Darashaw & Co Ltd 974 32 5.9
7 JPMorgan 969 4 5.9
8 Citi 908 6 5.5
9 Barclays 859 12 5.2
10 Deutsche Bank 718 13 4.4
India DCM 1Q 2013
FICCIs Data Centre
76
> India loan voIune reached $13.3ln in 1Q 2O13,
up 5 on lhe $12.6ln for 1Q 2O12. Hovever,
nunler of deaIs for lhe currenl quarler reduced
lo 51conpared lo 56 deaIs for 1Q 2O12
Leveraged Ioan voIune increased 44 lo -
$12.4ln via 45 deaIs, conpared lo $8.6ln (39
deaIs) for lhe hrsl quarler of 2O12
In conlrasl, - Investment grade Ioan voIune
dropped lo a quarlerIy Iov of $859n since 4Q
2OO4 ($33On)
> Anong lhe corporale lorrovers, Oil & Gas seclor
lopped lhe induslry ranking in 1Q 2O13 ($5.Oln)
vilh a 4O share
> ONGCs $2.8ln Ieveraged deaI in }anuary 2O13,
is lhe Iargesl Ioan lransaclion for lhe hrsl quarler
of 2O13
Loan Markets
0
10
20
30
40
50
60
70
80
90
100
0
5
10
15
20
25
30
35
2009 2010 2011 2012 2013
# $bn India Loan Volume
Investment Grade Leveraged #Deals
0
5
10
15
20
25
30
0
5
10
15
20
25
30
35
2009 2010 2011 2012 2013
# $bn
Refinancing as % of India Syndicated loan Volume
Volume % Refinancing
0 1 2 3 4 5 6
Technology
Real Estate/Property
Telecommunications
Chemicals
Consumer Products
Transportation
Utility & Energy
Metal & Steel
Oil & Gas
Construction/Building
$bn
India Corporate Loan Volume by Sectors
1Q 2012 1Q 2013
FICCIs Data Centre
77
IB Revenue
> India IB Revenue reached $156n in 1Q 2O13,
dovn 5 on 1Q 2O12 $164n) and aInosl dovn
ly 45 conpared lo 4Q 2O12 ($282n)
> Syndicated Loan revenue accounled for 32 of lo-
laI India I revenue in 1Q 2O13 vilh $5On. Despile
lhe record share in 4Q 2O12, Ioan revenue is dovn
64 fron lhe $138n earned during 4Q 2O12
> DCM revenue reached $52n in 1Q 2O13, lhe
record high since 2Q 2O11 ($92n) and aIso up ly
7 on 1Q 2O12 ($48n)
M&A fees - accounled for Iovesl share of India
I revenue vilh $23n and a 14 share in 1Q
2O13
ECM fees - reached $31n via 35 deaIs in 1Q
2O13, up 43 on 1Q 2O12 ($22n via 19 deaIs)
0
50
100
150
200
250
300
350
400
0
50
100
150
200
250
300
350
400
2009 2010 2011 2012 2013
# $m India Investment Banking Revenue
DCM ECM Loan M&A #Deals
0
2
4
6
8
10
12
14
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2009 2010 2011 2012 2013
#
$m Asia (ex Japan) IB Revenue
Net Revenue ($mn) India as % of Asia(ex Japan) as % total IB
FICCIs Data Centre
78
Markets Watch
FICCIs Data Centre
79
Financial Sector Events
Synopsis of past events
L lo R: Dr. Arlind Irasad, Direclor CeneraI, IICCI, Mr. Anup agchi, Co-Chair, IICCIs CapilaI Markels Connillee,
Mr. Rajeev AgarvaI, WhoIe-Tine Menler, SLI, Mr. SuniI Sanghai, Chair, IICCIs CapilaI Markels Connillee and
Mrs. Naina LaI Kidvai, Iresidenl, IICCI
L lo R: Dr. Arlind Irasad, Direclor CeneraI, IICCI, Mr. Anup
agchi, Co-Chair, IICCIs CapilaI Markels Connillee, Mr. Anand
Sinha Depuly Covernor, RI, Mr. SuniI Sanghai, Chair, IICCIs
CapilaI Markels Connillee and Mrs. Naina LaI Kidvai,
Iresidenl, IICCI
McctIng wIth Mr. Rajccv Kumar Agarwa!, Whn!c-TImc
Member, SEBI
18th February, 2013, Mumbai
IICCI organized an inleraclive neeling vilh
Mr. Rajeev Kunar AgarvaI, WhoIe-Tine Menler,
Securilies and Lxchange oard of India on Ielruary
18, 2O13 in Munlai. Iron IICCIs side, lhe neeling
vas chaired ly Iresidenl Mrs. Naina LaI Kidvai. Olher
parlicipanls incIuded nenlers of IICCIs CapilaI
Markels Connillee and lhe Co-Chair of Corporale
Lavs Connillee.
Mr. Rajeev AgarvaI gave a lrief overviev of lhe
recenl neasures laken ly SLI lo faciIilale issue
of capilaI, expand lhe capilaI narkel in lerns of
parlicipalion and allracling III inovs and lo regain
lhe conhdence of lhe relaiI inveslor. The parlicipanls
deIileraled on SLIs recenl circuIars, AII reguIalions,
need lo furlher sinpIify KYC norns and lhe IATCA
ModeI inler-governnenlaI agreenenl proposed lo le
signed lelveen India and lhe U.S. Mr. AgarvaI inviled
delaiIed inpuls on lhese issues fron lhe Connillee.
Interactive Meeting with Mr. Anand Sinha, Deputy
Governor, RBI- February 18, 2013- Mumbai
IICCI organized an inleraclive neeling vilh Mr.
Anand Sinha, Depuly Covernor, RI on Ielruary 18,
2O13 in Munlai. Mrs. Naina LaI Kidvai, Iresidenl,
IICCI chaired lhis neeling.
During lhe inleraclion, Mr. Anand Sinha shared lhe
RIs perspeclive on various hnanciaI seclor issues in
lhe currenl nacroecononic scenario and lhe inporlanl
roIe lhal RI envisages for lhe Indian capilaI narkels.
The issues discussed incIude lanks hnancing of Indian
capilaI narkels, corporale lond narkel deveIopnenl,
norns for NICs, aseI III inpIenenlalion,
infraslruclure hnancing and acquisilion hnancing.
80
Banking and Financial Institutions Committee Meeting
4th March, 2013, Mumbai
The hrsl anking and IinanciaI Inslilulions
Connillee neeling vas heId on 4lh March, 2O13 al
ank of India, Head Ofhce, Munlai. The connillee is
chaired ly Mrs. V R Iyer, Chairperson and Managing
Direclor, ank of India and co-chaired ly Mrs Shikha
Sharna, Managing Direclor and CLO, Axis ank and
Mr. Iranil }haveri, Chief Lxeculive Ofhcer - India,
Cililank. Olher nenlers of lhe connillee incIude
represenlalives fron lhe lanking induslry, NICs,
and Corporale Seclor.
The ain of lhe connillee is lo lake up inporlanl
issues leing faced ly lhe lanking induslry in lhe
presenl conlexl.
Sone of lhe issues discussed al lhe neeling incIude:
Iriorily Seclor Lending -
RoIe of NICs in IinanciaI IncIusion -
aseI III InpIenenlalion -
CoId Inporls and CoId Loan Irojecls -
Lasl lul nol Ieasl - IIAC. IIAC 2O13 is lhe -
AnnuaI IICCI-IA CIolaI lanking Conference.
Il viII le heId on 13lh -14lh Augusl, 2O13 al
HoleI Tridenl, Narinan Ioinl, Munlai. CC is
lhe KnovIedge Iarlner lo lhe conference.
Dr. D Sullarao, Covernor, RI has kindIy agreed lo
deIiver lhe InauguraI address al lhe conference.
The hrsl neeling of lhe Sul group on Life Insurance,
IICCI Insurance and Iensions connillee vas heId
on 5lh March 2O13 al Munlai. The connillee is
Chaired ly Mr Anilalh Chaudhry, MD and CLO,
HDIC Slandard Life Insurance Co. Lld. The neeling
vas convened lo discuss lhe vork pIan for lhe currenl
year incIuding lhe AnnuaI Insurance conference. The
agenda lroadIy conprised of lhe perlinenl issues in
lhe Iife insurance seclor and poinls arising oul of lhe
neeling of IICCI secloraI connillee chairs/co-chairs
vilh Ms Naina LaI Kidvai, Iresidenl, IICCI.
Sone issues discussed al lhe neeling vere:
Miligaling nis-seIIing 1.
Markel deveIopnenl for Iension producls 2.
enchnarking saIes and operalions produclivily 3.
drivers
Increasing Cusloner Avareness and Induslry 4.
repulalion nanagenenl
SkiII deveIopnenl for hnanciaI seclor 5.
Covernance Issues 6.
Increasing hnanciaI Iileracy as parl of CSR 7.
aclivily of hnanciaI services induslry
Il vas aIso decided lo organize reguIar 8.
inleraclions vilh Chairnan IRDA, IIRDA,
Minislry of Iinance lo lake up connon issues
perlaining lo lhe insurance induslry.
Insurance and Pensions Committee Meeting
5th March, 2013, Mumbai
Partner Exchange
81
IICCI and AIpen CapilaI India organized
inleraclive sessions vilh a deIegalion fron NASDAQ
Dulai on ApriI 8, 2O13 in Nev DeIhi and on ApriI
9, 2O13 in Munlai. The deIegalion conprised
Mr. Craig Hevell, Senior Vice Iresidenl and
Head of usiness DeveIopnenl and Mr. Navneel
Maheshvari, usiness DeveIopnenl Manager of
NASDAQ Dulai.
The oljeclive of lhe inleraclions vas lo inlroduce
lhe exchange lo Indian lusinesses and prospeclive
issuers vho nay le inleresled in an inlernalionaI
or CDR Iisling and lo provide an updale on lhe key
deveIopnenls in lhe UAL capilaI narkels. NASDAQ
Dulai is a Ieading inlernalionaI Slock Lxchange in
lhe MiddIe Lasl vilh Iisling slandards conparalIe
lo lhe gIolaI exchanges in Nev York, London and
Hong Kong. Il is Iocaled in lhe free lrade zone vilh
zero laxalion and fuII repalrialion of prohls. Il has
exilIe Iisling requirenenls vilh a nininun free
oal of 25 per cenl vilh no founding sharehoIder
Iock-in posl Iisling.
The neelings vere allended ly senior
represenlalives of various seclors incIuding leIecon,
reaI eslale, pover, sleeI, oiI and gas and hnanciaI
services. The neeling in Munlai vas chaired ly
Mr SuniI Sanghai, Chair, IICCIs CapilaI Markels
Connillee and M.D., Head of CIolaI anking-India,
HSC.
Interactive Meetings with NASDAQ Dubai delegation
8th Arl|, 2013, New Delhi and 9th, Arl|, 2013, Mumbai
L lo R: Mr Craig Hevell, Senior Vice Iresidenl & Head of usiness DeveIopnenl, NASDAQ Dulai and
Ms. Nirupana Soundararajan, AddilionaI Direclor & Tean Lead- IinanciaI Seclor, IICCI
82
Across
4 Iorn of vhoIesaIe lrade (4,3,5)
8 IoIicy neasure vhich is al ils
Iovesl since 1976 (3)
1O Slock cIassihcalion lased on
conpanys narkel vaIue (6)
11 Il has risk faclors, usuaIIy (1O)
12 Visa carrier` (6,4)
13 Superior lo 1O-A, in a vay (8)
15 Org. vhich seens lo endorse
paisa loIla hai (3)
18 Inveslnenl slralegy fealure (15)
21 VaIualion nelhod, allr. (3)
22 IopuIar 6Os nunler` (7)
25 ConlinenlaI nole (4)
27 Il is derived fron a Sanskril
vord neaning siIver (5)
3O CoIIeclors ilen` (4)
31 5O nenler cIul (5)
32 2OO8 nechanisn lo supporl US
hnanciaI econony, in shorl (4)
Down
1 Take hone (6)
2 Suljecl lhal deaIs vilh
appIicalion of nalhenalics lo
econonics (12)
3 QuaIily (8)
4 Olher lhan a friend, onIy
one vho slicks vilh you in
adversily.. (8)
5 Slralegy lhal pays off, no naller
hov lhe price noves (8)
6 29-D cousin (3)
7 Whal Indian oiI conpanies
share (7)
9 Ils producls couId soon le
coIour coded (6,4)
11 Co. nane fealure, in London (3)
13 Was al forefronl (3)
14 Ied ex head` (9)
16 Share of concern, perhaps (8)
17 Chrisline Lagardes org. (3)
19 Car fron afar, for e.g. (6)
2O Maiden Iisling, allr. (3)
23 ad Ioan, in shorl (3)
1 2 3
4 5 6 7
8 9
10 11
12
13 14 15 16
17
18 19 20
21
22 23
24 25 26
27 28 29
30
31 32
Fintainment Section
Crossword
Notes:
CIues ending in ` inpIy pIay on vords.
Digils in lrackel al lhe end of lhe cIue indicale nunler of Iellers in each vord of lhe ansver.
CIues lhal have an acronyn or allr. or in shorl inpIy lhal ansvers are allrevialed.
Fintainment Section
83
Sequestration-A lern adopled
ly US Congress lo descrile a hscaI
poIicy process lhal aulonalicaIIy
reduces lhe federaI ludgel across
nosl deparlnenls and agencies.
Sequeslralion, or lhe sequesler,
is a procedure ly vhich across-lhe-
loard spending culs go inlo effecl if
Congress faiIs lo agree on a dehcil-
reducing ludgel lefore a specihed
dale.
House Money Effect-The house
noney effecl gels ils nane fron
lhe casino phrase pIaying vilh lhe
houses noney. Il vas hrsl descriled
ly Richard H. ThaIer and Lric }.
}ohnson of lhe }ohnson Craduale
SchooI of Managenenl of CorneII
Universily. The effecl forecasls lhal
inveslors are nore prone lo luy
higher-risk slocks afler a prohlalIe
lrade. Sone leIieve lhal lhe house
noney effecl is an exanpIe of nenlaI
accounling, vherely capilaI is kepl
separale fron recenl prohls, Ieading
inveslors lo viev said prohls as
disposalIe. As a resuIl, lhey are nore
incIined lo lake grealer risks vilh lhe
noney.
28/36 Rule-A ruIe-of-lhunl for
caIcuIaling lhe anounl of dell lhal
can le laken on ly an individuaI or
(1) On February 28 2013, the Finance Minister cited in his budget
speech a quote by an eminent Indian personality whose 150th
birth anniversary falls this year. Name that personality
a. Sulhash Chandra ose
l. Ralindranalh Tagore
c. Svani Vivekananda
d. ThiruvaIIuvar
(2) What is the neologism which refers to the global elite of wealthy
people whose members view them as completely international?
a. Maslers of lhe Universe
l. Davos Man
c. CIole Trollers
d. WorId ankers
(3) Cyprus was rcccnt!y In thc ncws fnr Its nancIa! and ccnnnmIc
crisis. Which city is the capital of Cyprus?
a. Nicosia
l. Cyprus Cily
c. Alhens
d. HeIsinki
househoId. The 28/36 RuIe slales
lhal a househoId shouId spend
a naxinun of 28 of ils gross
nonlhIy incone on lolaI housing
expenses and no nore lhan 36 on
lolaI dell service, incIuding housing
and olher dell such as car Ioans. This
ruIe is used ly norlgage Ienders and
olher credilors lo assess lorroving
capacily, lhe prenise leing lhal dell
Ioads in excess of lhe 28/36 yardslick
vouId le difhcuIl for an individuaI
or househoId lo service and nay
evenluaIIy Iead lo defauIl.
Scurcc.|ntcs|cpcia.ccm
Quiz
Financial Fundas
QuIck quIz tn tIck!c ynur Intcrcst In thc nancIa! wnr!d:
Partner Exchange
Fintainment Section
84
1. EconNation
LconNalion calegorizes arlicIes fron lhe lop len nosl popuIar econonics lIogs and dispIays lhen in a noliIe-friendIy fornal.
y providing users vilh nuIlipIe perspeclives on gIolaI hnanciaI issues, LconNalion provides an unliased and veII-rounded
galevay lo econonics nevs.
Topics incIude WorId, Money, IoIilics, Lnvironnenl, Lducalin, TechnoIogy, HeaIlh and Lav
AvaiIalIe for iIhone, Android, iIad
2. Central Banks
CenlraI ank presenls lhe Ialesl infornalion fron lhe vorIds najor cenlraI lanks. Nov, fron one pIace, you can keep up vilh
updaled nevs fron lhe deveIoped-vorIds nonelary poIicy nakers.
The cenlraI lanks currenlIy incIuded are lhe US IederaI Reserve, lhe Luropean CenlraI ank, lhe ank of LngIand, lhe ank of
}apan, and lhe ank of Canada.
Any of lhe feeds can le individuaIIy enalIed or disalIed fron lhe opening screen, and conlenl can le shared fron a lullon on
lhe page.
Android and iOS (oplinized for lolh iIhone and iIad)
3. Moneysage Lite
Moneysage is a nusl have porlfoIio nanagenenl looI for peopIe vho invesl heaviIy in MuluaI Iunds in India.
Iealures incIude: 1. Conprehensive Iilrary of Indian MuluaI Iunds. 2. DaiIy NAV updale for aII funds. 3. DaiIy NIO updales. 4.
AliIily lo add lo porlfoIio. 5. Iosilion Keeping. 6. Iush Nolihcalions for daiIy prohl or Ioss. 7. Wel version aIso avaiIalIe.
Works on Android, iIhone pIalforns
QuIck !nnk at nancIa! apps
Mangesh Sakharan Chogre, an aIunnus of V}TI and NMIMS, is a professionaI
inveslnenl lanker vilh a passion for equily narkels and vords aIike. He is a
cruciverlaIisl and an inlernalionaI crossvord conslruclor vilh crossvords pulIished
in WaII Slreel }ournaI, Los AngeIes Tines and recenl acceplance ly The Nev York
Tines. He has lhe unique dislinclion of leing lhe hrsl and lhe onIy conslruclor fron
India lo le inviled ly lhe Nev York Tines lo le a judge al lhe presligious Anerican
Crossvord Tournanenl. He is aIso a freeIance vriler and his coIunns have leen
pulIished in Ieading daiIies Iike The Lcononic Tines, The Hindu usiness Line,
Deccan HeraId and The Tines of India - incIuding ils nuch-foIIoved Speaking Tree
coIunn. His pulIished vork is avaiIalIe al vvv.nangeshghogre.con
Question. 1
a. RLLCMDL
l. TOKCS
c. NOTIIO
d. RNHCU
e. LNLI
f. Irovision for an undervriler
lo laIance share denand and
suppIy: ____ (9)
Question. 2
a. WISA
l. NYMOL
c. TOIS
d. AODRRWI
e. RNUCLYRC
f. Slralegy of using Iov yieId assel
lo invesl in high yieId
assel : _______ (5, 5)
Question. 3
a. HOTCRW
l. ISSURUL
c. RUASTRYL
d. NILCLAT
e. UnIoading of shares foIIoved ly
a quick repurchase : ___ (4,4)
Jumble
5n!vc thc jumb!cd !cttcrs tn fnrm nancIa! tcrms. Thc cIrc!cd !cttcrs In thcsc tcrms can
bc rcarrangcd tn fnrm a pnpu!ar nancIa! buzz wnrd(s) hIntcd by thc c!uc.
Mangesh Ghogre
Fintainment Section
Credits
Fintainment Section
85
I
1
E
2
P
3
N C
4
A S
5
H A
6
N D C A R R Y S
7
C
8
R R T D O O M
9
U
O E R R N P U B
M
10
I D C A P P
11
R O S P E C T U S
E I D L M R U I
T D C
12
R E D I T C A R D
O L T Y L Y
L
13
A R G
14
E C A P R
15
B I
16
F
E R I N U I
17
D
18
I
19
V E R S I
20
F I C A T I O N M
M E P S E D
21
C F
P
22
E N S I O N
23
R
O S P L
24
E
25
U R
26
O
R
27
U P E E
28
A I S E G
29
T A T D
30
E B T N D
N
31
I F T Y N T
32
A R P
Answers of Quiz
Answer: 1 - c
Answer: 2 - l
Answer: 3 - a
Answers of Jumble
Answer 1: a - DLMLRCL, b - STOCK, c - OITION, d - CHURN, e - LILN, f - CRLLNSHOL
Answer 2: a - SWAI, b - MONLY , c - SIOT, d - IORWARD, e - CURRLNCY, f - CARRY TRADL
Answer 3: a - CROWTH, b - SURILUS, c - TRLASURY, d - TANCILL, e - WASH SALL
Solution of Fintainment Section
Fintainment Section
Established in 1927, FICCI is the largest and
oldest apex business organisation in India,
FICCIs stand on policy issues is sought out by
thlnk tanks, Goternment and academl.
Why Partner with FICCI
Why nol` Where eIse couId you:
u Inuence governnenl IegisIalion and poIicies
u e parl of IICCIs lhoughl Ieadership inilialives
u Cel pulIicily lhrough parlicipalion in lrade fairs and
exhililions
u Slay inforned lhrough various pulIicalions and culling
edge sludies
u AvaiI of discounls on deIegales fees
u Connecl vilh 2,25OOO nenlers fron lhe pulIic and
privale seclors vho IICCI represenls direclIy or
indireclIy
If already with Ficci, read on to know
what else awaits you:
u InlernalionaIIy accIained pIalforns lo neel foreign
poIilicaI and lusiness Ieaders
u AliIily lo nake represenlalions lo Covernnenl and
Inslilulions
u Inleraclions vilh Iike-ninded luyers and seIIers
u A dedicaled heIpIine
u Infornalion on exporl and inporl poIicies
u Choice of exhililions and audiloriun faciIilies
For FICCIs Membership and any
Feedback/Comments/Subscription
& Advertisements in Financial Foresights
IIease conlacl:
Mr. Apoorv Srivastava
Editor-Financial Foresights
QuarlerIy IulIicalion
IICCI-IinanciaI Seclor
Iederalion House, 1, Tansen Marg
Nev DeIhi 11O OO1
TeI: 91-11-2373876O-7O
91-11-23487424 (D)
Iax: 91-11-2332O714, 237215O4
LnaiI: apoorv.srivaslavahcci.con
Welsile: vvv.hcci.con
INDUSTRYS VOICE FOR POLICY CHANGE
FEDERATION OF INDIAN CHAMBERS OF COMMERCE AND INDUSTRY
|nus|rqs Vcicc fcr Pc|icq Cnangc
Financial Sector Division
Federation House, 1 Tansen Marg, New Delhi - 110 001
Ph: 011-23487424, 524, Fax: 011-23320714, EmaI!: nanccccI.cnm
www.ccI.cnm

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VOL. NO. 3 ISSUL NO. 5 Q4 IY 12-13

eing a lrue cilizen ve aII feeI

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