“AN OVERVIEW OF NBFC SECTOR WITH REFERENCE TO

FINNABLE AND UNDERSTANDING OF RISK ASSESSMENT MODEL

AND CREDIT MEMORANDUM”

A SUMMER INTERNSHIP REPORT

Submitted by

PUSHPANJALI SINGH

Registration No: 12101613

In partial fulfillment of Summer Internship for the award of the degree of

MASTERS OF BUSINESS ADMINISTRATION

Mittal School of Business

LOVELY PROFESSIONAL

UNIVERSITY
Phagwara, Punjab

1
 CERTIFICATE

OFFER OF INTERNSHIP
Private and Confidential

We welcome you to Finnable. Here is your invitation to create history! We are

delighted to offer you the position of “Intern”.

It is our endeavor to build a most innovative and world class fintech organization and we are keen to
have you on board. We hope we will be able to together change the course of consumer lending
industry in the country and across the globe.

Here are some of the details:

Your city of work will be Bangalore. However, you may have to undertake travel or relocation to
any other work site, office, branches in or out of India depending upon exigencies of work.
Your joining date would be July 4th, 2022. The duration of the internship should be of 12 months
i.e. starting from July 4th, 2022 – July 3rd, 2023. You will be paid an amount of Rs. 25,000/- (Rupees Twenty
Five Thousand) per month as stipend. A performance review will be done as per the Company’s Policy for
confirmation.

Finnable reserves the right to withdraw the internship offer, if Finnable becomes aware of any
material information that may have been concealed or misrepresented by you at the time the offer
was made or subsequently, or if the reference checks are not satisfactory, or if the market conditions
change significantly.

During your internship, employment may be terminated by the company by giving 30 days of written
notice. You are also at liberty to resign from the services of the company by giving 30 days of notice
in writing.

Please indicate your acceptance of this offer by replying in affirmative to this email, within 24 hours
of issue of this letter. If you do not communicate your acceptance in this time frame, this offer is
liable to be withdrawn without further intimation.

This is only an offer letter and does not entitle you for an appointment. On completion of all the
joining formalities and fulfilling all documentation requirements you will be formally appointed and
inducted into the organization.
We take this opportunity to welcome you to Finnable and we are confident that you will have an
exciting career with us.

To start your assignment, you would be reporting directly to Sundaresan S., Vice President &
National Credit Head. You will receive a certificate of completion of the internship from Finnable
after successful completion of the internship, which would be signed by the undersigned.

You will report to the office on 4th July at the following address:- Finnable Technologies Pvt.

Ltd
Indiqube Lakeside,
4th floor, Above Starbucks, Outer Ring Rd, Green Glen Layout, Bellandur, Bengaluru, Karnataka
2
560103

All the best Pushpanjali! We look forward to having you on board.

For Finnable Technologies Pvt. Ltd.

Nitin Gupta
CEO & Co-founder

3
 DECLARATION

I, PUSHPANJALI SINGH, hereby declare that the work presented herein is genuinework
done originally by me and has not been published or submitted elsewhere for the requirement
of a degree programme. Any literature, data or works done by others and cited within this
dissertation has been given due acknowledgement and listed in the reference section.

PUSHPANJALI SINGH

Reg. No. :- 12101613

Date:- 24/09/2022

MBA (LOVELY PROFESSIONAL UNIVERSITY)

4
 ACKNOWLEDGEMENT

A few typewritten words of thanks cannot really express the sincerity of my gratitude. But I
am still trying to put into words my gratefulness towards all who have helped and encouraged
me in carrying out this project. This project of mine bears the imprint of many people who
have an important impact on my thinking, behavior, and acts during the course of study.

First of all I would like to take this opportunity to thank the LOVELY PROFESSIONAL
UNIVERSITY for having summer training as a part of the MBA degree. The
accomplishment of this project otherwise would have been painstaking endeavor, for lack of
staunch and sincere support of the Mittal School of Business, LPU. The incessant and
undeterred succors extended by the members of the department facilitated the job to the great
extent. If this goes unnoticed and unacknowledged it would be selfishness.

Many people have influenced the shape and content of this project, and many supported me
throughout. I express my sincere gratitude to Mr. Akkshansh Paul , Senior Credit
Manager
, (Credit team), who was available for help whenever I required, his guidance, gentle
persuasion and active support has made it possible to complete this project.

I also owe my thanks to my respondents who gave their great contributions in getting my
questionnaires fulfilled. I have immensely benefited from my interactions with my friends
and I acknowledge their contributions to my learning.

In the end, I can say only this much that “ALL ARE NOT MENTIONED BUT NONE IS
FORGOTTEN”
Last but not the least I would like to thank GOD, who continues to look after us despite all
my flaws.

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 TABLE OF CONTENT

S.NO. PARTICULARS PAGE NO.

ACKNOWLEDGEMENT 4

EXECUTIVE SUMMARY 8

1 INTRODUCTION TO THE COMPANY 9

1.1. Vision 9

1.2. Mission 9

1.3. Structure & Hierarchy 10

1.4. Key Peoples Of Organization 10

1.5. Origin And Growth Of The Company 12

1.6. Financial Performance 13-15

1.7. Competitors Analysis 16-19

1.8 Objective of the study 20

1.9 Scope of the study 20

1.10 Limitations of Study 20

2 INTRODUCTION TO THE INDUSTRY 21

2.1 RBI 22

2.2 Characteristics 23

2.3 Types of NBFC 24

2.4 Credit Rating 28

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3 Credit Checks 30

3.1 CRILc 31

4 Risk Assessment Model 31

4.1 Asset Classification 32

4.2 MCA 33

4.3 CIBIL 33

4.4 Credit Assessment Memorandum 34

4.5 Crisis in the NBFC sector 37

5 Research Methodology 39

5.1 HDFC ltd 40

6 KEY LEARNINGS 40

7 A synopsis 42

8 CONCLUSION 43

9 REFRENCES 44

10 Visuals 45

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 EXECUTIVE SUMMARY

Study has been included the holistic view of Non-Banking Financial Companies Sector in our country and
it has been included Understanding of Risk Assessment Model (RAM) and Credit Assessment
Memorandum
(CAM Model).
Study has shown that Non-Banking Financial Companies are working as shadow banks for Consumer
and Commercial banks where it covers many financial segments such as Personal Finance.

There are many rules and regulations of Reserve Bank of India which have to be followed
by Non-Banking Financial Companies.
In Risk Assessment Model, study has been done on the internal rating of financial companies with
CAMEL approach which is used to evaluate the company on the parameters such as Capital,
Asset
quality, Management, Earnings, and Liquidity on the other hand Understanding of the Credit Assessment Memo
has been studied where how to prepare Credit Memo has been studied.
The research has been done by selecting random two Non-Banking Financial Companies, from which
one is Finance Company and other one is Infrastructure Finance Company of which ratio
analysis, Comparative analysis and Common size analysis have been done. By this research, it has
been analysed that how the company has been grown over the years.
As per recent crisis in the Non-Banking Financial Companies, rising in the Non-Performing Assets of
Non-Banking Financial Companies and Public Sector Banks degrading down them in the Financial Market
which is resulted in the Slowdown of this sector. Reserve Bank of India has taken major decisions regarding
banking industry which will make ease to get into this market and run the business.

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 CHAPTER - 01

INTRODUCTION TO THE COMPANY

Company Name: Finnable Credit Private Limited

• Fin-Tech startup:- Formed in year August 2015

• Extensive reach: 20 branches, 150+ advisors

• Values:

• Speed

• Passion

• Commitment

• Integrity
1.0 VISION

To be a world class provider of financial security to individuals and corporate and

to be amongst the top three private sectors NBFC in India.

1.1 MISSION

To be the first preference of our customers by providing innovative, need based

Personal finance and credit solutions to individuals as well as corporate. These
solutions will be made available through a multi-channel distribution network and
superior technology by well-trained professionals.

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1.2 STRUCTURE & HIERARCHY

ORGANIZATIONAL STRUCTURE

C.E.O(Chief ExecutiveOfficer)

C.F.O (Chief FinancialOfficer)

C.D.O(Chief DesignOfficer)

H.O.S. (Head ofSales)

Z.M (Zonal Manager)

R.M (Regional Manager)

T.M.S (Territory Managers)

B.H (Branch Head)

B.M (Branch Managers)

B.D.M.B.P (Business Development Manager/ Business Partner)

Channel Sourcing Partners

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1.4 KEY PEOPLES OF ORGANIZATION

* Mr. Nitin Gupta (Chief Executive officer & whole time Director)

* Mr. Amit Arora (Chief Distribution officer)

* Mr. Sunderesan S (Chief Operating Officer)

* Mrs. Shreevaidya (Head – Marketing)

* Mrs. Anuradha Sriram (Senior Vice President - Actuary)

* Mrs. Shikha Bagai (Chief Financial officer)

* Mr. Mahesh kumar Radhakrishnan (Head – Legal, Risk and Company

Secretary)

* Mrs. Neeta (Human Resources and Administration).

* Mr. Dheeraj Agrawal (Chief Investment Officer)

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1.5 ORIGIN AND GROWTH OF COMPANY

Finnable India Credit PVT Ltd. is a non - banking financial company in India. It is
headquartered at Bengaluru, India and deals with financing across retail and rural segments.
The company provides unsecured as well as secured lending products through a diverse
branch network as well as via digital channels to individuals and MSMEs. Finnable serves as
an enabler and influencer of consumers' wellness and health care decisions,besides being a
payer of health care expenses. Finnable will, therefore, serve as a much-needed catalyst to
expand India 's prevalent urgent finance landscape through product developmentsand a wider
range of consumer-related products.

Finnable Technologies, the technology development and services company, acquired a

consulting firm MavenHive in 2019, in order to boost product development.
45-50 engineers were hired with plans to hire 100 more in 2021, in line with its growth plan.
A new 100k sq ft office space was also acquired in Bengaluru’s Koramangala area, to house its
Business.
Finnable Technologies is the holding company and the subsidiaries are structured

as Finnable Credit – Personal and Home Loans

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1.6 Financial Performance in AUGUST 2021-
Sales Representative Total Applications Loan disbursed Loan disbursed(Amount)
Previous Current Previous Current Previous Current
Grand Total 10358 12246 899 1016 18,96,82,862 20,38,22,472
Bangalore 2077 1856 189 178 4,10,41,301 3,66,41,141
Chennai 1476 1401 155 170 3,08,56,398 3,60,59,573
Delhi 1641 1964 117 129 2,24,63,152 2,52,04,064
Hyderabad 989 1044 131 132 2,96,39,157 2,71,33,321
Pune 818 879 58 57 1,17,71,302 1,14,06,983
Mumbai 1121 1532 101 109 2,11,76,653 2,22,21,045
Madurai 75 97 9 7 9,65,494 8,68,472
Coimbatore 70 76 2 9 4,44,250 14,09,689
Mysore 65 96 3 9 5,14,656 17,20,282
Hosur 68 102 9 9 18,39,302 13,16,347
Vijaywada 69 98 2 3 3,72,605 6,18,100
Guntur 0 0 0 0 0 0
Vishakapatnam 19 92 1 13 2,14,440 25,14,381
Mangalore 69 87 5 10 8,30,830 17,67,006
Bhubaneswar 0 28 0 2 0 2,62,564
Kolkata 337 391 21 27 46,52,704 49,84,946
Ahmedabad 107 281 1 25 2,73,286 40,93,378
Vadodara 70 179 6 12 9,95,646 16,27,482
Surat 130 247 3 20 4,72,268 34,45,990
Nagpur 228 276 13 26 18,64,204 45,01,941
Chandigarh 0 0 0 0 0 0
Jaipur 225 269 12 27 19,76,544 41,51,301
Cuttack 8 58 0 0 0 0
Others 132 98 60 41 1,71,04,230 1,17,82,954
AUTOVERT 24 33 7 6 7,77,809 8,20,174
HOMECAPITAL 84 65 53 35 1,63,26,421 1,09,62,780
MOBUPPS 24 0 0 0 0 0
Direct 564 1095 1 1 2,14,440 91,512
Top-Up Loans 0 0 0 0 0 0

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14
15
 1.7 COMPETITORS

Originally incorporated as Bajaj Auto Finance Limited on March 25, 1987, the non-
bank singularly focused on providing two and three wheeler finance. After 11 years in the auto
finance market, Bajaj Auto Finance Ltd launched its initial public issue of equity share and was
listed on the BSE and NSE. At the turn of the 20th century, the company ventured into the
durables finance sector. In the subsequent years, Bajaj Auto Finance diversified into business and
property loans as well.[3]

Power Finance Corporation Limited was founded in 1986 and is a Navratna Status
company. Rajeev Sharma is the Chairman & Managing Director of the company. Power Finance
Corporation Limited is known to provide financial assistance to different power projects in the
country. It supports organizations involved in Power generation, transmission, and distribution. The
company is also listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

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 Shriram Transport Finance Company Limited focuses on funding commercial and business
vehicles, besides others. The company was founded in 1979 and has been offering funding services
for Light Duty Trucks, Heavy Duty Trucks, Mini Trucks, Passenger Vehicles, Construction
Vehicles, and Farm Equipments. The company’s specialization is in general insurance, mutual
funds, common assets, stock broking, and general protection.

Mahindra & Mahindra Financial Services Limited (MMFSL) was established in 1991
and has over 1000 branches, and a customer base of over 3 million, all over the country. MMFSL is
one of the most renowned organizations and has two affiliates offering Insurance services and rural
housing financial services. It also specializes in offering gold advances, vehicle advances, corporate
advances, home credits, working capital advances, and much more.

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 Muthoot Finance Ltd is India’s first NBFC tracing its history back to 1888 when it
began as a small lender from a village in Kerala. Muthoot Finance Ltd sanctions loans only
against pledge of gold ornaments. It is a leader in India’s gold loan and finance market.
Besides financing gold transactions, Muthoot Finance Ltd offers foreign exchange services,
money transfers, wealth management services, travel, and tourism services. Gold coins are
also sold at Muthoot Finance Branches. The company has its headquarters in Kerala, India,
and operates over 4,400 branches throughout the country. It is also the parent company of
Muthoot Housing Finance (India) Ltd, which offers home loans.

HDB Financial Services is operated by India’s largest private-sector HDFC Bank. It

offers a variety of secured and non-secured financial loans through a network of more than
1,000 branches in 22 Indian states and 3 Union Territories. It provides secured and unsecured
loans, including personal and business loans, doctor's loans, auto loans, gold loans, new to
credit loans, enterprise business loans, consumer durables loans, construction equipment
loans, new and used car loans, equipment loans, and tractor loans. The company operates
through Lending Business and BPO Services segments. It is considered the fastest growing
NBFC in India today.

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 Cholamandalam Investment and Finance Company Limited (Chola), was
incorporated in 1978 as the financial services arm of the Murugappa Group. Chola started as
an equipment financing company and has surged ahead as a complete financial services
provider offering all kinds of services like - vehicle finance, home loans, home equity loans,
SME loans, investment advisory services, stockbroking, and a host of other financial services
to customers. Chola has 725 branches across India with assets under management above INR
35,000 Crores.

Tata Capital Financial Services Limited is top of India’s leading NBFCs.

Established in 2007, it is subsidiary of Tata Sons Limited. TCFS describes itself as a one-stop
financial service provider that caters to the diverse needs of retail, corporate and institutional
customers across businesses. It is registered with RBI as ‘Systemically Important Non-
Deposit Accepting Non-Banking Financial Company (NBFC)’.
Among the various products offered by TCFS to individuals, families, and
businesses, are commercial finance, infrastructure finance, wealth management, consumer
loans, and distribution and marketing of Tata Cards.

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 1.8 OBJECTIVE OF THE STUDY

 To understand, what are the NBFC i.e. Non-Banking Financial Companies?

 To understand various business segments covered by NBFC sector (Types

of NBFCs).

 To study the role played by the NBFC sector in financial markets.

 To study the credit analysis of NBFCs

1.9 SCOPE OF THE STUDY

o Various types of NBFCs.
o Business segments have been covered by NBFC sector.
o Growth of the NBFC sector in financial market.
o Various financial aspects regarding NBFC.
o Risk Assessment Model
o Credit Memorandum.

1.10 LIMITATION OF THE STUDY

 The company had to share very less data as it is confidential.
 Time required is too short as the study of NBFC sector.
 I had to rely on secondary data.
 I could not attend on-site client meeting.

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  Introduction of Non-Banking Financial Companies (NBFCs)

Non-Banking Financial Companies are financial companies which performs like banks
but they are not actual bank. These types of financial companies have to be registered under
Companies act,1956. These financial companies engage in the business of financial loans and
advances, acquisition of securities/bonds/debentures which are issued by Government or local
authority or the marketable securities of a like nature, leasing, hire-purchase, insurance
business, chit business but does not it does not include whose prime principal business is that
of agricultural activity, industrial activity, purchase or sale of any goods
A Non-Banking Financial Companies have head business of accepting stores under any
plan or course of action in one singular amount or in portions by method for commitments or
in some other way, is additionally a non-banking budgetary organization.
NBFCs garnered the attention of the Reserve Bank of India (‘RBI’) when several
depositors lost their money, during the failure of several banks in the late 1950s and early
1960s. In order to prevent the large number of depositors, RBI initiated regulating them by
introducing Chapter IIIB in the Reserve Bank of India
In March 1996, there were around 41,000 NBFCs in India and they were not recognised
as a separate class. However, due to the failure of some of the institutions the regulatory
structure along with the reporting and supervision was constricted by RBI. In the late 90s,
sweeping changes were brought to protect the interest of depositors and ensuring the desired
functioning of NBFCs.
The capital requirement was changed in the year 1999, NBFCs getting registered on
or after the issuance of notification dated April 21, 19991 were required to have the minimum
net owned funds of `200 lakhs in order to commence the business of an NBFC. Due to
snowballing trend in the sector and to ensure the growth of the sector in a healthy and
efficient manner various regulatory measures were taken for identifying the systemically
important companies and bringing them under the austere norms. The NBFC-ND with asset
size of ` 100 crores or more were considered to be systemically important companies. During
the FY 2011- 12, two new categories of NBFCs were introduced viz., IDF and MFI.

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 DEFINITION ( Reserve Bank of India)
Definition for Non-Banking Financial Company, it carries functions like bank but it not actual
bank.
Reserve bank of India has defined NBFC as below. RBI has defined it in systematic way, it has
explained each term in detailed i.e. what is financial institution? What is non-banking?
An NBFC is a company registered under the Companies act, 1956 or Companies act, 2013
and is engagedin the Business of financial Institution.
Section 45I(f) of the Reserve Bank of India act, 1934 defines “Non-Banking Financial
Companies” as-
(i) A financial Institution which is a company;
(ii) A non-banking financial institution which is company and which has
its principal business
the receiving of deposits, under any scheme or arrangement or in any
order manner, or in
lending in any manner;
(iii) Such other non-banking financial institution or class of such
institution, as the bank may,
with the previous approval of the central government and by
notification in the Official
gazette, specify;

NBFCs v/s BANKS

NBFCs functions are very different from Banks. Following are some difference have been
mentioned:
 NBFCs cannot accept demand deposits.
 NBFCs do not form part of payment and settlement system and cannot issue
cheques drawn on itself.
 Deposits insurance facility of Deposit Insurance and Credit Guarantee
Corporation is not
available to depositors of NBFCs, unlike in case of banks:

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  NBFCs do not have power under the Securitisation and Reconstruction of
Financial Assets
and Enforcement of Securities Interest Act, 2002.
 100% FDI in NBFCs is allowed under the automatic route in 18 specified
activities, subject to
minimum capitalisation norms;
 74% FDI permitted in private sector banking, 49% under automatic route and
beyond 49% and up to
74% under approval route.

CHARACTERISTICS

NBFC is the financial institution which is working as shadow for Banks. Banks are mostly in
consumer banking while NBFCs are working in many segments like they are into consumer
banking, corporate banking, wholesale banking, mortgage loans, private banking, wealth
management, and investment banking. Incorporation of non-banking financial firm is
essential as they are small players who provide loans, chit funds etc, as 70% of population
comes from the rural part of India. Many companies have come forward and registered
themselves with RBI to attain the status of NBFC. NBFCs are integral part of our Indian
Economy and Financial Sector. Contribution towards Indian economy from NBFC sector is
increasing, recently it has been contributed 12.5% towards GDP of Indian economy. This
recent success of NBFC can be attributed to its lower cost, swiftness in providing strong risk
management services and their reach in the sector where public sector banks don’t.
NBFCs provide business loans at basic eligibility criteria. They study and do analysis of the
financial status of company and verify the credibility of the borrower company on the basis
of parameters. These parameters include CIBIL score, ITR, Business background, assets
quality, management of the company, liquidity and others.

Terms and conditions of the NBFCs are customer friendly because of which companies do

23
approach NBFCs for corporate loans rather than approach bank. Many NBFCs provides
unsecured business loans which do not require hypothecation of any collateral. For small
businesses, terms and conditions are very customer-friendly where it can avail them loans
easily.
Business loan interest rates of the NBFCs are very competitive in market. They
provide borrower moratorium period on the basis of terms and conditions of the lender. They
have zero prepayment charges and don’t have any hidden charges. They allow borrowers to
repay them as per their pocket i.e. lender offer multiple repayment tenor options that
borrower can choose from and can repay the loan.

TYPES OF NBFCS

NBFCS

LIABILITY SIZE ACTIVITY

LIABILITY

There are two types in classification of NBFCs by Liability.

 Deposit accepting NBFCs
 Non-Deposit accepting NBFCs

All Non-Banking Financial Companies don’t accept deposits. Only those NBFCs
which are holding a valid Certificate of Registration (CoR) with authorisation to
accept Public Deposits can accept/hold public deposit.

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Section 45-I(bb) of the Reserve Bank of India Act, 1934 defines the term deposits as-
Stores (Deposits) incorporates and will be deemed always to have included any
receipt of cash by way of deposit or credit or in any other structure, however does
exclude -
(i) Amounts raised by the way share capital;
(ii) Amounts contributed as capital by partners of the firm;
(iii) Amounts received from scheduled bank or co-operative bank or any other
banking company as
defined in clause (c) of section 5 of the banking regulation act, 1949;
(iv)Any amount received from, - a State financial corporation, any financial
institution specified in or
under section 6 a of IDBI act, 1964, or any other institution that may
be specified by bank in this
behalf;
(v) Money got in normal course of business, by method for – Security Deposits,
Dealership Deposits, sincere cash, and advance against request of
merchandise, properties or administrations.
(vi)Any sum got from an individual or a firm or a relationship of a people not
being a body corporate, enlisted under any institution identifying with
cash loaning which is for now in power in any state;

25
 SIZE

NBFCs are categorised into two different categories viz. Deposit accepting and Non Deposit
accepting.
The non-depositing NBFCs further bifurcated into:
1. Systematically Important-
The term “Systematically important non-deposit taking non-banking financial
company” has been defined to means a Non-Banking Financial Company not
accepting/holding public deposits and having total assets of
Rs. 500 crores and above.
2. Non-systematically Important-
The term “Non-systematically important non-deposit taking non-banking financial
company” has been defined to means a Non-Banking Financial Company not
accepting/holding public deposits and having total assets less than Rs. 500
crores.

ACTIVITY  Underlying one or more assets as

security for availing credit .
 Principal Business, Financing for Physical
ASSET FINANCING Assets like automobiles, tractors, and
COMPANY generator sets etc.
 E.g. Magma Fincorp ltd, Edelweiss
Assets Management

 Engaged in business of pooled capital of

investors in financial securities
INVESTMENT  It can be corporation, partnership,
COMPANY business trust, or LLP.
 E.g. Tata Investment Corporation Limited

26
  Assets size 100 crores and Accept public deposits.
CORE INVESTMENT  Does not hold less than 90% of its total assets
COMPANY
in the form of investment in shares.
 Principal business, acquisition of shares
and securities.
 E.g. Tata Capital Limited.

 Non-Deposit taking NBFC with minimum Net

Owned Funds of 5 crores.
 Loans to be extended without collateral.
MICRO FINANCE  Indebtedness should not be exceed Rs.100,000.
INSTITUTIONS
 E.g. Unnati Micro Finance Private Limited.
.

 Principal business of financing of acquisition or

construction of houses.
HOUSING FINANCE  Regulated by National Housing Finance
COMPANY  Net owned fund of Rs.10 Crores
 E.g. HDFC ltd, IndiaBulls Housing Finance ltd.

 Non-Deposit taking NBFC.

 Deploys 75% of its total assets in infrastructural
INFRASTRUCTURE loans.
FINANCE COMPANY  Minimum Net Owned fund Rs.300 crores,
minimum credit rating of ‘A’ or equivalent, and
CAR should be 15 %. E.g. L&T, IDFC Ltd.

27
 CREDIT RATING (INTERNAL RATING)

A credit rating organisation is an organisation that rates accounts holders which are
going to pay back the amount of credit which have been availed to them on the basis of their
ability to pay back interests and principal amount on time and the probability of defaulting.
These companies also analyse the creditworthiness of debt and issuers and provide the credit
ratings to only organisations and not individuals consumers. The assessed entities may be
companies, special purpose entities, state governments, local government bodies, non-profit
organisations and even countries. There are specialized credit bureaus which have been set up
for the individual. These bureaus assign credit score to each of the individual on the basis of
their history of payment towards interest on loan and Principal amount.
Credit rating agencies, these are not too old agencies in the India. They came into
existence in the second half of the 1980’s. There are 6 Credit rating agencies which have been
recognized as the best Credit rating agencies in India namely; CARE, CRISIL, ICRA,
Brickworks rating, SMERA and IRRP. From above, I get to learn about three agencies
namely, CISIL, CARE, and ICRA. Rating provided by these agencies determine the nature
and integrals of the loan. Banks, NBFCs, or any Financial Institutions look for Credit rating
which have been assigned by the recognized Credit Rating Agency of the borrowing party. If
Credit rating is high of the borrower company then they can be given loan on lower rate of
interest. There is common parameter to rate companies called as CAMELS (Capital
Adequacy, Assets Quality, Management Quality, Earning, Liquidity, and Sensitivity) which
is used by the credit rating agency. This CAMELS have been explained .

 Capital Adequacy
o Assess through Capital Trend Analysis.
o Compliance with regulations pertaining to risk based net worth requirement.
o Compliance with interest and dividend rules and practice.
o Other factors are involved in rating and assessing capital adequacy are
its growth plans, economic environment, ability to control risk, and Loan
& investments concentration.

28
 Assets Quality
o Covers an institutional loan’s quality, which reflects the earnings of
the company.
o Analysing investment risk factors that company may face and comparing
these risks with company’s capital earnings, which shows the stability of the
company when faced with particular risks.
o Analysis of Company’s fair market value of investments when mirrored
with the company’s book
value of investments.

It reflected by the efficiency of a company’s investment policies and practices

 Management Quality
o Management assessment determines whether company is able to properly
react to financial stress or
not
o This parameter is reflected by the management’s capability to point
out, measure, look after and
control risks of the company’s daily activities.
o Management of resources in systematic way which will reflect in efficiency.
o It covers management’s ability to ensure the safe operation of the company
as they comply with necessary and applicable internal and external
regulations.

 Earnings
o Company’s ability to create appropriate returns to be able to expand, retain
competitiveness, and
add capital is a key factor in rating its continued viability.
o Determined by assessing the company’s growth, stability, valuation
allowances, net interest margin,
net worth level and the quality of the company’s existing assets.

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  Liquidity
o Analyst look at interest rate risk sensitivity, availability of assets that can be
easily be converted into cash, dependence on short term volatile financial
resources and Assets Liability Management (ALM) technical competence.

 Sensitivity
o Covers how particular risk exposures can affect institutions.
o Analyst assess an institution’s sensitivity to market risk by monitoring the
management of credit concentration.
o How lending to specific industries affects company.
o Exposure to foreign exchange, commodities, equities, and derivatives are
also included in rating the sensitivity of a company to market risk.

CREDIT CHECKS

While learning in Finnable (NBFC Sector), I could learn the Credit Check. It is term
use to check company’s (Borrower) debt. That means, there are many organisations who
keeps the data of all company regarding their Loans have been taken from other financial
institutions and banks. Analyst do check whether directors of company, do they have any
credit due or any suit filed against them. Following are some aspects have been got to know.

 CIBIL Check (Credit Information Report)

It has been recognised as the first Credit Information Company in India. It collects and
maintains records of individuals’ and companies’ loans and credit cards. These records are
submitted monthly to CIBIL by its members which are banks and other financial institutions.
As analyst, it is very useful to get to know about companies’ all loans and credits. It makes
easy that payment history or credit-worthiness of company.
Lenders generally treat all borrowers equally. Each borrower, if approved by the lender’s
internal credit policy, would get charged the same rate of interest for particular loan size and
purpose. Before sanctioning the loan to

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 any financial institution or any bank, analyst firstly does credit checking through the CIBIL.
It provides you the prompt payment, as well as default payment and all facilities are
mentioned in the report. The Credit Information Report additionally has a list of enquiries
made on your account by various members banks/ financial institutions/ NBFCs for purpose
of the approving the Credit Facility.

 CRILC
Reserve bank of India has constituted a Central Repository of Information on Large
Credits (CRILC) to collect, store, and publish data on all borrowers’ credit exposures.
Banks/ Financial institutions are expected to report findings to CRILC. Banks have to
provide all information regarding their borrowers with an aggregate fund-based and
non-fund-based exposure of and over 5 crores. Banks also have to report the SMA
status of their borrowers to the CRILC. It has been built up for financial institutions
to notify the status of their stressed borrowers and submit the information to a central
database of the Reserve bank of India. CRILC reports have been useful to the lender,
because it can be found out that from how many banks or financial institutions
borrower has borrowed money.

RISK ASSESSMENT MODEL (RAM)

During Summer internship in Finnable Credit , I got to learn about Risk Assessment Model as
I was working in Wholesale underwriting department. This Risk Assessment Model was an
excel sheet in which I have to put financial data into that excel sheet. There are different Risk
Assessment Model for NBFC-MFI (Micro Finance Institution and Other Non-Banking
Finance Companies. CRISIL i.e. Credit Rating Service of India Limited provides RAM to
Financial Institution for internal credit rating. This internal credit is used for making Credit
Assessment Memo (CAM). While learning Risk Assessment Model, there were many new
concepts I got to learn which are very important factors of Credit Analysis.

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Following are the Some important concepts which have to be taken into consideration while
Credit Assessment Model.

 Assets Classification

There are three types of assets classification which have been classified some criteria.

o Standard Assets -
When there is no default in repayment of principal or interest and does not
disclose any problem or carry more than normal risk attached to the business
then those assets are classified as standard assets.

o Sub-standard assets -
Terms of the agreement regarding interest or principal amount have been
renegotiated, restructured or rescheduled after initiating of operating
of organisation till one year then the assets can be classified
as non-performing asset.

o Doubtful-assets -
Term loan, less assets, hire purchase asset or any other asset remaining sub-
standard of period exceeding
18 months or such shorter period*.

o Loss-assets –
Identified the company/external or internal auditor /RBI or an asset which is
adversely affected by a potential threat of non-recoverability due to either
erosion in the value of security or non-availability
of security or due to any fraudulent act or omission on the part of borrower.

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  MCA (Ministry of Corporate Affairs) Report

Ministry of Corporate Affairs provides the company’s master data. Lender has to keep
record of MCA report of borrower. It provides company’s CIN, Registration number,
Company Category and Sub-Category, and Class of Company that is whether it is
private or public company. It also provides how much authorised capital company
does hold and how much paid-up capital of company. Lender can refer information
regarding how much assets are there under charge. It provides the data of all directors
or signatories with their DIN/ PAN number and provides information of directors
who hold and directorship in any other companies.

 CIBIL Suit-filed Database

India’s first credit information bureau has been established to cater to the credit
information requirement of the financial sector and serves as an effective mechanism of
cubing the growth of Non-Performing Assets (NPAs). The Reserve Bank of India constituted
a working group in December 2001 to examine the possibility of CIBIL performing the role
of collecting and disseminating information on suit-filed accounts and list of defaulters, being
reported to RBI by banks and notified Financial Institutions. It provides the data that if any
director of borrower company has been there in suit filed databased or not.
There are two types of checking suit-filed accounts checking

1. Suit-filed accounts of Rs.1 crore and above

2. Suit filed accounts of (Wilful Defaulters) of Rs.25 lacs and above

Lender can refer this data and can take decision regarding loan should be sanctioned or
not.

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 CREDIT ASSESSMENT MEMORANDUM (CAM)

While working with the Fin-Tech startup, I got to learn how to prepare a Credit
Assessment Memorandum. It is the loan approval proposal which is prepared by the lender
bank. In this whole process there are key players who play an important role. Sales
manager, Relationship manager, Credit Officer, and Credit analyst, these officials have to
perform in this whole process.
This process is starts with sales manager, he is the one who brings the customer. Sales
manager is the official is someone who has to take prompt decision on loan proposal that this
should be accepted or not. After that this loan proposal is identified by the relationship
manager and he begins with the preliminary discussion with the customer who wish for loan.
Discussion between relationship manager and the customer is typically regarding amount,
tenor and interest rate of the loan.

After approval of this loan proposal relationship manager request for some documents
to use in evaluating the request. For documentation, there are several documents which are
important that are 2 years of tax returns for both the business and the individual, a personal
financial statement, a current financial statement for the business which have to be prepared
by Chartered Account (CA), Cash Flow Statement, and Proforma if it is real estate company,
and any other documents that will require for the loan proposal. These all documents have
to be brought to Credit analyst by Relationship Manager and both discuss on the loan
proposal and the document which have been sent by the borrower company. Then Credit
analyst do analysis of the borrower company in both aspect that are in Quantitative and
Qualitative. This analysis has to be in-depth analysis of credit risk factors, Critical
assessment of the client under the Credit policy guidelines of the bank. Then it is sent to
marketing department to enclose required recommendations and to commence the Credit
Approval
process.

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Credit Assessment Memo has to be prepared in systematic way and must be
accompanied with concern legal document papers and the financial information of the
borrower.

Credit Memo generally covers contains like specifically control number and the base number
of each client, credit risk grading by the credit rating agency, authorization for the approval
of process, description of proposed credit facility, for which kind of work borrower company
is seeking for loan, Financial statements like income statement, balance sheet, and Cash flow
which should be at least past five years, lending agreement, and compliances of the policies
and guidelines of the Reserve Bank of India.

Credit Assessment Memorandum contains assessment of the following

areas
 Analysis of the Borrower Company

Qualitative analysis has to be done of the borrowing bank or financial institutions.

Assessment of the shareholders, management team and group or affiliate companies is
analysed. Board of Directors, their industry experience, and their qualification have to be
assessed by the analyst. What is the current status of the borrower company in Financial
market, what is the experience of the borrower company in the market, these all factors have
to be analysed. If there are any issues regarding the Company’s lack of management dept,
ownership structure or internal transactions are addressed, and risks mitigated.

 Analysis of Industry

Assessment of the key risk factors of the borrower’s industry has to be done. Credit
analyst has to compare financial health of borrower company with the industry’s average and
has to take decision whether borrower can pay off the loan and interest amount. If there are
any issues regarding the borrower’s standing in the industry, industry concern or if there are
any competitive forces that are addressed. Identification of strengths and weaknesses of the
borrower relative to its competition has to be done.

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  Analysis of History of financial data.

Borrower has to present his audited financial data. Credit analyst have to analyse
minimum 3 years and maximum any no. of years financial data. Corporate guarantor and
guarantor financial statements, both of these have to be analysed in-dept as he is the one is
going to pay back the loan and interest in case of default. This analysis shows the whole
picture of company’s financial strength. Specially it shows strength of cash flow, leverage
and profitability of the borrower company.

 Projection of Financial Performance

Future financial projection is provided to the lender by the borrower company if the
credit facility tenor is going to be more than 1 year with indicating an analysis of the
sufficient of cash flow to meet the requirement of the debt services. Credit facility will not be
provided if the cash flow analysis of the borrower company is not sufficient enough to meet
debt services.

 Lending Guidelines

Loan proposal clearly state whether or not the proposal is in compliance with the lender’s
i.e. bank’s Lending Guidelines. It has to be prepared under the guidelines of the Reserve
Bank of India and it has to be compliance with all norms of the Reserve Bank of India.

 Mitigating Factors

In the credit assessment mitigating factors for risks are identified. There could be risks
involving like high leverage that is high debt; debtor issue; merger, acquisition and
expansion; management changes issues etc.

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 CRISIS IN THE NBFC SECTOR

 INFRASTRUCTURE LEASING AND FINANCE COMPANY (ILFS)

It is investment company and it serves as the holding company of the Infrastructure
Leasing and Finance Company. Business operations of this company have been
working in many expertise sectors such as infrastructure, finance, and social and
environmental services. The company has been working very well till September
2018, the IL&FS had been defaulted due to it could not be met the debt obligations
amounting to Rs.3,800 crores which resulted in the Credit squeezing of the company.
The Government-owned firms have 40% of IL&FS company which is the private
entity and Government had to ensure the solvency of IL&FS in order to maintain.

Due to this default, NBFC sector has been affected adversely and facing issues of credit
degrading, over- leveraging, and misadventures by some large entities. Srinivas, of the
officials said that,” imminent crisis has been brought in the NBFC sector. This sector is
facing issues of Credit degrading, over-leveraging, excessive concentration, largest mismatch
between assets and liabilities, which is correct and perfect recipe for the disaster in this
sector.” In May,2019, IL&FS faced the debt obligation of Rs.94000 crores. This defaults
have been significant impact on India’s credit market. It’s borrowings from banks are around
Rs.57000 crore which is made up between 0.5% and 0.7% of banking loan. This defaults
have created more trouble for Indian lenders and already have created huge toxic loan pile.
As Government-owned firms have major stockholding in the IL&FS, IL&FS group has been
controlled by the government whose 358 subsidiaries owe more than Rs.94000 crores to
banks and other financial institutions. Government had appointed six-members board under
Uday Kotak.

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  DEEWAN HOUSING FINANCE LIMITED

From September 2018, Housing Finance Companies has been facing a lot of financial
problem. This crisis started from the default of the Major player in the housing finance
company i.e. Infrastructure Leasing and Finance Services (IL&FS). IL&FS could not pay-off
its debt obligations which was nearly RS.94000 crores. It was due to IL&FS could not pay-
off its short term period debts obligations like Commercial papers, Convertible debentures.
This crisis affected another major player in Housing Finance Companies i.e. Deewan
Housing Finance Limited (DHFL). Due to this, share of the DHFL which was trading at
Rs.630 it drops directly 6825 BPS that is Rs.200.
Commercial Banks stopped lending loans to Non-Banking Financial Companies and Housing
Finance Companies due to this default in IL&FS. This also brought liquidity crises around
the all Housing Finance Companies.

Piramal Enterprises Ltd (PEL) on Wednesday ( 29th September 2021 ) said it has
formally acquired the bankrupt Dewan Housing Finance Corporation Ltd (DHFL) by
making the cash payment of ₹14,700 crore to creditors as per the resolution plan.

DHFL has been acquired by Piramal for total consideration of ₹34,250 crore which
includes an upfront cash component of ₹14,700 crore paid on Wednesday and
issuance of debt instruments of ₹19,550 crore (10-year NCDs at 6.75% p.a. on a half-
yearly basis).

Besides this the creditor have got ₹3,800 crore in cash that was with DHFL when the
administrator took over the entity for debt resolution.

DHFL has been acquired by Piramal Enterprises Ltd for total consideration
of ₹34,250 crore on 29th sept 2021.

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RESEARCH METHODOLOGY

Method of Study
Analysis have been done on the secondary source. There are two types of research which
are descriptive and exploratory, where my research is part of descriptive research. In this
Two Sub-sector of Non-Banking Financial Companies have been taken into consideration.
All research has been done by statistical way and its analysis. Two sub-sectors, Housing
Finance Companies and Infrastructure Finance Companies, have been taken to do the
analysis and from each sector one company has been selected to do the ratio analysis,
comparative analysis and common size ratio.

Sampling Design
Samples have been taken on random basis from Housing Finance Companies and
Infrastructure Finance Companies which come under Non-Banking Financial Companies
(NBFC Sector). One Company from each sector has been taken to analyse. Financial data
has been taken for last three years (2016 to 2018) from annual reports of the concern
companies.

Data Collection
Data has been collected from external resources that is, it is secondary type of data collection.
The data has been taken from annual report and took down manually.

Data Interpretation
Analysed data and its interpretation have been explained in annexures. Kindly refer
annexure for Data Interpretation.

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 ANNEXURES
Housing Finance Company
Housing Development Finance Company Ltd.
March 31st, 2020 March 31st, 2019 March 31st, 2018
KEY FINANCIAL RATIOS

RETURN ON CAPITAL EMPLOYED 15.03% 16.01% 19.91%

RETURN ON ASSETS 3.03% 2.21% 2.46%

RETURN ON EQUITY 32.25 20.23

Average equity 377.195 367.95

DEBT SERVICE RATIO 4.93 4.10 4.36

EBIT 33817.1 31622.84 29482.61
INTEREST COVERAGE RATIO 1.52 1.51 1.52

NET INTEREST MARGIN 2.06 1.06 0.04

GEARING (TIMES) 3.53 4.85 4.42

COST TO INCOME 10.87% 12.53% 12.73%

net interest 12572.1 11214.86 9882.8
SECURITY COVERAGE RATIO 1.33 1.25 1.26

ASSETS UNDER MANAGEMENT 6102.87 10626.74 263853.01

This is the ratio analysis for the HDFC Ltd. As per Profitability ratio, it can be observed that
it has good maintained ratio. Return on assets of this company is increasing year on year, it is
good indicator that company is earning good return in less equity. Debt service ratio is debt to
equity ratio which has to be maintained, even if debt is more it has advantage of tax cutting in
profit which is good enough for any company. Cost to income has been reduced year by year.
Net interest margin which is calculated as Interest earned less interest paid, which has been
increased drastically. These are the key ratios have been calculated to analyse the how much
good company is this which has been resulted as good company and it holds first rank in the
housing finance companies.

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Common Size statement-

PROFIT AND LOSS STATEMENT

March 31st, March 31st, March
2020 2019 31st,2018
Income
Revenue from Operations 98.80% 96.84% 94.51%
Profit on sale investments 1.07% 3.02% 5.32%
Other income 0.13% 0.14% 0.17%
Total revenue 35229.89 33159.6 30956.57

Expenses
Finance Cost 63.11% 63.02% 62.59%
Employee benefits expenses 1.21% 1.17% 1.13%
Establishment expenses 0.28% 0.26% 0.27%
Other expenses 1.09% 0.92% 0.88%
Depreciation and amortization 0.14% 0.17% 0.18%
Provisions and Contingencies 1.29% 2.11% 2.31%
Total Expenses 67.12% 67.65% 67.35%

Profit Before Exceptional Items and

Tax 32.88% 32.35% 32.65%

Exceptional Items 10.45% 0.00% 0.00%

Profit before tax 43.33% 32.35% 32.65%

Current tax 9.84% 8.41% 9.28%
MAT credit entitlement -0.88% 0.00% 0.00%
Deferred tax (+ or -) -0.16% 1.49% 0.46%

Profit for the year 34.53% 22.44% 22.91%

Above is the Common Size statement, as per analysis of the statement almost 60% to 63% of
the part of total revenue of the company has been covered by the finance cost that is the
interest has been paid by the bank in the consideration of any financial obligation. It can be
observed that, Provisions and Contingencies have been decreased year on year, it is good
indicator that whatever bank is lending fund in the form of loans, it is recovering all the
financial obligations that is why they don’t need to make provisions for any default.

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42
FINDINGS
 Non-Banking Finance Companies covers many financial segments which may
be difficult to cover by consumer banks.

 Every Non-Banking Financial Company has to maintain their NPA.

 In NBFC sector, there can be switch over to another financial institution if the
services are beneficial. For E.g. interest rate as the switch over is fairly easy
when rivals are providing lesser rates in their schemes.

 NBFC sector consist of many sub-sectors, there is rivalry among the financial
companies which are the parts of different sectors as buyers are very flexible
here.

 Major finding is that, to set-up NBFC the initial investments are so high that it nearly
impossible to get enter into this sector and to exit from this sector, if you don’t want
to exit from this sector there is only one suitable option is to get into mergers
with related or financial services organisations.

 There too many government rules and regulations have to be followed by Non-
Banking Financial Companies.

 CONCLUSION
Non-banking Financial Companies have been playing a vital in the Indian Financial
Market from both perspectives of Macroeconomics and Indian financial system. It has
been a very conventional way to meet various financial requirements in the business
enterprise point of view. Customers find it very reliable and flexible as it provides
quick and efficient services without making any very complex banking formalities.
As per recent crisis in the NBFC sector, now this sector has been struggling with
staying in the financial market of India. Due to IL&FS (Infrastructure Leasing and
Financial Limited.) fraud the whole NBFC sector has been affected. Because of this
fraud, it has affected other good NBFCs such as Dewan Housing Financial Limited.,
IndiaBulls Housing Finance Limited. Non-Performing Assets of all these NBFCs
have been increased which affected this NBFC sector. To recover this loss, Reserve
Bank of India is now constantly striving to bring necessary regulatory changes in
the NBFC sector to ensure financial stability in the long run.

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Visuals of internship

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References

 https://www.finnable.com/
 https://economictimes.indiatimes.com/tech/funding/ranjan-
pais-family-office-invests-rs-40-crore-in-
finnable/articleshow/82322954.cms
 https://fincity.com/bank/finnable-personal-loan/
 https://www.quora.com/What-are-the-advantages-of-nbfc
 https://www.bankbazaar.com/personal-loan-customer-
care.html

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