“ROLE OF NBFC IN ECONOMIC DEVELOPMENT”

A PROJECT SUBMITTED TO
UNIVERSITY OF MUMBAI FOR PARTIAL COMPLETION OF THE
DEGREE OF
BACHLORS OF COMMERCE (BANKING AND INSURANCE)
UNDER THE FACULTY OF COMMERCE

BY
AKSHATA RAMESH GAIKWAD
ROLL NO- 121

UNDER THE GUIDANCE OF

DR. RITESH KUMAR SINGHAL

SYDENHAM COLLEGE OF COMMERCE AND ECONOMICS

‘B’ ROAD CHURCHGATE MUMBAI 4000020

2020-21

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 INDEX
Page No.
CHAPTER 1: INTRODUCTION
1.1. Origin & Development 7
1.2. Concept 8
1.3. Significance and importance 9
1.4. Theories 10
1.5. Government Guidelines 19
1.6. Mahindra & Mahindra Financial Services Ltd. 21
1.7. Power Finance Corporation 23
1.8. Problems Faced by NBFC 24
1.9. Status with reference to India 25
1.10 Status with Reference to words
25
1.11 Drawbacks
26

CHAPTER 2: REVIEW OF LITERATURE

2.1 Thesis 27
2.2 Articles 28

CHAPTER 3: RESEARCH METHODOLOGY

3.1 Introduction 30
3.2 Statement of problems
3.3 Objectives
3.4 Significance of research 31
3.5 Research methodology 32
3.6 Limitation of Research 33

CHAPTER 4: DATA ANALYSIS AND INTERPRETATION 34

CHAPTER 5: CONCLUSION & SUGGESTIONS 48

APPENDICES
Bibliography 52
Questionnaire 53

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 SYDENHAM COLLEGE OF COMMERCE AND ECONOMICS
‘B’ ROAD CHURCHGATE MUMBAI 4000020
CERTIFICATE

This is to certify that Ms/Mr has worked and duly completed her/his Project Work for the

degree of Bachelor in Commerce (Banking and Insurance) under the faculty of Commerce in

the subject of __________________ and her/his project is entitled, “Role of NBFC in

economic development” under my supervision. I further certify that the entire work has been

done by the learner under my guidance and that no part of it has been submitted previously

for any Degree or Diploma of any University.

It is her/his own work and facts reported by her/his personal findings and investigations.

Name and signature of

Seal of the Guiding teacher
College

Date of submission: 31st March 2021

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 DECLARATION BY LEARNER

I the undersigned Miss Akshata Gaikwad here by, declare that the work embodied in this
project work titled “Role of NBFC in economic development” forms my own contribution to
the research work carried out under the guidance of Dr. Ritesh Kumar Singhal is a result of
my own research work and has not been previously submitted to any other University for any
other Degree/Diploma.

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

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

Akshata Gaikwad

Certified by
Dr. Ritesh Kumar Singhal

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 ACKNOWLEDGEMENT

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

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

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

I would like to thank my Principle Dr.M.V.Kagalkar for providing the necessary faculties
required for completion of this project.

I take this opportunity to thank our Coordinator _______, for his moral support and guidance.

I would also like to express my sincere gratitude towards my project guide Dr. Ritesh Kumar
Singhal whose guidance and care made the project successful.

Lastly, I would like to thank each and every person who directly or indirectly helped me in
the completion of the project especially my parents and peers who supported me throughout
my project.

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 ROLE OF NBFC IN ECONOMIC DEVELOPMENT

Chapter No. 1: Introduction

In this chapter selection and relevance of the problem, historical background of the problem,
brief profile of the study area, definition of related aspects, concepts, characteristics,
Difference concept pertaining to the problem etc. can be incorporated by the learner.

Chapter No. 2: Literature Review

This chapter will provide information bout studies done on the respective issue. This would
specify how the study undertaken is relevant and contribute for value addition in
information/knowledge/application of the study area is ultimately helps the learner to
undertake further study on same issue

Chapter No.3: Research Methodology

This chapter will include objectives, hypothesis, scope of the study, limitation of the study,
significance of the study, selection of the problem, sample size, data collection, tabulation of
data, technique and tools to be used, etc. can be incorporated by the learner.

Chapter No. 4: Data analysis Interpretation & Presentation

This chapter is the core part of the study. The analyse pertaining to collect the data will be
done by the learner. The application of the selected course or techniques will be use to arrive
at findings. In this, table of information, presentation of graph etc. can be provided with the
interpretation by the learner.

Chapter No. 5: Conclusion & Suggestion

In this chapter of project work, findings of work will be covered and suggestion will be
enlisted to validate the objective and hypotheses.

 Bibliography
 Appendix

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 CHAPTER-1
INTRODUCTION
1.1Origin and Development-

NBFCs started humbly in India in the 1960s as an alternative for savers and investors whose
financial needs were not sufficiently met by the existing banking system. The NBFCs initially
operated on a limited scale without making much impact on the financial industry. They
invited fixed deposits from investors and worked out leasing deals for big industrial firms.

In the first stages of development, the Companies Act regulated financing. However, the
unique and complex nature of operations and with financial companies acting as financial
intermediaries, there was a call for a separate regulatory mechanism.

Hence, Chapter III B was included in the Reserve Bank of India Act, 1934, which assigned
the Bank with limited authorities to regulate deposit-taking companies. Since then the RBI
has initiated measures to regulate the NBFC sector.

The RBI accepted and implemented that hire purchase and leasing companies could accept
deposits to the extent of their net owned funds, as per the key recommendations of James S.
Raj Study Group formed in 1975. The Companies were also required to maintain liquid assets
in the form of unencumbered approved government securities.

Between the 1980s and 1990s, NBFCs, with their customer-friendly reputation, began to
attract a huge number of investors. The number of NBFCs rose swiftly from a mere 7000 in
1981 to around 30000 in 1992, which made the RBI feel the need to regulate the industry. In
1992, the RBI formed a Committee headed by the former Chairman of Bank of Baroda, Mr.
A. C. Shah, to suggest measures for effective regulation of the industry. The Shah
Committee's recommendations included most things from compulsory registration to
prudential norms.

In January 1997 there were huge changes in the RBI Act, 1934, especially the Chapters III-B,
III-C, and V of the Act seeking to put in place a complete regulatory and supervisory
structure, which would protect the interests and also ensure the smooth functioning of
NBFCs. After the amendment of the Act in 1997, the NBFCs have grown significantly in
terms of operations, range of instruments and market products, technological advancement,
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 among others. In the last 20 years, the NBFCs have gained prominence and added depth to
the financial sector. In August 2016, the union cabinet gave the go-ahead for foreign direct
investment (FDI) under the automatic route in regulated NBFCs.

Later, the government of India established two committees to review the structure and
working of NBFCs in India.

 James S Raj Committee: James S Raj Committee was established in the 1970s to study the
framework of NBFCs. The committee recommended uniform chit fund legislation for the
entire nation.

 Chakravarty Committee: The Chakravarty Committee was established in 1982 to review

the monetary system in India. The committee recommended the complete evaluation of
interlinking between the banking sector and NBFCs.

Today NBFCs have grown significantly in terms of operations, range of instruments and
market products, technological advancement, etc.

1.2Concept-

NBFCs (Non-Banking Financial Companies) play an important role in promoting inclusive

growth in the country, by catering to the diverse financial needs of bank excluded customers.
Further, NBFCs often take lead role in providing innovative financial services to Micro,
Small, and Medium Enterprises (MSMEs) most suitable to their business requirements.
NBFCs do play a critical role in participating in the development of an economy by providing
a fillip to transportation, employment generation, wealth creation, bank credit in rural
segments and to support financially weaker sections of the society. Emergency services like
financial assistance and guidance is also provided to the customers in the matters pertaining
to insurance.
 
NBFCs are financial intermediaries engaged in the business of accepting deposits delivering
credit and play an important role in channelizing the scarce financial resources to capital
formation. They supplement the role of the banking sector in meeting the increasing financial
needs of the corporate sector, delivering credit to the unorganized sector and to small local
borrowers. However, they do not include services related to agriculture activity, industrial

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activity, sale, purchase or construction of immovable property. In India, despite being
different from banks, NBFC are bound by the Indian banking industry rules and
regulations.
 
NBFC focuses on business related to loans and advances, acquisition of shares, stock,
bonds, debentures, securities issued by government or local authority or other securities of
like marketable nature, leasing, hire-purchase, insurance business, chit business.
 
The banking sector would always be the most important sector in the field of business
because of its credibility in supporting manufacturing, infrastructural development and even
being the backbone for the common man's money. But despite this, the role of NBFCs is
critical and their presence in a country would only boost the economy in the right direction.

1.3 Significance and Importance-

NBFC’s have been a chief contributor to the growth of (BFSI) Banking, Financial Services
and Insurance industry. Non-Banking Financial Companies emerged as a perfect alternative
for banks in terms of raising funds for businesses. Reserve Bank of India regulates the
functions of NBFC’s considering its importance in accelerating society. NBFC’s are
incorporated under Companies Act, 2013 and cater a wide range of financial services like the
acquisition of stocks, bonds, securities, debentures, shares, loans and advances. Non-Banking
Financial Companies value customers and emphasize on the creation of innovative products.
The role of NBFC in economic development is beyond assessment due to its credibility in
supporting infrastructural & manufacturing development.

Reserve Bank of India acclaims NBFC’s to bring revolution in the financial sector. Here are
some factors that Non-Banking Financial Companies contribute in Indian economy:

 Market Size: NBFC market has rapidly grown in the last few years despite the
downturn in the economy. NBFC sector tremendously grew in size from INR 26.2
Lakh Crore (2017-18) to INR 30.9 Lakh Crore (2018-19).
 Growth: In terms of yearly growth rate, NBFC industry has surpassed Banking
sector. On average, NBFC grew at a rate of about 22% each year, thus contributes a
large part to the economy every year.
 Profitability Ratio: Since one requires less capital to set up NBFC than a bank,
thereby it turns out to be a more profitable business model due to lower costs.

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 NBFC’s offer loans to customers at a cheaper interest which results in credit growth.
An increase in the sum of money being lent to the customers is more than that of the
banks; it ultimately increases the customer base of NBFC’s with more prospects
opting their services.
 Infrastructure Lending: A country’s economy is defined by the state of its
infrastructure. NBFC’s contribute extensively to the economy by lending funds to
Infrastructure sector, which is very crucial for a developing nation like India. An
infrastructure venture requires a large number of funds which generates revenue only
after a longer time-frame; thereby making such projects carry risk when it comes to
lending. Hence, banks deter from lending to infrastructure projects in the last few
years. Besides, NBFC’s have contributed more to infrastructure lending.
 Promotes inclusive growth: NBFC’s serve credit facilities to a broad spectrum of
customers both in rural and urban areas. Non-Banking Financial Companies finance
micro and small-scale Companies, which fosters progression in rural areas. Such
financial institutions also provide small-ticket loans accessible for housing projects
which stimulates inclusive growth in the country.

1.3.1DEFINATION

According to Section 45-1 (f) of Reserve Bank of India Act, 1934

“Non-Banking Financial Company” means-

 a financial institution which is a company;

 a non-banking institution which is a company, and which has as its principal business
the receiving of deposits, under any scheme or arrangement or in any other manner, or
leading in any manner;
1. such other non-banking institution or class of such institutions, as the Bank may, with
the previous approval of the Central Government and by notification in the Official
Gazette, specify.

A non-banking financial company is that financial institution which provides the banking
services to the customers without having a banking license. An NBFC needs to be
compulsorily registered under the Companies Act 1956 however, it can be owned privately or
by the government.

1.4 Theories-

The advantages of NBFC’s in Indian economy-

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In India where 70% of the population lives in rural areas, incorporation of non-banking financial firm
is essential as they are small players who provide loans, chit–funds etc. Many companies have come
forward and registered themselves with RBI to attain the status of NBFC. NBFC’s are an integral part
of the Indian economy and financial sector as they enhance competition among the companies of the
financial sector. NBFC with their low-cost operations, simple sanction procedure and flexibility has
given it an edge over the commercial banking sector. It is an important financial mediator, particularly
for the retail and small-scale sector.

The contribution of NBFC to Indian economy has increased 12%in the year 2015 moreover the
ongoing stress in the public sector bank due to amounting bad debt has deteriorated their service and
their contribution to the Indian economy. This mounting bad debt has driven commercial banks to
decrease their grant of financial help to small-scale traders and the infrastructure sector.
NBFC recently contributed 12.5% to GDP 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 bank doesn’t.

1.4.1 TOP 10 BEST NON- BANKING FINANCIAL COMPANIES IN INDIA

In the year 2019, top companies are being rated which deals with various kinds of financial
services, these are:
1. HDFC
2. Power Finance Corporation
3. Reliance Capital

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4. Infrastructure Development Finance Company
5. Rural Electrification Corporation
6. Shree Global
7. Shriram Transport Finance
8. Bajaj Holdings
9. M&M Financials
10. Muthoot Finance

1.4.2Services offered by NBFC’s

NBFC’s offer all sorts of banking services, such as loans and credit facilities, private education
funding, retirement planning, trading in money markets, underwriting stocks and shares, TFCs and
other obligations. These institutions also provide wealth management such as managing portfolios of
stocks and shares, discounting services e.g. discounting of instruments and advice on merger and
acquisition activities. The number of non-banking financial companies has expanded greatly in the
last several years as venture capital companies, retail and industrial companies have entered the
lending business. Non-bank institutions also frequently support investments in property and prepare
feasibility, market or industry studies for companies.
However, they are typically not allowed to take deposits from the general public and have to find
other means of funding their operations such as issuing debt instruments.

List of Services Provided by NBFC

NBFC refers to non-banking finance companies; these institutions provide multiple financial
services unlike banks which provide limited financial services. Given below is the list of services
provided by the NBFC –
1.Underwriting- Underwriting is an agreement, entered into by a company with a financial agency,
in order to ensure that the public will subscribe for the entire issue of shares or debentures made by
the company. The financial agency is known as the underwriter and it agrees to buy that part of the
company issues which are not subscribed to by the public in consideration of a specified underwriting
commission.
2.Venture Capital Financing- Venture capitalists comprise of professionals of various fields. They
provide funds (known as Venture Capital Fund) to the firms after carefully scrutinizing the projects.
Their main aim is to earn huge returns on their investments, but their concepts are totally different
from the traditional moneylenders. They know very well that if they may suffer losses in some
project, the others will compensate the same due to high returns. They take active participation in the
management of the company as well as provide the expertise and qualities of a good banker,
technologist, planner and managers. Thus, the venture capitalist and the entrepreneur literally act as
partners.
3.Foreign exchange related business- These includes services related to Foreign Exchange.

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4. Factoring and leasing related business-
a) Factoring- Factoring is a way of receiving money quickly based on the invoices that
you raise. It is usually only available on business to business sales. When you send an invoice out to
your client you instruct the client to pay the factoring company direct. At the same time you send a
copy of the invoice to the factoring company which will immediately pay you up to 90% of the value
of the invoice. When your client pays the invoice, the factor will deduct its charges and send the
balance to you. Factoring companies manage the full invoice collection process.
b) Leasing- Leasing involves getting another company to buy equipment for you and then you
paying the leasing company a regular charge to use that equipment. Leased items could be anything
from a computer to office furniture, car leasing or even aeroplane leases. Leasing can be an efficient
method of asset finance. Some lease finance specialists will also buy your existing equipment and
lease it back to you. Depending on the equipment seller you could find yourself having to arrange
your own leasing deals or the seller may offer tied lease deals.

5. Credit Cards services- It is similar to the services provided by the bank.

6. Giving Credit Rating to other companies- An assessment of the credit worthiness of individuals
and corporations. It is based upon the history of borrowing and repayment, as well as the availability
of assets and extent of liabilities. Apart from above services NBFC provides variety of services
depending upon the regulations of the government of the country regarding such institutions because
some countries have strict policies regarding NBFC, as well as need of the company which is going to
NBFC.
7. Asset Management- Asset management is often used as the synonym of investment management
or fund management. Asset manager is a person that usually specializes in discretionary or advisory
management and works with private investors. So, asset management is a very wide definition. Many
investors call it private banking or wealth management. Asset management includes many different
aspects and relative fields among them are asset and stock selection, monitoring of investments etc.
Asset management is a great industry today that has a global meaning. In other words, it is taking care
of huge sums of money in different currents all over the world. Today there are many private asset
management firms that provide different asset management services. Any asset management
company tries to offer some interesting ideas, concepts and techniques of funds management to its
clients.
8. Merchant Banking- A merchant bank is a financial institution primarily engaged in offering
financial services and advice to corporations and to wealthy individuals. The term can also be used to
describe the private equity activities of banking. The chief distinction between an investment bank
and a merchant bank is that a merchant bank invests its own capital in a client company whereas an
investment bank purely distributes (and trades) the securities of that company in its capital raising
role. Both merchant banks and investment banks provide fee based corporate advisory services
including in relation to mergers and acquisitions.

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 1.4.3Objectives of the NBFC Sector

The key goal of setting up this prestigious sector has not been profitability. These institutions
work with the sole aim of making financial services accessible to one and all. The unique
objective set them apart from the banks and made them the prime drivers of growth.
NBFC sector plays an extremely crucial role in the development of the country’s core
infrastructure. By offering quicker funds and credit to the Indian trade and commerce
industry, these entities are enabling the nation-wide growth of large infrastructure projects.
Furthermore, small businesses, start-ups, and MSMEs/SSIs are dependent on funds offered
by NBFCs. As these small businesses expand their operations, their need for skilled and
unskilled labour goes up to fulfil the increase in operations. Thus, indirectly, each new NBFC
registration creates more job opportunities at the macro-economic level.
The customer base of NBFC vs banks s pretty wide.

NBFCs cater to the urban, as well as unorganized rural areas, offering loans to satisfy
different requirements. Whereas banks provide finance to the organized sector only. This has
resulted in the amount of money lent by the NBFCs to the consumers has been phenomenally
more as against banks. Over the last few years, consumer lending has seen a continuous rise,
with NBFCs catering to a large portion. With the growth in the economy, the requirement for
loans is bound to surge. And NBFCs, along with banks, can give a strong push to the growth
and development of the Indian economy.

1.4.4NBFC Role in Revolutionising the Economy

 Growth: In terms of year-on-year (YoY) growth rate, the NBFC sector beat the banking
sector in contributing to the economy every year. On average, this segment grew by 22%
every year, in its initial stages. Despite the slowdown in the economy and various setbacks
faced in the last few years, the sector is still growing and enhancing operations.
 Profitability: NBFCs have been more profitable than the banking sector because of lower
costs. This enabled them to offer cheaper credit to customers. As a result, the amount of
money lent to customers by NBFCs is higher than that of the banking sector with more
customers opting for NBFCs.
 Enhancing the Financial Market: An NBFC caters to the urban and rural poor companies and
plays a complementary role in financial inclusion. These financial companies bring much-
needed diversity to the market by diversifying the risks, increasing liquidity in the markets
thereby bringing efficiency and promoting financial stability to the financial sector. They
highlight the public issues of corporations as well as providing funds needed by the start-up
companies as capital. The financial market is dependent on the functions that are taken care
of by these lending companies.
 Infrastructure Lending: NBFCs by lending to infrastructure projects, contribute largely to the
economy. This is very important for the growth of a developing country like India. The

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 amount involved is quite large, the projects being risky, with no surety of returns, and profits
occurring after a longer time-frame. These factors deter banks from financing these projects.
Since their inception, NBFCs have contributed more to infrastructure lending than banks.
 Promoting Inclusive Growth: All the top NBFC in India cater to a wide variety of customers –
both in urban and rural areas. They finance projects of small-scale companies, which is
important for the growth in rural areas. They also provide small-ticket loans for affordable
housing projects. Microfinance provided by them plays an important role to attain stable
financial inclusions. All these activities by the institution with and NBFC licence help
promote inclusive growth in the country.
 Upliftment in the Employment Sector: With the growth in operations of the small industries
and businesses, the policies of NBFCs are uplifting the job situation. More opportunities for
employment are arising with the influence of the NBFCs in the private as well as government
sectors. The business activities in the private sector provide more employment opportunities
and occupation practices. And NBFC plays a key role in their growth and stability.
 Mobilization of Assets: With more public preferring to deposit in NBFCs because of their
higher rate of interest, NBFCs allow mobilization of resources; funds, and capitals. Due to
their easier norms for investing, these companies create a balance between intra-regional
income and asset distribution. Turning the savings into investments, these companies
contribute to economic development as compared to traditional bank practices. Proper
organization of capital helps in the development of the trade and industry, leading to
economic progress. They operate not intending to maximize their profit and are, therefore,
engaged in activities that generate zero or very low revenue.
 Financing for Long-Term: NBFC plays a key role in providing firms with funds through
equity participation. As against traditional banks, NBFCs supply long-run credit to the trade
and commerce industry. They facilitate to fund large infrastructure projects and boost
economic development. Long-term finance permits growth with stable and soft interest rates.
The economy thrives when businesses of SSIs and MSMEs flourish.
 Raising the Standard of Living: NBFCs collaborate with the government for the upliftment of
the society. The NBFCs attract deposits from the general public and convert it into capital for
industrial and other sectors for smooth economic development. The rise in businesses
consequently raises the demand for workforce and creates employment opportunities raises
the purchasing power of individuals and, subsequently, raising demands. This works to
upgrade the living standards of a society. Also, foreign deposits are attracted to these
financial institutions and support economic process and development.

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 Innovative Products: NBFCs, by being flexible in terms of lending and investment
opportunities than banks, are more proactive in innovating financial products. This facilitates
their growth in an exceedingly prudent manner. They fine-tune their selling campaigns in
regard to their target customers. These corporations are the game changers within the
developing economy. For instance, the factorization & bill payment service has been
revolutionized. NBFC P2P is a relatively new segment in India that is already creating waves
by providing considerably higher margins and facilitating loans at a lower cost.

1.4.5 Functions of NBFC

1.Receiving benefits:

The primary function of NBFC’s is receiving deposits from the public in various ways such as

issue of debentures, savings certificates, subscription, unit certification, etc. Thus, the deposits

of NBFC’s are made up of money received from public by way of deposit or loan or investment or
any other form.

2.Lending money:

Another important function of NBFC’s is lending money to public. Non- banking financial

companies provide financial assistance through.

a.Hire purchase finance: Hire purchase finance is given by NBFC’s to help small

important operators, professionals, and middle-income group people to buy the

equipment on the basis on Hire purchase. After the last instalment of Hire purchase

paid by the buyer, the ownership of the equipment passes to the buyer.

b. Leasing Finance: In leasing finance, the borrower of the capital equipment is allowed

to use it, as a hire, against the payment of a monthly rent. The borrower

not purchase the capital equipment but he buys the right to use it.

c. Housing Finance: NBFC’s provide housing finance to the public, they finance for

construction of houses, development of plots, land, etc.

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d. Other types of finance provided by NBFC’s include: Consumption finance,

finance for religious ceremonies, marriages, social activities, paying off old debts, etc.

NBFC’s provide easy and timely finance and generally those customers which are not

able to get finance by banks approach these companies.

e. Investment of surplus money: NBFC’s invest their surplus money in various

profitable areas.

1.4.6 Difference between banks& NBFC

Banks
o Banks are the financial institutions which are empowered by the government to do
financial activities like to accept a deposit, Grant credit, to manage withdrawals pay
interest, to clear cheques to provide general services to the clients. 
o Banks are the top organization which controls the whole financial system of the
country. 
o Banks act as a financial mediator between the depositors and the borrowers. 
o Banks are responsible for the creating credit, mobilization of funds, safe and time bound
transfer of finance. 
o Banks help in smooth functioning of the economy. 

NBFC
o NBFC is a company which is registered under the companies act, 1956 and it is under
the control of central bank (Reserve bank of India). 
o NBFC is not a bank but it is engaged in a lending fund as well as many other activities
which are similar to banking like to provide loans and advances, credit facility, saving
and various schemes etc. 
o NBFC also provides services to the business corporation like an acquisition of shares,
stocks, debentures, bonds, and securities issued by the government. 
o It also facilitates services like hire purchase, leasing, venture capital finance, housing
finance, and insurance

1.4.7 Nature and Types of NBFC’s

Non-banking financial companies can be divided into two categories based on their character which is
depository and non-depository. If a company does not take any deposits, then they are suffixed with
ND. Example of the deposit-taking institution is thrift stores, loans provider.

Five types of NBFC’s are in India based on their primary services:

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1. Investment Company

The primary business of Investment Company is to hold and manage securities for investment
purposes; they typically offer investors a variety of funds and investment services. This includes
recordkeeping, accounting, tax management and portfolio management. Investment companies
include further subcategory;

  Core investment companies-Core investment company is company holding shares,

debentures and is categorizes as NBFC’s by the RBI. They can’t deal in trading of the
instruments they hold. A core investment company needs to register itself with RBI if it is
dealing in raising funds through commercial papers, debentures, inter-corporate deposits and
by borrowing from financial institution however if core investment company doesn’t need to
get a certificate of registration from RBI if companies’ asset is less than 100 crores.

 Asset finance companies - Asset finance companies are the financial institution which deals
with the business of financing physical assets that correlates with any economic activity such
as automobiles, power generators, and material handling equipment. According to RBI
regulation, any NBFC can act as an asset finance company if the income arising out of it is
less than 60% of its total revenue.

2. Loan Companies

Any company which is a financial institution and its principal business is providing finance by
making loans, or an advance is a loan company under NBFC’s.

3. Infrastructure Finance Company

IFC provides infrastructure loan in specific infrastructure sector only that are energy, transport, water
and commercial infrastructure. RBI guidelines regarding registering any IFC as an NBFC is that it
should be a non-deposit accepting company.

4. Infrastructure Debt Fund

IDFs act essentially as vehicles for financing debt of infrastructure companies and through this, they
create space for commercial banks to lend to another infrastructure project. They can be set up as a

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company or trust; only the company based IDF’s would come under the purview of NBFC and hence
governed by RBI.

5. Microfinance Companies

Micro-financial companies offer small loans to individuals or any self-help groups with capital less
than 50,000. Nowadays many financial organizations are applying for a license to RBI to attain the
status of Micro-finance companies.

1.4.8 Miscellaneous Non-Banking Companies (MNBCs)

MNBCs are mainly engaged in the Chit Fund business. The term 'deposit' as defined under Section 45
I(bb) of the Reserve Bank of India Act, 1934 does not include subscription to Chit Funds.

The Chit Fund companies have been exempted from all the core provisions of Chapter IIIB of the
RBI Act including registration. In terms of Miscellaneous Non-Banking Companies (RB) Directions,
the companies can accept deposits up to 25 per cent and 15 per cent of the NOF from public and
shareholders, respectively, for a period of 6 months to 36 months, but cannot accept deposits payable
on demand/notice.

The Reserve Bank only regulates the deposits accepted by these companies, but it does not regulate
their Chit Fund business, which is administered by the respective State Governments through the
offices of Registrars of Chits. The Chit Funds Act, 1982 was enacted as a Central Act for ensuring
uniformity in the provisions applicable to Chit Fund institutions throughout the country, and all State
Governments are required to frame rules for extending the provisions of this Act to their respective
jurisdictions. At present, 16 States and 6 Union Territories have adopted the Central Act and the
reserve Bank is pursuing with the State Governments of Andhra Pradesh, Arunachal Pradesh,
Gujarat, Haryana, Kerala, Maharashtra, Mizoram and Nagaland for early formulation of rules under
the Central Act.

1.5 Government Guidelines –

RBI Guidelines to NBFC’s

The role of Non-Banking Financial Companies (NBFC’s) has gained focused attention in recent years
following the Report of the Khan Working Group, the release of the RBI Discussion Paper on
Harmonization of the Role and Operations of DFIs and Banks, and the Report of the Working Group

[19]
on Money Supply (Chairman: Dr.Y.V.Reddy). The growing concerns about financial stability point
to the need for evolving safe and sound functioning of the NBFC’s which, in the Indian context, are
varied as they perform a wide range of tasks. The growth of NBFC’s has been rapid, especially in the
1990s owing to the high degree of their orientation towards customers and simplification of sanction
requirements. NBFC’s have created a large clientele base by offering relatively attractive rates of
return although in the process, some of them became unsustainable.

NBFC’s have also displayed flexibility in meeting the credit needs of specific sectors like equipment
leasing, hire purchase, housing finance and consumer finance, where gaps between the demand and
supply of funds have been high and where established financial entities are not easily accessible to
borrowers. As a result, the distinction between banks and NBFC’s is narrowing, both offering almost
the same spectrum of services; the only difference being the exclusive privilege that commercial
banks wield in issuance of cheques. To protect the interests of the depositors, deposit taking NBFC’s
(NBFC-D) were subject to prudential regulation on various aspects of their functioning. However,
non-deposit taking NBFC’s (NBFC’s-ND) were subject to minimal regulation.

In the light of the evolution and integration of the financial sector, it was felt that all systemically
relevant entities offering financial services ought to be brought under a suitable regulatory framework
to contain systemic risk. Therefore, as a first step, it was advised vide DNBS.PD/ CC. No. 86/
03.02.089 /2006-07 dated December 12, 2006 that all NBFC’s – ND with an asset size of Rs. 100
crore and more as per the last audited balance sheet would be considered as systemically important
NBFC – ND (NBFC-ND-SI) and specific regulatory framework involving prescription of capital
adequacy and exposure norms was put in place from April 01, 2007 for such NBFC’s-ND-SI.

Therefore, as a first step, it was advised vide DNBS.PD/ CC. No. 86/ 03.02.089 /2006-07 dated
December 12, 2006 that all NBFC’s – ND with an asset size of Rs. 100 crore and more as per the last
audited balance sheet would be considered as systemically important NBFC – ND (NBFC-ND-SI)
and specific regulatory framework involving prescription of capital adequacy and exposure norms
was put in place from April 01, 2007 for such NBFC’s-ND-SI.

1.Capital adequacy: - NBFC’s – ND – SI were advised to maintain a minimum Capital to Risk-

Assets Ratio (CRAR) of 10% with effect from April 01, 2007. However, in view of recent
international developments, the risks associated with highly leveraged borrowings and reliance on
short term funds by some NBFC’s to fund long gestation assets, concerns have arisen regarding the
enhanced systemic risk associated with the activities of these entities. Keeping in view the importance
of providing adequate capital charge for the same in order to enhance the cushion for any shocks, it
has been decided to increase the minimum capital to risk assets ratio (CRAR) for NBFC’s-ND-SI

[20]
from the present prescription of 10%. They are advised to achieve 12% CRAR by March 31, 2009
and further 15% CRAR by March 31, 2010.

2. Disclosure in the Balance Sheet: - In the light of the concerns as expressed above, the disclosure
norms in respect of NBFC’s-ND-SI have been reviewed and it has been decided that such
Systemically Important NBFC’s-ND shall make additional disclosures in their Balance Sheet from
the year ending March 31, 2009 relating to:

a. Capital to Risk Assets Ratio (CRAR)

b. Exposure to real estate sector, both direct and indirect; and

c. Maturity pattern of assets and liabilities

3.Asset Liability Management (ALM) :- To address concerns regarding Asset Liability

mismatches and interest rate risk exposures, an ALM System was introduced for the Non-Banking
Financial Companies (NBFC’s) as part of their overall system for effective risk management in their
various portfolios vide Company Circular dated June 27, 2001. While it was stated therein that the
guidelines would be applicable to all NBFC’s irrespective of whether they are accepting / holding
public deposits or not, to begin with, NBFC’s meeting the criteria of asset base of Rs.100crore
(whether accepting / holding public deposits or not) or holding public deposits of Rs.20crore or more
(irrespective of their asset size) as per their audited balance sheet as of March 31, 2001 were required
to put in place the ALM System. The companies were advised that the guidelines should be fully
operationalized by the year ending March 31, 2002. A system of half yearly reporting was also put in
place for NBFC’s holding public deposits.

1.6 Mahindra and Mahindra Financial Services Ltd

Mahindra and Mahindra Financial Services Limited is one of India’s leading an non-banking finance
companies. Through a vast network of branches, we provide personalised finance for the widest range
of utility vehicles, tractors and cars, focusing on the rural and semi-urban sector.

[21]
History-

Mahindra & Mahindra Financial Services Limited (MMFSL) is one of the leading non-
banking finance companies (NBFCs) with customers primarily in the rural and semi-urban
markets of India. It is part of the Mahindra group which is one of the largest business
conglomerates in India. MMFSL is primarily engaged in providing financing for new and
pre-owned auto and utility vehicles tractors cars and commercial vehicles. The company also
provides housing finance personal loans financing to small and medium enterprises insurance
broking and mutual fund distribution services. MMFSL has 1291 offices and reaches out to
customers spread over 3.5 lakh villages and 7000 towns across India.MMFSL's insurance
broking subsidiary Mahindra Insurance Brokers Limited (MIBL) is a licensed Composite
Broker providing Direct and Reinsurance broking services. Another subsidiary Mahindra
Rural Housing Finance Limited (MRHFL) provides loans for purchase renovation
construction of houses to individuals in the rural and semi-urban areas of the country.

Mahindra Asset Management Company Private Limited (MAMCPL) a wholly-owned

subsidiary of MMFSL is acting as the Investment Manager of Mahindra Mutual Fund.
MMFSL also has a JV in US Mahindra Finance USA LLC in partnership with De Lage
Landen a subsidiary of Rabo Bank for financing Mahindra tractors in US.M&M FSL was
incorporated on 1st January 1991 as Maxi Motors Financial Services Limited. M&M FSL
had received certificate of commencement of business on 19th February of the year 1991.
The company's name was changed from Maxi Motors Financial Services Limited to
Mahindra & Mahindra Financial Services Limited on November 3 1992.

During the year 1993 the company had commenced financing of M&M Utility Vehicles as
part of its work. M&M FSL had opened its first branch outside Mumbai at Jaipur in the year
1995. Financing to M&M dealers for purchase of tractors was added to the company's
activities in the year 1996. M&M FSL had registered with the Reserve Bank of India (RBI)
as a Non-Banking Finance Company (NBFC) with effect from 4th September of the year
1998. Also in the same year of 1998 the company had launched pilot project for retail tractor
financing. After a year in 1999 M&M FSL had started tractor retail financing in rural and
semi-urban areas.

Strengths-

As one of India’s leading non-banking finance companies Mahindra Finance enjoys certain
exclusive

(i) Fast loan processing: One of the most important assets of Mahindra Finance is our fast
loan disbursement process. With minimal documentation and utmost flexibility, our loans are
usually disbursed within a period of 2 days.

(ii) Wide network: Our extensive network of over 550+ branches spanning the country
makes sure, that you can always find a Mahindra Finance branch near you.

[22]
(iii) Customised repayment schedules: Keeping in mind the needs of our customers, us
convenient, customised repayment schedules are designed to guarantee maximum flexibility
when it comes to the repayment of our loans.

(iv) In-depth knowledge: Over the years, we have gathered an in-depth knowledge of rural
and semi-urban markets, which enables us to devise products according to their specific
needs. With this asset, we’re able to provide our loans to many deserving customers based on
future repayment capabilities rather than their current status.

(v) Relationship with Mahindra & Mahindra: The parentage of the awe-inspiring
Mahindra & Mahindra Group and the close association with dealers throughout the country
gives us an additional, exclusive advantage.

(vi) Socially inclusive business model: It is our constant endeavour is to develop skill sets at
grass-root levels. In keeping with that spirit, we provide employment to more than 6,200
people from the bottom of the income or social pyramids and help them grow. This ensures
that our employees are more empathetic towards the customers we cater to.

(vii) Large base of customers: And lastly, our greatest strength lies in our large and ever-
growing base of over 10,00,000 satisfied customers.

1.7 Power Finance Corporation

PFC is India's largest NBFC and also India's largest infrastructure finance company. Initially

wholly owned by the Government of India, the company issued an initial public offering in
January, 2007. The issue was oversubscribed by over 76 times, which is one of the largest for
an IPO of any Indian company.
Founded: July 1986

Power Finance Corporation Limited, a non-banking finance company, provides financial

products and related advisory, and other services to the power sector in India. The company
offers fund based financial policies/products, including guidelines for solar and wind power
generation projects, as well as for funding private sector independent transmission projects;
debt refinancing and prepayment policy for solar wind projects; takeout financing, asset

[23]
acquisition, bridge and corporate loan, buyer's line of credit, credit facility for purchase of
power through power exchange, energy saving project, and project and short-term loan
services; lease financing for the purchase of equipment and wind power projects; financing of
fuel supply projects and equipment manufacturers; grants/interest free loans for
studies/consultancies; line of credit for import of coal; policy for investment in equity of
power projects; guidelines for funding grid connected solar thermal private sector power
generation projects; policy for underwriting of debt; refinancing of debt of commissioned
projects along with additional corporate loans for new-expansion-acquisition of projects; and
financial assistance to distribution franchisee. It also provides non-fund-based
policies/products comprising guarantees, letter of comfort, and policy for guarantee for credit
enhancement. Power Finance Corporation Limited was founded in 1986 and is headquartered
in New Delhi, India.

History-

Power Finance Corporation Ltd. (P. F. C.) is an Indian financial institution. Established in

1986, it is the financial backbone of Indian Power Sector. PFC's Net worth as on 30
September 2018 is INR 383 billion. PFC is the 8th highest profit making CPSE as per the
Department of Public Enterprises Survey for FY 2017–18. PFC is India's largest NBFC and
also India's largest infrastructure finance company.

Initially wholly owned by the Government of India, the company issued an initial public
offering in January, 2007. The issue was oversubscribed by over 76 times, which is one of the
largest for an IPO of any Indian company.[3] PFC is listed on the Bombay Stock
Exchange (BSE) and the National Stock Exchange (NSE). It is also an ISO
9001:2000 certified company[4] and enjoys the status of Navratna Company in India. On 6
December 2018, the Government of India approved PFC's takeover of REC.[5] The
acquisition transaction was completed on 28 March 2019 with PFC paying almost Rs. 14,500
Crs to the Govt. of India for the 52.63% stake.

Strengths-

Strength is based on Deep Analysis, Back Testing and Historical Trend Analysis using
Machine Learning. Overall Technical Strength is based on 50+ indicators including
Technical, moving Avg, chart patterns, candlestick and proprietary algorithms. Technical
Strength is currently calculated around around 5 to 6 PM. This is an automated process and
in NO WAY should be considered as a tip as it’s based on past data, we strongly recommend
to use these signals for information only and seek advice from a certified professional for any
trading decision. If you like it then please share. The more the visitors the more the
innovations. Feedback

We are working on fundamental strength also. Please share your views to help shape up the
requirement.

1.8 Problems faced by NBFC’s

[24]
There are, of course, some persistent problems for NBFCs, apart from deposit-taking. These
relate to flexible handling of their capital issues. Both SEBI and the RBI need to revisit their
case for relaxations with sympathy, especially since they are rated and supervised.

These specific relaxations are more a matter of confidence-building. The requests made by
NBFCs deserve sympathetic treatment by both the securities market regulator and the central
bank.

In short, NBFCs are vitally needed to give the Indian economy a much-needed boost by
enabling easier access to credit. As it is, public and private sector banks are finding it difficult
to extend their reach for various reasons.

It behoves the RBI and the Government to look at the problems faced by NBFCs with
sympathy rather than with a recollection of the past follies of a few institutions.

1.9Status with reference to India –

Non-Banking Financial Companies (NBFC) in India made a humble beginning way back in
the 1960’s to serve the need of the savour and investor whose financial requirements were not
sufficient covered by the existing banking system in India. The NBFCs began to invite fixed
deposit from investor and work out leasing deal for big industrial firms. Initially, they
operated on a limited scale and could not make a significant impact on the financial system.
However, between 1980’s and 1990’s, NBFCs gained good ground and started to inveigle a
huge number of investors owing to them customer friendly reputation. Non-Banking
Financial Companies or NBFCs in India are registered companies conducting business
activities similar to regular banks. Their banking operations encompass making loans and
advances available to consumers and businesses, acquisition of marketable securities, leasing
of hard assets such as automobiles, hire-purchase and insurance business. Though they are
akin to banks, they differ in couple of ways. NBFCs cannot accept demand deposits, cannot
issue cheques to customers and the deposits with them are not insured by DICGC (Deposit
Insurance and Credit Guarantee Corporation). Either the RBI (Reserve Bank of India) or
SEBI (Securities and Exchange Board of India) or both regulate NBFCs.

As recognised by RBI the specific roles of a NBFC are as follows:

1. Development of sectors like transport and infrastructure.

2. Substantial employment generation.

3. Help and increase wealth creation.

4. Broad based economic development.

5. To finance economically weaker sections.

6. Huge contribution to state exchequer.

[25]
7. Irreplaceable supplement to bank credit in rural segments, major thrust on semi-urban,
rural areas and first-time users. NBFCs are spread all across the country with more than
13000 + players registered with the RBI. Approximately 570 NBFCs are authorised to accept
public deposits. Assets worth Rs. 15000 crores are financed annually. Asset financing
includes providing finance for commercial vehicles, passenger laws, multi-utility vehicles,
construction equipment, and consumer durables.

1.10 Status with reference to world-

In the present economic system, Non-Banking Financial Companies are playing a significant
role in providing accessible and affordable financial services. The NBFCs are becoming a
vital player in financial inclusions indirectly boosting the economy. These companies majorly
focus on the business of loans, acquisition of shares, stocks, bonds, debentures and securities
allotted by the government, local authority or by other market securities. NBFCs are engaged
in maturity transformation and core banking functions. The operations carried out by the
NBFCs merely aid threat to growing market thereby leading to the economic development
respectively.

NBFCs aid in economic development of country in the following ways:

 Mobilisation of resources by converting savings into investments.

 Capital formation which aids to increase capital stock of company.

 NBFCs provide long term credit and specialised credit.

 Aid in employment generation

. Help in development of financial markets.

 Helps in attracting foreign grants.

 Helps in breaking the vicious cycle of poverty by serving as government’s instrument.

1.11Drawbacks-

[26]
  NBFCs cannot accept demand deposits as it falls within the realm of activity of
commercial banks
 An NBFC is not a part of the payment and settlement system and as such an NBFC
cannot issue cheques drawn on itself
 Deposit insurance facility is not available for NBFC depositors unlike in case of
banks
 All NBFCs cannot accept deposits; only some can. Only those NBFCs holding a valid
Certificate of Registration with authorisation to accept Public Deposits can
accept/hold public deposits
 The regulatory mechanism for NBFCs is stringent

RBI has prescribed strict norms on capital adequacy and NPA in order to bridge the
regulatory gaps between NBFCs and Banks, asking NBFCs to maintain minimum capital
adequacy norms. It is reflected from a statement of the RBI which said that seven NBFCs
were not able to meet the regulatory minimum capital adequacy norms of 15% as of March
2016.

CHAPTER-2

2.1REVIEW OF LITERATURE

2.1.1Thesis-

The purpose of the study is to evaluate the performance of selected NBFCs in India in term of
profit. This is a secondary data based conceptual study. This study is based on the
Convenience Sampling As a sample, HDFC, Bajaj FinServ, Power Finance Corporation
Limited, India bulls Home Loan snd LIC Housing Finance Limited are selected as these are
main leading non-banking finance company in India. The sample size which is taken in the
research study is the financial statement of last eight years (April 2008 to March 2016) of
related concern from the Annual Reports of these companies. the findings of the present

[27]
study are net profit ratio of the related companies are increase time to time, return on
investment is on average, compounded annual growth rate on the basic of sales of related
company showing negative growth rate and Compounded annual average growth rate on the
basic of profits of related companies around on an average.

Non-Banking Financial Companies (NBFCs) constitute a heterogeneous lot of privately-

owned, small-sized financial intermediaries which provide a variety of services including
equipment leasing, hire purchase, loans, investments and chit fund activities. These
companies play an important role in providing credit to the unorganized sector and to the
small borrowers at the local level.

NBFCs have turned out to be engines of growth and are integral part of the Indian financial
system, enhancing competition and diversification in the financial sector, spreading risks
specifically at times of financial distress and have been increasingly recognized as
complementary of banking system at competitive prices. The Banking sector has always been
highly regulated, however simplified sanction procedures, flexibility and timeliness in
meeting the credit needs and low-cost operations resulted in the NBFCs getting an edge over
banks in providing funding. The research on the NBFCs is going in different parts of the
world to review the policies and functions of the NBFCs in the world. To look into the
changes and developments in the structure, functions, regulations, progress, etc, many of the
studies were already made and a few latest studies are reviewed as under.

2.1.2Articles-

There is universal agreement that a properly functioning financial system is required for a
thriving modern economy (Kroszner, 2010). In all advanced services and act as a critical
pillar in contributing to macroeconomic stability and sustained economic growth and
prosperity (World Bank, 2003). Moreover, the well-developed financial markets facilitate
mobilization of savings, by offering savers and investors wider choice of instruments. With
NBFCs coming up on the financial system, investors could park their funds at more lucrative
returns in comparison to the bank deposits.

Referring to NBFIs, Greenspan (1999) had stated: “enhance the resilience of the financial
system to economic shocks by providing it with an effective ‘spare tyre’ in times of need”.
Moreover, while short term loans needed by the industry and agriculture are offered by the
banking system, the other forms of services needed by industry as well as other segments of
economy are offered by NBFCs and other similar financial institutions, like factoring, venture
finance and so on.

Thilakam and Saravanan (2014) writes on “CAMEL Analysis of NBFCs in Tamil Nadu” in
‘International Journal of Business and Administration Research Review’. Financial
intermediation is a crucial function of Banks, Non-Banking financial companies (NBFCs)
and Development Financial Institutions (DFIs) the post reform period in India is
characterized by phenomenal growth of NBFCs complementing the role of banks in
mobilizing funds and making it available for investment purposes. During the last decade
NBFCs have undergone wide volatility and change as an industry and have been witnessing
considerable business upheaval over the last decade because of market dynamics, public
sentiments and regulatory environment. To evaluate the soundness of NBFCs in Tamil Nadu
over a decade, the authors made an attempt of CAMEL criteria for analysis of selected

[28]
Companies. Based on findings the suggestions were offered to overcome the difficulties face
by selected NBFCs in their development.

Dr.Amardeep (2013) analysed that “The role of NBFCs in creation of productive national
assets can hardly be undermined. This is more than evident from the fact that most of the
developed economies in the world have relied heavily on lease finance route in their
development process”.

Dr.Yogesh Maheshwari (2013) in his paper state that “Changing Monetary scenario have
opened up opportunities for NBFCs to expand their global presence through self-expansion
strategic alliance etc. The Monetary reforms have brought Indian Monetary system closer to
global standards”.

Jafor Ali Akhan (2010) writes on “Non-Banking Financial Companies (NBFCs) in India”.
The book discussed the financial system in India. It covers the financial intermediaries
including commercial banks, regional rural banks, cooperative banks and Non-Banking
Financial Companies in India. The book is good source in getting information on businesses,
classification, management of assets, risk coverage, etc of the NBFCs in India.

Shailendra Bhushan Sharma and Lokesh Goel (2012) write on “Functioning and Reforms in
Non-Banking Financial Companies in India”. Non-Banking Financial Companies do offer all
sorts of banking services, such as loans and credit facilities, retirement planning, money
markets, underwriting and merger activities. These companies play an important role in
providing credit to the unorganized sector and to the small borrowers at the local level. Hire
purchase finance is by far the largest activity of NBFCs. The rapid growth of NBFCs has led
to a gradual blurring of dividing lines between banks and NBFCs, with the exception of the
exclusive privilege that commercial banks exercise in the issuance of cheques. This paper
provideos an exhaustive account of the functioning of and recent reforms pertaining to
NBFCs in India.

Subina Syal and Menka Goswami (2012) writes on “Financial Evaluation of Non-Banking
Financial Institutions: An Insight “in ‘Indian Journal of Applied Research’. The Indian
financial system consists of the various financial institutions, financial instruments and the
financial markets that facilitate and ensure effective channelization of payment and credit of
funds from the potential investors of the economy. Non-banking financial institutions in India
are one of the major stakeholders of financial system and cater to the diversified needs by
providing specialized financial services like investment advisory, leasing, asset management,
etc. Non-banking financial sector in India has been a considerable growth in the recent years.
The aim of the present study is to analyse the financial performance and growth of non-
banking financial institutions in India in the last 5 years. The study is helpful for the potential
investors to get the knowledge about the financial performance of the non-banking financial
institutions and be helpful in taking effective long-term investment decisions.

Sornaganesh and Maria Navis Soris17 (2013) B “A Fundamental Analysis of NBFCs in

India” in ‘Outreach’. The study was made to analyse the performance of five NBFCs in India.
The annual reports of these companies are evaluated so as to ascertain investments, loans
disbursed, growth, return, risk, etc. To sum up, the study is concluded that the NBFCs are
earning good margins on all the loans and their financial efficiency is good.

[29]
Thilakam and Saravanan (2014) writes on “CAMEL Analysis of NBFCs in Tamil Nadu” in
‘International Journal of Business and Administration Research Review’. Financial
intermediation is a crucial function of Banks, Non-Banking financial companies (NBFCs)
and Development Financial Institutions (DFIs) the post reform period in India is
characterized by phenomenal growth of NBFCs complementing the role of banks in
mobilizing funds and making it available for investment purposes. During the last decade
NBFCs have undergone wide volatility and change as an industry and have been witnessing
considerable business upheaval over the last decade because of market dynamics, public
sentiments and regulatory environment. To evaluate the soundness of NBFCs in Tamil Nadu
over a decade, the authors made an attempt of CAMEL criteria for analysis of selected
Companies. Based on findings the suggestions were offered to overcome the difficulties face
by selected NBFCs in their development

.Amit Kumar and Anshika Agarwal (2014) published a paper entitled “Latest Trends in Non-
banking Financial Institutions” in ‘Academician: An International Multidisciplinary Research
Journal’. In Indian Economy, there are two major Financial Institutions, one is banking and
other is Non-Banking. The Non-Banking Financial Institutions plays an important role in our
economy as they provide financial services on wide range, they also work to offer enhanced
and risk-based products, along with this they also provide short to long term finance to
different sectors of the economy, and many other functions. This paper examines the latest
trends in Non-Banking Financial Institutions. This paper analyses the growth and enhanced
prosperity of financial institutions in India.

Naresh Makhijani (2014) writes on “Non-Banking Finance Companies: Time to Introspect”

in ‘Analytique’. Over the last few years, the No- Banking Finance Companies (NBFC) sector
has gained significant advantages over the banking system in supplying credit under-served
and unbanked areas given their reach and niche business model. However, off late the
Reserve Bank of India has introduced and suggested various changes in the existing
regulatory norms governing NBFCs with a view to bring NBFCs regulations at par with the
banks. The ongoing and proposed regulatory changes for the NBFCs in terms of increased
capital adequacy, tougher provision norms, removal from priority sector status and changes in
securitization guidelines could bring down the profitability and growth of the NBFC sector.
NBFCs will need to introspect and rethink their business models as they will now not only
have to combat stringent regulatory norms but also have to face the challenge of rising cost of
funds, scare capital and direct competition from banks.

.Basu, (1961), in his paper “Non-Banking Financial Intermediaries and Monetary Policy”
explains that in India, the NBFC comprises a variety of institutions, which are defined under
section 45 I (a) of the Reserve Bank of India Act, 1934. The author has discussed about the
nature of activities of the NBFCs. The paper also describes the types, monetary policies and
regulatory measures of NBFC.

Kantawala, (1997), in his study “Financial Performance of Non-Banking Finance Companies

in India”, examined the performance of non-banking financial companies for the period from
1985-86 to 1994-95. Based on secondary data collected from different RBI bulletins
regarding financial and investment companies, the study concluded that there was a
significant difference in the profitability ratios, leverage ratios, and liquidity ratios of various
categories of NBFCs. When two categories were compared, the selected ratios were not
statistically different from each other in majority of the cases. When all the companies were
taken together, null hypothesis was accepted for only three ratios, indicating thereby that

[30]
there was no significant difference. From this, it can be inferred that the ratios for all
categories of NBFCs were generally different from each other.

Rani, (2008) in his thesis “Impact of Financial Sector Reforms on Non-Banking Financial
Companies” studied about the comprehensive legislations recommended by Narasimham
Committee II which empowered RBI with extensive powers to manage over the performance
and existence of NBFCs. The study found that the growth rate of NBFC in respect of deposits
continued to rise till the year 1997 but declined after 1998 as the regulatory framework in
1998 came as a source of extreme control to the real and genuine players in the market.
However, it has been identified in the study that the main source of NBFCs had always been
the acceptance of deposits.

CHAPTER -3

RESEARCH AND METHODOLOGY

3.1 Introduction-

The Research methodology adopted is secondary in nature. My research methodology

requires gathering relevant data through journals, internet, newspapers, books and magazines,
also self-interpretation is made with the help of collected material. The bulletin from RBI are
gathered in the order to access the problem related to NBFC.

3.2 Statement of problem-

The paper tries to examine role of NBFC in economic development.

3.3 Objectives-
3.3.1 Primary objectives-
Topic name-
The customer relationship of Mahindra and Mahindra financial services ltd is satisfactory
The customer relationship of Power finance corporation is satisfactory.

[31]
3.3.2 Secondary objectives-
1. To identify potential customer’s attitude towards the industry.

2. To study the problems being faced by the NBFC’s.

3. To identify the factors effecting the personal loan demand for NBFC industry.

4. To know how they are maintaining relationship with its customers.

5. To analysis the success factors of NBFC’s in India

6. To study the strategy of tackling their companies.

7. To study the Role of NBFC’s in the economic development

8. Mahindra and Mahindra Financial services ltd. Role as NBFC.

9. PFC role as NBFC

10. To suggest measures for the speedy growth of NBFC in India

3.4 Significance of Research-

 Certainly, the contribution of NBFCs is key to India’s growth.

 These companies played a critical role in the core development of infrastructure,
transport, and employment generation.
 It also contributed to wealth creation opportunities and financial support for
economically weaker sections.
 NBFCs also make a huge contribution to the state exchequer.
 Significantly, NBFCs provide an alternative source of funding and liquidity.
 Non-bank entities with specialised expertise provide an alternative source of credit
and certain functions in the credit intermediation chain more cost-efficiently.
 As such, NBFCs represent a unique success story in financial innovation and last mile
connectivity.
 farsighted in slowly migrating NBFCs to a Basel-like prudential regime structure.

3.5Research methodology-

The sample of the NBFC’s has been chosen based on convenient sampling technique. The

data has been collected from CMIE. The study period covered 2009-10 to 2014-15.

[32]
Correlation has been calculated to find out the relationship between loans and advances and

borrowings. Profitability ratio is used to find out how far the resources of the companies or

used effectively during the study period

3.5.1 Type of Research- Survey Research Method

3.5.2 Sample-
There are 50 respondents are there in my report.
The data is collected from Mumbai area.

3.5.3 Sample Size-

Simple random sampling.

3.5.4 Sources of data- My research methodology requires relevant data through journals,

articles, newspapers, internet, books, magazines, also self-interpretation is made with the help

of collected material.

3.5.5 Statistical Tools-

Statistical tools is the act of choosing the number of observations or replicates to include in
a statistical sample. The sample size is an important feature of any empirical study in which
the goal is to make inferences about a population from a sample. In practice, the sample size
used in a study is usually determined based on the cost, time, or convenience of collecting the
data, and the need for it to offer sufficient statistical power. In complicated studies there may
be several different sample sizes: for example, in a stratified survey there would be different
sizes for each stratum. In a census, data is sought for an entire population, hence the intended
sample size is equal to the population. In experimental design, where a study may be divided
into different treatment groups, there may be different sample sizes for each group.

3.6 Limitation of Research-

1. Time restriction was a major factor while collecting the data

2. Some of the people were not co-operating while doing my survey

[33]
 3. The sample size is also limited to only 50 samples, which is small for a county like

India

4. The data is collected through questionnaire, there might be chance of a biased

information being provided by the respondent.

5. Area covered by the project is Mumbai region.

6. All the information regarding NBFC Power finance corporation & Mahindra&

Mahindra financial services ltd.

CHAPTER-4

DATA ANALYSIS AND INTERPRETATION

1.Gender

 Female
 male
 Prefer not to say

Table-

Options No. of Respondents Percentage

Female 29 56.9%
Male 22 43.1%
Prefer not to say - -
Total 51 100%

[34]
Diagram –

Interpretation-
Above diagram shows gender of the respondent 56.9% Of the respondents were female and
43.1% were male. Hence the majority of respondents are female rather than male.

2.The age group of respondents. -

 Less than 30 years
 30-40 years
 40-50years
 Above 50 years

Table-
Options No. of respondents Percentage
Less than 30 years 48 94.1%

30-40 years 2 3.9%

40-50 years 1 2%

Above 50 years - -

Diagram-

[35]
Interpretation-

The above diagram shows respondents age, from which age group they belong from. We

observe 94.1% of respondent are less than 30 years,3.9% are between 30-40 years & 2% are

between 40-50 years.

3.Qualification of respondent-

 Higher Secondary
 Under graduate
 Graduate
 Illiterate

Table-

Options No. of respondents Percentage

Higher secondary 10 19.6%
Under graduate 29 56.9%
Graduate 12 23.5%
illiterate - -

[36]
Diagram-

Interpretation-
In the above table we have seen that Higher secondary respondents are 10, Under graduate
respondents are 29, and 12 respondents are graduate.
In the above diagram, where in 19.6% are higher secondary respondents, 56.9% are Under
graduate respondents and 23.5% are graduate respondents

4. Qualification Respondent
 Salaried
 Self-employed
 Student
 Retired
 Housewife

Table-
Option No of respondent Percentage
Salaried 6 11.8%
self-employed 3 5.9%
student 42 82.4%
Retired - -
housewife - -

[37]
Diagram

Interpretation-
The above diagram shows occupation of respondent , the sample of the respondents has been
taken from all kind of working class, where in salaried respondents are 11.8%, self-employed
respondents are 5.9%, and students are 82.4%

5. Location
Diagram-

6.Are you aware of non-banking financial companies?

[38]
  Yes
 No
 Maybe

Table-
Options No. of respondents Percentage
Yes 26 51%
No 11 21.6%
Maybe 14 27.5%

Diagram-

Interpretation-
The above diagram shows us how many respondents are aware of NBFC. We can clearly see
51% of respondents are aware of NBFC, 21.6% are not aware and 27.5% are possibly aware.

7.Are you aware about Mahindra & Mahindra financial Services Ltd. Or Power
Finance Corporation?

[39]
  Yes
 No
 Maybe

Table-

Options No of Respondents Percentage

Yes 35 68.6%
No 13 25.5%
Maybe 3 5.9%

Diagram-

Interpretation-
The above Diagram shows us 68.6% respondents are aware of this, 25.5% respondents are
not aware of this, and 5.9% respondents are possible aware of this.

8.Do you ever took loan from non-banking financial companies (NBFC)?
 Yes
 No
 Maybe

[40]
Table-
Options No. of respondents percentage
Yes 8 15.7%
No 41 80.4%
Maybe 2 3.9%

Diagram-

Interpretation-
In the above diagram we can see that 15.7% respondents took loan from NBFC while 80.45
never took loan from NBFC and 3.9% respondents are unsure about it.

9. From which financial institutions you would like to get loan?

 Government Bank
 Private Bank
 NBFC

Table-
Options No. of respondents Percentage

[41]
 Government Bank 28 54.9%
Private bank 9 17.6%
NBFC 14 27.5%

Diagram-

Interpretation-
The above diagram shows us from which institutions respondents would like to get loan
from. We can clearly see that Government bank has the best ratings. Around 54.9% of the
respondent choose government bank,17.6% choose private bank, and 27.5% choose non-
banking financial companies to get loan.

10.If you want to invest in fixed deposit which you will choose?
 Power Finance corporation
 HDFC
 Mahindra Finance
 Muthoot Finance
 Others

Table-
Options No. of Respondents Percentage

[42]
 PFC 4 7.8%
HDFC 21 41.2%
Mahindra Finance 5 9.8%
Muthoot Finance 5 9.8%
Others 16 31.4%

Diagram-

Interpretation-
The above diagram shows selection of company respondent would like to invest in fixed
deposit, here we can clearly see HDFC has best ratings around 41.2%, power finance 7.8%,
Mahindra Finance 9.8%, Muthoot finance 9.8% and others are 31.4%.

11.Which of the following FD's you are aware of?

 HDFC
 Power Finance Corporation
 Mahindra Finance
 Others

Table-
Options No. of Respondents Percentage
HDFC 23 45.1
PFC 3 5.9
Mahindra Finance 5 9.8

[43]
 Others 20 39.2

Diagram-

Interpretation-
The above diagram shows us which FDs respondents are aware of we can see that majority
people are aware of HDFC FD’s that is 45.11%, 5.9% are aware of PSF, 9.8%repondents
are aware about Mahindra finance FD’s and 39.2 they are not aware of above-mentioned
companies they choose others options.

11.Do you trust non-banking financial (NBFC)institutions that provide loans?

 Completely
 Somewhat
 Dubious
 Not at all

Table-
Options No of Respondents Percentage
Completely 9 17.6%
Somewhat 28 54.9%
Dubious 7 13.7%

[44]
 Not at all 7 13.7%

Diagram-

Interpretation-
In the above diagram we can see 17.6% respondent totally believe in NBFC that provide
loans 54.9% respondents are somehow trust, 13.7% respondents are unsure about it and
13.7% respondents do not trust at all.

13. Do you think your bank caters all your banking needs?
 Yes
 No
 Maybe

Table-
Option No. Of Respondent Percentage
Yes 19 37.3%
No 7 13.7%
Maybe 25 49%

Diagram-

[45]
Interpretation-
The above diagram show us 37.3% respondents agree with this , while 13.7% are not, and
49% are dubious about it.

14.  Does your non-financial institutions offer competitive service charges

 Yes
 No
 Maybe

Table-
Options No. of Respondents Percentage
Yes 17 33.3%
No 8 15.7%
Maybe 26 51%

Diagram-

[46]
Interpretation-
In the above diagram 17 (33.3%) respondents agree that their NBFI offer competitive
charges while 17 (15.7%) respondents are not agree with this and 26(51%) respondents are
unsure about it.

15. What do you feel about the overall services quality of non-banking companies
(NBFC)?
 Excellent
 Good
 Fair
 Poor
Table-
Options No. of Respondents Percentage
Excellent 6 11.8%
Good 30 58.8%
Fair 14 27.5%
Poor 1 2%

Diagram-

[47]
Interpretation-
In the above diagram we can clearly see 6 respondents feel excellent about the overall
service quality, 30 respondents feel good, 14 respondents said Fair not too bad not too good
and 1 respondent said poor. Among 51 respondents 58.8% feel good about the overall
services quality of non-banking companies.

Findings-.
 I Found out that most of respondent are female.
 The majority of respondent belongs to age group of less than 30 Years.
 According to my survey everyone is aware of non-banking financial companies.
 The majority of respondent are under graduate respondent.
 Majority of respondents are aware of Mahindra and Mahindra financial services ltd & Power
finance corporation
 I found out majority of respondents never took loan from non-banking financial institutions
 Majority of respondent preferred HDFC to invest in Fixed Deposits
 Majority of respondent preferred Government bank to get loan

[48]
 CHAPTER-5
CONCLUSIONS & SUGGESTIONS

5.1 Conclusion-
NBFCs are gaining momentum in last few decades with wide variety of products and
services. NBFCs collect public funds and provide loan able funds. There has been
significant increase in such companies since 1990s. They are playing a vital role in the
development financial system of our country. The banking sector is financing only 40 per
cent to the trading sector and rest is coming from the NBFC and private money lenders.

At the same line 50 per cent of the credit requirement of the manufacturing is provided by
NBFCs. 65 per cent of the private construction activities was also financed by NBFCs.
Now they are also financing second hand vehicles. NBFCs can play a significant role in
channelizing the remittance from abroad to states such as Gujarat and Kerala.

NBFCs in India have become prominent in a wide range of activities like hire purchase
finance, equipment lease finance, loans, investments, and so on. NBFCs have greater reach
and flexibility in tapping resources. In desperate times, NBFCs could survive owing to their
aggressive character and customized services. NBFCs are doing more fee-based business
than fund based. They are focusing now on retailing sector-housing finance, personal loans,
and marketing of insurance.

Many of the NBFCs have ventured into the domain of mutual funds and insurance. NBFCs
undertake both life and general insurance business as joint venture participants in insurance
companies. The strong NBFCs have successfully emerged as Financial Institutions in short
span of time and are in the process of converting themselves into Financial Super Market.
The NBFCs are taking initiatives to establish a self-regulatory organization (SRO).

At present, NBFCs are represented by the Association of Leasing and Financial Services
(ALFS), Federation of India Hire Purchase Association (FIHPA) and Equipment Leasing
Association of India (ELA). The Reserve Bank wants these three industry bodies to come
together under one roof. The Reserve Bank has emphasis on formation of SRO Particularly
for the benefit of smaller NBFCs.

[49]
To the credit of NBFCs, they have risen from the ashes before – as evidenced during the
2008 and 2014 financial crises. This time, however, there are additional concerns. The first
is around the domestic economic slowdown that is visible, particularly in the automotive,
infrastructure and real estate sectors, where the NBFC focus is significant. The second
deals with the margin pressure resulting from the proposed RBI move to link NBFC lending
rates to an anchor rate.

While the liquidity condition in the market improves for the NBFC sector, it is imperative
for NBFCs to establish strong governance and risk management practices (as discussed in
this paper) to restore stakeholder/investor confidence and reduce overall borrowing costs.
Additionally, NBFCs can improve their bottom line by optimising their operating expenses
through digitisation and automation initiatives. Finally, the ability of NBFCs to develop
strategic partnerships with key ecosystem players and leverage technology to meet the
demands of new consumers will determine the future course of the industry.

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., India Bulls 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.

5.2 Suggestions-

 RBI should review the accounting norms prescribed for NBFCs and apply them as
laid down for banks.
 Bajaj Holdings and Investment limited has to increase its loans and advances

[50]
  IDFC has to reduce its borrowings in future to improve the financial performances
 There should be a ban on issue of advertisements soliciting deposits by all
unincorporated bodies
 The RBI should be vested with powers to direct a particular NBFC or a class of
NBFCs to seek prior approval of the RBI before appointing its statutory auditors.
 . It is important to have a very sensitive market intelligence system which could
trigger onsite inspections followed by appropriate regulatory responses.
 RBI could use the services of chartered accountants with suitable experience and
capabilities to carry out inspections of the smaller NBFCs
 State Governments may set up cells at the state and district level to help disseminate
information relating to procedure for redressal of depositors' grievances.
 The RBI should consider measures for easing the flow of credit from banks to NBFCs
and then consider prescribing a suitable ratio as between secured and unsecured
deposits for NBFCs.
 The RBI can be statutorily empowered to appoint depositors' grievance redressal
authorities with specified territorial jurisdiction. The office of the Banking
Ombudsman, could be a viable option for such appointments. This will also entail
amendments in the RBI Act.
 The liquid asset ratio should be increased to 25% of public deposit from the present
level in a phased manner. By a suitable statutory provision, the unsecured depositors
may be given a first charge on these liquid assets so that an unsecured depositor is at
least assured of a return of one-out-of-every-four rupees deposited by him.
 Deposit taking by unregistered NBFCs or NBFCs whose applications for certificate of
registration have been rejected or whose registration has been cancelled or who have
been prohibited from accepting deposits should be made a cognizable offence. State
Governments should set up special investigation wings for enforcing these provisions

5.3 Direction For further Research-

 RBI has made it easier for banks to lend to NBFCs to help ease the credit squeeze
 Coming months may see tight money flow and NBFCs will need to find new ways
to survive

[51]
  This Period may help NBFCs opt for better practices while for others, it may prove
to be a challenging time.

India’s NBFC sector, which has shown robust growth in the recent years, is generically
different from shadow banks operating elsewhere in the world, as this article has argued.
The regulatory framework for NBFCs in India has evolved over time in line with the
growing functional diversification of the sector while keeping in view the objectives of
depositors’ interest, financial inclusion and financial stability.

At the same time, the shaping and calibration of regulatory initiatives have been influenced
by considerations of harnessing sector specific expertise and the proven abilities of these
institutions to serve niche segments. The creation of different categories of NBFCs signifies
this intention. While allowing for diversification of the sector, harmonisation of the
regulatory framework for NBFCs, both within the sector and with that for banks, is being
pursued to minimise regulatory arbitrage.

An assessment of the recent financial performance of NBFCs suggests that they are
emerging as an important source of credit to micro and small enterprises and infrastructure.
Although the capital position of NBFC sector remains strong, the gradual deterioration in
their asset quality points to the need for greater monitoring. The growth of financial
technology (fintech) platforms presage even greater scope and opportunities for the NBFC
sector. New players in the field of P2P/business-to-business (B2B) business-to-consumers
(B2C) lending offer novel opportunities for NBFCs to evolve further and emerge as an
increasingly important component of India’s financial landscape

APPENDICES

BIBLIOGRAPHY-

This project has been made with the references taken from the following portals.
 Online Journals
 Annual Reports
 Newspapers
 Magazines Published

[52]
Websites-
 www.investopedia.com

 www.rbi.org

 www.wikipedia.org

 www.economictimes.com

[53]
QUESTIONNAIRE-

1.Gender

2. The age group of respondents

a. Less than 30 years

b. 30-40 years
c. 40-50 years
d. More than 50 years

3.Qualification of respondent

a. Higher secondary
b. Under Graduate
c. Graduate
d. Illiterate

4. Occupation Of respondent

a. Salaried
b. Self-Employed
c. Student
d. Retired
e. Housewife

5. Location

6. Are you aware of non-banking financial institutions (NBFC)?

a. Yes
b. No
c. Maybe

7.Are you aware about Mahindra and Mahindra financial services ltd. Or Power finance
corporation?

a. Yes
b. No
c. Maybe

8.Do you ever took loan from non-banking financial services (NBFC)?
[54]
 a. Yes
b. No
c. Maybe

9.From which financial institutions you would like to get loan?

a. Government bank
b. Private Bank
c. NBFC

10.If you want to invest in fixed deposit which you will choose?

a. Power Finance corporation

b. HDFC
c. Mahindra Finance
d. Muthoot Finance
e. Other

11.Which of the following FD’s you are aware of?

a. HDFC
b. Power Finance Corporation
c. Mahindra finance
d. Others

12.Do you trust non-banking financial companies (NBFC)?

a. Completely
b. Somewhat
c. Dubious
d. Not at all

13.Do you think bank caters all your banking needs?

a. Yes
b. No
c. Maybe

14.Does your non-financial institutions offer competitive services charges?

a. Yes

[55]
 b. No
c. Maybe

15.What do you feel about the overall services quality of non-banking financial companies?

a. Excellent
b. Good
c. Fair
d. Poor

[56]