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Project On NBFC
Project On NBFC
We studied about banks, apart from banks the Indian Financial System has a large number of privately owned, decentralised and small sized financial institutions known as Non-banking financial companies. In recent times, the non-financial companies (NBFCs) have contributed to the Indian economic growth by providing deposit facilities and specialized credit to certain segments of the society such as unorganized sector and small borrowers. In the Indian Financial System, the NBFCs play a very important role in converting services and provide credit to the unorganized sector and small borrowers.
NBFCs provide financial services like hire-purchase, leasing, loans, investments, chit-fund companies etc. NBFCs can be classified into deposit accepting companies and non-deposit accepting companies. NBFCs are small in size and are owned privately. The NBFCs have grown rapidly since 1990. They offer attractive rate of return. They are fund based as well as service oriented companies. Their main companies are banks and financial institutions. According to RBI Act 1934, it is compulsory to register the NBFCs with the Reserve Bank of India.
The NBFCs in advanced countries have grown significantly and are now coming up in a very large way in developing countries like Brazil, India, and Malaysia etc. The non-banking companies when compared with commercial and co-operative banks are a heterogeneous (varied) group of finance companies. NBFCs are heterogeneous group of finance companies means all NBFCs provide different types of financial services.
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NBFCs supplement the role of the banking sector in meeting the increasing financial need of the corporate sector, delivering credit to the unorganized sector and to small local borrowers. NBFCs have more flexible structure than banks. As compared to banks, they can take quick decisions, assume greater risks and tailormake their services and charge according to the needs of the clients. Their flexible structure helps in broadening the market by providing the saver and investor a bundle of services on a competitive basis.
Non Banking Finance Companies (NBFCs) are a constituent of the institutional structure of the organized financial system in India. The Financial System of any country consists of financial Markets, financial intermediation and financial instruments or financial products. All these Items facilitate transfer of funds and are not always mutually exclusive. Inter-relationships Between these are parts of the system e.g. Financial Institutions operate in financial markets and are, therefore, a part of such markets.
NBFCs at present providing financial services partly fee based and partly fund based. Their fee based services include portfolio management, issue management, loan syndication, merger and acquisition, credit rating etc. their asset based activities include venture capital financing, housing finance, equipment leasing, hire purchase financing factoring etc. In short they are now providing variety of services. NBFCs differ widely in their ownership: Some are subsidiaries of large
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y y
Money refers to the current medium of exchange or means of payment. Credit or loans is a sum of money to be returned, normally with interest; it refers to a debt
Finance is monetary resources comprising debt and ownership funds of the state, company or person.
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1.
The James Raj Committee was constituted by the Reserve Bank of India in 1974. After studying the various money circulation schemes which were floated in the country during that time and taking into consideration the impact of such schemes on the economy, the Committee after extensive research and analysis had suggested for a ban on Prize chit and other schemes which were causing a great loss to the economy. Based on these suggestions, the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 was enacted
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This Group was set up with the objective of designing a comprehensive and effective supervisory framework for the non-banking companies segment of the financial system. The important recommendations of this committee are as follows: i. Introduction of a supervisory rating system for the registered NBFCs. The ratings assigned to NBFCs would primarily be the tool for triggering on-site inspections at various intervals. ii. Supervisory attention and focus of the Reserve Bank to be directed in a comprehensive manner only to those NBFCs having net owned funds of Rs.100 laths and above. iii. Supervision over unregistered NBFCs to be exercised through the off-site surveillance mechanism and their on-site inspection to be conducted selectively as deemed necessary depending on circumstances. iv. Need to devise a suitable system for co-coordinating the on-site inspection of the NBFCs by the Reserve Bank in tandem with other regulatory authorities so that they were subjected to one-shot examination by different
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v.
Some
of
the
non-banking
non-financial
companies
like
industrial/manufacturing units were also undertaking financial activities including acceptance of deposits, investment operations, leasing etc to a great extent. The committee stressed the need for identifying an appropriate
authority to regulate the activities of these companies, including plantation and animal husbandry companies not falling under the regulatory control of Either Department of Company Affairs or the Reserve Bank, as far as their mobilization of public deposit was concerned.
vi.
Introduction of a system whereby the names of the NBFCs which had not complied with the regulatory framework / directions of the Bank or had failed to submit the prescribed returns consecutively for two years could be published in regional newspapers.
This committee was formed to examine all aspects relating to the structure, organization & functioning of the financial system.
These were the committees which founded non- banking financial companies.
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Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of 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 but does not include any institution whose principal business is that of agriculture activity, industrial activity,
sale/purchase/construction of immovable property. Non-banking institution which is a company and which has its principal business of receiving deposits under any scheme of arrangement or any other manner, or lending in any manner is also a non- banking financial company.
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DEFINITIONS OF NBFC.
Non-Banking Financial Company has been defined as: (i) A non-banking institution, which is a company and which has its principal business the receiving of deposits under any scheme or lending in any manner. (ii) Such other non-banking institutions, as the bank may with the previous approval of the central government and by notification in the official gazette, specify. NBFCS provide a range of services such as hire purchase finance, equipment lease finance, loans, and investments. NBFCS have raised large amount of resources through deposits from public, shareholders, directors, and other companies and borrowing by issue of non-convertible debentures, and so on. Non-banking Financial Institutions carry out financing activities but their resources are not directly obtained from the savers as debt. Instead, these Institutions mobilize the public savings for rendering other financial services including investment. All such Institutions are financial intermediaries and when they lend, they are known as Non-Banking Financial Intermediaries (NBFIs) or Investment Institutions: UNIT TRUST OF INDIA. LIFE INSURANCE CORPORATION (LIC). GENERAL INSURANCE CORPORATION (GIC).
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Equipment leasing companies. Hire-purchase finance companies. Housing finance-companies. Investments companies. Loan companies. Mutual Fund Benefit Companies. Chit fund companies. Residuary companies.
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Benefits/Advantages of Leasing:
(1) 100% finance: They borrower in the equipment can get up to 100% finance for the use of capital through leasing arrangement in the sense, that the leasing company provides the equipment immediately and the borrower need not pay the full amount at once. Hence, the borrower can use the amount for fulfilling other needs such as expansion development, etc.
(2)
Payment is easier: Leasing finance is costlier. However, the borrower finds it convenient (easy) as he has to pay in installments out of the return from the investment in the equipment. Hence, the borrower does not feel the burden of payment.
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(3)
Tax concessions: The borrower can get tax concessions in case of leasing equipments. The total amounts of rent paid on leased equipment are deducted from the gross income. In case of immediate purchase, interest on the loan and the depreciation are deducted from the taxable income.
(a)
(b)
In hire-purchase, the owner of the goods hires them to another party for a certain period and for a payment of certain installment until the other party owns it.
(c)
The main feature of hire-purchase is that the ownership of the goods remains with the owner until the last installment is paid to him. The ownership of goods passes to the user only after he pays the last installment of goods.
(d)
Hire-purchase is needed by farmers, professionals and transport group people to buy equipment on the basis of hire purchase.
(e)
It is a less risky business because the goods purchased on hire purchase basis serve as securities till the installment on the loan is paid.
(f) (g)
Generally, automobile industry needs lot hire-purchase finance. The problem of recovery of loans does not occur in most cases, as the borrower is able to pay back the loan out of future earnings through the regular generation of funds out of the asset purchased.
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(a)
(b)
Housing finance companies also accept the deposits and lend money only for housing purposes.
(c)
Even though there is a heavy demand for housing finance, these companies have not made much progress and as on 31st March, 1990 only 17 such companies here reported to the RBI.
(d)
The ICICI and the Canara Bank took the lead to sponsor housing finance companies, namely, Housing Development Corporation Ltd. and the Canfin Homes Ltd.
(e)
All the information about the Housing finance companies is available with the National Housing Bank. Housing finance companies also have to compulsorily to register themselves with the Reserve Bank of India.
(f)
National Housing bank is the apex institution in the field of housing. It promotes housing finance institutions, both on regional and local levels.
(a)
Investment Companies:
Investment company means any company which is carrying on the main business of securities.
(b)
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(2) Other Investment Companies: (i) Investment companies are also known as Investment trusts. (ii) Investment companies collect the deposits from the public and invest them in securities. (iii) The main aim of investment companies is to protect small investors by collecting their small savings and investing than in different securities so that the risk can be spread. (iv) An individual investor cannot do all this on his own, due to lack of expertise in investing. Hence, investing companies are formed for collective investing. Companies are formed for collective investments of money, mainly of small investors. (v) Another benefit of an investment company is that it offers trained, experienced and specialised management of funds. (vi) It helps the investors to select a financially sound and liquid security. Liquid security means a security which can be easily converted into cash. (vii)In India investment trusts are very popular. They help in putting the savings of people into productive investments. (viii)Some of the investment trusts also do underwriting, promoting and holding company business besides financing. (ix)These investments trusts help in the survival of business in the economy by
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(a)
Loan company:
A loan company means any company whose main business is to provide finance through loans and advances.
(b)
It does not include a hire purchase finance company or an equipment leasing company or a housing finance company.
(c) (d)
Loan company is also known as a Finance Company". Loan companies have very little capital, so they depend upon public deposits as their main source of funds. Hence, they attract deposits by offering high rates of interest.
(e)
Normally, the loan companies provide loans to wholesalers, retailers, smallscale industries, self-employed people, etc.
(f) (g)
Most of their loans are given without any security. Hence, they are risky. Due to this reason, the loan company charges high rate of interest on its loans. Loans are generally given for short period of time but they can be renewed.
(a) (b)
(c) (d)
It is popularly known as "Nidhis". Usually, it is registered with only very small number of shares. The value of
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The chit fund schemes have a long history in the southern states of India. Rural unorganized chit funds may still be spotted in many southern villages. However, organized chit fund companies are now prevalent all over India. The word is Hindi and refers to a small note or piece of something. The word passed into the British colonial lexicon and is still used to refer to a small piece of paper, a child or small girl
How Chit Fund Help? Chit Funds have the advantage both for serving a need and as an investment. Money can be readily drawn in an emergency or could be continued as an investment. Interest rate is determined by the subscribers themselves, based on mutual decisions and varies from auction to auction. The money that you borrow is against your own future contributions. The amount is given on personal sureties too; unlike in banks and other financial institutions which demand a tangible security. Chit funds can be relied upon to satisfy personal needs. Unlike other financial institutions, you can draw upon your chit fund for any purpose - marriages, religious functions, medical expenses, just anything...
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(a)
Chit funds companies are one of the oldest forms of local non-banking financial institution in India.
(b) (c)
They are also known as "kuries". These institutions have originated from south India and are very popular over there.
(d)
A chit fund organisation is an organisation of a number of people who join together and subscribe (contribute) amounts monthly so that any members who is in need of funds can draw the amount less expenses for conducting the chit. It is an organisation run on co-operative basis for the benefit of the members who contribute money, the funds are used by them as and when a particular member needs it.
(e)
It helps the persons who save money regularly to invest their savings with good chances of profit.
(f)
Chit funds have many defects as the rate of return given to each member is not the same.
(g)
It differs from person to person, this leads in improper distribution of gains and losses.
(h)
Also, the promoters of these funds do everything for their own benefit to get maximum income.
(I)
Hence, the banking commission has made suggestions to pass uniform chit funds laws for the whole of India.
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(b)
It generally accepts deposits by operating different schemes similar to recurring deposit schemes of banks.
(c)
Deposits are collected from a large number of people by promising them that their money would be invested in banks and government securities
(d)
The collection of deposits is done at the doorsteps of depositors through bank staff, who is paid commission.
(e)
These companies get the funds at low cost for longer terms, at they invest them in investments which generates good amount of return.
Many of these companies operate with very small amount of capital. They have some adverse (bad) features, such as: Some do not submit periodic returns to the regulatory authority. Some of them do not appoint banks, etc.
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Non- Banking Financial Companies play an important role in promoting the utilization of savings among public. NBFCs are able to reach certain deposit segments such as unorganized sector and small borrowers were commercial bank cannot reach. These companies encourage savings and promote careful spending of money without much wastage. They offer attractive schemes to suit needs of various sections of the society. They also attract idle money by offering attractive rates of interest. Idle money means the money which public keep aside, but which is not used. It is surplus money.
(2)
NBFCs provide easy and timely credit to those who need it. The formalities and procedures in case of NBFCs are also very less. NBFCs also provides unusual credit means the credit which is not usually provided by banks such as credit for marriage expenses, religious functions, etc. The NBFCs are open to all. Every one whether rich or poor can use them according to their needs.
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equipment to industrialists, the industrialists can carry on their production with less capital and the leasing company can also earn good amount of profit.
(5)
NBFCs, mainly the Housing Finance companies provide housing finance on easy term and conditions. They play an important role in fulfilling the basic human need of housing finance. Housing Finance is generally needed by middle class and lower middle class people. Hence, NBFCs are blessing for them.
(6)
NBFCs, mainly investment companies provide advice relating to wise investment of funds as well as how to spread the risk by investing in different securities. They protect the small investors by investing their funds in different securities. They provide valuable services to investors by choosing the right kind of securities which will help them in gaining maximum rate of returns. Hence, NBFCs plays an important role by providing sound and wise investment advice.
(7)
NBFCs play an important role in increasing the standard of living in India. People with lesser means are not able to take the benefit of various goods which were once considered as luxury but now necessity, such as consumer durables like Television, Refrigerators, Air Conditioners, Kitchen equipments, etc. NBFCs increase the
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(8)
NBFCs accept deposits forms convenient to public. Generally, they receive deposits from public by way of depositor a loaner in any form. In turn the NBFCs issue debentures, units certificates, savings certificates, units, etc. to the public.
(9)
NBFCs play a very important role in the economic growth of the country. They increase the rate of growth of the financial market and provide a wide variety of investors. They work on the principle of providing a good rate of return on saving, while reducing the risk to the maximum possible extent. Hence, they help in the survival of business in the economy by keeping the capital market active and busy. They also encourage the growth of well- organized business enterprises by investing their funds in efficient and financially sound business enterprises only. One major benefit of NBFCs speculative business means investing in risky activities. The investing companies are interested in price stability and hence NBFCs, have a good influence on the stock- market. NBFCs play a very positive and active role in the development of our country.
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The primary function of nbfcs is receive deposits from the public in various ways such as issue of debentures, savings certificates, subscription, unit certification, etc. thus, the deposits of nbfcs 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 nbfcs is lending money to public. Non- banking financial companies provide financial assistance through. (a) Hire purchase finance: Hire purchase finance is given by nbfcs to help small important operators, professionals, and middle income group people to buy the equipment on the basis on Hire purchase. After the last installment 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 need not purchase the capital equipment but he buys the right to use it. (c) Housing Finance: NBFCs provide housing finance to the public, they finance for construction of houses, development of plots, land, etc.
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No. 1
Commercial Banks. Issue of cheques: In case of commercial banks, a cheque can be issued against bank deposits.
Rate of interest: Commercial bank offer lesser rate of interest on deposits and charge less rate of interest on loans as compared to NBFCs. NBFCs offer higher rate of interest on deposits and charge higher rate of interest on loans as compared to Commercial banks.
Facilities provided by them: Commercial banks can enjoy the benefit of certain facilities like deposit insurance cover facilities, refinancing facilities, etc. NBFCs are not given such facilities.
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Non Banking Financial Companies RBI Guidelines for Asset-Liability Management (ALM) system in NBFCs.
This note lays down broad guidelines in respect of interest rate and liquidity risks management systems in NBFCs which form part of the Asset Liability Management (ALM) function. This is applicable to all NBFCs and
Residuary non-banking companies meeting the criteria of asset base of Rs.100 crores, whether accepting deposits or not, or holding public deposits of Rs.20 crores or more. Sl.No. Description / Compliance requirement Comments. As we are aware, the guidelines for introduction of ALM system by banks and all India financial intuitions have already been issued by Reserve Bank of India and the system has become operational. Since the operations of financial companies also give rise to Asset Liability mismatches and interest rate risk exposures, it has been decided to introduce an ALM system for the NON- Banking Financial Companies (NBFCs) as well, as part of their overall system for effective risk management in their various portfolios. A copy of the guidelines for Asset Liability Management (ALM) system in NBFCs is enclosed. Is there an Asset Liability Committee (ALCO) consisting of the companys senior management to decide the business strategy of the NBFC. 1. In the normal course, NBFC'S are exposed to credit and market risks in view of the asset-liability transportation. With liberalization in Indian financial markets over the last few years and growing integration of domestic with external markets and entry of MNC's for meeting the credit needs of not only the corporate but also the retail segments, the risks associated with NBFC's operations have become complex and large,
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2.
NBFC's need to address these risks in a structured manner by upgrading their risk management and adopting more comprehensive Asset-Liability Management (ALM) practices than has been done hitherto. ALM, among other function, is also concerned with risk management and provides a comprehensive and dynamic framework for measuring, monitoring and managing liquidity and interest rate equity and commodity price risks of major operators in the financial system that needs to be closely integrated with the NBFC's business strategy. It involves assessment of various types of risks and altering the asset-liability portfolio in a dynamic way in order to manage risks.
3.
This note lays down broad guidelines in respect of interest rate and liquidity risks management systems in NBFC's which form part of the Asset-Liability Management (ALM) function. The initial focus of the ALM function would be to enforce the risk management discipline i.e. managing business after assessing the risks involved. The objective of good risk management systems should be that these systems will evolve into a strategic tool for
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4.
y ALM Information Systems y Management Information Systems y Information availability, accuracy, adequacy and expediency y ALM Organisation y Structure and responsibilities y level of top management involvement y Risk parameters y Risk identification y Risk management y Risk policies and tolerance levels.
NBFC's have heterogeneous organizational structures, capital base, asset sizes management profile, business activities and geographical spread. Some of them
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ALM ORGANISATION
(a) Successful implementation of the risk management process would require strong commitment on the part of the senior management in the NBFC, to integrate basic operations and strategic decision making with risk management. (b) The Asset-Liability Committee (ALCO) consisting of the NBFC's senior management including Chief Executive Officer (CEO) should be responsible for ensuring adherence to the limits set by the Board as well as for deciding the business strategy of the NBFC (on the assets and liabilities sides) in line with the NBFC's budget and decided risk management objectives. (c) The ALM Support Groups consisting of operating staff should be responsible for analyzing, monitoring and reporting the risk profiles to the ALCO. The staff should also prepare forecasts (simulations) showing the effects of various possible changes in market conditions related to the balance sheet and recommended the action needed to adhere to NBFC's internal limits.
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NBFCs holding public deposits are required to invest up to a prescribed percentage (15% as on date) of their public deposits in approved securities in terms of liquid asset requirement of section 45-IB of the RBI Act,1934. Residuary Non-Banking Companies (RNBCs) are required to invest up to 80% of their deposits in a manner as prescribed in the Directions issued under the said Act. There is no such requirements for NBFCs which are not holding public deposits. Thus various NBFCs including RNBCs would be holding in their investments portfolio securities which could be broadly classifiable as 'mandatory securities' (under obligation of law) and other 'non-mandatory securities'.
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Superintendents of Police; RBI would be empowered to appoint Special Officer(s) on delinquent financial companies; Any sale of property in violation of RBI order would be void; The Company Law Board will continue to be the authority to adjudicate the claims of depositors. Financial companies would have no recourse to the CLB to seek deferment of the depositors dues. The Bill has been introduced in Parliament in 2000 and has since been referred to the Standing Committee on Finance. 8.0 Anomalies in the NBFC regulations.
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stated that, business of a non-banking financial institution means carrying on of the business of a financial institution referred to in clause (c) and includes business of a non-banking financial company referred to in clause (f). Therefore, to understand what the business of Non Banking Financial
Institution is a reference has to be made to two other clauses (c) and (f). Clause (c) defines the term Financial Institution and clause (f) defines NBFC itself. However, the clause (f) contains a comprehensive and exclusive definition an NBFC. As per this clause a non-banking financial company means (i) (ii) 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 lending in any manner; (iii) Such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify. Therefore, we can say an NBFC is always a company and can be a corporation or a co-operative only if notified by RBI with approval of Central Government. However, no co operative or corporation has been notified till now. The definition of NBFC should have been simple to understand and references to other clauses could have been avoided. need to cross
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disbursing monies in any other way, to persons from whom monies are collected or to any other person, but does not include any institution, which carries on as its principal business:
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2. Clarification regarding what in Principle Business: The sub clause (ii) of clause (f) which defines NBFC states that a non- banking company that has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner is regarded as NBFC. Moreover, clause (c) that defined financial institution also refers to the phrase Principle business when it states that financial institution does not include institution that carries on as its principle business(a) agricultural operations; or (a) industrial activity; or (b) the purchase or sale of any goods (other than securities) or the providing of any services; or (c) the purchase, construction or sale of immovable property, so however, that
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3. Applicability of Accounting Standards: The clause 5 of the Non-Banking Financial (Deposit Accepting or Holding ) Companies Prudential Norms (Reserve Bank) Directions, 2007 states that Accounting Standards and Guidance notes issued by the Institute of Chartered Accountants of India shall be followed in so far as they are not inconsistent with any of the Directions. This clause should be rectified as ICAI has
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(ii)
There would be powers with the Reserve Bank to: (a) Prescribe different capital for different classes of financial companies, (b) Raise the requirement of minimum owned fund (entry norm) from Rs.25 Lakh to of Rs.25 Lakh to Rs.2 crores for the existing financial companies accepting public deposits. However, sufficient time would be allowed to such financial companies to attain the enhanced capital requirement.
(iii)
The requirement of creation of reserve fund would be applicable only to the financial companies accepting public deposits, as against the earlier requirement applicable to all NBFCs.
(iv)
Unsecured depositors would have first charge on liquid assets and assets created out of the deployment of the part of the reserve fund.
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Public deposit includes fixed or recurring deposits which are received from friends, relative, shareholders of a public limited company and money raised in issued of unsecured debentures or bond. It does not include money raised from issue of secured debentures and bond or from borrowings of banks or financial institutions, deposits from directors or inter- corporate deposits received from foreign national citizens and from shareholders of private limited companies. (2)
The NBFCs which have net owned capital of less than Rs. 25 Lakh will not be permitted to accept deposit from public. In order to raise funds the NBFC can borrow from some other sources also. (3)
All NBFCs will have to submit their annual financial statements and returns if they accept public deposits. (4)
The RBI has given directions to NBFCs accepting public deposits to regulate the amount of deposit, rate of interest, time period of deposits, brokerage and borrowings received by them. The directions do not include amount received or
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There is a maximum limit on the rate of interest of deposits. The limit charges with the RBI directions. (6)
Period of deposits:
The deposits can be accepted for a minimum period of 12 months and a maximum period of 2 year. (7)
Register of depositors:
The NBFCs have to maintain a register of depositors with details like name, address, amount, date of each deposit, maturity period and other details according to the required by RBI. (8)
Credit rating:
To protect the public NBFCs are required to get themselves approved by the RBI through credit rating agencies. The NBFCs which have not owned funds of Rs 25 Lakhs can obtain public deposits if they are credit rated and they receive a minimum investment grade for their fixed deposits from an approved rating agency.
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These regulations are part of the RBIs move to ensure that NBFCs who accept deposits are adequately capitalized and have some minimum net owned funds.
Mr. T.T.Srinivasaraghavan, Managing Director, Sundaram Finance, said that this regulation had adopted a fair approach to the issue of dealing with risks involved in smaller companies accepting deposits. He said the regulation met the aspirations of those small companies as it would now take the pressure off them when they were scrambling for capital to reach the minimum NoF limits. It would also force them to live within their means, by limiting their access to public deposits.
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Non Banking Financial Companies The current status of Non- Banking Financial Companies.
y PRUDENTIAL NORMS: The Reserve Bank put in place in January 1998 a new regulatory framework involving prescription of prudential norms for NBFCs which deposits are taking to ensure that these NBFCs function on sound and healthy lines. Regulatory and supervisory attention was focused on the deposit taking NBFCs (NBFCs D) so as to enable the Reserve Bank to discharge its responsibilities to protect the interests of the depositors. NBFCs - D are subjected to certain bank like prudential regulations on various aspects such as income recognition, asset classification and provisioning; capital adequacy; prudential exposure limits and accounting / disclosure requirements. However, the non-deposit taking NBFCs (NBFCs ND) are subject to minimal regulation. The application of the prudential guidelines / limits is thus not uniform across the banking and NBFC sectors and within the NBFC sector. There are distinct differences in the application of the prudential guidelines / norms as discussed below: i) Banks are subject to income recognition, asset classification and provisioning norms; capital adequacy norms; single and group borrower limits; prudential limits on capital market exposures; classification and valuation norms for the investment portfolio; CRR / SLR requirements; accounting and disclosure norms and supervisory reporting requirements. ii) NBFCs D are subject to similar norms as banks except CRR requirements and prudential limits on capital market exposures. However, even where applicable, the norms apply at a rigour lesser than those applicable to banks.
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Banks and NBFCs compete for some similar kinds of business on the asset side. NBFCs offer products/services which include leasing and hire-purchase, corporate loans, investment in non-convertible debentures, IPO funding, margin funding, small ticket loans, venture capital, etc. However NBFCs do not provide operating account facilities like savings and current deposits, cash credits, overdrafts etc. NBFCs avail of bank finance for their operations as advances or by way of banks subscription to debentures and commercial paper issued by them. Since both the banks and NBFCs are seen to be competing for increasingly similar types of some business, especially on the assets side, and since their regulatory and cost-incentive structures are not identical it is necessary to establish certain checks and balances to ensure that the banks depositors are not indirectly exposed to the risks of a different cost-incentive structure. Hence, following restrictions have been placed on the activities of NBFCs which banks may finance: i) Bills discounted / rediscounted by NBFCs, except for rediscounting of bills discounted by NBFCs arising from the sale of a) Commercial vehicles (including light commercial vehicles); and b) Two-wheeler and three-wheeler vehicles, subject to certain conditions; c) Investments of NBFCs both of current and long term nature, in any company/entity by way of shares, debentures, etc. with certain exemptions; ii) Unsecured loans/inter-corporate deposits by NBFCs to/in any company.
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Banks and NBFCs operating in the country are owned and established by entities in the private sector (both domestic and foreign), and the public sector. Some of the NBFCs are subsidiaries/ associates/ joint ventures of banks including foreign banks, which may or may not have a physical operational presence in the country. There has been increasing interest in the recent past in setting up NBFCs in general and by banks, in particular. Investment by a bank in a financial services company should not exceed 10 per cent of the banks paid-up share capital and reserves and the investments in all such companies, financial institutions, stock and other exchanges put together should not exceed 20 per cent of the banks paid-up share capital and reserves. Banks in India are required to obtain the prior approval of the concerned regulatory department of the Reserve Bank before being granted Certificate of Registration for establishing an NBFC and for making a strategic investment in an NBFC in India. However, foreign entities, including the head offices of foreign banks having branches in India may, under the automatic route for FDI, commence the business of NBFI after obtaining a Certificate of Registration from the Reserve Bank. NBFCs can undertake activities that are not permitted to be undertaken by banks or which the banks are permitted to undertake in a restricted manner, for example, financing of acquisitions and mergers, capital market activities, etc. The differences in the level of regulation of the banks and NBFCs, which are undertaking some similar activities, gives rise to considerable scope for regulatory
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MAT computation
MAT, despite the controversy surrounding its existence, has lived by the year for now 22 years and promises to open a new chapter from April 1, 2011. The mechanics, as per the DTC, is simple. MAT will now be 2 per cent of the value of gross assets as against 15 per cent on profits. For this purpose the value of gross assets would be computed as shown in the Table. It may be noted that even business assets such as sundry debtors, loans and advances will now form part of the computation of gross assets for the purpose of the levy.
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Change in concept:
The justification for re-jigging MAT is that several countries have adopted a tax based on a percentage of assets. The concept of MAT when it first originated in 1987 was completely different from what is proposed in the DTC.
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2) NBFCs
Posted on 19 September 2008 by Sara Jain close Author: Sara Jain:A non-banking financial company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of 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, but does not include any institution whose principal business is that of agriculture activity, industrial activity,
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Small balance sheet size resulting in high cost of fund and low asset profile.
3) On AM ET advertisement:
(Start September 23, 2009 4:488.) Reserve Bank of India's (RBI) latest guideline allowing non-banking finance companies (NBFC) to issue semi-closed system pre-paid payment instruments will boost the growth of m-commerce in India. Industry sources estimate that, in the next 3 years, India could have 25 mn m-commerce users up from the current 5 mn. The industry currently stands at a market size of $10bn. "The new guideline will increase the reach of the services to the people at the bottom of pyramid. Now, people not having any bank account could pay their utility bill by electronic transfer. We expect a five fold increase in number of people using m-commerce services," said Anil Gajwani, Senior Vice President Technology, Comviva Technologies. After the new guideline, entry of a few NBFC MNCs into the segment could not be denied. However, the most viable business plan would be for telecom operators, as the guidelines will allow them to operate as a pre-paid payment instrument as well.
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A. R. T. LEASING PRIVATE LIMITED. 144, M.C.ROAD, CHENGANNUR. ALAPUZHA DISTRICT KERALA AL BARR FINANCE HOUSE LTD (FORMERLY KNOWN AS ALBARAKA FINANCE HOUSE LIMITED), INDIA HOUSE NO. 2, KEMPS CORNER, MUMBAI 400 036.
ADOR FINANCE LTD. ADOR HOUSE, 6 K DUBASH MARG MUMBAI - 400 023
ADAYAR FINANCE & LEASING LTD., ALPIC FINANCE LTD., 208, BHARATHI SALAI, ROYAPETTAH, CHENNAI 600 014 NEW EXCELSIOR BLDG., 6TH FLOOR, WALLACE STREET, FORT, MUMBAI - 400 001
ALTA LEASING & FINANCE LTD. ALTA BHAVAN, 532, SENAPATI BAPAT MARG DADAR, MUMBAI - 400 028
ANMOL FINANCIAL SERVICES LTD A -66, IST FLOOR, GURU NANAK PURA , VIKAS MARG, DELHI - 110092
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ANNA FINANCE LIMITED 16 B/9, DEV NAGAR, D.B. GUPTA ROAD, KAROL BAGH, NEW DELHI -110005
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WEBSITES:-
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