A PROJECT ON

NON BANKING FINANCING COMPANIES

B.COM IN

FINANCIAL MARKETS

SEMESTER V

(2017-2018)

SUBMITTED

IN PARTIAL FULFILLMENT OF REQUIREMENTS FOR THE

AWARD OF THE DEGREE OF BACHELOR OF COMMERCE

FINANCIAL MARKETS

BY

HEERO HARDASANI

ROLL NO. 22

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 CERTIFICATE

This is to certify that HEERO HARDASANI STUDYING IN T.Y.B.COM(Financial

Markets),Semester V,ROLL NO. 22,for academic year 2017-2018 at

K.J.SOMAIYA COLLEGE OF ARTS AND COMMERCE Has Successfully completed the

project on NON-BANKING FINANCIAL COMPANIES under the guidance of
PROF.HARESH PARPIANI

---------------------------- ------------------------------

PROF.HARESH PARPIANI

(INTERNAL PROJECT GUIDE) (EXTERNAL EXAMINER)

---------------------------------- ---------------------------------

PROF.HARESH PARPIANI DR.(SMT) SUDHA VYAS

(BFM CORDINATOR) (PRINCIPAL)

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 DECLARATION

HEERO HARDASANI,the student of TYB.COM(FINANCIAL MARKETS) SEMESTER-V

(2017-2018) hereby declare that I have completed the project on NON BANKING
FINANCIAL COMPANIES.

Wherever the data/information have been taken from any books or other sources the same have
been mentioned in bibliography.

The information submitted is true and original to best of my knowledge.

STUUDENT SIGNATURE

----------------------------

HEERO HARDASANI

(ROLL NO.22)

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 ACKNOWLEDGEMENT

I take this opportunity with great pleasure to present before you this project on NON-
BANKING FINANCIAL COMPANIES which is a result of co-operation and hard work I
would like to express my deep sense of gratitude towards all those people without whose
guidance and inspiration this project would never be fulfilled.

I am grateful to Mumbai university for giving me the opportunity to work on this project. I
would also like to thank our principal (SMT).SUDHA VYAS for giving me such a brilliant
opportunity to present a creative outcome in the form of a project.

Any accomplishment requires the efforts of many people and this project is not different. I find
great pleasure in expressing my deepest sense of gratitude towards my project guide
PROF.HARESH PARPIANI, whose guidance & inspiration right from the conceptualization
to the finishing stages proved to be very essential & valuable in the completion of the project.

I would like to thank the library staff, and my classmates for their invaluable suggestion &
guidance for my project work . last but not the least , I had like to thank my parents without
whose cooperation and support it would have been impossible for me to complete this project.

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INDEX

TOPIC PARTICULAR PG NO.

NO.
1 INTRODUCTION 6

2 DEFINATION ON NBFC 12

3 FACTORS CONTRIBUTING TO THE GROWTH OF NBFC 13

4 CLASSIFICATION OF NBFC 14

5 MUTUAL BENEFIT FINANCIAL COMPANY 20

6 ROLE OF NBFC 23

7 FUNCTIONS OF NBFC 26

8 DIFFERENCE BETWEEN COMMERCIAL BANK AND NBFC 28

9 RBI GUIDELINE GUIDELINE FOR ASSET LIABILITY 29

MANAGEMENT SYSTEM IN NBFC
10 CLARITY IN DEFINATION OF NBFC 34

11 APPLLICABILITY OF ACCOUNTING STANDARDS 37

12 NORMS FOR NBFC 43

13 CURRENT STATUS OF NBFC 46

14 IMPORTANT REGULATIONS RELATING TO DEPOSIT 64

ACCEPTANCE BY NBFC
15 LIST OF NBFC 57

16 CONCLUSION 59

17 BIBLIGRAPGHY 61

18 WEBSITES 62

Non-Banking Financial Companies"

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INTRODUCTION:

We studied about banks, apart Iron 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-Financialcompanies (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-operativebanks are a heterogeneous (varied) group ofFinance

companies. NBFCs are heterogeneous group ofFinance companies means all NBFCs

provide differenttypes ofFinancial services.

Non-Banking Financial Companies constitute an important segment of the Financial

system. NBFCs are the intermediaries engaged in the business ofaccepting deposits and

delivering credit. They play very crucial role in channelizing the scare Financial resources to

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capital Formation. 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 tailor-make their

services and charge according to the needs of the clients. Their Flexiblestructure 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

Financialinstruments or Financial products. All these Items FacilitatetransferofFunds and

are not always mutually exclusive. Inter-relationships Between these are parts ofthe

system e.g. Financial Institutions operate in Financial markets and are, therefore, a part of

such markets.

NBFCs at present providing Financial services partly Are based and partly Fund based.

There Are 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

FinancingFactoring etc. In short they are now providing variety ofservices. NBFCs differ

widely in their ownership: Some are subsidiariesof largeManufacturers (e.g., T.V.

MotorsT.V. Finances and Services Ltd). Many others are owned by banks such as ICICI

Banks, ICICI Securities Ltd, SBI Capital Market Ltd, Muthoot Bankers Muthoot Financial

Services Ltd a key player in Kerala Financial services. Other Financial institutions are

IFCIs IFCI Financial Services Ltd or IFCI Custodial Services Ltd (Devdas, 2005). Non-banking

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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. The term 'Finance is often understood as

being equivalent to 'money. However, Finance exactly is not money; it is the source of

providing FundsFor a particular activity. The word system, in the term Financial system,

implies a set of complex and closely connected or inter-linked Institutions, agents,

practices, markets, transactions, claims, and liabilities in the Economy. The Financial

system is concerned about money, credit and Finance. The three terms are intimately related

yet are somewhat differentFrom each other: O Money refers to the current medium of exchange

or means of payment. O Credit or loans is a sum of money to be returned, normally with

interest; it refers to a debt O Finance is monetary resources comprising debt and ownership

Fundsof the state, company or person.

HISTORICAL BACKGROUND.

The Reserve Bank of India Act, 1934 was amended on 1st December, 1964 by the Reserve Bank

Amendment Act, 1963 to include provisions relating to non-banking institutions receiving

deposits and Financial institutions. It was observed that the existing legislative and

regulatory Framework required Furtherrefinement and improvement because of the rising

number ofdefaulting NBFCs and the need For an efficient and quick system ForRedressedof

grievances of individual depositors. Given the need For continued existence and growth

ofNBFCs, the need to develop a of prudential legislations and a supervisory system was Ieft

especially to encourage the growth of healthy NBFCs and weed out the inefficient ones. With a

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view to review the existing Framework and address these shortcomings, various

committees were Formed and reports were submitted by them. Some of the committees

and its recommendations are given hereunder:

1. James Raj Committee (1974)

The James Raj Committee was constituted by the Reserve Bank of India in 1974. After

studying the various money circulation schemes which were Located 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..

2. Dr.A.C.Shah Committee (199):

The Working Group on Financial Companies constituted in April 1992 i.e. the Shah Committee

set out the agenda Forreforms in the NBFC sector. This committee made wide ranging

recommendations covering, inter-alia entry point norms, compulsory registration of large

sized NBFCs, prescription of prudential norms ForNBFCs on the lines of banks, stipulation

of credit rating For acceptance of public deposits and more statutory powers to Reserve

Bank For better regulation ofNBFCs.

3. Khan Committee (1995)

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This Group was set up with the objectiveof designing a comprehensive and effective

supervisory FrameworkFor 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 Focusof the Reserve Bank to be directed in a comprehensive manner only

to those NBFCs having net owned FundsofRs.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 differentregulatory

authorities. 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 Foridentifying an appropriate authority to regulate the activities of these

companies, including plantation and animal husbandry companies not Falling under the

regulatory control ofEither 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.

4. Narasimhan Committee (1991)

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This committee was Formed to examine all aspects relating to the structure, organization

&Functioning of the Financial system. These were the committee`s which Founded non- banking

Financial companies.

MEANING

Non-Banking Financial Companies (NBFCs) play a vital role in the context ofIndian

Economy. They are indispensable part in the Indian Financial system because they

supplement the activities of banks in terms of deposit mobilization and lending. They

play a very important role by providing Finance to activities which are not served by the

organized banking sector. So, most the committees, appointed to investigate into the

activities, have recognized their role and have recognized the need For a well-established

and healthy non-banking Financialsector. 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.

DEFINITIONS OF NBFC Non-Banking Financial Company has been defined as:

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(f) 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 Financialintermediaries and when they lend, they are known as

Non-Banking Financial Intermediaries (NBFIs) or Investment Institutions: &NIT TR&ST OF

INDIA.LIFE INS&RANCE CORPORATION (LIC). GENERAL INS&RANCE

CORPORATION (GIC).

Factors contributing to the Growth of NBFCs:

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According to A.C. Shah Committee, a number ofFactors have contributed to the growth

of NBFCs. Comprehensive regulation of the banking system and absence or relatively

lower degree of regulation over NBFCs has been one of the main reasons For their

growth. During recent years regulation over their activities has been strengthened, as see a

little later. The merit of non-banking Finance companies lies in the higher level of their

customer orientation. They involve lesser pre or post-sanction requirements, their services

are marked with simplicity and speed and they provide tailor-made services to their clients.

NBFCs cater to the needs of those borrowers who remain outside the purviewof the commercial

banks as a result of the monetary and credit policy of RBI. In addition, marginally higher

rates of interest on deposits offeredby NBFCs also attract a large number of depositors

Regulation of NBFCs In 1960s, the Reserve Bank made an attempt to regulate NBFCs by

issuing directions to the maximum amount of deposits, the period of deposits and rate

ofinterest they could offer on the deposits accepted. Norms were laid down regarding

maintenance of certain percentage of liquid assets, creation of reserve Funds, and transfer

thereto every year a certain percentage of profit, and so on. These directions and norms

were revised and amended From time to time. In 1997, the RBI Act was amended and the

Reserve Bank was given comprehensive powers to regulate NBFCs. The amended Act

made it mandatory For every NBFC to obtain a certificateof registration and have

minimum net owned Funds. Ceilings were prescribed For acceptance of deposits, capital

adequacy, credit rating and net-owned Funds. The Reserve Bank also developed a

comprehensive system to supervise NBFCs accepting/ holding public deposits. Directions

were also issued to the statutory auditors to report non-compliance with the RBI Act

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andregulations to the RBI, Board of Directors and shareholders of the NBFCs.

CLASSIFICATION OF NBFCs:

This classification is in addition to the present classificationof NBFCs into deposit-taking

and Non-deposit-taking NBFCs. Depending on the nature their major activity, the non-

banking Financial companies can be classified into the Following categories, they are:

(1) Equipment leasing companies.

(2) Hire-purchase Finance companies.

(3) Housing Finance-companies.

(4) Investments companies.

(5) Loan companies.

(6) Mutual Fund Benefits Companies.

(7) Chit Fund companies.

(8) Residuary companies.

Equipment Leasing Company:

(a) Equipment leasing company means any company which is carrying on the activity

of leasing of equipment, as its main business, or the Financingofsuch activity.

(b) The leasing business takes place of a contract between the lesser (lessor means the

leasing company) and the lessee (lessee means a borrower).

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(c) &under leasing of equipment business a lessee is allowed to use particular capital

equipment, as a hire, against a payments of a monthly rent.

(d) Hence, the lessee does not purchase the capital equipment, but he buys the right to

use it.

(e) There are two types of leasing arrangements, they are:

(f) Operating leasing: In operating leasing the producer of capital equipment offers his

product directly to the lessee on a monthly rent basis. There is no middleman in operating

leasing.

(ii) Finance leasing: In Finance leasing, the producer of the capital equipment sells

the equipment to the leasing company, then the leasing company leases it to the Finance user of

the equipment. Hence, there are three parties in Finance leasing. The leasing company acts as a

middleman between the producer of equipment and the user of equipment. 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 Forfulfilling 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 instalments out of the return From the investment in the equipment.

Hence, the borrower does not Aril 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.

Hire-purchase Finance Companies:

(a) Hire purchase Finance company means any company which is carrying on the main

business ofFinancing, physical assets through the system of hire-purchase.

(b) In hire-purchase, the owner of the goods hires them to another party For a certain

period and For a payment of certain instalment until the other party owns it.

(c) The main Featureof hire-purchase is that the ownership of the goods remains with

the owner until the last instalment is paid to him. The ownership of goods passes to the

user only after he pays the last instalmentof 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 instalment on the loan is paid.

(f) Generally, automobile industry needs lot hire-purchase Finance.

(g) The problem of recovery of loans does not occur in most cases, as the borrower is

able to pay back the loan out ofFuture earnings through the regular generation ofFunds out

of the asset purchased.

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(h) In India, there are many individuals and partnership Firmsdoing this business. Even

commercial banks, hire-purchase companies and state Financialcorporations provide hire-

purchase credit.

Housing Finance Companies:

(a) A housing Finance company means any company which is carrying on its main

business ofFinancing the construction or acquisition of houses or development of land For

housing purposes.

(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 CanIin 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.

(e) National Housing bank is the apex institution in the Fieldof housing. It promotes

housing Finance institutions, both on regional and local levels.

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Investment Companies:

(a) Investment company means any company which is carrying on the main business of

securities.

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

(1) holding Companies:

(f) In case of large industrial groups, there are holding companies which buy shares

mainly For the purpose of taking control over another institution

(ii) They normally purchase the shares of the institution with the aim of controlling it

rather than purchasing shares ofdifferent companies.

(iii) Such companies are set up as private limited companies.

(2) Other Investment Companies:

(f) 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 benefitof an investment company is that it offers trained, experienced and

specialized management ofFunds.

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(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 keeping the

capital market alive, active and busy.

Loan company:

(a) A loan company means any company whose main business is to provide Finance

through loans and advances.

(b) It does not include a hire purchase Finance company or an equipment leasing company or a

housing Finance company.

(c) Loan company is also known as a 'Finance Company".

(d) Loan companies have very little capital, so they depend upon public deposits as

their main source ofFunds. Hence, they attract deposits by officering high rates of interest.

(e) Normally, the loan companies provide loans to wholesalers, retailers, small-scale industries,

solid-employed people, etc.

(f) Most of their loans are given without any security. Hence, they are risky.

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(g) 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.

Mutual Benefit Financial Company:

a) They are the oldest Form of non-banking Financial companies.

(b) A mutual benefitFinancial company means any company which is noticed under

section 620A of the Companies Act, 1956.

(c) It is popularly known as "Nidhis".

(d) &usually, it is registered with only very small number of shares. The value of the shares is

often Rs. 1 only

(e) It accepts deposits From its members and lends only to its members against tangible

securities.

Chit-fund Companies: history: 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

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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...

Cost of intermediation is the lowest.

(a) Chit Funds companies are one of the oldest Forms of local non-banking Financial

institution in India.

(b) They are also known as "kuris".

(c) These institutions have originated From south India and are very popular over there.

(d) A chit fund organization is an organizationof a number of people who info together and

subscribe (contribute) amounts monthly so that any members who is in need ofFunds can

draw the amount less expenses For conducting the chit. It is an organization run on co-

operative basis For the benefitof 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 differsFrom 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.

(f) Hence, the banking commission has made suggestions to pass uniform chit Funds laws

For the whole of India.

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Residuary Non-banking Companies:

(a) The term "residue" means a small part of something that remains. As the meaning of

the term shows, a residuary company is one which does not falling any of the above categories.

(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.

(f) Many of these companies operate with very small amount of capital.

(g) They have some adverse (bad) Features, such as: (ii) Some do not submit periodic returns

to the regulatory authority. (iii) Some of them do not appoint banks, etc

.ROLE OF NON- BANKING FINANCIAL COMPANIES.

(1) Promoters Utilization of Savings: Non- Banking Financial Companies play an

important role in promoting the utilization of savings among public. NBFC`s 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 ofmoney without much wastage. They offer attractive schemes to suit needs

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ofvarious sections of the society. They also attract idle money by officering attractive rates of

interest. Idle money means the money which public keep aside, but which is not used. It is

surplus money.

(2) Provides easy. timely and unusual credit:NBFC`s provide easy and timely credit

to those who need it. The Formalities and procedures in case of NBFC`s are also very

less. NBFC`s also provides unusual credit means the credit which is not usually provided

by banks such as credit For marriage expenses, religious Functions, etc. The NBFC`s are open

to all. Every one whether rich or poor can use them according to their needs.

(3) Financial Supermarket:NBFC`s play an important role of a Financial supermarket.

NBFC`s create a Financial supermarket For customers by officering a variety of services.

Now, NBFC`s are providing a variety of services such as mutual Funds, counselling,

merchant banking, etc. apart From their traditional services. Most of the NBFC`s reduce

their risks by expanding their range of products and activities.

(4) Investing funds in productive purposes:NBFC`s invest the small savings in

productive purposes. Productive purposes mean they invest the savings of people in businesses

which have the ability to earn good amount of returns. For example In case of leasing

companies lease 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) Provide housing Finance: NBFC`s, mainly the Housing Finance companies provide

housing Finance on easy term and conditions. They play an important role in fulfilling the basic

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human need of housing Finance. Housing Finance is generally needed by middle class and lower

middle class people. Hence, NBFC`s are blessing For them.

(6) Provide Investment Advice:NBFC`s, mainly investment companies provide advice

relating to wise investment OfFunds 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, NBFC`s plays an important role by

providing sound and wise investment advice.

(7) Increase the Standard of living:NBFC`s play an important role in increasing the

standard of living in India. People with lesser means are not able to take the benefitof various

goods which were once considered as luxury but now necessity, such as consumer durables like

Television, Refrigerators, Air Conditioners, Kitchen equipments, etc. NBFC`s increase the

Standard of living by providing consumer goods on easy instalment basis. NBFC`s also

Facilitate the improvement in transport Facilities through hire- purchase Finance, etc.

Improved and increased transport Facilities help in movement of goods From one place

to another and availability of goods increase the standard of living of the society.

(8) Accept Deposits in Various Forms:NBFC`s accept deposits Forms convenient to

public. Generally, they receive deposits From public by way of depositor a loaner in any Form.

In turn the NBFC`s issue debentures, units` certificates, savings certificates, units, etc. to the

public.

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(9) Promote Economic Growth:NBFC`s 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 majorbenefitof

NBFC`s speculative business means investing in risky activities. The investing companies

are interested in price stability and hence NBFC`s, have a good influence on the stock-

market. NBFC`s play a very positive and active role in the development of our country.

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Functions of Non- Banking Financial Companies:

(1) Receiving benefits:

The primary Functionofnbfcs is receive deposits From the public in various wayssuch as issue
of debentures, savings certificates, subscription, unit certification, etc.

thus, the deposits ofnbfcs 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 Functionofnbfcs 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 instalmentof 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:

NBFC`s provide housing Finance to the public, they FinanceFor construction

of houses, development of plots, land, etc.

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26
(d) Other types of finance provided by NBFCs include:

Consumption Finance, FinanceFor religious ceremonies, marriages, social

activities, paying off old debts, etc. NBFCs 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:

NBFCs invest their surplus money in various profitable areas.

Commercial Bank versus (v/s) Non-banking Financial Companies While commercial banks
and non-banking Financial companies are both Financialintermediaries (middleman)
receiving deposits From public and lending them.

Commercial bank is called as 'Big brother while the 'NBFC is called as the

'Small brother. But there are some important differences between both of them,

they are as Follows:

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27
No. Commercial Banks. VSNon-Bank Financial companies.
1. Issue of cheques:
In case of commercial banks, a
cheque can be issued against bank
deposits.
2. Rate of interest:
Commercial bank offer lesser rate
of interest on deposits and charge
less rate of interest on loans as
compared to NBFC`s.
3. Facilities provided by them:
Commercial banks can enjoy the
benefit of certain facilities like
deposit insurance cover Facilities,
reFinancing Facilities, etc.
4. Law which governs them:
Commercial banks are regulated by
Banking Regulation Act 1949 and
RBI.
5. Types of assets:
commercial banks hold a variety of
assets in the Form of loans, cash
credit, bill of exchange, overdraft
etc
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28
In case of NBFC`s there is no
facility to issue cheques against
bank deposits.
NBFC`s offer higher rate of
interest on deposits and charge
higher rate of interest on loans as
compared to Commercial banks.
NBFC`s are not given such Facilities.
NBFC`s are regulated by different
regulation such as SEBI. Companies
Act, National Housing Bank, &nit
Fund Act and RBI.
NBFC`s specialize in one types of
asset. For e.g.: Hire purchase
companies specialize in consumer
loans while Housing Finance
Companies specialize in housing
Finance only.
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 ofRs.100 crores, whether

accepting deposits or not, or holding public deposits ofRs.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 ofFinancial 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

Foreffective 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 company`s 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 viewof the

asset-liability transportation. With liberalization in Indian Financial markets over the last

few years and growing integration ofdomestic 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, requiring

strategic management. NBFC`s are now operating in a fairly deregulated environment and

are required to determine on their own, interest rates on deposits, subject to the ceiling

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ofmaximum rate of interest on deposits they can offer on deposits prescribed by the Bank; and

advances on a dynamic basis. The interest rates on investments of NBFC's in Government

and other securities are also now market related. Intense pressure on the management of

NBFC's to maintain a good balance among spreads, profitability and long-term viability.

Imprudent liquidity management can put NBFC's earnings and reputation at great risk.

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 FrameworkFor

measuring, monitoring and managing liquidity and interest rate equity and commodity

price risks ofmajor 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 Focusof the ALM Function would be to enforce the risk management

discipline i.e. managing business afterassessing the risks involved. The objectiveof good

risk management systems should be that these systems will evolve into a strategic tool

ForNBFC's management.

4. The ALM process rests on three pillars:

O ALM Information Systems

O Management Information Systems

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O Information availability, accuracy, adequacy and expediency

O ALM Organization

O Structure and responsibilities

O level of top management involvement

O Risk parameters

O Risk identification

O Risk management

O Risk policies and tolerance levels.

ALM INFORMATION SYSTEMSALM has to be support by a management

philosophy which clearly species the risk policies and tolerance limits. This Framework

needs to be built on sound methodology with necessary information system as back up.

Thus, information is the key to the ALM process. It is, however, recognized that varied

business profiles of NBFC's in the public and private sector do not make the adoption of

a uniform ALM System For all NBFC's Leasable. NBFC's have heterogeneous organizational

structures, capital base, asset sizes management profile, business activities and

geographical spread. Some of them have large number of branches and agents/ brokers

whereas some have unitary offices. 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

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Committee (ALCO) consisting of the NBFC's seniormanagement including Chief

Executive Officers (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 Foranalysing,

monitoring and reporting the risk profiles to the ALCO. The staff should also prepare

Forecasts (simulations) showing the Effectsof various possible changes in market

conditions related to the balance sheet and recommended the action needed to adhere to

NBFC's internal limits.

LIQUIDITY RISK MANAGEMENTMeasuring and managing liquidity needs are vital

Foreffective operation ofNBFCs. By ensuring an NBFC's ability to meet its liabilities as

they become due, liquidity management can reduce the probability of an adverse situation

developing. The importance of liquidity transcends individual institution, as liquidity

shortfall in one institution can have repercussions on the entire system. NBFCs

management should measure not only the liquidity positions of NBFCs on an ongoing basis but

also examine how liquidity requirements are likely to involve under different assumptions.

Experience shows that assets commonly considered as liquid, like Government securities

and other money market instruments, could also become illiquid when the market and

players are unidirectional. 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

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NBFCs which are not holding public deposits. Thus various NBFCs including RNBCs

would be holding in their investments portfoliosecurities which could be broadly

classifiable as 'mandatory securities' (under obligation of law) and other 'non-mandatory

securities'. Financial Companies Regulation Bill. 000. The Government of India Framed the

Financial Companies Regulation Bill, 2000 to Consolidate the law relating to NBFCs and

unincorporated bodies with a view to ensured posit or protection. The salient Featuresof this

Bill are: All NBFCS will be known as Financial Companies instead of NBFCs; NBFCs

holding public deposits would not be allowed to carry on any non-Financial business

without the prior approval of RBI; RBI would have the powers to prescribe minimum

net-worth norms; unsecured depositors would have First charge on liquid assets and assets

created out of deployment of part of the reserve Fund. Financial Companies would require

prior approval of RBI For any change in name , management or registered office;

Regulation of unincorporated bodies would be in the hands of the respective State

Governments; Penalties have been rationalized with the objective that they should serve

as a deterrent and investigative powers have been vested with District Magistrates and

Superintendents of Police; RBI would be empowered to appoint Special Officers (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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1. Clarity in Definition of NBFC:

The clause (a) of the section 45 I of the RBI Act define the term

Business of A Non-Banking Financial Institution`. Herein, it has been 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 (f) A Financial

institution which is a company; (ii) 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 noticed by RBI with approval of Central Government.

However, no cooperative or corporation has been noticed till now. The definition of

NBFC should have been simple to understand and need to cross references to other

clauses could have been avoided.

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The definitionof NBFC in our few could have been: Non-Banking Financial Company``

means A non-banking company which carries on as its business or part of

its business any of the Following activities, namely: (f) The Financing, whether by

way of making loans or advances or otherwise , of any activity other than its own.

(ii) The acquisition of shares, stock, bonds, debentures or securities issued by the

Government or local authority or other marketable securities of a like nature . (iii) Letting or

delivering of any goods to a hirer under a hire-purchase agreement as defined in

clause (c) of section 2 of the Hire-Purchase Act, 1972. (iv) The carrying on of any class of

insurance business. (v) Managing, conducting or supervising, as Foreman, agent or in

any other capacity, of chits or kuris as defined in any law which is For the time

being in Force in any State, or any business, which is similar thereto. (vi) Collecting, For

any purpose or under any scheme or arrangement by whatever name called, monies

in lump sum or otherwise, by way of subscriptions or by sale of units, or other

instruments or in any other manner and awarding prizes or gifts, whether in cash or

kind, or 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:(a) Agricultural operations; or (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 no portion

of the income of the institution is derived From the Financing of purchases,

constructions or sales of immovable property by other persons (d) A non-banking company

and which has as its principal business The receiving of deposits, under any scheme or

arrangement or in anyOther manner or lending in any manner; (e)Such other non-banking

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35
institution or class of such institutions, asthe Bank may, with the previous approval

of the Central Government and by notification in the Official Gazette, specify.

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 no portion of the income of the institution is derived From the

FinancingofPurchases, constructions or sales of immovable property by other persons. In the

absence of a definitionof the term principal business` in the Act itself, it is not clear what

should be the guidelines to be Followed to determine the principal Businesses of a

company? In case of a company engaged exclusively in FinancialBusiness orcompany

doing exclusively non-Financial business, the principalbusiness` will be evident enough and

it may not be necessary to dwell upon What constitutes principal businesses of such a

company? However, in the caseOf companies which are carrying on multiple

activities, both Financial and Non- Financial, in somewhat equal or near equal

proportions, determining The principal business` assumes considerable significance. It would

be necessary to define what constitutes the principal businesses of thesecompanies, in the

context of the obligations cast by the amended provisions Of the RBI Act on the NBFCs,

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36
viz., requirement of applying for registration in case Of existing companies and prior

registration in case of new companies, Penalties For non-compliance with registration

requirements, etc.

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 CharteredAccountants 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 issued Companies (Accounting

Standards) Rules 2006, which are applicable To accounting periods commencing on or after

7-12-2006. The Government of India Framed a new legislation to amend and consolidate

the Provisions contained in Chapter IIIB, III-C and V of the RBI Act, 1934 relating to the

regulation and supervision ofFinancial companies, hither to known as non-Banking

Financial companies (NBFCs). This included prohibition of acceptance ofdeposits by

unincorporated bodies and incorporating the recommendations of the Task Force on

NBFCs, which had made certain recommendations to this edict. The salient Featuresof the

proposed legislation, which are materially different fromThe corresponding provisions of RBI

Act or are new provisions, are as Follows:

I. Basic Stipulations:

(I) The draft bill has been named as 'Financial Companies Regulations Bill, 2000. All

the NBFCs will be known as Financial Companies instead ofNBFCs.

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(ii) The term 'public deposit' has been defined in the Bill For the First time and

Thedefinition would mean the same as at present in the NBFC Directions.

(iii) There would be a nine member Advisory Council For Financial Companies under

the Chairmanship of Depute Companies and other experts in related Areas to advise the

Reserve Bank.

(iv) NBFCs holding /accepting public deposits would be prohibited Fromcarrying on any

non- Financial business without the prior approval of the Reserve Bank and the non-

Financial business presently carried on by them would have to be wound up or transferred to

a subsidiary within three years. Any other business or Are-based activity like insurance

agency business, portfolio management, etc., would require prior approval of the Reserve

Bank.

II .Entry Point Norms:

(I) The requirement of obtaining the COR From the Reserve Bank would be compulsory

For all Financial Companies, irrespective of whether the Companies accept public deposits

or not. However, the nonpublic Deposittaking Financial companies would require minimum

owned Fundof Rs.25 Lakh, whereas the public deposit taking Financial companies would

require Minimum net owned Fund (NOF) of Rs.2 Crores and a specific authorization From the

Reserve Bank to accept public deposits.

(ii) There would be powers with the Reserve Bank to: (a) Prescribe different capital fordifferent

classes offinancial 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

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FinancialCompaniesaccepting 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) &secured depositors would have First charge on liquid assets and assets created out

of the deployment of the part of the reserve Fund.

(v) The Financial companies would require prior approval of the Reserve Bank For any

change in the name, change in the management or change in the location of the registered

office.

III Regulatory and Supervisory Issues:

(I) The Reserve Bank would be empowered to appoint Special Officers(s) on a

delinquent Financial company and a duty has been cast on such company to cooperate with such

Special Officers(s).

(ii) The Company Law Board (CLB) would continue to be authority to adjudicate the

claims of depositors against the delinquent companies with powers to order initial payment

of a part of deposit, attach assets of the FraudulentFinancial company and appoint

Recovery Officers(s) Formanagement of such asset. Financial company would have no

recourse to the CLB to seek defermentof the depositors' dues.

(iii) The prohibitory provisions For unincorporated bodies would continue in the Financial

Companies Regulations Bill, but the role of exercising the powers Forenforcementof these

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provisions have been exclusively entrusted to State Governments, in addition to the powers

under the respective State Laws Forprotecting the interests of investors in Financial

establishments.

(iv) There would be powers vested in the District Magistrates to call Forinformation and

to proceed against delinquent unincorporated bodies.

(v) There would be a ban on the issue of advertisement For soliciting deposits by all

unincorporated bodies, irrespective of whether they are conducting Financial business or not.

(vi) &unauthorized deposit-taking by companies (a) whose applications ForCertificateof

Registration have been rejected, (b) whose registration has been cancelled, (c) who have

been prohibited From accepting public deposits would be a cognizable offence. The same

would be the case Forunregistered Financial companies as well as unincorporated bodies. (vii)

Powers would be vested with a police officerof the rank not below that ofthe

Superintendent of Police OF any State to order investigations into the alleged violations of

requirement of registration by Financial companies and prohibition From acceptance of deposits

by unincorporated bodies.

(viii) Penalties have been rationalized in accordance with the severity ofdefaults, with the

objective that the penalty should serve as a deterrent to others. The Bill has been introduced in

the Parliament in 2000 and has since been referred to the Standing Committee on Finance.

The Government of India Framed the Financial Companies Regulation Bill, 2000, to

consolidate the law relating to NBFCs and unincorporated bodies with a view to ensure depositor

protection.

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AN APPRAISAL OF FINANCIAL COMPANIES REGULATION BILL. 000: THE

UNION Government's move to enact a separate law to regulate and control the non-

banking Finance companies (NBFC) sector is indeed laudable, after a large number NBFCs had

Nailed to repay public deposits, ruining thousands of gullible investors, drawn mainly

From the middle class strata of the society. However, a careful perusal of the new bill,

introduced in the Lok Sabha on December 13, shows that this legislation seeks largely to

consolidate into a single stand-alone enactment the regulatory provisions concerning the

NBFC sector already existing in Chapters 111-B and C of the Reserve Bank of India

Act, 1934, (RBI Act), as amended in 1997. Thus the new law, when enacted, will just

be old wine in new bottle. It was in the wake of the CRB scam that left several thousands

of depositors high and dry that the RBI Act was amended in 1997 to empower, inter

alia, the Company Law Board (CLB) to hear and decide complaints From depositors on

defaults committed by Financial companies. However, an objective study will reveal that

the RBI (Amendment) Act, 1997, which added Chapter IR-B to the parent Act, has

hardly benefited the depositor Fraternity. The winding-up petition Ailed against CRB by

the RBI under the new provisions in 1997 is still pending with the Delhi High Court. The

perpetrators of the CRB Fraud have been bailed out and are scot-free. Many depositors have

been devastated. Justice delayed is indeed justice denied. Ineffective CLB orders Close on the

heels of this `mother' scam came a host of other NBFC Failures - to name a Few,

Prudential Capital Markets, Lloyds Finance, Enarai Finance and Kirloskar Investments.

The CLB's orders on all these cases, directing the companies concerned, to pay the

depositors in accordance with specified phased repayment schedules are just dead letters.

Repayments are yet to start at Prudential though the CLB order was passed in 1998; Lloyds

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continues to default on repayments and is way behind schedule. Repeated representations

From the aggrieved depositors of these companies to the CLB and the RBI have failed

to improve matters. The RBI simply passes the buck on to the CLB. The latter justdoes

not have either the determination or the will to punish the errant boards and

managements though it has all the requisite powers under the Companies Act to do so. The

result - the depositors continue to skier. ICICI got the CLB order on Enarai Finance

stayed and Ailed a liquidation petition against the company, which is still pending. The

RBI was inspired to Follow ICICI's example in the case ofKirloskar Investments and is

keenly awaiting the Karnataka High Court's order on its liquidation petition Ailed last February.

Against such a dismal scenario, is it not disappointing that the new bill provides Forpayment

defaults by the NBFCs to be adjudicated by the CLB? The CLB has no power to review

its own orders. It refuses to entertain petitions From depositors to amend/clarify its orders and

curtly asks the petitioners to approach the High Court. Their order is routinely challenged at

the High Courts and stays obtained. The courts being overburdened with cases are least

bothered to hear and dispose of the stay petitions expeditiously. The lay depositor is an

unsecured creditor; he is entitled to immediate reliefif the company defaults. This can be

provided by compulsory insurance of his deposit. Bank deposits are automatically insured up

to Rs. 1 Lakh per account. Moreover, as an added protection to depositors, the Finance Minister

has declared in Parliament that no public sector bank will be liquidated. Why cannot the

RBI make it mandatory For NBFCs too to insure the deposits taken by them and issue

certificatesof insurance along with the deposit receipts? II this were done, in the event

ofdefault, all that the depositor has to do is to approach the insurance company and claim

his deposit and expeditious remedy and merits incorporation in the bill. With the opening of the

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insurance business to the private sector, insurance of NBFC deposits should not pose any

problem. The insurance premium could be allowed as tax deductible expenditure in the

company's assessments. For the First time, the bill provides For a First charge on the company's

assets to the depositor. However, in practice, this will be no solace to the depositor. For,

the `First charge' is available only upon default. Further, the charge is not on the entire assets. It

is on a maximum of 25 per cent of the total value of deposits taken which the company is

supposed to hold in unencumbered term deposits/approved securities. Realization of the

charged assets, upon an order of the CLB, is another exercise altogether. All in all, the

charge provision in the bill, though innovative, does not inspire coincidence. The Finance

Ministry would do well to review this bill in the light of these comments and make it more

investor Friendly as the avowed objectiveof the new legislation is to protect the interests

of depositors. The Supreme Court has time and again ruled that death sentences should

be pronounced only in the rarest of rare cases. Perhaps, the RBI should extend this

dictum to corporate as well and refrainFromFiling liquidation petitions against failed

NBFCs. NORMS for NBFCS.

In public interest and to regulate the credit system in the best interest of India, the RBI has

laid down the Following important norms or rules to be Followed by NBFCs accepting

public deposits:

(1) What constitutes public deposits? Public deposit includes Fixed or recurring deposits which

are received FromFriends, relative, shareholders of a public limited company and money

raised in issued ofunsecured debentures or bond. It does not include money raised From

issue ofsecured debentures and bond or From borrowings of banks or Financial institutions,

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deposits From directors or inter- corporate deposits received FromForeign national citizens

and From shareholders of private limited companies.

(2) Who is allowed to accept deposits from public? The NBFCs which have net owned

capital of less than Rs. 25 Lakh will not be permitted to accept deposit From public. In

order to raise Funds the NBFC can borrow From some other sources also.

(3) NBFCs have to submit financial statements: All NBFCs will have to submit their annual

Financial statements and returns if they accept public deposits.

(4) Certain deposits are not regulated by RBI: The RBI has given 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 generated by central bank or state government. Amount received From

IDBI, ICICI Nabard, Electricity Board and IFCI are also not included in directions of

RBI. Amount received From mutual Funds, directors ofFirm and shareholders also do not come

under the category of amount received For regulation From RBI.

(5) Ceiling (limits on interest): There is a maximum limit on the rate of interest of deposits. The

limit charges with the RBI 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.

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(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 Fundsof Rs 25

Lakhs can obtain public deposits if they are credit rated and they receive a minimum

investment grade For their Fixed deposits From an approved rating agency.

The NBFCs have to submit this different agency is as Follow:

O The credit analysis and Research Limited (CARE) gives the minimum rating of BBB in

triple B rating.

O The investment information and credit Rating Agency of India LTD. (ICRA) gives

the minimum rating of (MA-)

O The Credit Rating Information Services of India Ltd. (CRISIL) and gives a minimum rating

of (FA-).

O FITCH Rating India Pvt. Ltd. Provides (BBB-) as its acceptable rating. II the credit rating

is below the minimum investment grate the NBFCs has to send report to the RBI within 15

days of received the grating. During that time the NBFC has to stop accepted the deposits

and within 3 years makes the repayment to the depositors. RBI deposit norms for small

NBFCs.The RBI has tightened the rules governing access to such public deposits. It said that

NBFCs with a net owned Fund (NoF) of between Rs 25 Lakh and Rs 2 crore, must limit their

public deposits to the level of their net owned Funds as against the current ceiling of 1.5

times the net owned Funds. Further, For those companies (with NoF of between Rs 25

Lakh and Rs 2 crore) that had a capital adequacy ratio of 12 and who enjoyed credit

rating, the current ceiling of 4 times the NoF was being revised to 1.5 times the NoF. As per

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RBI statistics, there were 243 companies in 2007 that would probably be affected by this

regulation. Their net owned Funds were of the order of Rs 171 crore while the public deposits

that they held were about Rs 96 crore. This category of companies constitutes a big

chunk in the total category of NBFCs taking deposits that number about 359. In terms of

amount of deposits involved, this category of NBFCs is a very small category. Total

public deposits of all NBFCs with access to such deposits were ofthe order of Rs 2042 crore in

2007. These regulations are part of the RBI`s 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 Iair 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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The current status of Non- Banking Financial Companies.

O PRUDENTIAL NORMS:

The Reserve Bank put in place in January 1998 a new regulatory Frameworkinvolving

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

rigor lesser than those applicable to banks. Certain restrictions apply to the investments by

NBFCs D in land and buildings and unquoted shares.

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iii) Capital adequacy norms; CRR / SLR requirements; single and group borrower limits;

prudential limits on capital market exposures; and the restrictions on investments in land and

building and unquoted shares are not applicable to NBFCs ND.

iv) &unsecured borrowing by companies is regulated by the Rules made under the

Companies Act. Though NBFCs come under the purviewof the Companies Act, they are

exempted From the above Rules since they come under RBI regulation under the Reserve

Bank of India Act. While in the case of NBFCs D, their borrowing capacity is limited

to a certain extent by the CRAR norm, there are no restrictions on the extent to which NBFCs

ND may leverage, even though they are in the Financial services sector. Current Status:

Financial Linkages between Banks and NBFC: 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, overdraft etc. NBFCs

avail of bank Financefor 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 ofa) Commercial vehicles (including light commercial

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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.

iii) All types of loans/advances by NBFCs to their subsidiaries, group companies/entities.

iv) Finance to NBFCs forFurther lending to individuals for subscribing to Initial Public Offerings

(IPOs).

v) Bridge loans of any nature, or interim Finance against capital/debenture issues and/or in the

Formof loans of a bridging nature pending raising of long-term FundsFrom the market by way

of capital, deposits, etc. to all categories ofNon-Banking Financial Companies, i.e.

equipment leasing and hire-purchase Finance companies, loan and investment companies,

Residuary Non-Banking Companies (RNBCs).

vi) Should not enter into lease agreements departmentally with equipment leasing

companies as well as other Non-Banking Financial Companies engaged in equipment

leasing.

Current Status:

Structural Linkages between Banks and NBFCs: 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

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general and by banks, in particular. Investment by a bank in a Financial services company

should not exceed 10 per cent of the bank`s 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 bank`s 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 Certificateof Registration for establishing an NBFC

and for making a strategic investment in an NBFC in India. However, Foreign entities,

including the head officesofForeign banks having branches in India may, under the automatic

route for FDI, commence the business of NBFI after obtaining a Certificateof 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, Financingof 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 arbitrage. Hence, routing

of transactions through NBFCs would tantamount to undermining banking regulation. This

is partially addressed in the case of NBFCs that are a part of banking group on account of

prudential norms applicable for banking groups.

CURRENT NEWS.

1) MAT changes will hit NBFCs. Tuesday. September 1. 009 The Direct Taxes Code

(DTC) is slowly being put to deeper scrutiny. As is always the case, some of the

changes may be ushered in with good intention, but inept drafting leaves the door

open for needless litigation. The newly created Minimum Alternate Tax (MAT) is a

case in point. Ever since Rajiv Gandhi unleashed the book profits tax on India Inc. in

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1987, it has generated controversies galore and kept all the courts busy interpreting

the intention and scope of the provision. At present, MAT is applicable to corporate at

15 per cent on published profits. The nominal tax rate for the corporate sector is

33.99 per cent and the effective rate after all deductions/concessions stands at around

22.22 per cent. MAT computation MAT, despite the controversy surrounding its

existence, has lived by the year fornow 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 ofgross 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 ofthe levy.Further, while

in the vertical Formof the balance sheet the current assets are disclosed net of

current liabilities, the proposed MAT computation mechanism does not envisage a

reduction of current liabilities From current assets. This also leads to an anomalous

situation where a company has to pay MAT on the amount ofdeferred tax asset, if it

appears in the balance sheet of a company. The rate of MAT is proposed to be 0.25

per cent in the case of banking companies and 2 per cent in the case of all other

companies, including Foreign companies. This is clearly a hardship for Non-Banking

Financial Companies (NBFCs) where 70-75 per cent of the assets in the balance-

sheet constitute loans and advances, stock on hire and business receivables. There

does not appear to be any justification in levying 2 per cent MAT on business assets,

which in any case yield income on monthly basis liable to corporate tax at 33.99

per cent (proposed to be reduced to 25 per cent by the DTC). In the case of several

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large NBFCs, 2 per cent MAT on gross assets would be far greater than 25 per cent on

taxable income. To make matters worse, MAT will now represent a Final tax and

will not be allowed to be carried Forwardfor claiming tax credit in subsequent years.

Not only this, certain companies, will receive an additional blow for example,

those in gestation period; having negative net worth because of huge accumulated

losses; having book losses in the current year; having low asset-turnover ratio low

net profit ratio; and those earning mainly exempt income. Change in concept: The

justificationfor 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 differentFrom what is proposed in the DTC. The economic rationale of

'assets-based tax is that it serves as an incentive forefficiency. II that be so then the

normal tax itself should serve the purpose. Any sort of tax that departs From the

mainstream route of linkage with income/profits is bound to be litigious. Added to

that is the discrimination between banking companies and other companies on the

rate of tax. Some serious rethinking is required on the proposed MAT in the DTC.

NBFCs Posted on 19 September 008 by Sara 1ain close Author: Sara 1ain:- 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, sale/purchase/construction of immovable

property.

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2) Major difference between Banks & NBFCs NBFCs are doingFunctions akin to that

of banks; however there are a Fewdifferences: A NBFC cannot accept demand

deposits (demand deposits are Funds deposited at a depository institution that are

payable on demand immediately or within a very short period like your current or

savings accounts). It is not a part of the payment and settlement system and as

such cannot issue cheque to its customers. Deposit insurance Facilityof DICGC is

not available For NBFC depositors unlike in case of banks.

3) The important regulations relating to acceptance of deposits by NBFCs

are as follows: The NBFCs are allowed to accept/renew public deposits For a

minimum period of12 months and maximum period of 60 months. They cannot

accept deposits repayable on demand. NBFCs cannot offer interest rates higher than

the ceiling rate prescribed by RBI From time to time. The present ceiling is 11 per

cent per annum. The interest may be paid or compounded at rests not shorter than

monthly rests. NBFCs cannot offergifts/incentives or any other additional benefit to

the depositors. NBFCs (except certain AFCs) should have minimum investment

grade credit rating. The deposits with NBFCs are not insured. The repayment of

deposits by NBFCs is not guaranteed by RBI. There are certain mandatory disclosures

about the company in the Application Form issued by the company soliciting deposits.

Non-banking Financial companies (NBFCs) have seen considerable business model shift

over last decade because of regulatory environment and market dynamics. In the early

2000s, the NBFC sector in our country was FacingFollowing problems: High cost

ofFunds. Slow industrial growth. StiII competition with NBFCs as well as with banking

sector. Small balance sheet size resulting in high cost ofFund and low asset profile. 3)

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On AM ET advertisement: (Start September 3. 009 4:488.) Reserve Bank of India's

(RBI) latest guideline allowing non-banking Financecompanies (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

ofpeople using m-commerce services," said Anil Gaiwani, 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.Considering the reach of the telecos, in urban, rural and

semi-urban areas, their entry will increase the penetration of the services among the

masses. Further, these telecom operators already have a large network of agents,

who are selling pre-paid recharge coupon to the end customer. As per industry

estimate every service provider has around 50,000 such agents. Telecos could use

these existing agents For m-commerce as well. "This will certainly bring more people

into the eco-system. Even people not having any bank account would be able to do

some basic Financial transaction," said Probir Roy, Co-founder and MD of Pay mate.

Pay mate has currently half a million users in the country. The company expects to grow

manifold, in terms of the users, by the end of current FY. However, the new guidelines

still have some bottlenecks, which the industry people wanted to be removed. RBI

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restricts the maximum value of such payment instruments that can be issued by

the institutions/companies to Rs 5,000. Further, these pre-paid payment instruments up

to Rs 5,000 can be issued by accepting any 'officially valid documents' defined under

Rule 2(d) of Prevention of Money Laundering Act, as proofof identity. Such

instruments shall not permit cash withdrawal. The utility bills/essential services

shall include only electricity bills, water bills, telephone/mobile phone bills, and

insurance premium, cooking gas payments, ISP For Internet/broadband connections,

cable/DTH subscriptions and citizen services by government or government

bodies.4) Invest in only top 15 NBFCs to play safe. (On September 3. 009 4:488)

NIVEDITA MOOKER1I Investors once again faced disappointment with Kuber

Finance defaulting on payments. Although there have been several defaults in the

past couple of years, the KuberIiasco brought back memories of the CRB scam in 1997.

After the CRB letdown, one thought investors were going to stay away From non-

banking finance companies (NBFCs) For a long time to come. But the temptation

to earn high returns was hard to resist, and investors burnt their fingers again. But why

don't investors learn From others' experiences? What is it that draws them to NBFCs?

Sheer Singh, banking and consumer analyst, Consult Opportune (India's First

consumer banking advisory service), explains why investors are still opting For

NBFCs. Says Singh, ``the lure of earning returns, which are significantly higher than

what banks offer, is one of the reasons.'' Seen against the backdrop of dismal

stock market performance over the past Few years, it becomes quite clear why

people still invest in NBFCs, he says. Lack of sufficient investment alternatives is

also why investors are drawn to NBFCs, says Singh. Giving a consumer point ofvfew,

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Singh says that through NBFC investments, people seek returns to hedge against

inflation. Plus, it is seen as a way to earn income to finance the growing

consumerist urge. And more than anything else, high returns promised by some

NBFCs seem to fulfil investors' desire to make a fast buck. In such a scenario, sound

guidelines may help investors in opting For the reliable NBFCs. Sheer Singh

offers guidelines which have been Formulated by Consult Opportune. The things to

look For while investing in NBFCs, according to Consult Opportune, are: a) Deposits

of NBFCs must have an adequate rating by one of the credit rating agencies in India. b)

Preferably invest in deposits of only the top 10-15 NBFCs in India. c) Review half-

yearly factors such as credentials, market standing, and professionalism of

management and promoters track record of such NBFCs. d) Take a close and critical

look at the financing activities of such NBFCs to decipher their long run viability.

e) Beware of glossy and misleading advertisements. I) Avoid any NBFC offering

unusually high interest rates which seem `significantly higher' than prevalent rates

offered by banks on similar maturity periods. g) Must prefer an NBFC with a

nationwide network and more oriented towards retail/ consumer finance activities due

to significantly lower default rates Apart From these dos and don'ts, the Reserve

Bank of India also offers a good data bank of the NBFCs which may be trusted.

Particularly its website at www.rbi.org. in has a list of over 500 NBFCs all over

India which are authorized by the RBI to accept public deposits. Similarly, the

site also gives out the names of hundreds of NBFCs which have been denied

registration. Also, there's substantial information on RBI rules and notifications in

the subject Overall and valuable source of information and assessment regarding

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investment in NBFCs. Such an information base could sometimes prompt investors to

even look For alternatives. Talking about alternatives, Sheer Singh says that private

sector banks rapidly expanding their branch network in urban centresof India may

emerge as preferredalternatives to those NBFCs which are not among the top 20 in India.

He adds that high quality service being offered by new private sector banks;

beefing up of service and product levels by public sector banks; and expansion

ofnetworks and product lines of the top NBFCs should offer investors other

alternatives. On the future of NBFCs, Singh says: ``we Foresee a bright future

For the top 20 NBFCs in India.'' But it's not going to be a cakewalk. Says Singh:

``Considering that in the future consumer-led growth rather than institutional-led

growth would be the trend, top NBFCs which focus on retail lending

predominantly can substantially leverage their networks to offer similar lending

products offered by banks.'' The focus has to be on marketing and service initiatives,

he adds. And the mantra For success: Offer cut-throat competition to banks. List of Non-

Banking Financial Companies:

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57
A. R. T. LEASING PRIVATE LIMITED.

144, M.C.ROAD, CHENGANN&R.

ALAP&HA DISTRICT

KERALA

ADOR FINANCE LTD.

ADOR HO&SE, 6 K D&BASH MARG

M&MBAI - 400 023

AL BARR FINANCE HO&SE LTD

(FORMERLY KNOWN AS

ALBARAKA FINANCE HO&SE

LIMITED),

INDIA HO&SE NO. 2,

KEMPS CORNER,

M&MBAI 400 036.

AD-MAN&M FINANCE LTD

5, YESHWANT COLONY,

INDORE 452 003 (MP)

ADAYAR FINANCE & LEASING LTD.,

208, BHARATHI SALAI,

ROYAPETTAH,

CHENNAI 600 014

ALPIC FINANCE LTD.,

NEW EXCELSFOR BLDG.,

6TH FLOOR,

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WALLACE STREET, FORT,

M&MBAI - 400 001

ALTA LEASING & FINANCE LTD.

ALTA BHAVAN,

532, SENAPATI BAPAT MARG

DADAR,

M&MBAI - 400 028

ANMOL FINANCIAL SERVICES LTD

A -66, IST FLOOR,

G&R& NANAK P&RA , VIKAS MARG,

DELHI - 110092

ANNA FINANCE LIMITED

16 B/9, DEV NAGAR,

D.B. G&PTA ROAD,

KAROL BAGH,

ABIRAMI FINANCIAL SERVICES

(INDIA) LTD

157, HABIB&LLAH ROAD, T. NAGAR,

CHENNAI - 600 017

AMARPREET FINANCE PVT. LTD.,

182, NEW JAWAHAR NAGAR,

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JALANDHR.

ANNA FINANCE LIMITED

16 B/9, DEV NAGAR,

D.B. G&PTA ROAD,

KAROL BAGH,

NEW DELHI -110005

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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 Fromabroad 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

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industry bodies to come together under one roof. The Reserve Bank has emphasis on

Formation of SRO Particularly For the benefitof smaller NBFCs.

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Bibliography

BOOKS:-
1) Statutory guidance`s For non- banking Financial companies..

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WEBSITES:-

www.NBFC.com

www.RBI.com

www. ow Stuff Works.com

www. Wikipedia.com

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