Presented to :

Ms.Dipali.patel

Presented By:
Dhiren Jethva (12)
Hiro Nenwani (23)
Yogesh Parmar (26)
Rakesh Zala ( )

What is a Non-Banking Financial Company (NBFC)?

NBFCs are financial institution that provide banking service but do not hold a
banking license . 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 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.

NBFC V/S BANK

An NBFC cannot accept current and savings deposits;

An NBFC is not in the business of payment and settlement system and as such an
NBFC cannot issue cheques;
Deposit insurance facility of DICGC is not available for NBFC depositors unlike in
case of banks.
Unlike banks, priority sector lending norms are not applicable to NBFCs.
NBFCs are free to set-up and shut-down BRANCHES.
NBFCs generally cannot accept deposits unless they have a minimum credit rating
which is not mandatory in respect of banks.

SCOPE OF NBFC?

NBFCs

Lease
Finance

Investment
Finance

Hire
Purchase

Loan and
Advances

MNBC

Scope of NBFCs

It is a company which carries on as its principal business, hire purchase

1. Hire-Purchase Company -

transaction or the financing of such transactions.

2. Investment Company -

It means any company which carries on as its principal business the acquisition of
securities.
3. Loan Company
It is a company which carries on as its principal business, the providing of
finance whether by making loans or advances.
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4. Equipment Leasing Company

It is a company which carries on the business of leasing of equipments or the
financing of such activity.
5. Mutual Non banking Company (MNBC)
Its a company which collect money in installments by the way of subscriptions or
sale of units/certificates or in any other manner
6. Residuary Non-banking Company (RNBC)
All Non Banking companies other than NBFC and MNBC fall into the category
of RNBC

REGISTRATION REQUIREMENT OF NBFC

REGISTRATION AND NET OWNED FUNDS

In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC
should be registered with RBI to commence or carry on any business of nonbanking financial institution. However, to obviate dual regulation, certain
categories of NBFCs which are regulated by other regulators are exempted
from the requirement of registration with RBI viz. Venture Capital
Fund/Merchant Banking companies/Stock broking companies registered with
SEBI.
Should have a minimum net owned fund of Rs 25 lakh (raised to Rs 200 lakh
from April 21, 1999).

REGISTRATION REQUIREMENT OF NBFC

MAINTAINANCE OF ASSETS
NBFCs are required to invest, in unencumbered approved Indian securities, at
5% or more of their outstanding deposits at the close of business on the last
working.
RESERVE FUND
Every NBFC shall create a reserve fund and transfer there to a sum not less than
20 % of its net profit every year as disclosed in the profit and loss account and
before any dividend is declared

REGISTRATION REQUIREMENT OF NBFC

REPAYMENT OF DEPOSIT
If a NBFC defaults in repayment of deposit, the depositor can approach
Company Law Board or Consumer Forum or file a civil suit to recover the
deposits

REGISTRATION REQUIREMENT OF NBFC

PENALTIES / ACTION IN CASE OF DEFAULT:

A) For Mis-statement In Prospectus/Advt. Inviting Deposits From Public, The
Director/S Would Be Punishable With
- Imprisonment Of 3 Years And
- Monetary Fine
B) For Violation/Contravention Of Registration And Nof, Or Receipt Of Public
Deposit Guideleines At That Time
- A Penalty Of Rs. 5 Lakh.
- If Default Continues Pernalty Of Rs. 25,000 Per Day
C) NBFC Fails To Produce/Submit Any Documents Or Fin. Statement Or Other
Documents At That Time
- A FINE OF Rs. 2000 For Each Offence.

RESTRICTION ON NBFC
Ceiling On Quantum Of Deposit:

A NBFC maintaining required NOF and complying with the prudential norms can accept public
deposits as follows:

Category of NBFC
EL / HP Companies maintaining
CRAR of 15% without credit
rating

Ceiling on Public deposits

1.5 times of NOF or Rs 10 crores
whichever is less

EL / HP Companies with CRAR

of 12% and having minimum
investment grade credit rating

4 times of NOF

LC / IC with CRAR of 15% and

having minimum investment
grade credit rating

1.5 times of NOF

RESTRICTION ON NBFC

Minimum Credit Rating

The symbols of minimum investment grade rating of the Credit rating agencies are:

Name of rating agencies

Level of minimum investment

grade credit rating (MIGR)

CRISIL

FA- (FA MINUS)

ICRA

MA- (MA MINUS)

CARE

CARE BBB (FD)

FITCH Ratings India Pvt. Ltd

tA-(ind)(FD)

RESTRICTION ON NBFC
Period of Deposits
The NBFCs are allowed to accept/renew public deposits for a minimum period of
12 months and maximum period of 60 months.
Ceiling on the Rate of Interest
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.

RESTRICTION ON NBFC

Investment in Liquid assets

NBFCs- 15 % of oustanding public deposit liabilities as at the close of
business on the last working day of the second preceding quarter , of
which
Not less than 10 % in approved securities ;
Not more than 5 % in term deposits with scheduled commercial banks

RESTRICTION OF NBFC
Advertisement and methodology for acceptance deposits/public deposits
Every company which accepts deposits by advertisement has to comply with
the advertisement rules prescribed in this regard, the deposit acceptance
form should contain certain prescribed information, issue recept for
deposits, and maintain a deposit register.
Submission of Returns
The NBFCs having assets size of Rs. 500 crore and above but not accepting
public deposits are required to submit Quarterly Return on important
financial parameters of the company
The NBFC is required to furnish the information in respect of any change in
the composition of its Board of Directors, address of the company and its
Directors and the name/s and official designations of its principal officers
and the name and office address of its Auditors

NBFC:
RBI PRUDENTIAL NORMS

Any income when it is actually received at that time it is recorded in the books of

INCOME RECOGNISION

accounts.
BASIS OF NPA:
ASSETS THE INTEREST HAS REMAINED OVERDUE 6 MONTHS
TERM LOAN- Inclusion of unpaid interest when the installment is overdue for six month
DEMAND/CALL LOAN Loan that remained overdue for six months from the date of call/demand
or on which interest remained overdue for six month
BILL Bills that remain overdue for six months
OTHER CURRENT ASSETS (DEBT INST)
LOAN AND ADVANCES 6 MONTHS
LEASE RENTAL/HIREPURCHASE INSTALLMENTS Installment remain overdue for 12 Month
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NBFC:
RBI PRUDENTIAL NORMS

INCOME FROM INVESTMENT:

- MOSTLY ON CASH BASIS
- IN SOME CASES ACCURAL BASIS
- FOR EXP. DIVIDEND DECLARED BY COS

ACCOUNTING STANDARDS:
- ACCOUNTING STANDARDS ISSUED BY ICAI MUST BE FOLLOWED.

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NBFC:
RBI PRUDENTIAL NORMS
Accounting for investments

Investments classified into two categories : (1)Long-term and (2 ) Current Investments

Current investments to be classified into: (a ) quoted and (b) unquoted
Current Quoted investments to be valuedat lower of cost or market value.
Valuation norms for current unouted investments are as under :
Equity shares (at lower of cost or fair value)
Prefernce shares at lower of cost or face value
Government securities at carrying cost
Mutual fund units at net asset value for each scheme
Commercial paper at its carrying cost
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NBFC:
RBI PRUDENTIAL NORMS

ASSET CLASSIFICATION:
1. STANDARD ASSETS:
- NO DEFAULT IN TERMS OF INTEREST OR PRINCIPAL REPAYMENT AND
DOES NOT CONTAIN MORE THAN NORMAL RISK
2. SUB-STANDARD ASSETS:
- IT IS THE ONE WHICH HAS BEEN CLASSIFIED AS NPA FOR A PERIOD
NOT EXCEEDING 18 MONTHS

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NBFC:
RBI PRUDENTIAL NORMS

ASSET CLASSIFICATION: - CONTD

3. DOUBTFUL ASSETS:

- IT MEANS ANY LOAN/LEASED/HIRE PURCHASE ASSET WHICH HAS

BEEN CLASSIFIED AS NPA FOR A PERIOD EXCEEDING 18 MONTHS

4. LOSS ASSETS
- IT IS THE ONE WHERE THE LOSS HAS BEEN INDENTIFIED BY NBFC
OR THE AUDITORS AND THERE IS A THREAT OF NON-RECOVRY DUE
TO REDUCTION OF THE VALUE OF THE SECURITY OR DEFAULT ON
THE PART OF THE BORROWER
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NBFC:
RBI PRUDENTIAL NORMS
PROVISIONING REQUIREMENTS:

1. LOSS ASSETS:
100% PROVISIONING
2. DOUBTFUL ASSETS:
PERIOD FOR WHICH THE ASSET
HAS BEEN CONSIDERED
DOUBTFUL

PERCENTAGE OF PROVISION

UP TO 1 YEAR

20 %

1 TO 3 YEAR

30%

MORE THAN 3 YEARS

50%

3. SUB STANDARD ASSETS: GENERAL PROVISION OF 10% OF TOTAL

OUTSTANDING AMOUNT
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NBFC:
RBI PRUDENTIAL NORMS

Risk-weights and credit conversion factors

Risk-weights to be applied to all assets except intangible assets. Risk-weights to be
applied after netting off the provisions held against relative assets. Risk-weights
are 0, 20, 100
Assets deducted from owned fund like exposure to companies in the same group or
intangibles to be assigned 0 % risk-weight.
Exposures to all-India financial institutions (AIFIs) at a 20 % risk-weighted and all
other assets to attract 100% risk-weights
Off-balance sheet items to be factored at 50 or 100 and then converted for riskweight.

NBFC:
RBI PRUDENTIAL NORMS

DISCLOSURE IN BALANCE SHEET:

ALL NBFCs ACCEPTING PUBLIC DEPOSITS MUST SEPARATELY

DISCLOSE IN THEIR BALANCE SHEET, THE PROVISIONING IN
RESPECT OF NPAs WITHOUT NETTING (WRITING OFF) THEM
FROM THE INCOME OR VALUE OF THE ASSETS

- NBFC HAS TO MAKE DEPRECIATION PROVISION FOR THEIR

INVESTMENTS.
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NBFC:
RBI PRUDENTIAL NORMS

CAPITAL ADEQUACY REQUIRMENTS:

TIRE I CAPITAL : MINIMUM Rs. 2 CRORES WHICH INCLUDES THE
NET OWNED FUNDS OF THE NBFCs
TIRE II CAPITAL : TIRE II CAPITAL MAINLY INCLUDES
PREFERENCE SHARE, REVALUATION RESERVES, GENERAL
PROVISIONS AND LOSS RESERVES, HYBRID DEBT ETC.
All Nbfc are required to maintain a minimum capital ratio of tier-1 and tier-11
- At any point of time, the tire ii capital should not exceed 100% of tire i
capital.
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NBFC:
RBI PRUDENTIAL NORMS

If Default Is Made In The Repayment Schedule Of Any Public Deposits At That

Prohibition On Loan And Investment:

Time The Nbfcs Are Prohibited To Make Fresh Issue Of New

Loan/Deposits/Investments Untill The Earlier Default Exist.

Restrictions On Investment In Land, Building And Unquoted/Unlisted Shares :

An El/HP that accepts public deposits should not invest in :
(i) Land/building an amount exceeding 10 % of its Nofs
(ii) Unquoted shares of another company , other than a subsidiary or a group company,
an amount exceeding 10 % of NOfs

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NBFC:
RBI PRUDENTIAL NORMS

Concentration Of Credit And Investments:

NBFCs can not grant loan to any single borrower or group of borrowers in
excess of 15% and 25% of their net owned funds. The ceiling on investment in
shares of another company and a single group of companies is the same. The
permissible ceiling on loans and investment taken together is 25 % to a single
party and 40 % to single group of parties
Submission Of Half Yearly Reports To RBI
Half-yearly returns to be submitted as at the end of march and September every
year time allowed for submission three months from the due date
The return to be certified by the statutory auditors of the company