Presented By:-

DHAVAL DESHMUKH
MEANING AND DEFINATION
 NBFC consist mainly of finance companies which carry on hire purchase finance,
housing finance, investment, loan, equipment leasing or mutual benefits.
 Reserve Bank(Amendment Act) 1997:- NBFC means
1. A Financial institute which is a company.
2. NBFC has it’s principal business as receiving of deposits under any Scheme or
arrangement or lending in any manner.
 FUNCTION OF NBFC
1. Brokers of loanable funds.
2. Mobilization Of Savings.
3. Channelization of fund into Investment.
4. Stabilize the capital market.
5. Provide Liquidity.
TYPES OF SERVICES PROVIDED BY
NBFCS
1. Hire Purchase Services.
2. Leasing Services.
3. Housing Finance Services.
4. Asset Management Company.
5. Venture Capital Companies.
IMPORTANCE OF NBFC
1. Greater Reach.
2. Flexibility in tapping resources.
3. Retail Services to small and medium business.
4. Important Components of Financial Market.
MINIMUM INVESTMENT BY NBFC
HAVING MULTIPLE LICENSES

Leasing
20%
Other
40%

HPS
20%
HFS
20%
RAISING FUNDS
1. Certificate of Deposits

A. NBFC Criteria
1. 2 years of profitable operations
2. NBFC/directors lawful conduct
3. Annual credit rating exceeds minimum Inv. Grade
4. Disclosure statement to accompany application for
permission

• Credit rating to be published in all ads

• No CoD if credit rating falls below criterion

2 Commercial paper, foreign debentures, redeemable capital,

Lines of Credit, rediscounting
INVESTMENT IN INDIA
 PROVISIONING
1. Time based Classification into:
a) Substandard(90 days),
b) doubtful(180 days); and
c) Loss (1 yr, TBs 180 days, Credit Card 180 days)
2. Provisioning @ 25%, 50% & 100%
3. No provisioning for Govt. guaranteed exposure
4. Additional subjective evaluation
5. Declassification of rescheduled loans
6. FSV ( other than realizable assets)
a) In case of leasing & IFS:
i. Discounted for yr 1, 2 & thereafter as 80%, 70% & 50%
ii. Revaluation every 3 years by independent valuer
b) In case of HFS
i. Discounting @ 70%
ii. Revaluation every 10 years by independent valuer
7. Types of charges
8. Quarterly credit review by NBFCs, annual by Auditors
9. Reversal of provision Cash receipt> 20%, 50%, 100% of NPL)
10. Quarterly list of delinquent / rescheduled accounts to SEC
(I) LEASING
• An NBFC engaged in Leasing shall meet the following conditions:

Assets invested > 70% of total assets

Investment in Shares < 50% equity of NBFC

Investment in shares
Of one company < 10% equity of NBFC/Co

Lease period > 3 years

• May not engage in land / residential building leases

(II) INVESTMENT FINANCE
SERVICES
SCOPE OF WORK AND INV. LIMITS
1. Scope of work includes:
a. Money market activities,
b. Capital market activities (including managing client
portfolios)
c. Project financing activities; &
d. Corporate finance services
e. General activities
2. Investment limits %age of NBFC equity
Shares < 100
Shares of1 company < 10
Equity futures < 100
Single future < 10
Reverse Repo & CFS < 250
Single CFS security < 25 (i.e. 10% of above)
CONTINUE….
3. Margin Loans
Total < 50
To 1 client < 10
(Margin shall be at least 30% of loan)
Margin loans approved according to pre- defined BoD policy

4. Underwriting commitments fully backed

(III) HOUSING FINANCE
SERVICES
1. Additional functions w.r.t property:
a) Mortgage finance to purchase/construct/alter property
b) Surveys and valuation
c) Arrange insurance
d) Manage mortgage investments
Investment in: Limit
HFS > 70% total assets
Shares < 50% NBFC equity
Shares of 1 co < 10% -do-
Financing:
One party < Rs 20 million
Total Monthly Installments
–Consumer loan < 60% NDI
DE ratio < 85:15
Period of Mortgage loan < 20 years
2. Appoint Lawyer, valuer
3. Review market every quarter
(IV) VENTURE CAPITAL
INVESTMENT & VCF
Venture Capital Company
1. Exposure by NBFC to one person/group of Cos. < 40% of equity
2. Raise funds by: shares issue and private placement for VP

Venture Capital Fund

1.A Company, engaged solely in VPs with equity of Rs 50
m & managed by VCC
2.Exposure to one person/grp of Cos. < 40% of equity
3.Exposure to director < 10% of total exposure
4.Each investor to invest at least Rs 1,000,000
5.Registration can be suspended by SEC for 60 days.
Can lead to cancellation
(V) ASSET MANAGEMENT
SERVICES
ASSET MANAGEMENT SERVICES-
STRUCTURE
ASSET MANAGEMENT SERVICES- TERMS
AND CONDITIONS
A. Designation of qualified fund manager to manage upto 3 CIS
B. At least 1 investment Committee, formed by BoD

1. Comprise fund manager, Chief Investment Officer

other Key Personnel of AMC
2. Reportable to CEO
3. Quorum for investment decisions is 2/3
4. Ensure compliance with constitutive
documents/policies
C. AMC to fulfill SEC conditions for managing multiple CIS
D. Shari’a appointed for Islamic CIS
TRUSTEE OF A SCHEME
1. Appointed with SEC approval for each open and closed end scheme
2. Trustee to be a
a) Scheduled bank
b) Trust company
c) Foreign bank
d) CDC
e) NBFC engaged in IFS
f) Other SEC approved trustee
3. Obliged to take custody of, manage, a/c for loss of property of scheme
a) Issue trustee report to form part of annual report
b) Ensure AMC/ IA has arranged for a diverse panel of brokers
c) Ensure units of open end scheme \issued after sub money received
d) Review adequacy of AMC/IA unit value calculation
4. May retire or be removed by the NBFC
5. Will be independent of the AMC
 ASSET MANAGEMENT COMPANIES-
RESTRICTIONS & OBLIGATIONS
• Restrictions:

1. Acquiring control of an investee through CIS

2. Transaction with 1 broker>10% annual brokerage exp
3. Accepting deposits from CIS
4. Loans from CIS assets
5. Undertake brokerage services
6. Enter underwriting contracts, invest in CIS except as
allowed
OPEN & CLOSED END SCHEMES
1. Registration as a notified entity
a) Application to be accompanied also by undertaking of AMC
guaranteeing investment
2. 3 months notice for winding up by AMC / Cancellation by SEC
3. Ads to be approved by SEC & circulated within 60 days of
approval
4. Offering document / prospectus to include investment policy,
type of securities it will invest in and the risk associated.
5. Closed end schemes: securities offered at par if investment is
arranged by IA and the offer is underwritten
6. Open end schemes:
a) Investment made after conclusion of issue of units
b) 4 regular dealings per week
c) Offer price and redemption price
d) Redemption to be completed in 6 working days
CONTINUE….
1. Discretionary and non discretionary a/cs:

a) Notice to SEC
b) Due diligence
c) Separate management & disclosure
2. Conversion of closed end fund to open end scheme:

a) By Special resolution of certificate holders

b) 5 years after fund launch
c) Cert. holders not in favor can sell @ discount<3% of NAV
d) Approval of SEC
(VI) INVESTMENT
COMPANIES & IAS
 Investment company
(closed end fund)
External auditor-
SEC panel

Investment Advisor Custodian

Discretionary Client Non discretionary

Portfolio portfolio
INVESTMENT COMPANIES
1. Registered as a Notified Entity
2. A public co with Rs 250m equity & directors of integrity
3. Application for registration can be cancelled if operations don’t
start in 6 months
4. Investment Advisor
a) Appointed with SEC approval, for a period of upto 10 years
b) Change of IA requires prior approval of SEC
5. Custodian:
a) Appointed with SEC approval
b) scheme of custody of assets settled with IC
c) Custodian not to be AMC or IA
d) Custodian to be independent of IC and IA
6. IC to report annually and qtrly to shareholders and SEC.
a) The P&L of the IC will include that of the IA
7. Auditor
a) Appointed from the SEC approved list
b) Auditor rotation after 5 years
c) Auditor of IC different from auditor or custodian or IA
EXPOSURE LIMITS FOR CIS
Limit
By CIS to1 person < 10% Net Assets of scheme/ 10% of issued capital
of person

By all CIS to 1 person < 49% of issued capital of the person

By CIS in 1 sector < 25% of net asset value of scheme

By CIS in one group < 35% of net assets of CIS

By CIS in listed group

Cos. Of AMC < 10% of net assets of CIS

Invested by equity based

CIS in non listed securities < 0% (Pre-IPO 15%)
 CONTINUE……
• Limitations on AMC of scheme include short selling, forward purchase contracts, real estate dealing,
delisting without SEC approval, lend/ borrow.
• No transactions by AMC of scheme with connected persons
• Direct transactions b/w CIS of 1AMC notified to SEC in 2 days
• IA(AMC) to bear all inc. exp. Of closed (open) end scheme
• NAV notified to SE,SEC& self regulatory association 14 days of month end
• Discretionary and non discretionary a/cs:

DESCRIPTION BY TO AMOUNT
AMC CIS AMC 5yrs: 3% of Avg. annual
remuneration net assets of CIS
Afterwards, 2%
Annual fee AMC SEC 0.1% of AANA

Dividend AMC Shareholders of 90% income

CIS