DISSERTATION REPORT
Name:- Nikhil Ranjan
Enrollment number :- 41417903917
Batch:- 2017-19
Periyar management and computer college(GGSIPU)
TITLE OF THE REPORT
Analysis on Growth of Non-Banking
financial companies in INDIA
Objectives of study
1. To study the growth prospects of NBFC in
India.
2. To study the problems being faced by NBFC.
3. To know the role of NBFC in economic growth.
INTRODUCTION
NBFC are emerging as an important sector in Indian
economy. They are providing credit in the areas
where bank penetration is low.
We studied about banks, apart from banks the Indian
Financial System has a large number of privately
owned, decentralized and small sized financial
institutions known as non-banking financial
companies.
A non-banking financial institution (NBFI) or non-
bank financial company (NBFC) is a financial
institution that does not have a full banking license
or is not supervised by a national or international
banking regulatory agency. NBFI facilitate bank-
related financial services, such as investment, risk
pooling, contractual savings, and market
brokering.Examples of these include insurance firms,
pawn shops, cashier's check issuers, check cashing
locations, payday lending, currency exchanges, and
microloan organizations. Alan Greenspan has
identified the role of NBFIs in strengthening an
economy, as they provide "multiple alternatives to
transform an economy's savings into capital
investment which act as backup facilities should the
primary form of intermediation fail.
Some of the advantages of NBFC includes;
•Quicker processing: It is a well-known fact that banks are
stringent about applicants fulfilling the required eligibility
criteria. In case the applicant fails to meet the bank's
eligibility criteria, the application is denied. However, NBFCs
have a less stringent set of requirements. Besides, most
NBFCs require minimal documentation. So, all you need to
do to is, simply check your eligibility for the desired loan
and submit all the necessary documents.
•Less Stringent Eligibility Criteria: Compared to banks, the
NBFCs are unknown to have less stringent rules and
requirements for loan eligibility. Banks always have very
strict obligations, which the applicant must stand up to in
order to get funds. In case the applicant does not match up
to the bank’s eligibility criteria, the loan application gets
rejected. At NBFCs, there is usually only minimal
documentation involved, and on successful submission of
documents the loan is processed quickly.
•Less Rules and Regulations: As NBFC are
under Companies Act, the rules and
regulations for lending are not as stringent as
banks. This helps borrowers get loans easily.
And the less complicated loan processing is;
borrowers are highly satisfied. Of course, the
risk of default is high with NBFC and thus
interest rates and other charges will be
according priced by the NBFC.
LITERATURE REVIEW
1. Financial intermediaries like non-banking financial
companies (NBFCs) have a definite and very important role in
the financial sector, particularly in a prospering economy like
India. NBFCs play significant role in promoting inclusive
growth in the country, by catering to the diverse financial
needs of customers not served by the banks. Added, NBFCs
often take lead role in providing advanced financial services
to Micro, Small, and Medium Enterprises (MSMEs) most
suitable according to their business requirements. The NBFC
sector has always played a critical role in encouraging growth
of the Indian economy and hence needs to be nurtured
appropriately. NBFC have traditionally complemented the
role of banking sector. They have catered the needs of those
borrowers who were not considered suitable by the banks. A
customer falling in low or middle income group may not be
able to pass the credit worthiness test of bank. Those
customers can avail financial services provided by the NBFCs.
Also banks play their role in semi urban and rural
areas only for the purpose of accepting deposit or
merely fulfilling the norms of RBI of meeting
priority targets. NBFC are filling these unhealthy
gaps left by bank in rural and semi urban areas.
They have also helped in providing various financial
services in developing small and micro business.
NBFC play there role of credit supply at much faster
rate than banks. In addition NBFC have helped to
reach those corners of the country which are not
properly served by the banks. This research paper
mainly highlights the role of NBFCs in promoting
economic growth of India. It also sets forth various
strengths, opportunities, challenges and problems
faced by this sector and the way forward.
GROWTH PROSPECTS OF NBFC IN INDIA – AKANSHA GOEL
2. Arobust banking and financial sector is critical for
activating the economy and facilitating hire
econoimic growth. Financial intermediaries like
non-banking financial companies NBFC`s have a
definite and a very important role in the financial
sector, particularly in a developing economy like
india. They are a vital link in the system. After the
proliferation phase of 1980`s and early 1990`s, the
NBFCs witnessed consolidation and now the
number of NBFCs eligible to accept deposits in
around 600, down from 40,000 in early 1990`s. The
number of asset financing NBFCs would be even
lower, around 350, the rest transportation
equipments and the balance are in financing
equipments for infrastructure projects.
Therefore, the role of non-banking sector in both
manufacturing and service sector is significant and
they play the role of an intermediary by facilitating
the flow of credit to end customers particularly in
transportation and other unorganized sectors.
IMPACT OF NON-BANKING FINANCIAL COMPANIES IN
INDIAN ECONOMY GROWTH - Dr. H.R Kaushal
3. The Purpose of the study is to evaluate the performance of
selected NBFC`s in India in term of profit. This is a secondary data
based conceptual study. This study is based on the Convinience
Sampling. As a sample, HDFC, Bajaj Finiserv, Power Finance
Corporation Limited, Indiabulls Home Loan And Lic Housing
Finance Limited are selected as these are main leading non-
banking finance company in india. The sample size which is taken
in the research study is the financial statement of last eight years
(April 2008 to March 2016) of related concern from the Annual
Reports of these companies. The findings of the present study are
net profit ratio of related companies are increase time to time,
Return on investment is on average, Compounded annual growth
rate on the basic of sales of related company showing negative
growth rate and Compounded annual average growth rate on the
basic of profits of related company is around on an average.
A STUDY OF PERFORMANCE OF NBFCS IN INDIA – SUNITA DEVI
4. NBFCs have been supplementing the role of the
organised banking sector by bridging the dredit gaps, i.e.,
in meeting the increasing financial needs of the corporate
sector, delviering credit to the organised sector. From
time to time, the central goverment as well as Reserve
bank of India have been working towards regulation of
these NBFCs. The Department of Non-banking
supervision of RBI has been indulged in these activities of
regulating as well as supervising the NBFCs.
The last two decades witnessed a phenomenal growth in
the number of NBFCs. The number of NBFCS which stood
at 7,063 in 1981, increased to 33,520 in 1991 abd further
to 55,995 in 1995. The reason for such phenomenal
growth of NBFCs was the liberalization led boom. NBFCs
entered merchant banking activities in addition to fund-
based business.
With huge demand for finance and low entry barriers
almost everyone wanted to start and own a finance
company.
GROWTH AND DEVELOPMENT OF NON-BANKING
FINANCIAL COMPANIES IN INDIA
- DR. KSHETRIMAYUM RANJAN SINGH
5. The Non-Banking Financial Companies (NBFCs) have
been considered as the one of the segments of the Indian
financial system. In the 1980’s this sector had a
mushrooming of institutions and the profile of the
industry has undergone many changes over the years.
NBFCs are successful in rendering a wide range of
services. Initially intended to cater to the needs of savers
and investors, NBFCs later on developed into institutions
that can provide services similar to bank. In this paper an
attempt has been made to empirically analyse the
performance of the NBFCs (Auto financing and Other
Asset financing) in India across the period of 2007-2012.
This study examines the profitability, efficiency and
turnover aspects of the selected NBFCs. The findings
indicate that the NBFCs differ significantly in terms of
Profitability and Leverage indicators from one another.
ANALYSIS OF FINANCIAL PERFORMANCE OF NBFC IN INDIA
- Dr. R. SHANMUGHAM
Research methodology
This is descriptive research paper based on
secondary data. Data have been found out
through different books, research papers,
magazines and various other websites.
DATA ANALYSIS
So far, non-banking finance companies (NBFCs) have
scripted a great success story. Their contribution to the
economy has grown in leaps and bounds from 8.4% in
2006 to above 14% in March 2015.1 In terms of financial
assets, NBFCs have recorded a healthy growth—a
compound annual growth rate (CAGR) of 19% over the
past few years—comprising 13% of the total credit and
expected to reach nearly 18% by 2018–19.2 With the
ongoing stress in the public sector banks due to mounting
bad debt, their appetite to lend (especially in rural areas)
is only going to deteriorate, thereby providing NBFCs with
the opportunity to increase their presence.
The success of NBFCs can be clearly attributed to their better
product lines, lower cost, wider and effective reach, strong
risk management capabilities to check and control bad
debts, and better understanding of their customer
segments. Not only have they shown success in their
traditional bastions (passenger and commercial vehicle fi
nance) but they have also managed to build substantial
assets under management (AUM) in the personal loan and
housing finance sector which have been the bread and
butter for retail banks. Going forward, the latent credit
demand of an emerging India will allow NBFCs to fill the
gap, especially where traditional banks have been wary to
serve. Additionally, improving macroeconomic conditions,
higher credit penetration, increased consumption and
disruptive digital trends will allow NBFC’s credit to grow at a
healthy rate of 7–10% (real growth rate)3 over the next five
years.
Below table shows Credit Growth at NBFCs as a % of total
credit
Factors contributing to the growth of NBFCs:
• Stress on public sector units (PSUs)
• Latent credit demand
• Digital disruption, especially for micro, small and
medium enterprises (MSMEs) and small and
medium enterprises (SMEs)
• Increased consumption
• Distribution reach and sectors where traditional
banks do not lend
Below picture shows Growth of online consumer lending in
India (Source: Tracxn Alternative Lending Landscape, India–
July 2015)
Below statistics shows The number of online consumer
lending start-ups founded by year (Source: Tracxn
Alternative Lending Landscape, India–July 2015)
Lending based on data from mobile phone records in
INDIA
Indians are the second-largest mobile phone users (over
590 million unique users) in the world. 7 Every time these
individuals make a phone call, send a text, browse the
Internet, engage social media networks on their phones,
or top up their prepaid cards, they deepen the digital
footprints they leave behind. Data from mobile phone
records, prepaid top-ups, mobile bill payments and
mobile browsing or app download history can be used to
assess consumer risk and determine the creditworthiness
of underserved customers. Lenders can use the output of
their credit scoring to offer unsecured, small ticket, short-
term credit at a much lower cost than traditional loans.
Below figure shows How the First Access credit scoring
model works
If we look at the India’s digital
population. Out of 350 million
active Internet users in India in
2015, 134 million actively use
social media platforms—a
number which is growing
exponentially. The increasing
Internet and mobile penetration,
growing acceptability of online
payments and favourable
demographics are expected to
lead the e-commerce sector in
India to a record revenue of 120
billion USD by 2020.
Below figure shows the general trend of exposure to NBFCs
from March 2012 to September 2015.
Below figure shows number of NBFCs in India
Major problems being faced by NBFCs in India
Borrowing Cost: NBFCs face a higher cost of borrowings
which is eventually passed on to their borrowers in the
form of higher interest on loans. It increases
delinquencies and reduces profit margin which affects
your credit rating with the banks in turn. With a low
credit rating, cost of funds goes up further.
Capital Adequacy: NBFCs face more problems when raising
capital. The compression in profit margins impacts your
ability to attract private equity investment and meeting
capital adequacy norms becomes a continuing challenge.
Bearish CP market: The Commercial Paper market is going
through a bearish phase in line with the current
downturn in the economy. This has increased the funding
challenges for NBFCs. Ideally, an NBFC should be able to
raise 1/3rd of its liabilities from retail, 1/3rd from banks
and 1/3rd from CPs and institutional placements. In the
present dispensation, given the move to put the squeeze
on NCDs and given the dull CP market, NBFCs have ended
up increasing their dependence on banks. It is an
unwelcome trend.
Summary of NBFC Crisis IN 2018
• Infrastructure Lending and Financial Services (IL&FS) has
more than 250 subsidiaries. IL&FS has financed some of
the largest infrastructural projects in India – for e.g.
Chennai-Nashri tunnel (longest road tunnel in India) & is
considered as a pioneer in PPP projects. IL&FS was
envisioned to provide long term big infrastructure loans
which the banks were reluctant to provide from July to
September 2018, two subsidiaries of IL&FS’s reported
having trouble paying back loans and inter corporate
deposits to other banks and lenders, resulting in the RBI
requesting its major share holders to rescue it. Recently,
Government of India has taken control of IL&FS’s, after it
failed to pay off debt payments. Since this move by the
government there has been an increase in volatility in the
stock markets.
A new board was constituted as the earlier board was
deemed to have failed to discharge its duties.
The new board consists of Kotak Mahindra Bank managing
director Uday Kotak, former IAS officer & Tech Mahindra
head Vineet Nayyar, former Sebi chief G N Bajpai, former
ICICI Bank chairman G C Chaturvedi, former IAS officers
Malini Shankar and Nand Kishore.
IL&FS has been recognized as systematically important
institution due to the size of Infrastructure projects it
funds. If IL&FS fails then there will be repercussions in
various fields like agriculture, education, health,
sanitation etc.
Reasons for failure of IL&FS
Rating Agencies – The rating agencies gave IL&FS an AAA
rating and this encouraged investment in the company
but now they have changed the rating of IL&FS as junk.
Shareholders – Major shareholders failed to monitor the
company that they invested in.
Board of Directors – All the senior officers have resigned
from their posts.
RBI – RBI is considering itself a regulator today but it could
have monitored the situation before the crises unfolded.
Government of India –It never properly assigned any
regulator.
Findings And Conclusions
Conclusion
1. NBFCs should realise the immense value of alternative
data and make investments in technology and analytics
to develop advanced credit scoring models that
leverage both traditional and non-traditional data
sources.
2. NBFCs should develop behaviour-based credit risk
models on the lines of those developed by online
lenders, which incorporate the social graph, personal
network, employment history and educational
background of the borrower into their credit scoring
rules.
3. The credit delivery mechanism needs to be more
transparent and hassle free. There should be more
stringent norms for the defaulters.
4.
Findings
1.
References and Links
• https://www.xamnation.com/nbfc-crisis-case-
study-on-ilfs/
• http://uniquetimes.org/key-concerns-for-indias-
nbfcs/
• https://www.pwc.in/assets/pdfs/publications
