By Akshay Tyagi: NBFC Playbook
By Akshay Tyagi: NBFC Playbook
By
Akshay Tyagi
What are NBFCs?
NBFCs also known as India’s para bank or shadow banking system
are the financial intermediaries registered under the Companies Act
1956. They are entitled to disburse loans and advances and acquire
shares, stocks and bonds.
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Historical Background
○ Incorporated in 1960s
○ With the growth in the number and size of NBFCs,
various committees were formed in India to
review the existing framework and address the
shortcomings in the overall NBFC structure:
James Raj Committee
Chakravarty Committee
Vaghul Committee
Dr. AC Shah Committee
Khanna Committee 4
NBFCs Vs Banks
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Different types of NBFCs
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Factors leading to growth of NBFCs
• Customized solutions
• Wider reach
○ The public Deposits which the company can take should be for a
minimum time period of 12 months and a maximum time period of 60
months.
○ The interest charged by the Company cannot be more than the ceiling
prescribed by the Reserve Bank of India.
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Continued
• All the information about the company as well as any change in the composition of
the Company has to be furnished to the Reserve Bank of India
• The Company has to submit its audited balance sheet every year.
• A statutory return on the deposits taken by the company has to be furnished in the
form NBS – 1 every year.
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Continued
• A certificate from the auditors had to be taken stating that the company is in a
position to pay back all the deposits or money taken from the Public.
• A half-yearly ALM return has to be given by the company which has a Public
Deposit of Rs. 20 Crore and above or has assets worth Rs. 100 Crore and above.
• The credit rating has to be taken every 6 months and submitted to the RBI.
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RISKS ASSOCIATED WITH NBFCs
• The risk associated with the failure of the borrower to meet financial obligations
Credit Risk
to the lender in accordance with the agreed terms.
• It is the risk of losses arising from the movements in market price of various
Market Risk
securities, which may impact our earnings and capital.
Regulatory and
• The risk arising out of a change in laws and regulation governing a business.
Compliance Risk
• Current or prospective risk to business, earnings and capital arising from adverse
Reputation Risk perception of the organization on the part of customers, counterparties,
shareholders, investors or regulators.
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Continued
Operational • Arise from inadequate or failed internal processes, people or systems, or from
risk external events.
Business and
• Incidents like fire, natural calamity, breakdown of infrastructure, acts of
Continuity
terrorism, etc can lead to disruption in the conduct of business.
Risk
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Thank You.
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