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By Akshay Tyagi: NBFC Playbook

NBFCs, also known as shadow banks, are financial intermediaries registered under the Companies Act of 1956 that are allowed to lend and invest in certain financial assets. Over time, various committees were formed to review and improve the framework for NBFCs. NBFCs differ from banks in that they cannot accept demand deposits and have more flexible eligibility criteria for loans. There are several types of NBFCs classified by the nature of their business activities and whether they accept deposits from the public. Growth in NBFCs has been driven by factors like stress in public sector banks and more customized solutions. NBFCs must follow various guidelines from the RBI regarding public deposits, reporting, and maintaining sufficient liquidity. The main risks

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0% found this document useful (0 votes)
227 views13 pages

By Akshay Tyagi: NBFC Playbook

NBFCs, also known as shadow banks, are financial intermediaries registered under the Companies Act of 1956 that are allowed to lend and invest in certain financial assets. Over time, various committees were formed to review and improve the framework for NBFCs. NBFCs differ from banks in that they cannot accept demand deposits and have more flexible eligibility criteria for loans. There are several types of NBFCs classified by the nature of their business activities and whether they accept deposits from the public. Growth in NBFCs has been driven by factors like stress in public sector banks and more customized solutions. NBFCs must follow various guidelines from the RBI regarding public deposits, reporting, and maintaining sufficient liquidity. The main risks

Uploaded by

Akshay Tyagi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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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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3
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

5
Different types of NBFCs

ON THE BASIS OF DEPOSITS

BASED ON THE NATURE OF ACTIVITY

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Factors leading to growth of NBFCs

• Stress on public sector banks

• Customized solutions

• Lower turnaround time

• Wider reach

• Lenient eligibility criteria 7


Guidelines followed by NBFCs
○ They cannot receive deposits which are payable on demand.

○ 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.

○ The repayment of any amount so taken by the Company will not be


guaranteed by the Reserve Bank of India.

8
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 deposits taken by the Public will be unsecured.

• 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.

• A Quarterly Return on the liquid assets of the company has to be furnished.

9
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.

• A minimum level of 15% of the Public Deposits has to be maintained by the


Company in Liquid Assets

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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.

• Risk arising due to unavailability of adequate funds at appropriate prices or


Liquidity Risk
tenure.

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.

11
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

12
Thank You.

13

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