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Date : 08 Nov 2012
Non-Banking Financial Institutions

The non-banking financial sector is witnessing a consolidation process, with smaller NBFCs (deposit-taking) opting for either merger or closure and some larger ones getting converted into non-deposit-taking NBFCs. NBFCs are comfortably placed with higher capital. The financial performance of deposit-taking Non-Banking Financial Companies (NBFCs-D) showed an improvement as reflected in the increase in their operating profits mainly emanating from growth in fund-based income. Systemically Important-Non-deposit taking NBFCs (NBFCs-ND-SI) segment continued to rely on bank finances for their resource requirement. There is sign of deterioration in the quality of assets in respect of NBFCs-ND-SI. The set of regulations prescribed for NBFCs sector is expected to make the NBFCs more resilient in the medium term. The combined balance sheets of financial institutions (FIs) expanded and operating profit as well as net profit have increased significantly. The impaired assets of the FIs showed increase and are a matter of concern. The increase in expenses of PDs more than compensated for the increase in income which led to reduced profit. PDs are comfortably placed with higher CRAR.

1. Introduction

6.1 Non-banking financial institutions (NBFIs) are an important part of the Indian financial system. The NBFIs at present consist of a heterogeneous group of institutions that cater to a wide range of financial requirements. The major intermediaries include financial institutions (FIs), non-banking financial companies (NBFCs) and primary dealers (PDs).

6.2 This chapter provides an analysis of the financial performance and soundness indicators related to each segment of NBFIs during 2011-12. The chapter is organised into five sections. Section 2 analyses the financial performance of FIs, while Section 3 discusses the financial performance of NBFCs-D and NBFCs-ND-SI, including RNBCs. Section 4 provides an analysis of the performance of PDs in the primary and secondary markets, followed by the overall assessment in Section 5.

2. Financial Institutions

6.3 As at end-March 2012, there were five financial institutions (FIs) under the full-fledged regulation and supervision of the Reserve Bank, viz., Export Import Bank of India (EXIM Bank), National Bank for Agriculture and Rural Development (NABARD), National Housing Bank (NHB), Small Industries Development Bank of India (SIDBI) and Industrial Investment Bank of India (IIBI) (Table VI.1). However, IIBI is in the process of voluntary winding-up.

Table VI.1: Ownership Pattern of Financial Institutions

(As on March 31, 2012)

Institution

Ownership

Per cent

1

2

3

EXIM Bank

Government of India

100

NABARD

Government of India

99.3

  Reserve Bank of India

0.7

NHB

Reserve Bank of India

100

SIDBI *

Public Sector Banks

62.5

  Insurance Companies

21.9

  Financial Institutions

5.3

  Others

10.3

*IDBI Bank Ltd. (19.2 per cent), State Bank of India (15.5 per cent) and Life Insurance Corporation of India (14.4 per cent) are the three major shareholders in SIDBI.

Operations of Financial Institutions

Combined balance sheets of financial institutions (FIs) expanded

6.4 The financial assistance sanctioned and disbursed by FIs increased during 2011-12 due to increase in sanctions and disbursements made by investment institutions (LIC and GIC) and specified financial institutions (IVCF and TFCI). However, sanctions and disbursements made by IFCI have declined in 2011-12 (Table VI.2 and Appendix Table VI.1).

Assets and Liabilities of FIs

6.5 The combined balance sheets of FIs expanded during 2011-12. On the liabilities side, deposits and ‘bonds and debentures’ remain the major sources of borrowings during 2011-12. On the assets side, ‘loans and advances’ continued to be the single largest component, contributing more than four-fifth of the total assets of the FIs (Table VI.3).

Table VI.2: Financial Assistance Sanctioned and Disbursed by Financial Institutions

(Amount in ` billion)

Category

Amount

Percentage Variation

2010-11

2011-12

2011-12

S

D

S

D

S

D

1

2

3

4

5

6

7

(i) All-India Term-lending Institutions *

545

472

478

478

-12.2

1.2

(ii) Specialised Financial Institutions #

9

5

11

8

21.3

66.8

(iii) Investment Institutions @

450

401

544

520

20.8

29.5

Total Assistance by FIs (i+ii+iii)

1,004

878

1,033

1,006

2.9

14.5

S: Sanctions. D: Disbursements. * : Relating to IFCI, SIDBI and IIBI.
# : Relating to IVCF, ICICI Venture and TFCI.
@ : Relating to LIC and GIC & erstwhile subsidiaries (NIA, UIIC and OIC).
Notes: 1. Components may not add up to the whole due to rounding off.
2. Data pertaining to 2011-12 are provisional.
Source: Respective Financial Institutions.


Table VI.3: Liabilities and Assets of Financial Institutions

(As at end-March)

(Amount in ` million)

Item

2011

2012 P

Percentage Variation

Liabilities

 

 

 

1. Capital

49,000

62,000

26.5

 

(1.7)

(1.8)

 

2. Reserves

4,26,071

4,65,001

9.1

 

(14.7)

(13.8)

 

3. Bonds & Debentures

9,00,968

10,72,973

19.1

 

(31.0)

(31.9)

 

4. Deposits

9,27,817

10,90,780

17.6

 

(31.9)

(32.4)

 

5. Borrowings

4,26,807

4,95,207

16.0

 

(14.7)

(14.7)

 

6. Other Liabilities

1,75,493

1,77,294

1.0

 

(6.0)

(5.3)

 

Total Liabilities/Assets

29,06,156

33,63,255

15.7

Assets

 

 

 

1. Cash & Bank Balances

65,219

67,398

3.3

 

(2.2)

(1.9)

 

2. Investments

1,18,023

1,25,559

6.4

 

(4.1)

(3.7)

 

3. Loans & Advances

25,61,759

29,82,001

16.4

 

(88.2)

(88.7)

 

4. Bills Discounted/ Rediscounted

35,422

29,636

-16.3

 

(1.2)

(0.9)

 

5. Fixed Assets

5,374

5,364

-0.2

 

(0.2)

(0.2)

 

6. Other Assets

1,86,822

1,53,297

-17.9

 

(6.4)

(4.6)

 

P: Provisional.
Notes: 1. Data pertain to 4 FIs, viz., EXIM Bank, NABARD, NHB & SIDBI.
2. Figures in parentheses are percentages to total Liabilities/ Assets.
Source: Audited OSMOS Returns of EXIM Bank, NABARD and SIDBI ended March 31, and for NHB June 30.

Resources Mobilised by FIs

Commercial Paper (CP) is the major source of funds

6.6 The resources mobilised by FIs during 2011-12 were considerably higher than in the previous year. The NHB has mobilised the largest amount of resources, followed by NABARD, SIDBI and EXIM Bank (Table VI.4).

6.7 During 2011-12, there was a significant increase in the resources raised by FIs through commercial paper (CP), which accounted for more than 70 per cent of the total resources mobilised from the money market (Table VI.5).

Table VI.4: Resources Mobilised by Financial Institutions

(Amount in ` billion)

Institutions

Total Resources Raised

Total Outstanding (As at end-March)

Long Term

Short Term

Foreign Currency

Total

2010-11

2011-12

2010-11

2011-12

2010-11

2011-12

2010-11

2011-12

2011

2012

1

2

3

4

5

6

7

8

9

10

11

EXIM Bank

111

88

15

55

111

84

237

227

472

547

NABARD

97

179

185

90

-

-

283

269

339

423

NHB

75

555

295

827

-

-

370

1,382

109

607

SIDBI

100

139

23

80

12

20

135

239

341

440

Total

384

961

518

1,052

123

104

1,025

2,117

1,261

2,016

- : Nil/Negligible.
Note: Long-term Rupee resources comprise borrowings by way of bonds/debentures; short-term resources comprise CP, term deposits, ICDs, CDs and borrowing from the term money market. Foreign currency resources largely comprise bonds and borrowings in the international market.
Source: Respective FIs.

Sources and Uses of Funds

6.8 The majority of the funds raised were used for fresh deployments, followed by repayment of past borrowings (Table VI.6).

Maturity and Cost of Borrowings and Lending

6.9 The weighted average cost of Rupee resources raised went up across the board. While the weighted average maturity of Rupee resources raised by SIDBI and NABARD has gone up, in the case of EXIM Bank and NHB they came down during 2011-12 (Table VI.7). While both EXIM Bank and SIDBI raised their prime lending rate during the year, the NHB kept it unchanged (Table VI.8).

Table VI.5: Resources Raised by Financial Institutions from Money Market

(As at end-March 2012)

(Amount in ` million)

Instrument

EXIM

NABARD

NHB

SIDBI

Total

1

2

3

4

5

6

A. Total

49,355

90,347

28,953

50,915

2,19,570

i) Term Deposits

8,193

70

2,184

8,419

18,866

ii) Term Money

-

4,381

-

-

4,381

iii) Inter-corporate Deposits

-

-

-

-

-

iv) Certificate of Deposits

536

12,810

-

-

13,346

v) Commercial Paper

40,626

73,086

4,889

42,496

1,61,097

vi) Short-term loans from banks

-

-

21,880

-

21,880

Memo:

 

 

 

 

 

B. Umbrella Limit

75,458

2,07,941

41,550

89,673

4,14,622

C. Utilisation of Umbrella limit (A as percentage of B)

65.4

43.5

69.7

56.8

53.0

- : Nil/Negligible.
Source: Fortnightly return of resources mobilised by financial institutions,


Table VI.6: Pattern of Sources and Deployment of Funds of Financial Institutions

(Amount in ` billion)

Item

As at end-March 2011

As at end-March 2012

Percentage Variation

1

2

3

4

A. Sources of Funds (i+ii+iii)

2,978

4,252

42.8

 

(100.0)

(100.0)

 

i. Internal

1,632

2,623

60.7

 

(54.8)

(61.7)

 

 ii. External

1,191

1,495

25.6

 

(40.0)

(35.2)

 

iii. Others@

155

134

-13.7

 

(5.2)

(3.2)

 

B. Deployment of Funds (i+ii+iii)

2,978

4,252

42.8

 

(100.0)

(100.0)

 

i. Fresh Deployment

1,747

2,739

56.8

 

(58.7)

(64.4)

 

ii. Repayment of past borrowings

840

1,290

53.7

 

(28.2)

(30.4)

 

iii. Other Deployment

391

222

-43.2

 

(13.1)

(5.2)

 

of which: Interest Payments

142

145

1.9

 

(4.8)

(3.4)

 

@ Includes cash and balances with banks, balances with the Reserve Bank and other banks.
Notes: 1. EXIM Bank, NABARD, NHB and SIDBI.
2. Figures in parentheses are percentages to totals.
Source: Respective FIs.


Table VI.7: Weighted Average Cost and Maturity of Rupee Resources Raised by Select Financial Institutions

Institutions

Weighted Average Cost (Per cent)

Weighted Average Maturity (years)

2010-11

2011-12 P

2010-11

2011-12 P

1

2

3

4

5

EXIM Bank

8.4

9.0

2.9

2.8

SIDBI

7.0

7.2

2.5

3.7

NABARD

7.1

9.5

1.1

1.9

NHB

7.2

8.8

2.5

0.9

P: provisional.
Source: Respective FIs.

Financial Performance of FIs

The profitability of FIs substantially increased with reduction in wage bill

6.10 Both the operating profit and net profit of FIs increased significantly during 2011-12 (Table VI.9). The return on assets (RoA) is highest for SIDBI followed by the NHB, EXIM Bank and NABARD (Table VI.10).

Table VI.8: Long-term PLR Structure of Select Financial Institutions

(Per cent)

Effective

EXIM Bank

SIDBI

NHB

1

2

3

4

March 2011

14.0

11.0

10.5

March 2012

15.0

12.75

10.5

Source: Respective FIs.


Table VI.9: Financial Performance of Select All-India Financial Institutions

(Amount in ` million)

 

2010-11

2011-12

Variation

Amount

Percentage

A) Income (a+b)

1,85,018

2,26,647

41,629

22.5

a) Interest Income

1,80,167

2,16,887

36,720

20.4

 

(97.4)

(95.7)

 

 

b) Non-Interest Income

4,851

9,760

4,909

101.2

 

(2.6)

(4.3)

 

 

B) Expenditure (a+b)

1,37,422

1,62,908

25,486

18.5

a) Interest Expenditure

1,22,589

1,48,852

26,263

21.4

 

(89.2)

(91.4)

 

 

b) Operating Expenses

14,833

14,057

-776

-5.2

 

(10.8)

(8.6)

 

 

of which

 

 

 

 

Wage Bill

10,981

10,175

-806

-7.3

C) Provisions for Taxation

12,819

16,451

3,632

28.3

D) Profit

 

 

 

 

Operating Profit (PBT)

39,374

48,849

9,475

24.1

Net Profit (PAT)

26,556

32,399

5,843

22.0

E) Financial Ratios @

 

 

 

 

Operating Profit

1.46

2.81

 

 

Net Profit

0.98

1.03

 

 

Income

6.85

7.23

 

 

Interest Income

6.67

6.92

 

 

Other Income

0.18

0.31

 

 

Expenditure

5.09

5.20

 

 

Interest Expenditure

4.54

4.75

 

 

Other Operating Expenses

0.55

0.45

 

 

Wage Bill

0.41

0.32

 

 

Provisions

0.47

0.52

 

 

Spread (Net Interest Income)

2.13

2.17

 

 

@: as percentage of Total Average Assets.
Notes: 1. Figures in parentheses are percentages to total Income/ Expenditure.
2. Percentage variation could be slightly different because absolute numbers have been rounded off to ` million.
Source: Audited OSMOS Returns of EXIM Bank, NABARD and SIDBI ended March 31, and for NHB June 30.


Table VI.10: Select Financial Parameters of Financial Institutions

(As at end-March)

(Per cent)

Institution

Interest Income/ Average Working Funds

Non-Interest Income/ Average Working Funds

Operating Profit/ Average Working Funds

Return on Average Assets (Per cent)

Net Profit per Employee (` million)

2011

2012

2011

2012

2011

2012

2011

2012

2011

2012

1

2

3

4

5

6

7

8

9

10

11

EXIM Bank

6.5

7.1

0.5

0.6

2.2

2.5

1.2

1.1

24

27

NABARD

6.2

6.5

0.1

0.2

1.3

1.4

0.9

0.9

3

4

NHB *

7.7

8.6

0.04

0.05

1.7

2.1

1.1

1.3

32

38

SIDBI

8.0

8.5

0.3

0.2

2.9

3.4

1.8

2.0

5

5

*: Position as at the end of June.
Source: Statements furnished by the FIs.

Soundness Indicators: Asset Quality

NPAs of FIs have gone up substantially during the year

6.11 At the aggregate level, the net NPAs of FIs have increased substantially. The increase in net NPAs, however, was attributable mainly to SIDBI and EXIM Bank. While NABARD has maintained the same level, the NHB has reported no NPAs during 2011-12 (Table VI.11).

6.12 There was a substantial increase in the sub-standard and doubtful assets of EXIM Bank (Table VI.12). The higher NPAs in respect of EXIM Bank may be a reflection of the continued unfavourable external environment, especially in the context of India’s increased integration with the world economy.

Capital Adequacy

FIs are comfortably placed with capital

6.13 During the year 2011-12, all four FIs have maintained a higher CRAR than the minimum stipulated norm of 9 per cent (Table VI.13).

3. Non-Banking Financial Companies

Three new categories of NBFCs have been created – Infrastructure Debt Funds (NBFC-IDF), Micro Finance Institution (NBFC-MFI) and NBFC-Factors

6.14 NBFCs are classified into two categories, based on the liability structure, viz., Category ‘A’ companies (NBFCs accepting public deposits or NBFCs-D), and Category ‘B’ companies (NBFCs not raising public deposits or NBFCs-ND). NBFCs-D are subject to requirements of capital adequacy, liquid assets maintenance, exposure norms (including restrictions on exposure to investments in land, building and unquoted shares), ALM discipline and reporting requirements; in contrast, until 2006 NBFCs-ND were subject to minimal regulation. Since April 1, 2007, non-deposit taking NBFCs with assets of `1 billion and above are being classified as Systemically Important Non-Deposit taking NBFCs (NBFCs-ND-SI), and prudential regulations, such as capital adequacy requirements and exposure norms along with reporting requirements, have been made applicable to them. The asset liability management (ALM) reporting and disclosure norms have also been made applicable to them at different points of time.

Table VI.11: Net Non-Performing Assets

(As at end-March)

(Amount in ` million)

Institutions

Net NPAs

Net NPAs/Net Loans (Per cent)

2011

2012

2011

2012

1

2

3

4

5

EXIM Bank

930

1,558

0.2

0.3

NABARD

298

371

0.02

0.02

NHB

..

..

..

..

SIDBI

1,321

1,847

0.3

0.4

All FIs

2,549

3,776

0.1

0.13

.. : Not Available.
Source: Audited OSMOS Returns of EXIM Bank, NABARD and SIDBI ended March 31, and for NHB June 30.


Table VI.12: Asset Classification of Financial Institutions

(As at end-March)

(Amount in ` million)

Institution

 Standard

 Sub-Standard

 Doubtful

 Loss

2011

2012

2011

2012

2011

2012

2011

2012

1

2

3

4

5

6

7

8

9

EXIM Bank

4,55,628

5,37,340

1,966

4,044

2,456

3,871

358

44

NABARD

13,94,594

16,49,324

-

221

681

681

10

10

NHB *

2,25,814

2,85,185

..

..

..

..

..

..

SIDBI

4,59,215

5,36,034

1,427

2,123

1,364

385

-

1,227

All FIs

25,35,251

30,07,883

3,393

6,388

4,501

4,937

368

1,281

- : Nil/Negligible. .. : Not Available. *: Position as at the end of June 2011 as per OSMOS returns.
Source: Audited OSMOS Returns of EXIM Bank, NABARD and SIDBI ended March 31, and for NHB June 30.


Table VI.13 Capital to Risk (Weighted) Assets Ratio of Select Financial Institutions

(As at end-March)

(Per cent)

Institution

2011

2012P

1

2

3

EXIM Bank

17.0

16.4

NABARD

21.8

20.6

NHB *

20.7

19.7

SIDBI

31.6

29.2

*: Position as at the end of June 2012 as per OSMOS returns.
P: Provisional.
Source: Audited OSMOS Returns of EXIM Bank, NABARD and SIDBI ended March 31, and for NHB June 30.

6.15 NBFCs are also classified in terms of activities into Asset Finance Companies (AFC), Investment Companies (IC), Loan Companies (LC), Infrastructure Finance Companies (IFC), Core Investment Companies (CIC), Infrastructure Debt Fund - Non-Banking Financial Companies (IDF-NBFC), Non-Banking Financial Company– Micro Finance Institutions (NBFC-MFI) and NBFC-Factors. During 2011-12, two new categories of NBFCs, viz., Infrastructure Debt Funds – NBFC (NBFC-IDF) and Micro Finance Institution (NBFC-MFI) – were created and brought under separate regulatory framework. In addition, a new category of NBFC-Factors was introduced in September 2012. Earlier in April 2010, a regulatory framework for Systemically Important Core Investment Companies (CIC NDSI) was created for companies with an asset size of `1 billion and above, whose business is investment for the sole purpose of holding stakes in group concerns, are not trading in these securities and are accepting public funds. Prudential requirements in the form of Adjusted Net Worth and leverage were also prescribed for CIC-ND-SIs as they were given exemption from NOF, capital adequacy and exposure norms.

6.16 An NBFC-MFI is defined as a non-deposit-taking NBFC (other than a company licensed under Section 25 of the Indian Companies Act, 1956) that fulfils the following conditions: (i) Minimum Net Owned Funds of `5 crore (`2 crore for the North-eastern Region), (ii) Not less than 85 per cent of its net assets are in the nature of “qualifying assets”, (iii) the income it derives from the remaining 15 per cent assets in accordance with the regulations specified in that behalf. An NBFC which does not qualify as an NBFC-MFI shall not extend loans to the micro finance sector, in excess of 10 per cent of its total assets. Given the functional hardship faced by the MFI sector following the Andhra Pradesh Micro Finance Institutions (Regulations of Money Lending) Ordinance, 2010 and to give reprieve to the sector, the Reserve Bank modified the regulatory framework for MFIs to allow for time for compliance to regulations and allow them to register with the Bank as NBFC-MFI early. Considering the importance of this sector for the development and regulation of micro-finance institutions to promote financial inclusion, the Micro-Finance Institutions (Development and Regulation) Bill, 2012 was introduced in the Lok Sabha on May 22, 2012 (Box VI.1).

6.17 The ownership pattern of NBFCs-ND-SI as well as deposit-taking NBFCs as at end-March 2012, suggested that government owned companies have a share of below 3 per cent (Table VI.14).

Profile of NBFCs (including RNBCs)

Non-Banking financial companies’ segment is witnessing consolidation

6.18 The total number of NBFCs registered with the Reserve Bank declined marginally to 12,385 as at end-June 2012 (Chart VI.1). A similar trend was observed in the case of deposit-taking NBFCs (NBFCs-D) during 2011-12, mainly due to the cancellation of Certificates of Registration (COR) and their exit from deposit-taking activities.

6.19 Despite the decline in the number of NBFCs, their total assets as well as net owned funds registered an increase during 2011-12, while public deposits recorded a decline. The share of Residuary Non-Banking Companies (RNBCs) in the total assets of NBFCs showed a decline. The net owned funds of RNBCs have however remained at more or less same level during 2011-12 (Table VI.15).

Box VI.1:Micro Finance Institutions (Development and Regulation) Bill, 2012 and its Impact on the Microfinance Sector

The Micro Finance Institutions (Development and Regulation) Bill, 2012 aims at providing a framework for the development and regulation of micro-finance institutions. The Bill defines a micro-finance institution (MFI) as an organisation, other than a bank, providing micro-finance services as micro credit facilities not exceeding `5 lakh in aggregate, or with the Reserve Bank’s specification of `10 lakh per individual. Subsidiary services like collection of thrift, pension or insurance services and remittance of funds to individuals within India also come under these services. The Bill allows the Central Government to create a Micro-Finance Development Council (MFDC) that will advise on policies and measures for the development of MFIs. Besides, the Bill allows the Central Government to form State Micro-Finance Councils (SMFC), which will be responsible for co-ordinating the activities of District Micro-Finance Committees in the respective states.

District Micro-Finance Committees (DMFC) can be appointed by the Reserve Bank. The Bill requires all MFIs to obtain a certificate of registration from the Reserve Bank. The applicant needs to have a net owned fund (the aggregate of paid-up equity capital and free reserves on the balance sheet) of at least `5 lakh. The Reserve Bank should also be satisfied with the general character or management of the institution.

Every MFI will have to create a reserve fund and the Reserve Bank may specify a percentage of net profit to be added annually to this fund. There can be no appropriation from this fund unless specified by the Reserve Bank. At the end of every financial year, MFIs are required to provide an annual balance sheet and profit and loss account for audit to the Reserve Bank. They will also have to provide a return, detailing their activities within 90 days of the Bill being passed. Any change in the corporate structure of a MFI, such as shut-down, amalgamation, takeover or restructuring can only take place with approval from the Reserve Bank.

The Bill has entrusted the Reserve Bank with the power to issue directions to all MFIs. This could include directions on the extent of assets deployed in providing micro-finance services, ceilings on loans or raising capital. The RBI has the authority to set the ceiling on the rate of interest charged and the margin by MFIs. Margin is defined as the difference between the lending rate and the cost of funds (in percentage per annum).

The Reserve Bank shall create the Micro-Finance Development Fund (MFDF). The sums are raised from donors, institutions and the public along with the outstanding balance from the existing Micro-Finance Development and Equity Fund. The central government, after due appropriation from Parliament, may grant money to this fund. The fund can provide loans, grants and other micro-credit facilities to any MFIs.

The Reserve Bank is responsible for redressal of grievances for beneficiaries of micro-finance services. The Reserve Bank is empowered to impose a monetary penalty of up to `5 lakh for any contravention of the Bill’s provisions. No civil court will have jurisdiction against any MFI over any penalty imposed by the Reserve Bank. The Bill gives the Central Government the authority to delegate certain powers to the National Bank for Agriculture and Rural Development (NABARD) or any other Central Government agency. However, the Central Government has the power to exempt certain MFIs from the provisions of the Bill.

The Bill and its likely Impact on the Microfinance Sector

The Bill envisages that the Reserve Bank would be the overall regulator of the MFI sector, regardless of legal structure. The Reserve Bank has provided the views on the Bill to the Government of India. The aims of the Bill are to regulate the sector in the customers’ interest and to avoid a multitude of microfinance legislation in different states. The proper balancing of the resources at the Reserve Bank to supervise these additional sets of institutions besides the existing regulated institutions could be an important issue. Requiring all MFIs to register is a critical and necessary step towards effective regulation. The proposal for appointment of an Ombudsman will boost the banking industry’s own efforts to handle grievances better. Compulsory registration of the MFIs would bring the erstwhile money-lenders into the fold of organised financial services in the hinterland who had been acting as MFIs hitherto.

6.20 The ratio of public deposits of NBFCs to aggregate deposits of Scheduled Commercial Banks (SCBs) in 2011-12 indicates a decline. The ratio of deposits of NBFCs to the broad liquidity aggregate of L31 also declined during the year (Chart VI.2).

Table VI.14: Ownership Pattern of NBFCs

(As on March 31, 2012)

(Number of Companies)

Ownership

NBFCs-ND-SI

Deposit-taking NBFCs

1

2

3

A. Government Companies

9

7

(2.4)

(2.6)

B. Non-Government Companies

366

266

(97.6)

(97.4)

1. Public Ltd Companies

198

263

(52.8)

(96.3)

2. Private Ltd Companies

168

3

(44.8)

(1.1)

Total No. of Companies (A)+(B)

375

273

(100.0)

(100.0)

Note: Figures in parentheses are percentages to total number of NBFCs.

Operations of NBFCs-D (excluding RNBCs)

Financial performance of deposit-taking Non- Bank Financial Companies (NBFCs-D) showed improvement

6.21 The balance sheet size of NBFCs-D expanded at the rate of 10.8 per cent in 2011-12 (Table VI.16). The borrowings constituted around two-third of the total liabilities of NBFCs-D. The public deposits of NBFCs-D, which are subject to credit ratings, continued to show an increasing trend during 2011-12. On the assets side, loans and advances remained the most important category for NBFCs-D, constituting about three-fourth of their total assets. The investment constituted the second most important category, which witnessed subdued growth during 2011-12 mainly due to a decline in non-SLR investments.

6.22 Asset Finance Companies (AFCs) held the largest share in the total assets of NBFCs-D at end-March 2012 (Table VI.17).

Table VI.15: Profile of NBFCs

(Amount in ` billion)

Item

As at end-March

2011

2012P

NBFCs

of which: RNBCs

NBFCs

of which: RNBC

1

2

3

4

5

Total Assets

1,169

115

1,244

76

 

 

(9.8)

 

(6.1)

Public Deposits

120

79

101

43

 

 

(66.0)

 

(42.2)

Net Owned Funds

180

30

225

31

 

 

(16.6)

 

(13.7)

P: Provisional
Note: 1. NBFCs comprise NBFCs-D and RNBCs.
2. Figures in parentheses are percentage shares in respective total.
3. Of the 273 deposit-taking NBFCs, 196 NBFCs filed Annual Returns for the year ended March 2012 by the cut-off date, September 8, 2012.
Source: Annual/Quarterly Returns.


chart1

chart2

Table VI.16.Consolidated Balance Sheet of NBFCs-D

(Amount in ` billion)

Item

As at end-March

Variation

2010-11

2011-12 P

2011

2012P

Absolute

Per Cent

Absolute

Per Cent

1

2

3

4

5

6

7

Paid-Up Capital

36

32

-3

-6.4

-4

-11.5

 

(3.5)

(2.8)

 

 

 

 

Reserves Surplus

135

162

13

10.9

27

20.2

 

(12.8)

(13.9)

 

 

 

 

Public Deposits

41

58

12

43.5

18

43.8

 

(3.9)

(5.0)

 

 

 

 

Borrowings

698

809

57

9.0

111

15.9

 

(66.2)

(69.2)

 

 

 

 

Other Liabilities

144

107

32

28.3

-37

-25.9

 

(13.7)

(9.1)

 

 

 

 

Total Liabilities/ Assets

1,054

1,169

112

11.9

114

10.8

 

(100.0)

(100.0)

 

 

 

 

Investments

211

159

26

14.1

-52

-24.8

(i) SLR Investments@

135

134

39

40.0

-1.0

-0.7

 

(12.8)

(11.5)

 

 

 

 

(ii) Non-SLR Investments

76

25

-12

-14.1

-51

-67.6

 

(7.2)

(2.1)

 

 

 

 

Loans and Advances

780

874

68

9.6

94

12.1

 

(74.0)

(74.8)

 

 

 

 

Other Assets

63

103

18

39.3

40

62.3

 

(6.0)

(8.8)

 

 

 

 

P: Provisional
@ SLR investments comprise 'approved Securities' and 'unencumbered term deposits' in Scheduled Commercial Banks; Loans & advances include Hire Purchase and Lease Assets.
Notes: 1. Figures in parentheses are percentages to respective total.
Source: Annual/Quarterly Returns.

Size-wise Classification of Deposits of NBFCs-D

Larger NBFCs are more successful in raising public deposits

6.23 A sharp increase was discernible in the share of NBFCs-D with a deposit size of ` 500 million and above, accounting for about 93.2 per cent of total deposits at end-March 2012. However, only 7 NBFCs-D belonged to this category, constituting about 3.6 per cent of the total number of NBFCs-D. It indicates that only relatively larger NBFCs-D were able to raise resources through deposits (Table VI.18 and Chart VI.3).

Table VI.17: Major Components of Liabilities of NBFCs-D by Classification of NBFCs

(As at end-March)

(Amount in ` billion)

Classification of NBFCs

No. of Companies

Deposits

Borrowings

Liabilities

2011

2012P

2011

2012P

2011

2012P

2011

2012P

1

2

3

4

5

6

7

8

9

Asset Finance Companies

174

160

36

45

490

581

740

856

 

 

 

(89.4)

(76.9)

(70.2)

(71.8)

(70.2)

(73.2)

Loan Companies

43

36

4

13

208

228

314

313

 

 

 

(10.6)

(23.1)

(29.8)

(28.2)

(29.8)

(26.8)

Total

217

196

40

58

698

809

1,054

1,169

P: Provisional.
Note: Figures in parentheses are percentage share to total.


Table VI.18: Public Deposits held by NBFCs-D by Deposit Range

(Amount in ` million)

Deposit Range

As at end-March

No. of NBFCs

Amount of deposit

2011

2012 P

2011

2012 P

1

2

3

4

5

1. Less than `5 million

134

117

194

138

2. More than `5 million and upto `20 million

38

34

442

377

3. More than `20 million and upto ` 100 million

28

27

1,287

1,131

4. More than ` 100 million and upto ` 200 million

7

7

1,084

1,092

5. More than ` 200 million and upto ` 500 million

2

4

807

1,201

6. ` 500 million and above

8

7

36,809

54,467

Total

217

196

40,623

58,406

P: Provisional
Source: Annual/Quarterly Returns.

Region-wise Composition of Deposits held by NBFCs

6.24 Among metropolitan cities, New Delhi accounted for the largest number of NBFCs-D, while Chennai held the largest share of 69.7 per cent in total public deposits of NBFCs-D (Table VI.19 and Chart VI.4).

chaet4

Table VI.19: Public Deposits held by NBFCs-D - Region-wise

(Amount in ` million)

Region

As at end-March

2011

2012 P

Number of NBFCs-D

Public Deposits

Number of NBFCs-D

Public Deposits

1

2

3

4

5

North

144

1,882

125

3,285

East

8

39

5

39

West

20

9,286

17

14,880

South

45

29,416

49

40,206

Total

217

40,623

196

58,410

Metropolitan cities:

 

 

 

 

Kolkata

5

39

3

39

Chennai

26

28,638

30

39,338

Mumbai

6

9,074

5

14,682

New Delhi

50

976

43

2,390

Total

87

38,728

81

56,450

P: Provisional Source: Annual Returns.

Interest Rate on Public Deposits with NBFCs

NBFCs-ND-SI segment continues to rely heavily on bank finance

6.25 There was an increase in the share of public deposits in the interest rate range of 10 per cent to 12 per cent during 2011-12 (Table VI.20 and Chart VI.5).

chart4

Table VI.20: Public Deposits held by NBFCs-D – Interest Rate Range-wise

(Amount in ` million)

Interest Rate Range

As at end-March

2011

2012 P

1

2

3

Up to 10 per cent

29,963

32,460

 

(73.8)

(55.6)

More than 10 per cent and up to 12 per cent

9,454

24,870

 

(23.3)

(42.6)

12 per cent and above

1,206

1,080

 

(3.0)

(1.8)

Total

40,623

58,410

 

(100.0)

(100.0)

P: Provisional Note: 1. The rate of interest on public deposits cannot exceed 12.5 per cent.
2. Figures in parentheses are percentages to total.
Source: Annual Returns.

Maturity Profile of Public Deposits

6.26 The largest proportion of public deposits raised by NBFCs-D belonged to the short to medium end of the maturity spectrum. In 2011- 12, there was an increase in the shares of deposits for more than 2 years (Table VI.21 and Chart VI.6).

6.27 Banks and financial institutions were the major providers of funds for NBFCs-D, constituting about 50 per cent during 2011-12. This share has come down marginally. Others (which include, inter alia, money borrowed from other companies, commercial paper, borrowings from mutual funds and any other types of funds that were not treated as public deposits) also registered a declining trend (Table VI.22).

chart5

Table VI.21: Maturity Pattern of Public Deposits held by NBFCs-D

(Amount in ` million)

Maturity Period

As at end-March

2011

2012P

1

2

3

1. Less than 1 year

9,816

11,720

 

(24.2)

(20.1)

2. More than 1 and up to 2 years

7,942

15,530

 

(19.6)

(26.6)

3. More than 2 and up to 3 years

19,877

24,980

 

(48.9)

(42.8)

4. More than 3 and up to 5 years

2,221

6,170

 

(5.5)

(10.6)

5. 5 years and above@

769

10

 

(1.9)

(0.0)

Total

40,624

58,410

 

(100.0)

(100.0)

P: Provisional @ includes unclaimed public deposits.
Note: Figures in parentheses are percentages to respective total.
Source: Annual Returns.

Assets of NBFCs

Expansion in assets of AFCs was noticeable

6.28 The total assets of NBFCs-D sector registered a moderate growth during 2011-12 mainly due to an increase in the assets of asset finance companies (Table VI.23). As at end-March 2012, more than two-third of the total assets of the NBFCs-D sector was held by asset finance companies. Component-wise, advances accounted for the predominant share of total assets, followed by investment.

chart6

Table VI.22: Sources of Borrowings by NBFCs-D by Classification of NBFCs

(Amount in ` billion)

Classification

As at end-March

Government

Banks and Financial Institutions

Debentures

Others

Total Borrowings

2011

2012P

2011

2012P

2011

2012P

2011

2012P

2011

2012P

1

2

3

4

5

6

7

8

9

10

11

Asset Finance

0.0

0.0

283

300

123

198

84

83

490

581

 

(0.0)

(0.0)

(80.2)

(74.9)

(85.7)

(83.3)

(59.0)

(71.2)

(70.2)

(71.8)

Loan Companies

59

54

70

101

20

40

59

33

208

228

 

(100.0)

(100.0)

(19.8)

(25.1)

(14.3)

(16.7)

(41.0)

(28.8)

(29.8)

(28.2)

Total

59

54

353.2

401

143

238

143

116

698

809

P: Provisional
Note: Figures in parentheses are percentage to respective total.
Source: Annual Returns.

Distribution of NBFCs-D According to Asset Size

6.29 At end-March 2012, only 6 per cent of NBFCs-D had an asset size of more than ` 5,000 million, which had a share of 97 per cent in the total assets of all NBFCs-D (Table VI.24).

Distribution of Assets of NBFCs – Type of Activity

6.30 During 2011-12, assets held in the form of loans and advances of NBFCs-D witnessed significant growth, whereas investment declined. These two categories of activities constituted over 90 per cent share in total assets of the NBFCs-D sector (Table VI.25).

Table VI.23: Major Components of Assets of NBFCs-D by Classification of NBFCs

(Amount in ` billion)

Classification

As at end-March

Assets

Advances

Investments

2011

2012P

2011

2012P

2011

2012P

1

2

3

4

5

6

7

Asset Finance Companies

740

856

557

656

126

180

 

(70.2)

(73.2)

(71.5)

(75.0)

(59.9)

(94.1)

Loan Companies

314

313

222

218

85

11

 

(29.8)

(26.8)

(28.5)

(25.0)

(40.1)

(5.9)

Total

1,054

1,169

779

874

211

191

P: Provisional
Note: Figures in parentheses are percentage to respective total.
Source: Annual Returns.

Financial Performance of NBFCs-D

Fund-based income of the NBFCs-D segment has increased

6.31 The financial performance of NBFCs-D witnessed improvement as reflected in the increase in their operating profits during 2011-12. This increase in profit was mainly on account of growth in fund-based income (Table VI.26).

Expenditure as a percentage to average total assets witnessed a marginal increase during 2011-12. The same trend is seen in terms of income as a percentage to average total assets of NBFCs-D (Chart VI.7).

Table VI.24: Assets of NBFCs-D by Asset-Size Ranges

(As at end-March)

(Amount in ` million)

Asset Range

No. of Companies

Assets

2011

2012P

2011

2012P

1

2

3

4

5

1. Less than `2.5 million

2

0

2

0.0

2. More than `2.5 million and up to` 5.0 million

9

11

35

45

3. More than `5.0 million and up to `20 million

70

55

804

691

4. More than `20 million and up to `100 million

73

65

3,471

2,917

5. More than `100 million and up to `500 million

34

34

8,224

7,147

6. More than `500 million and up to `1,000 million

8

11

5,079

6,910

7. More than `1,000 million and up to `5,000 million

6

8

8,309

19,052

8. Above `5,000 million

15

12

1,028,388

1,131,913

Total

217

196

1,054,312

1,168,676

P: Provisional
Source: Annual Returns.


Table VI.25: Break-up of Assets of NBFCs-D by Activity

(Amount in ` billion)

Activity

As at end-March

Percentage Growth

2011

2012P

2011-12P

1

2

3

4

Loans and Advances

779

874

12.2

 

(73.9)

(74.8)

 

Investments

211

192

-9.2

 

(20.0)

(16.4)

 

Other assets

64

103

60.0

 

(6.1)

(8.8)

 

Total

1,054

1,169

10.8

P: Provisional
Note: Figures in parentheses are percentages to respective total.
Source: Annual Returns.


Table VI.26: Financial Performance of NBFCs-D

(Amount in ` billion)

Item

As at end-March

2011

2012P

1

2

3

A. Income (i+ii)

152

181

(i) Fund-Based

151

180

 

(99.2)

(99.3)

(ii) Fee-Based

1

1

 

(0.8)

(0.7)

B. Expenditure (i+ii+iii)

109

133

(i) Financial

68

81

 

(62.3)

(60.9)

of which Interest Payment

9

8

 

(8.2)

(6.0)

(ii) Operating

30

35

 

(27.1)

(26.4)

(iii) Others

11

17

 

(10.5)

(12.8)

C. Tax Provisions

14

16

D. Operating Profit (PBT)

43

48

E. Net Profit (PAT)

29

33

F. Total Assets

1,054

1,169

G. Financial Ratios (as % to Total Assets)

 

 

i) Income

14.4

15.5

ii) Fund Income

14.3

15.4

iii) Fee Income

0.0

0.1

iv) Expenditure

10.4

11.4

v) Financial Expenditure

0.1

6.9

vi) Operating Expenditure

2.8

3.0

vii) Tax Provision

1.3

1.3

viii) Net Profit

2.7

2.8

H. Cost to Income Ratio

72.0

73.3

P: Provisional
Note: 1. Figures in parentheses are percentages to respective total. 2. Percentage variation could be slightly different because absolute numbers have been rounded off to ` billion.
Source: Annual Returns.


chart7

Soundness Indicators: Asset Quality of NBFCs-D

Deterioration in asset quality of NBFCs-D segment

6.32 During 2011-12, there was a significant increase in the gross NPAs to total advances of NBFCs-D, which is a deviation from recent trends.

Net NPAs which remained negative till 2011 from 2008, with provisions exceeding NPAs registered an increase of 0.5 per cent of total net advances as on March 31, 2012 (Table VI.27).

6.33 There was deterioration in the asset quality of asset finance and loan companies during 2011-12 as evident from an increase in the gross NPAs to gross advances ratio for these companies (Table VI.28).

In order to improve transparency and understanding by borrowers, the Reserve Bank has issued a revised fair practices code (Box VI.2).

Table VI.27: NPA Ratios of NBFCs-D

(per cent)

As at end-March

Gross NPAs to Total Advances

Net NPAs to Net Advances

1

2

3

2002

10.6

3.9

2003

8.8

2.7

2004

8.2

2.4

2005

5.7

2.5

2006

3.6

0.5

2007

2.2

0.2

2008

2.1

#

2009

2.0

#

2010

1.3

#

2011

0.7

#

2012 P

2.1

0.5

P: Provisional. # Provision exceeds NPA
Source: Half-Yearly returns on NBFCs-D.


Table VI.28: NPAs of NBFCs-D by Classification of NBFCs

(Amount in ` billion)

Classification/End-March

Gross Advances

Gross NPAs

Net Advances

Net NPAs

Amount

% to Gross Advances

Amount

% to Net Advances

1

2

3

4

5

6

7

Asset Finance

 

 

 

 

 

 

2010-11

517

3

0.5

508

-7

-1.4

2011-12 P

663

16

2.3

651

3

0.5

Loan Companies

 

 

 

 

 

 

2010-11

183

2

1.3

181

-0.1

0.0

2011-12 P

208

3

1.6

206

2

0.8

All Companies

 

 

 

 

 

 

2010-11

700

5

0.7

689

-7

-1.0

2011-12 P

871

19

2.1

857

5

0.5

P: Provisional
Source: Half-Yearly returns on NBFCs-D.

Box VI.2: Guidelines on Fair Practices Code for NBFCs

The Reserve Bank has revised the guidelines on Fair Practices Code (FPC) for all NBFCs issued on September 28, 2006 in the light of the recent developments in the NBFC sector. The salient features of the revised circular dated March 26, 2012 are as follows:

General

(a) All communications to the borrower shall be in the vernacular language or a language as understood by the borrower.

(b) Loan application forms should include necessary information that affects the interests of the borrower.

(c) Loan agreement should contain all details.

(d) NBFCs should refrain from interference in the affairs of the borrower except for the purposes provided in the terms and conditions of the loan agreement.

(e) In the matter of recovery of loans, the NBFCs should not resort to undue harassment and ensure that the staffs are adequately trained to deal with customers.

(f) The Board of Directors of NBFCs should also lay down the appropriate grievance redressal mechanism within the organisation.

(g) The Fair Practices Code should be put in place by all NBFCs with the approval of their Boards. The same should be put up on their website.

(h) Boards of NBFCs should lay out appropriate internal principles and procedures to determine interest rates and processing and other charges.

(i) The Board of each NBFC shall adopt an interest rate model taking into account relevant factors, such as cost of funds, margins and risk premium.

(j) NBFCs must have a built-in re-possession clause in the contract/loan agreement with the borrower which must be legally enforceable.

(k) To ensure transparency, the terms and conditions of the contract/loan agreement should also contain provisions regarding: (a) notice period before taking possession; (b) circumstances under which the notice period can be waived; (c) the procedure for taking possession of the security; (d) a provision regarding final chance to be given to the borrower for repayment of loan before the sale / auction of the property; (e) the procedure for giving repossession to the borrower and (f) the procedure for sale/ auction of the property.

NBFC-MFIs

In addition to the general principles above, NBFC-MFIs are required to adopt the following fair practices that are specific to their lending business and regulatory framework.

(a) A statement shall be made in vernacular language and displayed by NBFC-MFIs in their premises and in loan cards articulating their commitment to transparency and fair lending practices;

(b) Field staff should be trained to make necessary enquiries with regard to existing debt of the borrowers, and training, if any, offered to the borrowers shall be free of cost.

(c) The effective rate of interest charged and the grievance redressal mechanism set up by the NBFC-MFIs should be prominently displayed in all its offices;

(d) A declaration that the MFI will be accountable for preventing inappropriate staff behaviour and timely grievance redressal shall be made in the loan agreement;

(e) All sanctioning and disbursement of loans should be done only at a central location and more than one individual should be involved in this function;

(f) All NBFC-MFIs shall have a Board-approved standard form of loan agreement, preferably in the vernacular language;

(g) The loan card should reflect the details, including the effective rate of interest charged;

(h) Non-credit products issued shall be with the full consent of borrowers and the fee structure shall be communicated in the loan card itself;

(i) Recovery should normally be made only at a central designated place;

(j) NBFC-MFIs shall ensure that a Board-approved policy is in place with regard to Code of Conduct by field staff.

Lending against collateral of gold jewellery

(a) Adequate steps to ensure that the KYC guidelines stipulated by the RBI are complied with and to ensure that adequate due diligence is carried out on the customer before extending any loan.

(b) Proper assaying procedure for the jewellery received.

(c) Internal systems to satisfy ownership of the gold jewellery.

(d) The policy shall also cover putting in place adequate systems for storing the jewellery in safe custody, reviewing the systems on an on-going basis, training the concerned staff and periodic inspection by internal auditors to ensure that the procedures are strictly adhered to.

(e) Loans against the collateral of gold should not be extended by branches that do not have appropriate facility for storage of the jewellery.

(f) The jewellery accepted as collateral should be appropriately insured.

(g) The Board-approved policy with regard to auction of jewellery in case of non-repayment shall be transparent and adequate prior notice to the borrower should be given before the auction date.

(h) The auction should be announced to the public by issue of advertisements in at least 2 newspapers, one in vernacular language and another in national daily newspaper.

(i) As a policy the NBFCs themselves shall not participate in the auctions held.

(j) Gold pledged will be auctioned only through auctioneers approved by the Board.

(k) The policy shall also cover systems and procedures to be put in place for dealing with fraud, including separation of duties of mobilisation, execution and approval.

6.34 There was an increase in the shares of all three NPA categories of sub-standard, doubtful and loss assets of all companies in 2011-12, underlining the marginal deterioration in asset quality of these institutions. This mainly emanated from asset finance companies (Table VI.29).

6.35 At end-March 2012, of 190 reporting NBFCs, 187 had CRAR of more than 15 per cent (Table VI.30). This could be an indication that the NBFC sector is undergoing a consolidation process in the past few years, wherein weaker NBFCs are gradually exiting and paving the way for stronger ones. The ratio of public deposits to Net Owned Funds (NOF) of NBFCs taken together has more or less remained same as at end-March 2012 (Table VI.31). There was a significant increase in NOF and public deposits of NBFCs-D during 2011-12. The increase in NOF was mainly concentrated in the category of `5,000 million and above (Table VI.32).

Table VI.29: Classification of Assets of NBFCs-D by Category of NBFCs

(Amount in ` billion)

 

Standard Assets

Sub-standard Assets

Doubtful Assets

Loss Assets

Gross NPAs

Gross Advances

1

2

3

4

5

6

7

Asset Finance Companies

 

 

 

 

 

 

2010-11

515

2.1

0.3

0.1

2.5

517

 

(99.5)

(0.4)

(0.1)

(0.0)

(0.5)

(100.0)

2011-12P

648

10

4

2

15

663

 

(97.7)

(1.5)

(0.5)

(0.3)

(2.3)

(100.0)

Loan Companies

 

 

 

 

 

 

2010-11

180

1

2

0

2

183

 

(98.7)

(0.6)

(0.4)

(0.0)

(1.3)

(100.0)

2011-12P

205

2

1

0.4

3

208

 

(98.4)

(1.0)

(0.4)

(0.2)

(1.6)

(100.0)

All Companies

 

 

 

 

 

 

2010-11

695

3

2

0.1

5

700

 

(99.3)

(0.5)

(0.1)

(0.0)

(0.7)

(100.0)

2011-12P

852

12

4

2

19

871

 

(97.8)

(1.4)

(0.5)

(0.3)

(2.2)

(100.0)

P: Provisional
Note: Figures in parentheses are per cent to total credit exposures.
Source: Half Yearly returns on NBFCs-D.

Table VI.30: Capital Adequacy Ratio of NBFCs-D

(Number of companies)

CRAR Range

2010-11

2011-12P

AFC

LC

Total

AFC

LC

Total

1

2

3

4

5

6

7

1) Less than 12 per cent

1

1

2

1

1

2

a) Less than 9 per cent

1

1

2

1

1

2

b) More than 9 per cent and up to 12 per cent

0

0

0

0

0

0

2) More than 12 per cent and up to 15 per cent

1

2

3

1

0

1

3) More than 15 per cent and up to 20 per cent

5

3

8

8

3

11

4) More than 20 per cent and up to 30 per cent

19

3

22

16

2

18

5) Above 30 per cent

142

27

169

131

27

158

Total

168

36

204

157

33

190

P: Provisional
Note: AFC-Asset Finance Companies; LC-Loan Companies
Source: Half-yearly returns.


Table VI.31: Net Owned Fund vis-à-vis Public Deposits of NBFCs-D by Classification

(Amount in ` billion)

Classification

Net Owned Fund

Public Deposits

2010-11

2011-12P

2010-11

2011-12P

1

2

3

4

5

Asset Finance Companies

108

139

36

45

 

 

 

(0.3)

(0.3)

Loan Companies

42

56

4

13

 

 

 

(0.1)

(0.2)

Total

150

195

41

58

 

 

 

(0.3)

(0.3)

P: Provisional.
Note: Figures in parentheses are ratio of public deposits to net owned funds. Source: Annual Returns.

Residuary Non-Banking Companies (RNBCs)

RNBCs are in the process of migrating to other business models

6.36 The assets of RNBCs declined by 34 per cent during the year ended March 2012. The assets mainly consist of investments in unencumbered approved securities, bonds/ debentures and fixed deposits/certificates of deposit of SCBs. The NOF of RNBCs has also registered a decline of 52.2 per cent in 2011-12 (Table VI.33). The decline in the expenditure of RNBCs during 2011-12 was more than the decline in income, as a result of which the operating profits of RNBCs increased during the year. As a result of decline in the provision for taxation, the net profits of RNBCs increased sharply during 2011-12.

Table VI.32: Range of Net Owned Funds vis-à-vis Public Deposits of NBFCs-D

(Amount in ` million)

Range of NoF

2010-11

2011-12P

No. of Companies

Net Owned Fund

Public Deposits

No. of Companies

Net Owned
Fund

Public Deposits

1

2

3

4

5

6

7

Up to `2.5 million

2

-2,003

324

1

-1

1.2

More than `2.5 million and up to `20 million

113

838

320

89

750

242

More than `20 million and up to `100 million

65

2,662

1,359

67

2,894

1,271

More than `100 million and up to `500 million

20

4,529

1,133

21

4,468

1,252

More than `500 million and up to `1000 million

2

1,204

1,038

4

2,869

817

More than `1000 million and up to `5000 million

7

17,118

4,526

7

13,876

15,612

Above `5000 million

8

1,25,527

31,923

7

1,69,792

39,212

Total

217

1,49,874

40,623

196

1,94,648

58,406

P: Provisional
Note: Figures in parentheses are public deposits as ratio of respective net owned fund.
Source: Annual returns


Table VI.33: Profile of RNBCs

(Amount in ` million)

Item

2010-11

2011-12P

Percentage Variation

2010-11

2011-12P

1

2

3

4

5

A.

Assets (i to v)

1,14,670

75,430

-26.6

-34.2

 

(i) Investment in Unencumbered Approved Securities

13,080

8,380

-47.0

-36.0

 

(ii) Investment in Fixed Deposits / Certificate of Deposits of Scheduled Comm. Banks/ Public Financial Institutions

26,520

13,900

-45.4

-47.6

 

(iii) Debentures/Bonds/ Commercial Papers of Govt. Companies/Public Sector Banks/ Public Financial Institution/ Corporation

28,760

7,510

-45.6

-73.9

 

(iv) Other Investments

490

4,330

-96.2

784.3

 

(v) Other Assets

45,820

41,310

166.6

-9.8

B.

Net Owned Fund

29,880

14,270

2.3

-52.2

C.

Total Income (i+ii)

11,590

3,320

-40.4

-71.3

 

(i) Fund Income

11,280

2,940

-41.3

-73.9

 

(ii) Fee Income

310

380

19.2

24.1

D.

Total Expenses (i+ii+iii)

10,060

1,660

-28.1

-83.5

 

(i) Financial Cost

6,310

460

-35.2

-92.7

 

(ii) Operating Cost

3,680

520

7.3

-85.9

 

(iii) Other Cost

70

680

-91.6

876.9

E.

Taxation

620

570

-62.2

-8.1

F.

Operating Profit (PBT)

1,530

1,670

-72.0

8.9

G.

Net Profit (PAT)

910

1,100

-76.2

20.5

P: Provisional. PBT: Profit Before Tax. PAT: Profit After Tax. Source: Annual returns

Regional Pattern of Deposits of RNBCs

6.37 At end-March 2012, there were two RNBCs, registered with the Reserve Bank. One each is located in central and eastern regions. Both the RNBCs are in the process of migrating to other business models and have been directed to reduce their deposit liabilities to ‘nil’ by 2015. Public deposits held by the two RNBCs registered a significant decline in 2011-12, mainly due to a substantial decline in the deposits held by SIFCL (Table VI.34).

Investment Pattern of RNBCs

6.38 Following the decline in deposits, there was a decline in the investments of RNBCs in 2011-12. The decline was noticeable in all segments of investment (Table VI.35).

Table VI.34: Public Deposits Held by RNBCs – Region-wise

(Amount in ` billion)

Item

2010-11

2011-12P

No. of RNBCs

Public Deposits

No. of RNBCs

Public Deposits

1

2

3

4

5

Central

1

53

1

21

 

 

(66.9)

 

(50.0)

Eastern

1

26

1

21

 

 

(33.1)

 

(50.0)

Total

2

79

2

42

Metropolitan Cities

 

 

 

 

Kolkata

1

26

1

21

Total

1

26

1

21

P: Provisional
Note: Figures in parentheses are percentages to respective totals.
Source: Annual returns.

NBFCs-ND-SI

Though borrowing from banks is sizable, a substantial increase in borrowings by way of debentures was witnessed

6.39 The assets of NBFCs-ND-SI for the year ended March 2012 showed an increase of 21 percent. Total borrowings (secured and unsecured) by NBFCs-ND-SI showed a significant increase of 23.6 per cent, constituting more than two-third of the total liabilities (Table VI.36). Secured borrowings constituted the largest source of funds for NBFCs-ND-SI, followed by unsecured borrowings, reserves and surplus.

6.40 The NBFCs-ND-SI segments is growing rapidly. Borrowings comprise their largest source of funds, mostly sourced from banks and financial institutions. To the extent that they rely on bank financing, there is an indirect exposure to depositors. While the concentration of funding has risks, the caps on bank lending to NBFCs may constrain their growth. However, the leverage ratio of the NBFCs-ND-SI sector remains the same as in the previous year.

Table VI.35. Investment Pattern of RNBCs

(Amount in ` million)

Item

2010-11

2011-12P

1

2

3

Aggregate Liabilities to the Depositors (ALD)

79,020

42,650

(i) Unencumbered approved securities

13,080

8,380

 

(16.6)

(19.6)

(ii) Fixed Deposits with banks

26,520

13,900

 

(33.6)

(32.6)

(iii) Bonds or debentures or commercial papers of a Govt. Company / public sector bank/ public financial Institution / corporations

28,760

7,510

 

(36.4)

(17.6)

(iv) Other Investments

490

4,330

 

(0.6)

(10.2)

P: Provisional Note: Figures in parentheses as percentages to ALDs.
Source: Annual returns.


Table VI.36: Consolidated Balance Sheet of NBFCs-ND-SI

(Amount in ` billion)

Item

2010-11

2011-12

Variation (Per cent)

1

2

3

4

1. Share Capital

382

505

32.1

2. Reserves & Surplus

1,599

1,901

18.9

3. Total Borrowings

5,175

6,398

23.6

A. Secured Borrowings

2,915

3,770

29.3

A.1. Debentures

984

1,732

76.0

A.2. Borrowings from Banks

1,006

1,441

43.2

A.3. Borrowings from FIs

103

90

-12.7

A.4. Interest Accrued

52

63

22.9

A.5. Others

770

444

-42.3

B. Un-Secured Borrowings

2,260

2,628

16.3

B.1. Debentures

753

1,218

61.7

B.2. Borrowings from Banks

461

436

-5.3

B.3. Borrowings from FIs

31

53

74.0

B.4. Borrowings from Relatives

13

12

-9.5

B.5. Inter-Corporate Borrowings

242

278

14.5

B.6. Commercial Paper

314

306

-2.8

B.7. Interest Accrued

44

69

59.0

B.8. Others

401

256

-36.3

4. Current Liabilities & Provisions

457

409

-10.6

Total Liabilities/ Total Assets Assets

7,613

9,213

21.0

1. Loans & Advances

4,709

5,900

25.3

1.1. Secured

3,406

4,486

31.7

1.2. Un-Secured

1,304

1,414

8.5

2. Hire Purchase Assets

502

635

26.5

3. Investments

1,507

1,595

5.9

3.1. Long-Term Investments

1,089

1,227

12.6

3.2. Current Investments

417

368

-11.7

4. Cash & Bank Balances

313

357

14.0

5. Other Current Assets

437

553

26.5

6. Other Assets

144

173

19.9

Memo Items

 

 

 

1. Capital Market Exposure

822

799

-2.8

Of which: Equity Shares

347

253

-27.0

2. CME as per cent to Total Assets

10.8

8.7

 

3. Leverage Ratio

2.84

2.83

2.95

Notes: Percentage variation could be slightly different because absolute numbers have been rounded off to ` billion.
Source: Monthly returns on ND-SI (`1 billion and above).

Borrowings of NBFCs-ND-SI by Region

Northern Region continued to be main source of funds

6.41 Analysis of region-wise borrowings of the NBFCs-ND-SI reveals the dominance of northern and western regions; together they constitute more than 70 per cent of the total borrowings during the year ended March 2012. The same trend continued during the quarter ended June 2012. All regions registered growth during both the year ended March 2012 and quarter ended June 2012 (Table VI.37).

Financial Performance

NBFCs-ND-SI showed deterioration in financial performance and increase in NPAs

6.42 The financial performance of the NBFCs- ND-SI sector deteriorated marginally as reflected in the decline in net profit during 2011-12 (Table VI.38). Both Gross and Net NPAs to total asset of the NBFCs-ND-SI sector increased during the year.

The same trend continued as on June 2012 (Table VI.39).

Table VI.37: Borrowings of NBFCs-ND-SI Sector by Region

(Amount in ` billion)

Region

As at end

March 2011

March 2012P

June 2012P

1

2

3

4

North

2,707

3,431

3,502

East

231

329

368

West

1,383

1,512

1,594

South

854

1,127

1,193

Total Borrowings

5,175

6,398

6,657s

P: Provisional
Source: Monthly returns on NBFCs-ND-SI.


Table VI.38: Financial Performance of NBFCs-ND-SI Sector

(Amount in ` billion)

Item

As at end

March 2011

March 2012

June 2012

1

2

3

4

1. Total Income

752

948

263

2. Total Expenditure

529

740

192

3. Net Profit

160

139

51

4. Total Assets

7,613

9,213

9,608

Financial Ratios

 

 

 

(i) Income to Total Assets (per cent)

9.9

10.3

2.7

(ii) Expenditure to Total Assets (per cent)

6.9

8.0

1.9

(iii) Net Profit to Total Income (per cent)

21.3

14.6

19.4

(iv) Net Profit to Total Assets (per cent)

2.1

1.5

0.5

Source: Monthly returns on ND-SI (`1 billion and above).

6.43 As on March 31, 2012, the majority of the reporting companies maintained the stipulated minimum norm of 15 per cent capital adequacy as measured by CRAR. Only 10 per cent of the total reporting companies have a CRAR of less than 15 per cent (Table VI.40). These companies were also largely dependent on nationalised banks for their term loans, working capital loans and debentures/CPs. New private sector banks have emerged as a second major bank group for these companies to raise term loans and working capital loans (Table VI.41).

Table VI.39: NPA Ratios of NBFCs-ND-SI Sector

(per cent)

Item

As at end

March 2011

March 2012

June 2012

1

2

3

4

(i) Gross NPAs to Gross Advances

1.72

2.08

2.26

(ii) Net NPAs to Net Advances

0.69

1.25

1.37

(iii) Gross NPAs to Total Assets

1.28

1.48

1.61

(iv) Net NPAs to Total Assets

0.51

0.88

0.97

Source: Monthly returns on ND-SI (` 1 billion and above).


Table VI.40: Capital Adequacy Ratio of NBFCs-ND-SI - By Type of NBFC

(Number of companies)

CRAR Range

AFC

IFC

IC

LC

Total

1

2

3

4

5

6

Less than 15 per cent

0

0

21

15

36

15 per cent to 20 per cent

5

1

8

20

34

20 per cent to 25 per cent

2

2

5

14

23

25 per cent to 30 per cent

3

0

6

4

13

Above 30 per cent

8

1

171

79

259

Total

18

4

211

132

365

Note: AFC - Asset Finance Companies; IFC - Infrastructure Finance Companies; IC - Investment Companies; LC - Loan Companies
Source: Quarterly Returns on NBFCs-ND-SI.

4. Primary Dealers

6.44 There were 21 Primary Dealers (PDs) operating in the financial markets as on June 30, 2012. Of them, 13 were run by banks as a department called Bank-PDs, and the remaining 8 were non-bank entities known as standalone PDs registered as NBFCs under Section 45 IA of the RBI Act, 1934.

Operations and Performance of PDs

6.45 During 2011-12, the bid to cover ratio of PDs in both dated Government of India securities (G-Sec) and Treasury Bills (T-Bills) was marginally lower than in the previous year. PDs were required to achieve a minimum success ratio (bids accepted to the bidding commitment) of 40 per cent for T-Bills and Cash Management Bills (CMBs) put together, usually reviewed on a half-yearly basis. All the PDs achieved the stipulated minimum success ratio in both the first and second half of 2011-12. The success ratio in T-Bill auctions, however, was marginally lower during the year.

6.46 During 2011-12, all the dated G-Secs were fully underwritten. In the auctions of dated securities, the share of the PDs (bids accepted to the securities issued) decreased marginally (Table VI.42). Partial devolvement on the PDs took place on 14 instances.

Table VI.41: Bank Exposure of NBFCs-ND-SI Sector

(As at end-March 2012)

(Amount in ` billion)

Bank Group

Term Loans

Working Capital Loans

Debentures

Commercial Paper

Others

Total

1

2

3

4

5

6

7

A. Nationalised Banks

959

282

81

18

73

1,412

B. State Bank Group

102

97

21

0.3

27

247

C. Old Private Banks

38

27

10

2

2

79

D. New Private Banks

140

53

53

11

11

268

E. Foreign Banks

72

34

9

3

5

123

All Banks

1,310

492

175

35

117

2,130

Source: Monthly Returns on ND-SIs (`1 billion and above).

Performance of Standalone PDs

6.47 In the secondary market, PDs have individually achieved a minimum annual total turnover ratio2 (outright and repo transactions) of 5 times in dated G-Sec and 10 times in T-Bills during 2011-12. PDs had also achieved the minimum annual outright turnover ratio of 3 times in dated G-Sec and 6 times in T-Bills (Table VI.43).

Table VI.42: Performance of the PDs in the Primary Market

(As at end-March)

(Amount in ` billion)

Item

2011

2012

1

2

3

Treasury Bills & CMBs

 

 

Bidding Commitment

3,808

7,296

Actual Bids Submitted

7,260

13,505

Bid to Cover Ratio

2.3

2.2

Bids Accepted

2,353

4,271

Success Ratio (in per cent)

61.8

58.6

Central Govt. Securities

 

 

Notified Amount

4,370

5,100

Actual Bids submitted

6,239

6,932

Bid to Cover Ratio

1.4

1.3

Bids of PDs Accepted

2,165

2,432

Share of PDs (in per cent)

49.6

47.7

Note: Percentage variation could be slightly different because absolute numbers have been rounded off to ` billion.


Table VI.43: Performance of Standalone PDs in the Secondary Market

(As at end-March)

(Amount in ` billion)

Item

2011

2012

1

2

3

Outright

 

 

Turnover of standalone PDs

10,900

18,381

Turnover of market participants

57,419

69,764

Share of PDs (in per cent)

19.0

26.3

Repo

 

 

Turnover of standalone PDs

11,460

15,245

Turnover of market participants

81,986

75,278

Share of PDs (in per cent)

14.0

20.3

Total

 

 

Turnover of standalone PDs

22,359

33,625

Turnover of market participants

1,39,405

1,45,042

Share of PDs (in per cent)

16.0

23.2

Notes: 1. Percentage variation could be slightly different because absolute numbers have been rounded off to ` billion.
2. Components may not add up to the whole due to rounding off.
Source: Clearing Corporation of India Limited.

Sources and Application of Funds of Standalone PDs

Investment by PDs in corporate bond market has decreased

6.48 The net owned fund (NOF) of the PDs has increased marginally. Reserves and surplus of the PDs had increased significantly. Both the secured and unsecured loans of the PDs also increased significantly during 2011-12. Investments in corporate bonds decreased marginally during the year (Table VI.44).

Financial Performance of Standalone PDs

Sharp increase in expenses led to reduction in profit

6.49 The net profit of the PDs reduced marginally during 2011-12. The total income of the PDs increased significantly. However, the PDs reported a sharp increase in their interest expenses mainly due to the increased cost of borrowings (Table VI.45). As a result, the cost-income ratio (i.e., operating expenses to net total income) increased during the year. The return on net worth (RONW) and return on average assets (ROAA) for the year ended March 2012 were down marginally (Table VI 46). The CRAR of the PDs increased from 46.2 per cent to 53.8 per cent during the year as against a minimum prescribed requirement of 15 per cent (Table VI 47).

Table VI.44: Sources and Applications of Funds of Standalone Primary Dealers

(Amount in ` million)

Item

As at end-March

Percentage Variation

2010

2011$

2012

2011

2012

1

2

3

4

5

6

Sources of Funds

1,03,080

130,320

2,03,810

26.4

56.4

1

Capital

15,410

15,210

15,080

-1.3

-0.8

2

Reserves and Surplus

19,250

18,890

20,490

-1.9

8.4

3

Loans (a + b)

68,420

96,220

168,240

40.7

74.9

 

a) Secured

25,220

63,520

113,970

151.9

79.4

 

b) Unsecured

43,200

32,700

54,260

-24.3

66.0

Application of Funds

1,03,080

1,30,320

2,03,810

26.4

56.4

1

Fixed Assets

140

380

370

171.4

-2.6

2

Investments (a + b + c)

72,800

98,520

1,45,080

35.3

47.3

  a) Government Securities

62,518

86,430

1,33,320

38.1

54.2

  b) Commercial Papers

1,420

100

250

-92.9

149.4

  c) Corporate Bonds

8,800

11,990

11,510

36.2

-4.0

3

Loans and Advances

7,410

4,260

19,380

-42.5

354.9

4

Non-current Assets

0

0

2,970

-

-

5

Equity, Mutual Funds, etc.

680

250

160

-63.2

-36.0

6

Others*

22,050

26,910

35,850

22.0

33.2

* Others include cash + certificate of deposits + bank balances + accrued interest + deferred tax assets – current liabilities and provisions.
$: Except Morgan Stanley Deutsche Sec and IDBI Gilts.
Notes: 1. Percentage variation could be slightly different because of rounding off.
2. Components may not add up to the whole due to rounding off.
Source: Annual Reports of PDs.


Table VI.45: Financial Performance of Standalone Primary Dealers

(Amount in ` million)

Item

2010-11

2011-12

Variation

Amount

Percentage

1

2

3

4

5

A. Income (i to iii)

10,790

15,470

4,680

43.4

i) Interest and discount

9,700

13,820

4,120

42.5

ii) Trading Profit

580

640

60

10.3

iii) Other income

510

1,010

500

98.0

B. Expenses (i+ii)

8,070

13,070

4,560

62.0

i) Interest

6,530

11,180

4,650

71.2

ii) Other expenses including Establishment and Administrative Costs

1,540

1,890

350

22.7

Profit Before Tax

2,720

2,400

-320

-11.8

Profit After Tax

1,780

1,540

-240

-13.5

Notes: 1. Percentage variation could be slightly different because absolute numbers have been rounded off to ` billion.
2. Components may not add up to the whole due to rounding off.
Source: Returns submitted by PDs.


Table VI.46: Financial Indicators of Standalone PDs

(Amount in ` million)

Indicator

2010-11

2011-12

1

2

3

i)

Net profit

1,780

1,540

ii)

Average Assets

1,66,970

1,97,460

iii)

Return on Average Assets (in per cent)

1.1

0.8

iv)

Return on Net Worth (in per cent)

5.1

4.4


Table VI.47: CRAR of the standalone PDs

(As at end-March)

(Amount in ` million)

Particulars

2011

2012

1

2

3

1. Total Net Capital Funds

36,260

39,290

2. Total Risk Weighted Assets

78,580

72,980

a) Credit Risk

33,500

37,420

b) Market Risk

45,080

35,560

3. CRAR (in percent)

46.2

53.8

5. Overall Assessments

6.50 There were signs of a consolidation process in the NBFC sector in terms of number of NBFCs. The balance sheets of NBFCs have, however, showed substantial expansion and similar expansion was observed in respect of FIs and PDs. The financial performance of the NBFCs-D segment has witnessed improvement as reflected in the increase in their operating profits mainly emanating from fund-based income. However, the financial performance of the NBFCs-ND-SI segment has deteriorated marginally, though the sector is growing faster. Borrowings constitute the largest source of funds mostly sourced from banks and financial institutions for NBFCs. Thus, the heavy reliance on bank financing needs to be monitored closely. In this context, the recent regulatory measures leading to tightening of norms with respect to raising of resources from banks is expected to bring down the NBFC sector’s reliance on the banking sector and to look for alternate sources of funds.

6.51 In terms of NPAs, there was a significant increase in the gross NPAs to total advances of NBFCs. Similarly, FIs have registered an increase in NPAs. The NBFIs as a segment continue to be better placed in terms of capital adequacy with high CRAR than the minimum regulatory requirement. In respect of primary dealers, while their interest income increased, expenses enhanced at a faster pace due to the increased cost of borrowings, leading to reduced profit and lower RoA.


1 Includes NM3 + Postal Deposits + Term Money + Certificates of Deposit + Term Deposit + public deposits with NBFCs.
2 Turnover ratio is computed as the ratio of total purchase and sales during the year in the secondary market to average month-end stocks.

 
 
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