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Non banking financial institutions

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Non banking financial institutions

  1. 1. Economic Survey 2009-10 NON-BANKING FINANCIAL INSTITUTIONS(NBFIs) AND NON-BANKING FINANCIAL COMPANIES SUMITTED TO: SUMITTED BY: Prof. DEEPSHIKA RAJDEV, VINIT KHUSHALANI MANAGERIAL ECONOMICS SUDHAKAR TIWARI SWATI MAKHIJA SECTION 1ST MBA 1ST SEM
  2. 2. NON-BANKING FINANCIAL INSTITUTIONS (NBFIs): In our Economy, there are two major Financial Institution. One is Banking and other is Non-Banking. Non-Banking Financial Institutions (NBFIs) is also play an important role in our economy NBFIs also providing financial services on wide range. NBFIs work to offer enhanced equity and risk-based products. The major intermediaries that are included in the NBFI group are Development Finance Institutions (DFIs), insurance companies, non-banking financial companies (NBFCs), primary dealers (PDs) and capital market intermediaries such as mutual funds. The NBFIs provide medium-to long-term finance to different sectors of the economy. Financial Institutions (FIs) : The Financial Institutions (FIs) based on three major activity. These three major activity undertaken by FIs. Such as: (i) Term-lending institutions whose main activity is direct lending by way of term loans and investments. E.g. EXIM bank (EXPORT AND IMPORT BANK) (ii) Refinance institutions which mainly extend refinance to banks as well as NBFIs. E.g. NABARD, Small Industries Development Bank of India. (iii) Investment institutions which deploy their assets largely in marketable securities. E.g. The Life Insurance Corporation of India (LIC) On emergent liquidity constraints following the on set of the global financial crisis,
  3. 3. The RBI provide a window for refinance facilities, Accommodation under this facility was to be charged at the repo rate under the Liquidity Adjustment facility (LAF) of the RBI. Aggregate borrowings by financial institutions (FIs) through five specified instruments. Such as: (i) Term deposits (ii) Term money borrowings, (iii) Certificates of deposits {CDs} (iv) Commercial papers {CPs} (v) Inter-corporate deposits {ICDs} In Financial Instrument Resources raised during 2008-09 were considerably higher than those during the previous year. Short term mode resources is more raising as compare long-term and Foreign currency resources during 2008-09 (External sources contributed 30.7 per cent of sources of funds during 2008-09 as compared to 51.7 per cent during the preceding year.) In the 2009-10 Economy survey in the Financial Institutions FIs are recorded improvements in their asset quality during 2008-09. Interms of net NPA to net loans ratio, the asset quality of SIDBI and EXIM Bank improved during the year. In NABARD Bank the per cent age of Net NPA ratio is increase marginally. NPA: Net Performing Asset. Net NPAs (as percentage of net advances) increased marginally in the case of asset finance companies and hire purchase companies, while those of equipment leasing and investment companies decreased NPAs of loan companies remained negative during 2008-09 Net interest and non-interest incomes of FIs increased by 22.5 per cent and 31.1 per cent respectively during 2008-09 The capital adequacy ratio of all the FIs continued to significantly higher than the minimum stipulated norm of 9 per cent, It means if any Financial Institutions are interested to give loans to any statutory body than it keep 9% Capital Adequacy ratio in their reverses.
  4. 4. NON-BANKING FINANCIAL COMPANIES (NBFCs) : 9.1% of the assets of the total financial system is contributed by NBFCs. During the Crisis of financial Instrument they fall down along with NBFCs come in down position. Then RBI come in action and ascertain the real picture of the crisis of the Financial Instrument, they analysis the growth momentum of the economy. Then RBI take some steps such as the Reverse Bank provided a special repo window under its LAF for NBFCs, In addition a special purpose vehicle (SPV) was used as a platform to liquidity support to NBFCs. The total number of NBFCs registered with the Reserve Bank, consisting of deposit-taking NBFCs (NBFCs). (i) Residuary non-banking companies(RNBCs) (ii) Mutual benefit companies (NBCs), (iii) Miscellaneous non-banking companies (MNBCs) (iv) Nidhi companies, Declined from 12,809 in end-June 2008 to 12,740 in end-June 2009. Total assets of NBFCs declined to Rs 95,727 crore during 2008-09 from Rs 99,014 crore in the preceding year. The NOFs of NBFCs witnessed a growth of 8.8 per cent and stood Rs13,458crore as in end-March 2009. Among NBFC groups, asset finance companies (AFCs) held the largest share in total assets/liabilities (70.3 per cent), followed by loan companies (28.9 per cent), hire purchase companies (0.6 per cent) and equipment leasing (0.3 per cent). The increase in assets/ liabilities of AFCs was mainly on account of reclassification of NBFCs, which was initiated in December 2006. Financial performance of NBFCs in terms of income and net profit improved during 2008-09. The cost to income ratio deteriorated from 68.9 per cent in 2007-08 to 74.1 per cent in 2008-09. CRAR (Capital to Risk weighted Asset Ratio) norms were made applicable to NBFCs is required to maintain a minimum capital,
  5. 5. consisting of Tier-I and Tier-II of not less than 12 per cent (15 per cent in the case of unrated deposit-taking loan/investment companies) Regulation of non-banking entities is being progressively strengthened and the process had started before the onset of the global financial crisis. Protecting the interests of depositors, regulatory attention was mostly focused on NBFCs accepting public deposits (NBFCs-D). A reclassification of NBFCs was effected in December 2006, whereby companies financing real/physical assets for productive/ economic activities are classified as AFCs , while the other two categories are loan companies(LCs) and investment companies (ICs). In July 2008, the Reserve bank revised the approach towards monitoring of frauds in BVFCs which was earlier issued in March 2008 The final guidelines regarding non-deposit taking systemically important NBFCs were issued on August 1, 2008 According to these guidelines, the minimum CRAR for each NBFC-ND-SI was raised from the existing 10 per cent to 12 per cent to be reached by March 31, 2009 and 15 per cent to be reached by March 31, 2010. The Reserve Bank decided that NBFCs-ND-SI may augment their capital funds by issue of perpetual debt instruments (PDIs) Such PDIs are eligible for inclusion as Tier I capital to the extent of 15 per cent of total Tier I capital as on March 31 of the preceding year. To hedge the underlying exposures of exposures of NBFCs, directions were issued covering the framework for trading of interest rate futures by NBFCs in exchanges in India recognized by the Securities Exchange Board of India (SEBI) subject to RBI/SEBI guidelines. Banks were permitted, in a temporary basis, to avail of liquidity support under the LAF window through a relaxation in the maintenance of SLR up to 1.5 per cent of their NDTL, exclusively for meeting the funding
  6. 6. requirements of NBFCs and mutual funds. NDTL : Net Demand Time and Labilities NBFCs are improve their services by RBI providing some facilities. Such as : provide direct lending facility as a Lender of Last Resort (LOLR), Proposed increase in the CRAR to be maintained to 12 per cent and subsequently to 15 per cent was deferred by one year,

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