1. MIS Presentation
Non Banking Financial Company (NBFC)
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Non Banking Financial Company (NBFC) 9/9/2009

2. GROUP
AJAY K. DHAMIJA N-1
MANDEEP SINGH REKHI N-27
RAGHAV RAJ BUDHIRAJA N-39
RAVINDER SINGH N-41
TRIPAT PREET SINGH N-43
SNEHAL SONI N-47
KUNAL KAPUR N-69
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Non Banking Financial Company (NBFC) 9/9/2009

3. Financial System
Flow of funds (savings)
Suppliers of
Seekers of funds Funds
(Firms & Govt) (Households)
Flow of financial services
Income and claims
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Non Banking Financial Company (NBFC) 9/9/2009

4. Financial System
Financial Financial Financial Financial
Institution Markets Instruments Services
Organized / Primary/
Regulatory
Unorganized Secondary
Intermediaries
Primary
(Banking & Short Term
/Secondary
Non-banking)
Non-
Capital Markets Medium Term
intermediaries
Others Money Markets Long Term
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Non Banking Financial Company (NBFC) 9/9/2009

5. What is an NBFC ?
A Financial Institution is an NBFC
…which has a principle business of
receiving deposits under any scheme
As per Sec. 45 I (f) of or an arrangement or lending
RBI Act, 1934 ,1956 in any manner
Approved by central Government
and notified by official Gazette
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Non Banking Financial Company (NBFC) 9/9/2009

6. NBFC vs BANKS
NBFCs are doing functions akin to that of banks,
however there are a few differences:
(i) a NBFC cannot accept demand deposits
(ii) it is not a part of the payment and settlement
system and as such cannot issue cheques to its
customers
(iii) deposit insurance facility of DICGC ( Deposit
Insurance and Credit Guarantee Corporation )is not
available for NBFC depositors unlike in case of
banks.
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Non Banking Financial Company (NBFC) 9/9/2009

7. Identification Parameters for an NBFC given by
RBI
In April, 1999, RBI further announced that identification of
an company as an NBFC will depend on :
On the assets
The income pattern of the company
From the last audited balance sheet, RBI will decide on the
principle business of the company
Factor Determining an NBFC
Financial Assets of the company > 50 % Total Assets of the Company
(Netted off against Tangible Assets)
Income from Financial Assets > 50 %
Gross Income
… then the company will be treated as an NBFC
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Non Banking Financial Company (NBFC) 9/9/2009

8. Chronology of NBFC’s regulatory Provisions
Chapters III-B, III-C & V of The Miscellaneous Non-Banking
Reserve Bank of India Act, Companies (RBI) Directions
1934 1977
Housing Finance Residuary non-Banking
Companies (NHB) Directions, Companies ( RBI) Directions,
1989 1987
Reserve Bank of India Non Banking Financial
(Amendment) Act, Companies
March 1997 ( RBI) Directions, 1998
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Non Banking Financial Company (NBFC) 9/9/2009

9. Right Mix for Growth
Robust GDP Growth
Increasing Per Capita Income
Rising Savings Rate
Young Population
Low Penetration
DEMAND FOR FINANCIAL PRODUCT AND SERVICES
60000
EXPONENTIAL GROWTH 50000
1981- 7063 40000
1985- 15358 30000
1990- 24009 20000
1995- 55995 10000
0
1981 1985 1990 1995
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Non Banking Financial Company (NBFC) 9/9/2009

10. GROWTH FACTORS
Lesser degree of regulation over NBFC as compared to banking
system
Broadening the range of services
Greater customer orientation and higher rate of interest as
compared to banks
Requirements of minimum stipulated NOF (Net owned funds) &
CRAR (Capital to Weighed Risk Average Ratio)
Multiple regulatory authorities
RBI
SEBI
IRDA
Chit Funds act
NHB (National Housing Banks)
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Non Banking Financial Company (NBFC) 9/9/2009

11. Initial Regulatory Environment as per RBI Act,
1934
Entry barrier were low
There were no capital adequacy
Regulatory Norms
Factors
No prudential norms
Little restriction on interest rates
Offered to the depositors
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Non Banking Financial Company (NBFC) 9/9/2009

12. NBFCs Comprises following Business
Organizations
Hire Purchase
Finance
Equipment Leasing Investment
Activities Activities
NBFC
Loan Granting
Mutual Fund Finance
Activities
Housing Finance Insurance Business
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Non Banking Financial Company (NBFC) 9/9/2009

13. Classification based on purpose of acceptance of
deposit by NBFC Directions 1998
Equipment Investment Loan
Hire Purchase Companies
Leasing Companies
(HP) (LC)
(EL) (IC)
Re-Classification of NBFC’s on December 6, 2006
Investment Loan
Asset Finance
Companies Companies
Companies
(IC) (LC)
(AFC)
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Non Banking Financial Company (NBFC) 9/9/2009

14. Further Classification of the NBFC’s
(aftermath of Directions issued in January 1998)
Regulation for Regulations Regulation for
Deposits For NBFC’s Core
NBFC’s Not accepting Investment
Accepting Deposit Public Deposits Companies
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Non Banking Financial Company (NBFC) 9/9/2009

15. Regulation for NBFC’s Accepting Public Deposits
The companies accepting public deposits are required to comply
with all the prudential norms mentioned below…..
Income Recognition
Asset Classification
Accounting Standard
Prudential Norms Provision for Bad & Doubtful Debts
Capital Adequacy
Credit / Investment Concentration
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Non Banking Financial Company (NBFC) 9/9/2009

16. Eligibility criteria for accepting Public Deposits
An NBFC having NOF of Rs 200 lakhs and above can
accept public Deposit.
It has to obtain Minimum Stipulated Credit Rating from
any one of the approved Credit Rating Agencies at least
once in a year
Copy of the Credit Rating should be sent to the RBI
along with the Return on Prudential Norms.
The NBFC should have acquired a credit rating of not
less than AAA rating or its equivalent in the previous
year.
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Non Banking Financial Company (NBFC) 9/9/2009

17. Eligibility criteria for accepting Public Deposits
If the credit Rating is either down graded or upgraded,
the NBFC is required to report to RBI within 15 Days
from the date it receives such Information.
It is to be noted that the deposits taken by the NBFC’s
are repayable on demand and the Minimum period for
which Public Deposits can be accepted is not less than
12 months with a maximum period of 84 Months.
Months.
There is a ceiling provided for the quantum of deposits
accepted by NBFC’s
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Non Banking Financial Company (NBFC) 9/9/2009

18. Eligibility criteria for accepting Public Deposits
The CRAR has been fixed 12 % and above. ( Rated NBFCs) and
15 % above (Un-Rated NBFCs)
(Un-
The Credit and the Investment
Concentration norms
has been fixed at 15 % / 25%
…Depending upon whether
• The Total Loan and
the exposure is to a Single
Investments have a ceiling of Borrower
25 % & 40 % of the owned or a Group of Borrowers
funds, respectively
… depending on whether
the exposure is to a single party
or to an industry groups
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Non Banking Financial Company (NBFC) 9/9/2009

19. RBI Guidelines for Un-Rated NBFC’s
Un-
All EL/HP Finance Companies that do not have:
The minimum investment grade credit rating
& mobilizing public deposits up to 1.5 times of their NOF or
Rs 10 crore
…whichever is lower, should not have a CAR less than 15
%
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Non Banking Financial Company (NBFC) 9/9/2009

20. Regulations for NBFC’s not Accepting Public
Deposits
All regulations related to Interest rates, period and
ceilings on quantum of borrowing do not apply.
However, to ensure the disclosure of a true and fair
picture of their financial health, these companies are
subjected to prudential Norms .
Investment companies are exempted from all the
provisions of the directions except the statutory
provisions for registration and creation of reserve funds.
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Non Banking Financial Company (NBFC) 9/9/2009

21. Mother-of-All-
Mother-of-All-Rules
“ According to RBI guidelines issued on
April 1,1999, All NBFC’s are required to
maintain liquid assets of 15% of public
deposits held on the last working day of
the secondary preceding quarter. ”
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Non Banking Financial Company (NBFC) 9/9/2009

22. Books and Records maintained by NBFC’s
The companies accepting public deposits are required to
comply with all the prudential norms mentioned below…..
Cash Book & Bank Book
Due Date & Renewal Register
Interest Register
Books & Records Depositor’s Ledger
Maintained by
an NBFC Loan Ledger
Investment Ledger
General Ledger
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27. General Recommendations
Integrate domestic financial market by
making NBFCs – channel partners to larger banks
Reduction in Interest Cost and hence benefits
the Ultimate consumer
Enhancing the credit delivery Mechanisms
General recommend.
Reversing the Inverse relationship between
The size of borrowing and the cost of borrowing
Strengthening the professionalism of the NBFC
Sector through education and training
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Non Banking Financial Company (NBFC) 9/9/2009

28. Sector for present study : Equity
in Cash/derivative
Finding market inefficiencies of the
market and then using the leverage to
generate the profit
Hedging
Arbitrage
High Leverage
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Non Banking Financial Company (NBFC) 9/9/2009

29. Key Performance Parameters
Financials (Leverage , Profitability etc.)
Return on Investment (ROI)
Optimum Fund Utilization
Aggregate Level
Individual Level
Growth Ratio - The rate of growth a company can attain without changing its profit
margin, assets-to-sales ratio, debt-to-equity ratio, or dividend payout ratio, or without
assets-to- debt-to-
excessive borrowing or issuing new stock.
Security Transaction Tax (at different rates on the value of the “taxable securities
transaction” )
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Non Banking Financial Company (NBFC) 9/9/2009

30. Contd..
Margin violation (warning at 80% utilization of effective deposits of CM with
clearing corporation & at 100% level Clearing / trading facility is withdrawn)
Clearing member
Trading member
Exposure limit Violation (the exposure limit of a Clearing Member exceeds his
liquid net worth anytime including trading hours)
Trading Member violation (open position of TM exceeds the Trading Member-
Member-
wise Position anytime including trading hours)
Client Limit violation (open position of any client exceeds the Client-wide
Client-
Position limit)
Market Limit violation (open position exceeds the Market-wide Position at
Market- any
time including during trading hours)
Violation of Exercised Positions (When option contracts are exercised by a
CM, where no open long positions for such CM/ TM and/ or constituent exist at the
end of the day)
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Non Banking Financial Company (NBFC) 9/9/2009

31. Best in class organization
Reliance Capital Ltd is a part of the Reliance - Anil
Dhirubhai Ambani Group.
Reliance Capital is one of India’s leading and fastest growing
private sector financial services companies, and ranks among
the top 3 private sector financial services and banking
companies, in terms of net worth.
Reliance Capital has interests in asset management and
mutual funds, life and general insurance, private equity and
proprietary investments, stock broking and other activities in
financial services.
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Non Banking Financial Company (NBFC) 9/9/2009

32. WHY?
Financial Highlights for the year ended March 31, 2007
Consolidated Total Income of Rs 2158 cr (increase of
128%)
Consolidated Net Profit of Rs 703 cr (increase of 23% )
Total Income of Rs 884 cr (increase of 36%)
Net Profit of Rs 646 cr (an increase of 20% )
EPS of Rs 30.73 (increase of 17%)
Total Assets Rs. 6,769 cr
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Non Banking Financial Company (NBFC) 9/9/2009

33. Contd.
Largest AUM (excess of Rs. 650 Billion.)
Largest customer base (3.4 million customers)
India’s most trusted - ET 2 years in running
Largest new fund offering over Rs. 57 billion from over 900,00
investors.
Only 100% owned Indian private sector mutual fund
29 schemes- equity, fixed income and money market
schemes-
Distribution reach across 300 towns/ cities in India
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Non Banking Financial Company (NBFC) 9/9/2009

34. An organization in the industry
IKM Investors Services Limited
Services :-
•Trading in Equities in the cash and derivatives segment (Future and Options) of
National Stock Exchange (NSE) and Bombay Stock Exchange. (BSE)
•Trading in Commodities on Multi-Commodity Exchange (MCX) and National
Commodity Exchange Of India (NCDEX).
•Providing Demat Services on NSDL and CTCL
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Non Banking Financial Company (NBFC) 9/9/2009

35. An organization in the industry
IKM Investors Services Limited
Technologies :-
•NEAT (NSE Trading Platform)
•Client/Server (Stratus server at exchange and client SW on PC communicate via V-
SAT/Leased lines)
•At the server end, all trading information is stored in an in-memory database to
achieve minimum response time and maximum system availability for users.
•BOLT (Bombay On Line Trading system)
•ODIN™ Integrated Application: - Multi-Exchange, Multi-Segment Front
Office Trading System
•CTCL (computer to computer Link) trading technology;
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Non Banking Financial Company (NBFC) 9/9/2009

36. An organization in the industry
IKM Investors Services Limited
Technologies :-
• privilege of trading across 5 different markets (NSE-Equity, NSE-Derivatives, BSE-
Equity, MCX & NCDEX) on a single screen.
•ODIN™ supports heterogeneous networks - networks that use a mix of TCP and UDP
traffic
•Real Time Providers of Data / News
•For getting Real Time Data/reports of the various Exchanges spread across the globe
• Bloomberg
•News Wire 18
•E-signal
•All Excel sheet compatibles
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Non Banking Financial Company (NBFC) 9/9/2009

37. An organization in the industry
IKM Investors Services Limited
Technologies :-
• DDE (Dynamic Data Exchange) (though newer ones are OLE,COM etc.)
•a technology for communication between multiple applications under Microsoft
windows and OS/2
•To share and link the Excel sheet of dealer with the Excel running at server.
•HW
•P IV systems , VSAT IDU , star topology between departments (Arbitrage ,
Demat ,Back office , Client Area)
•X.25 connectivity ( Packet switched WAN using leased/phone/ISDN)
•Trading servers (SMP servers)
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Non Banking Financial Company (NBFC) 9/9/2009

38. An organization in the industry
IKM Investors Services Limited
Need for further Development :-
• Real time data from these Bloomberg/news wire are linked with customized excel
based spread sheets for real time basis analysis based on the pre-programmed logic for
arbitrage calculation. Results are then displayed to our dealers for further execution
through trading terminals. The execution of the trades is done manually by the dealers.
•Need for automation of this intelligence coupled with mathematical models of the
market for an equity, in which the equity's price is a stochastic process
•Binomial Options Pricing Model
•Black–Scholes model
•Put-call parity
•Monte Carlo Options Model
• Subject matter of Stochastic Calculus
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Non Banking Financial Company (NBFC) 9/9/2009

39. An organization in the industry
IKM Investors Services Limited
Need for further Development :-
• Black–Scholes model
•Price of a Call option with exercise price K on a stock currently trading at price
S, i.e., the right to buy a share of the stock at price K after T years. The constant
interest rate is r, and the constant stock volatility is σ.
Where Φ is the standard Normal CDF
•Price of Put option
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Non Banking Financial Company (NBFC) 9/9/2009