CHAPTER I

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About Capital First LimitedCompany Profile

Capital first is a provider of financial services across consumer and wholesale businesses, with aspirations to grow into a significant financial conglomerate.

Capital First Limited. is a systemically important NBFC with record of consistent growth and profitability. Capital first has a comprehensive product suite to meet multiple financial needs of customers including Corporate Lending, Consumer Lending.

Capital first is a Non-Banking finance company listed in BSE and NSE with a record of consistent growth and profitability.

Capital First Limited has a strong distribution setup across India covering customer at 222 towns with an employee base of 1070 as on March 31, 2016.

CFL has loan Asset under Management of Rs. 119.75 bn as on March 31, 2016.

The Company’s long term credit rating (Bank Facilities, NCD and Subordinated Debt) is rated highly at AA+ by rating agencies.

The Company has financed over 1.4 million customers including 6, 00,000+ MSME till date.

Company’s Vision

To be a leading financial service provider- admired and respected for high corporate governance, ethics and values.

To primarily provide Micro, Small and Medium Enterprises in India with debt capital to support the growth of the MSME sector.

To finance the growing aspirations of the Indian Consumers with favorable demographics.

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Company’s Values

1. Responsibility

We respect the fact that our investors have entrusted us with their capital, our partners with their faith, our customers with their confidence and our employees with their aspirations. We will measure our success by the success of our stakeholders and will work diligently to ensure that we fulfill our fiduciary responsibility.

2. Integrity

We firmly believe that the difference between a good business and a great organization is the integrity of its people. We will conduct ourselves ethically and transparently in all our dealings, both internal and external.

3. Leadership

We will maintain an environment which fosters creativity and encourages innovation. We believe that this will enable us to attract, retain and nurture the best talent and develop the business and thought leaders of tomorrow.

4. Mutual Respect

We will build an organization which has a positive mindset. By conducting every interaction with respect and consideration, we will create a self-reinforcing culture of success.

5. Community

We believe that it is our responsibility to contribute to the environment in which we operate. By investing in our community, we will not only improve our surroundings today, but also provide better opportunities for future generations.

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Management

V Vaidya Nathan Chairman and Managing DirectorM S SundaraRajan Independent DirectorBrindaJagirdar Independent DirectorNarendraOstawal Non-Executive DirectorN C Singhal Independent DirectorHemang Raja Independent DirectorDinesh Kanabar Independent Director

Products

Personal Loan Loan against property Two wheeler loan Business loan Used Car loan Durable Loan Insurance

KEY INDICATORS

Total Capital (as of March 31, 2016) (Tier 1 + Tier 2) 27.38 Billion (AUM) Assets under management (as of March 31, 2016) 160.41 billion 19.81% Capital Adequacy Ratio (as of March 31, 2016) Credit Rating (as of March 31, 2016) AA+ 222 Locations (as of March 31, 2016) Employees (as of March 31, 2016) 1412

Over 2.25 million customers financed as on March, 2016

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About NBFC

What is NBFC?

A Non-Banking Financial Company (NBFC) is a company registered under the

Companies Act, 1956 engaged in the business of loans and advances, acquisition

of shares/stocks/bonds/debentures/securities issued by Government or local

authority or other marketable securities of a like nature, leasing, hire-purchase,

insurance business, chit business but does not include any institution whose

principal business is that of agriculture activity, industrial activity, purchase or sale

of any goods (other than securities) or providing any services and

sale/purchase/construction of immovable property. A non-banking institution

which is a company and has principal business o receiving deposits under any

scheme or arrangement in one lump sum or in installments by way of contributions

or in any other manner, is also a non-banking financial company (Residuary non-

banking company).

NBFC Regulatory Objectives

The Reserve Bank of India is entrusted with the responsibility of regulating and supervising the Non-Banking Financial Companies by virtue of powers vested in Chapter III B of the Reserve Bank of India Act, 1934. The regulatory and supervisory objective is

1. Ensure healthy growth of the financial companies.

2. Ensure that these companies function as a part of the financial system within the policy framework, in such a manner that their existence and functioning do not lead to systemic aberrations.

3. The quality of surveillance and supervision exercised by the Bank over the NBFCs is sustained by keeping pace with the developments that take place in this sector of the financial system.

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Types of NBFC

1. Asset Finance Company (AFC)

An AFC is a company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipment, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising there from is not less than 60% of its total assets and total income respectively.

2. Investment Company (IC)

IC means any company which is a financial institution carrying on as its principal business the acquisition of securities,

3. Loan Company (LC)

LC means any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company.

4. Infrastructure Finance Company (IFC)

IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of Rs. 300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.

5. Systemically Important Core Investment Company (CIC-ND-SI) 

CIC-ND-SI is an NBFC carrying on the business of acquisition of shares and securities which satisfies the following conditions:-

(a) It holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies.

(b) Its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its Total Assets.

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(c) It does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment.

(d) It does not carry on any other financial activity referred to in Section 45I(e) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.

(e) Its asset size is Rs 100 crore or above.

(f) It accepts public funds.

6. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)

IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.

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CHAPTER II

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OBJECTIVE OF STUDY

The main objective of this study is to understand basic knowledge of consumer durable loan finances and loan life cycle with the help of different tools and methodologies. The report will however focus on major virtues and intricacies which are required and used in consumer loan financing. The main idea of this project is to verify and demonstrate in detail the financial risk management and working with loan, EMIs calculation, fraud consumer verification, understanding CIBIL scores, basic working on credit appraisals, basics of financial statement analysis, Customer conversion.

Sub-Objectives

1. To know about the various concept and technicalities of Consumer loan financing.

2. To know the various functions of Consumer Durable loans.

3. To get the knowledge about the basic financial tools used in NBFC and durable loans.

4. To understand how we can use basic concepts of credit appraisal in loan life cycle.

5. To find out how customer conversion took place.

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Limitations

1. The tools used are marketing tools since no data was allowed to be shared from the company.

2. The study is confined just to the consumer durables segment and not the other segments.

3. This study is limited for the year 2015-16.

4. It does not take into consideration different competitor views of market durables loan financing.

5. Time constraint.

ANALYSIS

1. SWOT analysis.

2. Impact Analysis.

3. Porter’s 5 forces of industry attractiveness model.

4. Economic Industry Analysis.

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SWOT ANALYSIS

Strength

1) Easy and fast appraisal and disbursement.

2) Product innovation and superior delivery.

3) Strong market penetration and increased operating efficiency.

4) Collection efficiency.

Weakness

1) Too much of diversification from core business.

2) Increased regulatory coverage.

3) Volatile business environment.

4) Re documentation with existing customers.

Opportunity

1) Large untapped market both rural and urban and also geographically.

2) Tie-up with global financial sector giants.

3) New opportunities in credit cards, personal finance and home equity etc.

Threats

1) High cost of funds.

2) Restriction on deposit taking NBFCs.

3) Growing retail thrust within banks and competitions from unorganized money Lenders.

4) Significant slowdown in economy affecting the various segment of NBFC.

5) Deterioration of asset quality and rising level of NPA.

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IMPACT ANALYSIS

For NBFCs applying for banking licenses, RBI has dictated that it will be able to run a bank via a wholly owned Non-Operative Financial Holding Company (NOFHC). Moreover only non-financial services companies / entities and non-operative financial holding company in the Group and individuals belonging to Promote Group of the NBFC will be allowed to hold shares in the NOFHC. So NBFC will not be able to fully bring about synergies in the operations. Also, a NBFC-turned-bank will have to adhere to CRR and SLR, which limits to their loan-giving abilities.

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Figure 1 : Porter’s Five Forces Model Analysis

Barriers to entry: Low

Licensing requirement

The licensing requirements of RBI for NBFCs are not that stringent as compared to the banks. There are already 12159 registered NBFCs while there are only around 180 banks in India.

Bargaining power of consumers: High

Many alternatives

The consumers have got many alternatives for availing credit. Large number of NBFCs: The consumers have a large spectrum to choose from.

Potential threat of substitutes: Moderate

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Banks

NBFCs were actually created by the government of India as it felt the need to provide banking facilities to the poor and underprivileged who could not get access to banks. Thus banks are a perfect substitute for NBFCs.

Unorganized money lenders

The unorganized money lenders have a strong presence in the rural markets. They pose a big threat to the NBFCs in the rural areas.

Bargaining power of suppliers: High

Many alternatives

The suppliers in this case are the depositors or the NBFC’s funds. The suppliers have many alternatives at their disposal to invest their money depending on their risk appetite. E.g.: High risk: stocks, low risk: banks

Intensity of rivalry: High

Undifferentiated services

The service offerings by NBFCs are almost the same. Thus there is a low level of service differentiation.

Marketing strategies

Due to the increased rivalry among the NBFCs, there has been use of aggressive selling and intensive marketing strategies by the companies to gain the market share.

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ECONOMIC INDUSTRY ANALYSIS

Major factors in financial services industry which affect its working are AUM (Asset Under Management), CAR (Capital Adequacy Ratio), Distribution of financial products or penetration in market, etc.

India’s Gross Domestic Savings (GDS), as percentage of GDP, continues to be more than 30% since 2004 and stood firm at 29.02% in FY14. The IMF estimated domestic savings (as % of GDP) to remain at same strong level up till 2019-20. It compares considerably other developed countries like US (17–19%) and developing nations like Brazil (15%), China (50%) and Russia (25%).

India has been one of the quickest growing service sectors in the world with annual growth rate of 9% and above since 2002, which contributed to 45% of GDP in 2016-16. The unorganized sector and microcredit are still preferred over traditional banks in sub-urban andrural areas, specially for non-productive purpose like credits and small duration loans.

Growing demand

• Rising incomes are driving the demand for financial services across income brackets.

• Financial inclusion drive from RBI has expanded the target market to semi-urban and rural areas.

• Investment corpus in Indian insurance sector can rise to USD1 trillion by 2025.

Innovation

• India benefits from a large cross-utilization of channels to expand reach of financial services.

• Product innovation is leading to healthy growth in NBFCs.

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Growing penetration

• Credit, insurance and investment penetration is rising in rural areas.

• HNI participation is growing in the wealth management segment.

• Lower mutual fund penetration of 5–6 per cent reflects latent growth opportunities.

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CHAPTER III

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WORKING INTRODUCTION AND PROCESS

About Consumer Durables

Consumer durables are a category of consumer products that do not have to be purchased frequently because they are made to last for an extended period of time (typically more than three years). They are also called durable goods or durables.

Since consumer durables represent big price items, both businesses and consumers will have to typically make those purchases once when they are confident that they can afford them.

During recession, when consumers have less confidence in the economy, there's an outrage risk increasing that durable goods demand will decrease. It is important to understand when we invest in companies that produce or make durables.

Also, orders for durable goods can foresee an increase or decrease in industrial production. That's why the Census Bureau's monthly "Durable goods orders" report is generally considered one of the most effective leading economic indicators.

Financing in Capital First

Benefits Given

1. 0% Interest and low down payments 2. Easy repayment options3. Minimal documentation4. Instant Approvals5. No security deposit

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Consumer Goods

Durables

Eligibility

1. Person should be of 21 years of age for non-digital and 25 years of age for digital products.

2. CIBIL Record of the person should be either -1(for only first and non-digital finance) or more than 650 Approx it should be 750 (for all finance and products).

Documentation Required

1. Identity proof.2. Residence proof.

Note: From this year, income documentation is not required. This made USP (unique selling proposition) for Capital First.

Basic Loan Approval Process

1. Customer enters into any consumer durable or electronics shop (e.g.Coral Mehta electronics, Lotus electronics supermarket, Indore).

2. Customer finalizes the product of its choice (durable).3. He then enters into Capital First Limited office in that shop.4. The sales person takes all the documentation required, i.e., Residence and ID

Proof with all details checked.5. In ID proof, main documents required are (any one of these) – PAN card,

Passport, Voter Id, Driving License.6. In Address proof, major documents are – Adhar card, Passport, Electricity

bill, other government allotted address proofs can also be used.7. In case of first loan, either credit card or debit card is also required. Some

cash also to be swiped from these cards.8. Sales person fill the application form online as well as offline and checks for

verification for fraud.9. If it is a fraud, customer is not given a loan and if he is genuine customer,

the loan process goes to next level where details about product and credit/debit card are filled.

10.After its completion, if the customer is doubtful, the software forwards its response to the company’s call centre for TVR (Telephonic Verification). If

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it’s ok. The finance gets approval and according to the scheme, down payment has been taken.

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Loan Life Cycle

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Origination

Documentation

Credit Appraisal

Loan Closing

Servicing

Collection & Recovery

Origination

Origination is a first step of loan cycles it when a borrower applies for new loan. This process is done by direct sale agent who directly interacts with the customers it can be a Personal Loan or a Business Loan or a Home Loan.

Documentation

Documentation is the second step of a loan life cycle. In documentation some documents are required: For Example- KYC, Application Form, Ownership proof, 6 month banks statement.

Documentation is done by CPA (Central Process Area) it log in and check all the formalities and all the documentation is authorized or not.

Credit Appraisal

A credit appraisal is an important part of determining the eligibility for a home loan, and the quantum of the loan. A prospective borrower has to go through the various stages of the credit appraisal process of the bank. Each bank has its own criteria to satisfy itself on the credit worthiness of the borrower.

The eligibility for the loan that a person can get depends on his credit worthiness, determined in terms of the norms and standards of the bank. Being a crucial step in the loan process, a borrower needs to be careful in planning his financing modes. The credit worthiness, basically, assures the repayment capacity of the borrower - whether the borrower is capable of repaying the loan and dues on time.

Broadly, the information collected is on these aspects:

1. Incomes of the applicant and co-applicant.2. Age of applicants.3. Qualifications.4. Family details.5. Nature of profession.6. Experience.7. Employer.8. Security of tenure.9. Tax history.

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10.Assets owned and their financing patterns.11.Additional sources of income.12.Past loan record, if any.13.Recurring liabilities.14.Investments.15.Other present and expected liabilities.

Loan Closing

1. If the loan is approved, the final stage in creating the mortgage loan is the funding and loan closing. In loan closing, the final details of the loan transaction are completed and the loan funds are disbursed.

2. Most frequently, closing is handled by a title company or closing attorney.3. Loan closer obtains a title company/attorney's opinion as the condition of the

title to the property--its ownership. This opinion of title is reviewed very carefully to verify that the seller owns the property and that there are no unknown claims outstanding against it. Also, the Borrower must provide adequate hazard (and in some cases flood) insurance for the property.

4. Next the loan closer prepares the loan's legal documents and makes certain other legal requirements are met, such as up-to-date payments of real estate taxes. The mortgage loan file and legal documents are double-checked for completeness and accuracy. Some federally mandated disclosures are usually provided to the Borrower.

5. Finally, the loan amount must be properly disbursed so the Borrower will be liable for repayment. The appropriate parties must receive the correct amounts in order for the legal conditions for the best to be met.

6. The mortgage is recorded on the public record, and the lender makes a final review of the loan file for quality control purposes.

7. At this point, the closing of the loan is complete.8. Post-Funding Audit.

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Servicing

1. Loan Servicing includes all activities that occur from the time a loan is closed until the time it is repaid. Servicing activities help ensure that the loan is repaid in a timely manner and that the lenders' legal claim to repayment of the funds is maintained.

2. To see that loans are paid as agreed.3. Identifying and following up promptly on any delinquent payments by

sending reminder notices, making telephone calls, or visiting the home of the delinquent Borrower.

4. If efforts fail, foreclosure is the legal action that bars a defaulted Borrower's right to reclaim the mortgaged property. This action is taken to satisfy the outstanding balance on the mortgage; usually results in property being sold at public or private sale.

5. Paying taxes and insurance.6. Service provider wants to make sure that these taxes are paid because

government tax claims can take precedence over the lender's claim on a property.

7. If property is destroyed or damaged by fire, wind, etc. without insurance the loan is no longer adequately protected.

8. When a Servicing company services loans for lenders, it collects a fee ranging from 0.25% to 0.50%. For example, when a loan is closed at an eight percent interest rate, the Servicer passes through principal and interest of approximately 7 5/8 percent to the Bank, Insurance Co., etc.

9. The Servicer keeps the difference as a servicing fee.10.Advising Borrowers of changes in rate for ARMs.11.Transferring the loan to a new owner or Servicer.12.Payment Processing.13.Pay-offs.14.Recordings.

Collecting and Recollection

Collection manager hire Agency for recollection. Agency do settlement /return with the customers

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CHAPTER IV

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FINDINGS

1. By Porter’s 5 forces, report showed about less threat of new entrants as margin is low and volume is high. It also described the moderate effect of bargaining power of both suppliers and customers as sources and markets are many. Threat from competitions is also less.

2. Through Economic industry and competition analysis, we got to know different aspects of this industry as a whole and learned more about it.

3. Loan life cycle showed the core product’s transparency. The whole cycle showed the stages through which these loans are effectively processed and completed.

4. To minimize the risk of Fraudsters Company must perform quick investigation in context of Consumer validation while Taking Loan from stores.

5. Company should minimize the card charges so as to increase the customer’s creditability.

6. Company should work more on making its documentation process easier so as to reduce the risk of confusion while carrying the documentation process.

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SUGGESTIONS

During my sip, I felt some of the things that CFL should do in order to achieve more growth than its biggest competitor BAJAJ Finserv –1. Improve on its digital market financing.2. Provide new down payment schemes lessening the down payment

charges.3. Improve on the customers with a little better CIBIL record.4. Provide showpieces in the stores.5. Advertise their schemes on a daily basis to the main handlers of

customer’s i.e. sales persons of store.6. Should give at least two holidays in a month on demand to the employees

compulsorily.7. Increase their Salesforce such that every dealer in the area can have a

permanent salesperson in their store.8. Should have a good relation with the old dealers.9. Provide easy EMI’s schemes to the customers.10.Schemes should change according to the season and not according to the

competitor.11.Provide advertisements in the local newspapers of their best schemes.12.Should shorten their application form and some lengthy paper work to be

lessened.

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LEARNINGS

1. To handle the customers with ease.2. To understand how to calculate EMI and down payments for different

schemes.3. Basic understanding of consumer electronics market.4. Understood process of loan life cycle.5. Basic understanding Company rules and regulations.6. Time management7. Work under pressure.8. Better HR Practices, though the HR practices are good but need to

improvements.9. Financing of consumer durables.10.Maintaining good relationship with customers.11.To understand whom to finance and whom to not.12.Basic understanding of different types of frauds happening in the financing.13.Managing conflicts.14.Managing people.15.Working for different customer types.16.Doing business for company at the same time analyzing fraud customers and

rejecting them.17.Basic Credit appraisal process for loan financing.18.Basic understanding of company processes, culture and work pattern.19.Understood standard working structure and pattern of consumer loan

financing companies.20.Understood how to reduce competition.21.Understood how to increase productivity while working22.Understood to work within rules.23.Login Process with Application of Capital First.

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CONTRIBUTIONS

1. Did quick financing. (The Salesforce Software helped to know weather the customer is entertain with the services or not)

2. Worked within time limits.(Software generates approval or Reject the application with in 3 minutes)

3. Worked within rules.4. Increased productivity to double growth rate.5. Managed more than one store.6. Managed dealers and customers at the same time.7. Worked in difficult situations.8. Gave suggestions to improve the business by introducing new prices

structures for digital segments.9. Contributed in operations other than finance.10.Have Done Two Agreements with Electronic Shops.11.Covered Entire Indore.

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CONCLUSION

1. Natural outcome of accelerated economic growth will be a rise in demand for finance from both the customer segments that the Company caters to – Consumer Finance and MSMEs. This will benefit Capital First in future.

2. Capital first is delivering quality services at low down payment and less tenure. More consumers will benefit from it.

3. No income documentation will help Capital First gain those consumers who are into their own businesses.

4. More variety of consumers will help penetrate the market for consumer durables for Capital First.

5. Overall, Capital first is working on its mission and vision with more and more caliber and will take on to those consumers from its competitors very rapidly.

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BIBLIOGRAPHY

1. http://www.capfirst.com/personal/borrow/durable-loans 2. www.capfirst.com 3. https://www.google.co.in/search?

q=porter+5+forcesandespv=2andbiw=1366andbih=623andtbm=ischandtbo=uandsource=univandsa=Xandved=0CBwQsARqFQoTCKazzPzzz8cCFUUajgodhRYFUQ#tbm=ischandq=ratio+analysis

4. http://www.moneycontrol.com/financials/capitalfirst/balance-sheet/ FCH#FCH

5. http://www.moneycontrol.com/company-facts/capitalfirst/history/FCH#FCH 6. http://www.researchandmarkets.com/reports/585711/

indian_financial_services_industry_swot#relb07. http://www.investinganswers.com/financial-dictionary/economics/

consumer-durables-23228. http://www.investinganswers.com/financial-dictionary/economics/

consumer-durables-23229. http://www.capitalfirst.com/pdfs/CFL-AR-2016-16-along-with-AGM-

Notice.pdf

Newspaper

Times of India

Economic Times

Other

Office of Capital First Limited, Indore.

Company Mentors

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