nbfcs in india’s financial - care’s ratings presentatio… · introduction – nbfcs nbfc’s...

NBFCs in Indias Financial Landscape

- Manisha Sachdeva (Associate Economist)

- Darshini Kansara (Research Analyst)

This presentation is based on the Reserve Bank of India (RBI) study and we, at CARE Ratings Limited, have juxtaposed the numbers for Banking sector and Housing Finance

Companies (HFCs)*, wherever possible. The purpose of this presentation is only to understand the Non-Banking Financial

Companies (NBFCs) position vis--vis the Banking sector and the HFCs in the Indian Financial System.

*Data for HFCs pertains to aggregate of 19 listed companies from AceEquity

Introduction NBFCs

NBFCs in Indias Financial Landscape 25th October 2017

1. NBFCs are specialized intermediaries that are regarded as shadow banks

2. They leverage on lower transaction costs, financial innovations and regulatory arbitrage

3. They play an important role in emerging economies as they have the ability to

Reach out to inaccessible areas

Act as not just complements but also substitutes to banks

4. Preference over banks due to

Quicker decision-making ability

prompt provision of services

Expertise in niche segments

Introduction NBFCs Contd.


Shadow banking refers to all non-bank financial intermediaries that provide services similar to those

of traditional commercial banks

The Shadow Banking sector in India primarily includes NBFCs and collective investment vehicles

NBFCs are distinctly different from shadow banking entities in other countries

NBFCs are regulated by the Reserve Bank of India (RBI) with priority being assigned to calibrating

regulations to harmonize them with those of the banking sector regulations to minimize the scope of

regulatory arbitrage

NBFCs are gaining importance in the Indian Financial System, accounting for about 9% of the total

assets of the financial sector the third largest segment after the scheduled commercial banks or

SCBs (64%) and insurance companies (14%) RBI 2014

Introduction NBFCs Contd.


NBFCs had the third largest bilateral exposures after banks and mutual funds

Also, they are the biggest receivers of funds, on a net basis, surpassing banks, signifying their

systemic importance

In the context of slowdown in bank credit in wake of asset quality stress in recent years, double-digit

growth in credit by NBFCs has distinctly emphasized their role as credit provider in Indias financial

system

Structure of NBFIs sector in India


Non-Banking Financial Institutions (NBFIs)

Non- Banking Financial Companies (NBFCs)

NBFCs-D NBFCs-ND

Systemically Important

NBFCs-ND

(NBFCs-ND-SI)

Other

NBFCs-ND

(NBFC-ND)

All India FInancial Institutions

EXIM NABARD SIDBI National Housing Bank (NHB)

Housing Finance Companies

(HFCs)

Primary Dealers

Different types of NBFCs in India: End-March position: FY17


NBFC-D, 178 (1.5%)

NBFC-ND-SI, 218 (1.9%)

NBFC-ND, 11,126 (96.6%)

Note: Data for FY17 are provisional

Distribution of assets across NBFCs-ND-SI and NBFCs-D: End-March position


In view of phenomenal increase in the number

and deposits, a comprehensive legislative

framework for NBFCs-D was introduced in

1997 to protect the interest of the depositors.

A conscious policy was pursued to discourage

acceptance of deposits by NBFCs so that only

banks accept public deposits. Hence, no new

license has been given to NBFCs-D after 1997.

Therefore, NBFCs-ND-SI have become

significantly larger than NBFCs-D their share

in total assets of the two categories taken

together was about 86% in 2017.

NBFCs-D 14.8%

NBFCs-ND-SI

85.2%

Note: Data for FY17 are provisional

Classification of NBFCs based on activities undertaken


Sr No Types of NBFCs Activity

1 Asset Finance Company (AFC) Financing of physical assets supporting productive/economic activity, including automobiles, tractors and generators.

2 Loan Company Providing finance by extending loans or otherwise for any activity other than its own but does not include an AFC

3 Investment Company Acquiring securities for the purposes of selling.

4 Infrastructure Finance Company (NBFC-IFC) Providing infrastructure loans.

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

Acquiring shares and securities for investment in mainly equity shares.

6 Infrastructure Debt Fund (NBFC-IDF) For facilitating flow of long-term debt into infrastructure projects

Classification of NBFCs based on activities undertaken


Sr No Types of NBFCs Activity

7 Micro Finance Institution (NBFC-MFI) Extending credit to economically disadvantaged groups as well support Micro, Small and Medium Enterprises (MSMEs).

8 Factor (NBFC-Factor) Undertaking the business of acquiring receivables of an assignor or extending loans against the security interest of the receivables at a discount.

9 NBFC- Non-Operative Financial Holding Company (NOFHC)

For permitting promoter / promoter groups to set up a new bank.

10 Mortgage Guarantee Company (MGC) Undertaking mortgage activities.

11 Account Aggregator (NBFC-AA) Collecting and providing the information of customers financial assets in a consolidated, organised and retrievable manner to the customer or others as specified by the customer

12 Non-Banking Financial Company - Peer to Peer Lending Platform (NBFC-P2P)

Providing an online platform to bring lenders and borrowers together to help mobilise unsecured finance.

Classification of NBFCs based on activities undertaken: FY17


Loan Companies 36.2%

NBFCs-IFC 31.5%

AFCs 13.7%

Investment companies 12.6%

NBFCSs-MFI 3.0%

CICs-ND-SI 2.2%

NBFCs-Factor 0.1%

IDF-NBFCs 0.6%

Note: 1. Data for FY17 are provisional 2. NOFHC, MGC and NBFC-AA data are not captured as they have miniscule share in the total assets of the NBFC sector

Liabilities Breakup (%) of NBFCs: Comparison with SCBs and HFCs

Note : Data for banking sector pertains to FY16 and FY17 for NBFCs (Provisional) and HFCs


4.7 0.7 0.4

18.0

7.0 10.6

1.6

77.9

6.0

69.9

9.9

54.4

5.9 4.5

28.5

NBFCs Banks HFCs

Share capital Reserves and Surplus Public deposits Borrowings Others

Assets Breakup (%) of NBFCs: A Comparison with SCBs and HFCs

Note: Data for banking sector pertains to FY16 and FY17 for NBFCs (Provisional) and HFCs 1. Others assets for banking system includes fixed assets 2. Cash and Bank balances for banking system also includes balances with banks and money at call and short notice 3. Loans and advances (which are non-current assets) for HFCs include Long term trade receivables, advance tax, L&A to employees, etc, while Other Loans include loans to individuals, corporate bodies and others comprises of both current and non-current assets (which are reported separately)


75.5 60.9

17.8

13.6

24.5

6.4

4.0 8.3

2.5

71.8

7.0 6.3 1.5

NBFCs Banks HFCs

Loans and advances Investments Cash and bank balances Other Loans Others

Borrowings breakup(%) of NBFCs-ND-SI : FY17 P

49.2

21.6

9.7

3.5

16.1

Debenutres Bank borrowings Commercial paper Inter-corporate borrowings Others

Note : Data for NBFCs for FY17 are provisional


Public deposits of NBFCs- D, Banks and HFCs

Outstanding deposits (Rs lakh crore) FY17

NBFCs- D 0.31

Banks 108.05

Time deposits 95.11

Demand deposits 12.94

HFCs 0.50

Deposits with NBFCs stood at Rs 0.31 lkh crores as on 31st March2017 compared with time

deposits of 95.11 lkh crs in the banking system during the same time period.



Credit growth of NBFCs, Banks and HFCs: FY17



0

5

10

15

20

25

30

NBFCs-ND-SI Banks Private sectorbanks

Public sectorbanks

HFCs

13

5.4

17.1

0.6

28.4

%

Growth rate of credit of major categories of NBFCs

22.7

7.6

36.3

23.1 22.1

5.6

-3.4

-17.1 -20

-10

0

10

20

30

40

Loan companies NBFCs- IFC NBFCs-MFI AFCs

%

FY16 FY17

Note : Data for NBFCs for FY17 are provisional Bank credit for consumer durables and vehicles increased by 22% and 13% in FY16 and FY17 respectively


NBFCs-ND-SI credit, bank credit and HFCs credit as a % of GDP: FY17

Note : GDP based on 2011-12 base year, current prices NBFCs data are provisional


0

10

20

30

40

50

60

NBFCs Banks HFCs

7.9

51.9

1.0

%

2.5

59.6 14.7

17.7

5.6

NBFCs - ND - SI

Agriculture Industries Services Retail Others

13.9

37.5 25.8

22.7

Banks

Sectoral distribution of credit NBFCs and Banks : FY17

Note : Data for NBFCs for FY17 is provisional


Share of MSEs in total credit : FY17

0

2

4

6

8

10

12

NBFCs Banks

10.5

5.2

%



Growth of Infrastructure finance : NBFCs-ND-SI and SCBs

-6

5.6

0.3

-2.3

-8

-6

-4

-2

0

2

4

6

8

FY16 FY17

%

NBFCs Banks



Trend in NPA ratio : end-Mar17

0.0

2.0

4.0

6.0

8.0

10.0

NBFCs Banks

5.0

9.6

%



Return on Assets of NBFCs, Banks and HFCs: end Mar17

Note : Data for NBFCs for FY17 is provisional ROA for HFCs have been calculated by dividing FY17 PAT by average assets for FY16 and FY17


0

0.5

1

1.5

2

2.5

NBFCs-ND-SI NBFCs-D NBFCs Banks HFCs

1.8 1.9 1.8

0.4

2.3

%

CRAR of NBFCs and Banks : end-March position ; 2017

0.0

5.0

10.0

15.0

20.0

25.0

NBFCs-ND-SI NBFCs-D NBFCs Banks

23.0

20.0 22.0

13.6

%



Thank You


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