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INTRODUCTION:We studied about banks, apart from banks the Indian Financial System has a large number of privately owned, decentralized and small sized financial institutions known as Non-banking financial companies. In recent times, the non-financial companies (NBFCs) have contributed to the Indian economic growth by providing deposit facilities and specialized credit to certain segments of the society such as unorganized sector and small borrowers. In the Indian Financial System, the NBFCs play a very important role in converting services and provide credit to the unorganized sector and small borrowers.

NBFCs provide financial services like hire-purchase, leasing, loans, investments, chit-fund companies etc. NBFCs can be classified into deposit accepting companies and non-deposit accepting companies. NBFCs are small in size and are owned privately. The NBFCs have grown rapidly since 1990. They offer attractive rate of return. They are fund based as well as service oriented companies. Their main companies are banks and financial institutions. According to RBI Act 1934, it is compulsory to register the NBFCs with the Reserve Bank of India.

The NBFCs in advanced countries have grown significantly and are now coming up in a very large way in developing countries like Brazil, India, and Malaysia etc. The non-banking companies when compared with commercial and co-operative banks are a heterogeneous (varied) group of finance companies. NBFCs are heterogeneous group of finance companies means all NBFCs provide different types of financial services.

Non-Banking Financial Companies constitute an important segment of the financial system. NBFCs are the intermediaries engaged in the business of accepting deposits and delivering credit. They play very crucial role in channelizing the scare financial resources to capital formation.

NBFCs supplement the role of the banking sector in meeting the increasing financial need of the corporate sector, delivering credit to the unorganized sector and to small local borrowers. NBFCs have more flexible structure than banks. As compared to banks, they can take quick decisions, assume greater risks and tailor-make their services and charge according to the needs of the clients. Their flexible structure helps in broadening the market by providing the saver and investor a bundle of services on a competitive basis. Non Banking Finance Companies (NBFCs) are a constituent of the institutional structure of the organized financial system in India. The Financial System of any country consists of financial Markets, financial intermediation and financial instruments or financial products. All these Items facilitate transfer of funds and are not always mutually exclusive. Inter-relationships Between these are parts of the system e.g. Financial Institutions operate in financial markets and are, therefore, a part of such markets.

NBFCs at present providing financial services partly fee based and partly fund based. Their fee based services include portfolio management, issue management, loan syndication, merger and acquisition, credit rating etc. their asset based activities include venture capital financing, housing finance, equipment leasing, hire purchase financing factoring etc. In short they are now providing variety of services. NBFCs differ widely in their ownership: Some are subsidiaries of large Manufacturers (e.g., T.V. Motors T.V. Finances and Services Ltd). Many others are owned by banks such as ICICI Banks, ICICI Securities Ltd, SBI Capital Market Ltd, Muthoot Bankers Muthoot Financial Services Ltd a key player in Kerala financial services. Other financial institutions are IFCIs IFCI Financial Services Ltd or IFCI Custodial Services Ltd (Devdas, 2005).Non-banking Financial Institutions carry out financing activities but their resources are not directly obtained from the savers as debt. Instead, these Institutions mobilize the public savings for rendering other financial services including investment. All such Institutions are financial intermediaries and when they lend, they are known as Non-Banking Financial Intermediaries (NBFIs) or Investment Institutions.The term Finance is often understood as being equivalent to money. However, final exactly is not money; it is the source of providing funds for a particular activity. The word system, in the term financial system, implies a set of complex and closely connected or inter-linked Institutions, agents, practices, markets, transactions, claims, and liabilities in the Economy. The financial system is concerned about money, credit and finance. The three terms are intimately related yet are somewhat different from each other:

Money refers to the current medium of exchange or means of payment. Credit or loans is a sum of money to be returned, normally with interest; it refers to a debt Finance is monetary resources comprising debt and ownership funds of the state.HISTORICAL BACKGROUND.

The Reserve Bank of India Act, 1934 was amended on 1st December, 1964 by the Reserve Bank Amendment Act, 1963 to include provisions relating to non-banking institutions receiving deposits and financial institutions. It was observed that the existing legislative and regulatory framework required further refinement and improvement because of the rising number of defaulting NBFCs and the need for an efficient and quick system for Redressal of grievances of individual depositors. Given the need for continued existence and growth of NBFCs, the need to develop a framework of prudential legislations and a supervisory system was felt especiallyto encourage the growth of healthy NBFCs and weed out the inefficient ones. With a view to review the existing framework and address these shortcomings, various committees were formed and reports were submitted by them. Some of the committees and its recommendations are given hereunder:

1. James Raj Committee (1974):-The James Raj Committee was constituted by the Reserve Bank of India in 1974. After studying the various money circulation schemes which were floated in the country during that time and taking into consideration the impact of such schemes on the economy, the Committee after extensive research and analysis had suggested for a ban on Prize chit and other schemes which were causing a great loss to the economy. Based on these suggestions, the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 was enacted

2. Dr.A.C.Shah Committee (1992):-The Working Group on Financial Companies constituted in April 1992 i.e. the Shah Committee set out the agenda for reforms in the NBFC sector. This committee made wide ranging recommendations covering, inter-alia entry point norms, compulsory registration of large sized NBFCs, prescription of prudential norms for NBFCs on the lines of banks, stipulation of credit rating for acceptance of public deposits and more statutory powers to Reserve Bank for better regulation of NBFCs.

3. Khan Committee (1995):-This Group was set up with the objective of designing a comprehensive and effective supervisory framework for the non-banking companies segment of the financial system. The important recommendations of this committee are as follows:i. Introduction of a supervisory rating system for the registered NBFCs. The ratings assigned to NBFCs would primarily be the tool for triggering on-site inspections at various intervals.ii. Supervisory attention and focus of the Reserve Bank to be directed in a comprehensive manner only to those NBFCs having net owned funds of Rs.100 laths and above.iii. Supervision over unregistered NBFCs to be exercised through the off-site surveillance mechanism and their on-site inspection to be conducted selectively as deemed necessary depending on circumstances.iv. Need to devise a suitable system for co-coordinating the on-site inspection of the NBFCs by the Reserve Bank in tandem with other regulatory authorities so that they were subjected to one-shot examination by different regulatory authorities.v. Some of the non-banking non-financial companies like industrial/manufacturing units were also undertaking financial activities including acceptance of deposits, investment operations, leasing etc to a great extent. The committee stressed the need for identifying an appropriate authority to regulate the activities of these companies, including plantation and animal husbandry companies not falling under the regulatory control of Either Department of Company Affairs or the Reserve Bank, as far as their mobilization of public deposit was concerned.vi. Introduction of a system whereby the names of the NBFCs which had not complied with the regulatory framework / directions of the Bank or had failed to submit the prescribed returns consecutively for two years could be published in regional newspapers.

4. Narasimhan Committee (1991):-This committee was formed to examine all aspects relating to the structure, organization & functioning of the financial system.

These were the committees which founded non- banking financial companies.

NON-BANKING FINANCIAL COMPANY (NBFC)

MEANINGNon-Banking Financial Companies (NBFCs) play a vital role in the context of Indian Economy. They are indispensible part in the Indian financial system because they supplement the activities of banks in terms of deposit mobilization and lending. They play a very important role by providing finance to activities which are not served by the organized banking sector. So, most the committees, appointed to investigate into the activities, have recognized their role and have recognized the need for a well-established and healthy non-banking financial sector.

Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property.Non-banking institution which is a company and which has its principal business of receiving deposits under any scheme of arrangement or any other manner, or lending in any manner is also a non- banking financial company.

DEFINITIONS OF NBFC.

Non-Banking Financial Company has been defined as:(i) A non-banking institution, which is a company and which has its principal business the receiving of deposits under any scheme or lending in any manner.(ii) Such other non-banking institutions, as the bank may with the previous approval of the central government and by notification in the official gazette, specify.NBFCS provide a range of services such as hire purchase finance, equipment lease finance, loans, and investments. NBFCS have raised large amount of resources through deposits from public, shareholders, directors, and other companies and borrowing by issue of non-convertible debentures, and so on. Non-banking Financial Institutions carry out financing activities but their resources are not directly obtained from the savers as debt. Instead, these Institutions mobilize the public savings for rendering other financial services including investment. All such Institutions are financial intermediaries and when they lend, they are known as Non-Banking Financial Intermediaries (NBFIs) or Investment Institutions: UNIT TRUST OF INDIA. LIFE INSURANCE CORPORATION (LIC). GENERAL INSURANCE CORPORATION (GIC).

Regulation of NBFCs:-

In 1960s, the Reserve Bank made an attempt to regulate NBFCs by issuing directions to the maximum amount of deposits, the period of deposits and rate of interest they could offer on the deposits accepted. Norms were laid down regarding maintenance of certain percentage of liquid assets, creation of reserve funds, and transfer thereto every year a certain percentage of profit, and so on. These directions and norms were revised and amended from time to time.

In 1997, the RBI Act was amended and the Reserve Bank was given comprehensive powers to regulate NBFCs. The amended Act made it mandatory for every NBFC to obtain a certificate of registration and have minimum net owned funds. Ceilings were prescribed for acceptance of deposits, capital adequacy, credit rating and net-owned funds. T he Reserve Bank also developed a comprehensive system to supervise NBFCs accepting/ holding public deposits. Directions were also issued to the statutory auditors to report non-compliance with the RBI Act and regulations to the RBI, Board of Directors and shareholders of the NBFCs.Different types/categories of NBFCs registered with RBI.NBFCs earlier were broadly classified into Deposit accepting NBFCs (NBFCs-D) and Non-Deposit accepting NBFCs (NBFCs-ND-SI) . However, with the changing times there are several categories of NBFCs created based on their activity with new categories being introduced in 2011-12 and 2012 -13.1. Types of NBFCs by regulatory intensity:- Existing types of NBFCs by regulatory intensity, however after the implementation of the revised regulatory framework the types will increase and will be as shown.

2. Based On Nature of Business.

Within this broad categorization the different types of NBFCs are as follows:- 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 equipments, 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. 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. Investment Company (IC): IC means any company which is a financial institution carrying on as its principal business the acquisition of securities. 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%. 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:-i. 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.ii. 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.iii. 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.iv. It does not carry on any other financial activity referred to in Section 45I(c) 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.v. Its asset size is Rs 100 crore or above.vi. It accepts public funds. 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. Micro Finance Institution (NBFC-MFI):NBFC-MFI is a non-deposit taking NBFC having not less than 85%of its assets in the nature of qualifying assets which satisfy the following criteria:i. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs. 60,000 or urban and semi-urban household income not exceeding Rs. 1,20,000.ii. Loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000 in subsequent cycles.iii. Total indebtedness of the borrower does not exceed Rs. 50,000.iv. Tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000 with prepayment without penalty.v. Loan to be extended without collateral.vi. Aggregate amount of loans, given for income generation, is not less than 75 per cent of the total loans given by the MFIs.vii. Loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower. Factors (NBFC-Factors):NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The financial assets in the factoring business should constitute at least 75 percent of its total assets and its income derived from factoring business should not be less than 75 percent of its gross income.ROLE OF NON- BANKING FINANCIAL COMPANIES.

1. Promoters Utilization of Savings:- Non- Banking Financial Companies play an important role in promoting the utilization of savings among public. NBFCs are able to reach certain deposit segments such as unorganized sector and small borrowers were commercial bank cannot reach. These companies encourage savings and promote careful spending of money without much wastage. They offer attractive schemes to suit needs of various sections of the society. They also attract idle money by offering attractive rates of interest. Idle money means the money which public keep aside, but which is not used. It is surplus money.2. Provides easy, timely and unusual credit:- NBFCs provide easy and timely credit to those who need it. The formalities and procedures in case of NBFCs are also very less. NBFCs also provides unusual credit means the credit which is not usually provided by banks such as credit for marriage expenses, religious functions, etc. The NBFCs are open to all. Every one whether rich or poor can use them according to their needs.3. Financial Supermarket:- NBFCs play an important role of a financial supermarket. NBFCs create a financial supermarket for customers by offering a variety of services. Now, NBFCs are providing a variety of services such as mutual funds, counseling, merchant banking, etc. apart from their traditional services. Most of the NBFCs reduce their risks by expanding their range of products and activities.4. Investing funds in productive purposes:- NBFCs invest the small savings in productive purposes. Productive purposes mean they invest the savings of people in businesses which have the ability to earn good amount of returns. For example In case of leasing companies lease equipment to industrialists, the industrialists can carry on their production with less capital and the leasing company can also earn good amount of profit.5. Provide Housing Finance:- NBFCs, mainly the Housing Finance companies provide housing finance on easy term and conditions. They play an important role in fulfilling the basic human need of housing finance. Housing Finance is generally needed by middle class and lower middle class people. 6. Provide Investment Advice:- NBFCs, mainly investment companies provide advice relating to wise investment of funds as well as how to spread the risk by investing in different securities. They protect the small investors by investing their funds in different securities. They provide valuable services to investors by choosing the right kind of securities which will help them in gaining maximum rate of returns. Hence, NBFCs plays an important role by providing sound and wise investment advice.7. Increase the Standard of living:- NBFCs play an important role in increasing the standard of living in India. People with lesser means are not able to take the benefit of various goods which were once considered as luxury but now necessity, such as consumer durables like Television, Refrigerators, Air Conditioners, Kitchen equipments, etc. NBFCs increase the Standard of living by providing consumer goods on easy instalment basis. NBFCs also facilitate the improvement in transport facilities through hire- purchase finance, etc. Improved and increased transport facilities help in movement of goods from one place to another and availability of goods increase the standard of living of the society.8. Accept Deposits in Various Forms:- NBFCs accept deposits forms convenient to public. Generally, they receive deposits from public by way of depositor a loaner in any form. In turn the NBFCs issue debentures, units certificates, savings certificates, units, etc. to the public.9. Promote Economic Growth:- NBFCs play a very important role in the economic growth of the country. They increase the rate of growth of the financial market and provide a wide variety of investors. They work on the principle of providing a good rate of return on saving, while reducing the risk to the maximum possible extent. Hence, they help in the survival of business in the economy by keeping the capital market active and busy. They also encourage the growth of well- organized business enterprises by investing their funds in efficient and financially sound business enterprises only. One major benefit of NBFCs speculative business means investing in risky activities. The investing companies are interested in price stability and hence NBFCs, have a good influence on the stock- market. NBFCs play a very positive and active role in the development of our country.

FUNCTIONS OF NON- BANKING FINANCIAL COMPANIES:I. Receiving benefits:- The primary function of NBFCs is receive deposits from the public in various ways such as issue of debentures, savings certificates, subscription, unit certification, etc. thus, the deposits of NBFCs are made up of money received from public by way of deposit or loan or investment or any other form.II. Lending money:- Another important function of NBFCs is lending money to public. Non- banking financial companies provide financial assistance through.a. Hire purchase finance:-Hire purchase finance is given by NBFCs to help small important operators, professionals, and middle income group people to buy the equipment on the basis on Hire purchase. After the last installment of Hire purchase paid by the buyer, the ownership of the equipment passes to the buyer.b. Leasing Finance:-In leasing finance, the borrower of the capital equipment is allowed to use it, as a hire, against the payment of a monthly rent. The borrower need not purchase the capital equipment but he buys the right to use it.c. Housing Finance:- NBFCs provide housing finance to the public, they finance for construction of houses, development of plots, land, etc.d. Other types of finance provided by NBFCs include:- Consumption finance, finance for religious ceremonies, marriages, social activities, paying off old debts, etc. NBFCs provide easy and timely finance and generally those customers which are not able to get finance by banks approach these companies.e. Investment of surplus money:- NBFCs invest their surplus money in various profitable areas.

RESEARCH METHODOLOGYResearch Methodology refers to search of knowledge .one can also define research methodology as a scientific and systematic search for required information on a specific topic.The word research methodology comes from the word advance learners dictionary meaning of research as a careful investigation or inquiry especially through research for new facts in my branch of knowledge for example some author have define research methodology as systematized effort to gain new knowledge.

OBJECTIVES OF THE STUDY. To Study the growth of Non-banking financial companies in India. To Study the contribution of NBFCs in India. To Study the Growth rate of NBFCs As Compare to Banking Financial Institutions.

Data and Methodology:For the present study data are collected from various issues of RBI Bulletin regarding Financial and Investment companies. This Report analyses the performance of non-Banking financial companies during the year 2013-14. The study is based on the audited annual accounts of 12,029 companies, which closed their accounts during the period April 2013 to March 2014. Interpretation:-

As of March 2014, there were 12,029 NBFCs registered with the Reserve Bank, of which 241 were deposit-accepting (NBFCs-D) and 11,788 were non deposit accepting (NBFCs-ND). NBFCs-ND with assets of `1 billion and above had been classified as Systemically Important Non-Deposit accepting NBFCs (NBFCs-ND-SI)25 since April 1, 2007 and prudential regulations such as capital adequacy requirements and exposure norms along with reporting requirements were made applicable to them. From the standpoint of financial stability, this segment of NBFCs assumes importance given that it holds linkages with the rest of the financial system.

Performance:-Consolidated balance sheet of NBFCsItem

20132014PercentageVariation

1. Share Capital 2. Reserves & Surplus3. Total Borrowings 4. Current Liabilities & Provisions Total Liabilities/ Assets 1. Loans & Advances 72. Hire Purchase Assets3. Investments 4. Other Assets6472,2768,10457411,6017,6008051,9451,2506952,4578,90264712,7018,4558962,0751,2767.48.09.812.89.511.211.36.62.1

Memo Items

1. Capital Market Exposure (CME) 2. CME to Total Assets (per cent) 3. Leverage Ratio 8857.63.01,0298.13.016.4

During 2013-14, the overall balance sheet of NBFCs expanded by 9.5 per cent (As Shown in Balance sheet). Loans and advances (a major component on the assets side) increased by 11.2 per cent. Total borrowings, which constituted more than two-third of their liabilities, increased by 9.8 per cent.

Financial performance of NBFCsItems20132014

1. Total Income2. Total Expenditure3. Net Profit4. Total Assets1,2721,03923311,6011,4361,14729012,701

Financial Ratios (per cent)

5. Net Profit to Total Income6. Net Profit to Total Assets18.32.020.22.3

The financial performance of NBFCs improved during 2013-14 as their net profit to total income increased from 18.3 per cent to 20.2 per cent. As a result, return on assets rose to 2.3 per cent as of March 2014 from 2.0 per cent a year ago.

The NBFC sector has been gaining systemic importance in the recent years and the share of NBFC has steadily grown from 10.7% of banking assets in 2009 to 14.3% of banking assets in 2014.

Asset quality:-The asset quality of the NBFCs sector has been deteriorating since the quarter ended March 2013 (Chart 2.34). The Reserve Bank issued separate guidelines for both banks and NBFCs with an objective of mitigating the stress due to their NPAs. NBFCs were advised to identify incipient stress in their accounts by creating a sub-asset category viz. Special Mention Accounts (SMA), which was further divided into three sub-categories (viz., SMA-0, SMA-1 and SMA-2) based on the extent of principal or interest payment overdue as also the weakness of their accounts. They were also directed to report relevant credit information to the Central Repository of Information on Large Credits

Capital adequacy:-

As per the guidelines, NBFCs are required to maintain a minimum capital consisting of Tier-I26 and Tier-II capital, of not less than 15 per cent of their aggregate risk-weighted assets. As of March 2014, by and large, the capital adequacy position of the NBFCs remained comfortable and was well above prudential norms. Nevertheless, CRAR of the NBFCs slipped from the peak of 29.0 per cent as of September 2013 to 27.2 per cent as of March 2014.

ProfitabilityRoA of NBFCs increased to 2.5 per cent in September 2014 after remaining at around 2.3 per cent in previous three quarters.

Stress tests: Credit risk:-System levelA stress test on credit risk for NBFC sector27 as a whole for the period ended September 2014 is carried out under three scenarios: (i) GNPA increased by 0.5 SD (ii) GNPA increased by 1 SD and (iii) GNPA is increased by 3 SD. The results suggest that under first two scenarios, CRAR of the NBFC sector is unaffected while in the third scenario, it declines to 23.0 per cent from its level of 23.6 per cent.Individual NBFCsA stress test on credit risk for individual NBFCs is also conducted for the same period under the same three scenarios. The results indicate that under scenarios (i) and (ii) around 1.6 per cent of the companies will not be able to comply with the minimum regulatory capital requirements of 15 per cent, while 4.1 per cent of companies will not be able to comply with the minimum regulatory CRAR norm under third scenario.

Increasing size and systemic importance:-The NBFC sector has been gaining systemic importance in the recent years and the share of NBFC has steadily grown from 10.7% of banking assets in 2009 to 14.3% of banking assets in 2014.

Resource profile continues to be stable Borrowings through capital market including NCDs, subordinated debt, preference shares, perpetual debt continued to be the major source of funding for NBFCs as it accounted for 34% of total borrowings in FY14 followed by banks funding which accounted for 31% of their total borrowings. Overall borrowing mix in FY14 has remained in-line with FY13. Dependency on short term borrowings like commercial paper is less at around 7% which helps them to manage their asset liability mismatches. Revised guidelines on securitization and priority sector lending made NBFCs to re-look at their business model. Direct loans given to NBFCs are now not classifying as priority sector lending except for NBFC-MFIs. Lending via securitization route through direct assignment without credit enhancement or through Pass through Certificates (PTCs) can be classified as priority sector lending criteria. Change in above guidelines has made NBFCs to explore channel business tie-ups and direct assignment i.e. securitization without credit enhancement with banks to save their capital cost and overcome fund raising constraints.

Recent Regulatory Changes:-

1. Loan against Shares In the current year RBI issued guidelines on lending against shares, wherein RBI perceived that the asset class posed a systemic risk wherein an event of default by borrower may lead to offloading of shares by the lending NBFC in the market leading to very high volatility and impacting NBFC ability to recover its loan. The regulation has prescribed the following changes: Lending restricted to 50% Loan To Value (LTV) of the security Only A category as described by the Securities and Exchange Board of India (SEBI) shares can be pledged as collateral to avail loan from NBFCs Online reporting of pledge of equity shares by NBFCs to the stock exchanges

2. Lending Against Gold In case of lending against gold, RBI harmonized the LTV ratio and valuation methodology as different NBFCs were using different valuation methods and thereby leading to differences in the loan amount by different players against the same collateral, both for banks as well as NBFC. Additionally due the high risk perceived by the RBI in the segment RBI mandated Gold loan Also, NBFCs lending against gold are required to maintain high Tier I CAR of 12%.

3. Restructuring of Advances With regard to restructuring by NBFC, RBI has allowed only Infrastructure and Non-infrastructure project loans restructured to enjoy standard classification. In terms of provisioning RBI has again harmonized regulation for banks and NBFCs.

4. Sharing of Special Mention Accounts (SMA) data RBI has laid down framework for recognizing Special Mention Accounts (SMA) wherein there are early warning signals at par with banks.Thus, NBFC need to classify early warning accounts into (i) SMA-0 (based on certain parameters, (ii) SMA-1 (30-60 days overdue) and (iii) SMA2 (60-180 overdue). These SMA accounts need to be reported to Central Repository of Information on Large Credits SMA-2 to trigger Joint lender forum and formulation of corrective action plan together with banks, thus to help bank and NBFC to take corrective actions to address the stress before it turns into NPA

5. Restriction on raising retail NCD by way of Private placement Over the years, many NBFCs have been raising NCDs by way of private placement from retail investors, the same posed a high risk as this effectively meant that these were in a way retail deposits as there was no guideline to restrict the same. Accordingly, RBI issued a circular to address this regulatory Gap which addresses the issue a) By raising minimum investment to Rs.25 lakh in case of private placement b) Restricting maximum investors at 49

Also now NBFC cant give loan against security of its own NCDs