NBFCs in India s Financial Landscape. - Manisha Sachdeva (Associate Economist) - Darshini Kansara (Research Analyst)

Transcription

1 NBFCs in India s Financial Landscape - Manisha Sachdeva (Associate Economist) - Darshini Kansara (Research Analyst)

2 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-à-vis the Banking sector and the HFCs in the Indian Financial System. *Data for HFCs pertains to aggregate of 19 listed companies from AceEquity

3 Introduction NBFCs 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

4 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

5 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 India s financial system

6 Structure of NBFIs sector in India Non-Banking Financial Institutions (NBFIs) Non- Banking Financial Companies (NBFCs) All India FInancial Institutions Primary Dealers NBFCs-D NBFCs-ND EXIM NABARD SIDBI National Housing Bank (NHB) Systemically Important NBFCs-ND (NBFCs-ND-SI) Housing Finance Companies (HFCs) Other NBFCs-ND (NBFC-ND)

7 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

8 Distribution of assets across NBFCs-ND-SI and NBFCs-D: End-March position NBFCs-ND- SI 85.2% Note: Data for FY17 are provisional NBFCs-D 14.8% 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 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.

9 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

10 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.

11 Classification of NBFCs based on activities undertaken: FY17 NBFCSs-MFI 3.0% CICs-ND-SI 2.2% IDF-NBFCs 0.6% NBFCs-Factor 0.1% Investment companies 12.6% AFCs 13.7% Loan Companies 36.2% NBFCs-IFC 31.5% 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

12 Liabilities Breakup (%) of NBFCs: Comparison with SCBs and HFCs NBFCs Banks HFCs Share capital Reserves and Surplus Public deposits Borrowings Others Note : Data for banking sector pertains to FY16 and FY17 for NBFCs (Provisional) and HFCs

13 Assets Breakup (%) of NBFCs: A Comparison with SCBs and HFCs NBFCs Banks HFCs Loans and advances Investments Cash and bank balances Other Loans Others 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)

14 Borrowings breakup(%) of NBFCs-ND-SI : FY17 P Debenutres Bank borrowings Commercial paper Inter-corporate borrowings Others Note : Data for NBFCs for FY17 are provisional

15 Public deposits of NBFCs- D, Banks and HFCs Outstanding deposits (Rs lakh crore) FY17 NBFCs- D 0.31 Banks Time deposits Demand deposits HFCs 0.50 Deposits with NBFCs stood at Rs 0.31 lkh crores as on 31 st March 2017 compared with time deposits of lkh crs in the banking system during the same time period. Note : Data for NBFCs for FY17 are provisional

16 % Credit growth of NBFCs, Banks and HFCs: FY NBFCs-ND-SI Banks Private sector banks Note : Data for NBFCs for FY17 are provisional 0.6 Public sector banks HFCs

17 % Growth rate of credit of major categories of NBFCs 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

18 NBFCs-ND-SI credit, bank credit and HFCs credit as a % of GDP: FY17 % Note : GDP based on base year, current prices NBFCs data are provisional NBFCs Banks HFCs

19 Sectoral distribution of credit NBFCs and Banks : FY NBFCs - ND - SI Banks 37.5 Note : Data for NBFCs for FY17 is provisional Agriculture Industries Services Retail Others

20 % Share of MSEs in total credit : FY Note : Data for NBFCs for FY17 is provisional NBFCs Banks

21 % Growth of Infrastructure finance : NBFCs-ND-SI and SCBs FY16 FY17 NBFCs Banks Note : Data for NBFCs for FY17 is provisional

22 % Trend in NPA ratio : end-mar Note : Data for NBFCs for FY17 is provisional NBFCs Banks

23 % Return on Assets of NBFCs, Banks and HFCs: end Mar NBFCs-ND-SI NBFCs-D NBFCs Banks HFCs 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

24 CRAR of NBFCs and Banks : end-march position ; 2017 % Note : Data for NBFCs for FY17 is provisional NBFCs-ND-SI NBFCs-D NBFCs Banks

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