An Overview on Nbfc Sector in India

In the context of mandatory registration of NBFCs with the Reserve Bank, as also consistent with the policy of bestowing greater operational freedom to banks in the matter of credit dispensation, the ceiling on bank credit linked to Net Owned Fund (NOF) of such companies has been withdrawn in respect of all NBFCs which are statutorily registered with RBI and are engaged in principal business of equipment leasing (EL), hire-purchase (HP), loan and investment activities. (RBI Notification /2004-05/14)

Banking system and the Financial Institutions play very significant role in the economy. First and foremost is in the form of catering to the need of credit for all the sections of society. The modern economies in the world have developed primarily by making best use of the credit availability in their systems. An efficient banking system must cater to the needs of high end investors by making available high amounts of capital for big projects in the industrial, infrastructure and service sectors. At the same time, the medium and small ventures must also have credit available to them for new investment and expansion of the existing units. Rural sector in a country like India can grow only if cheaper credit is available to the farmers for their short and medium term needs.

Banking industry is currently operating in the maturity stage. There are many players as a result of which the competition is quite high. Competition is broadly based on the levels of fees charged, reputation, the range of services and products provided. As the industry consolidates and the range of services broadens, the size and geographic spread of industry players in increasing. Providing a high set of barriers is the capital and regulatory requirements within the banking sector. Entities that want to start up as a commercial bank and/or investment bank or securities dealer face significant establishment costs in order to gain acceptance and meet market reputation. Furthermore, start-ups require up-front expenses in order to establish proper distribution channels. Globalization is high and the trend is increasing. Cross-border sales and acquisitions of banking operations are also occurring, as assets are shuffled in the race to raise capital.

Bank of Baroda is one of the leading commercial and retail banks of India, which increasing presence in foreign markets too.The bank holds a strong position in the Indian banking industry and witnessed a Y-o-Y growth of ~20% in its global business. The bank has been making continuous efforts to diversify its business and focus more on the areas like retail, MSME and agriculture credit. The bank holds a strong capital base too, with current Capital Adequacy Ratio standing at 12.28% under the BASEL III norms. The bank also saw a decline in its NPAs, although it is not quite sure that whether this trend is expected to be continued in future as well or not. Moreover, the bank’s management has stated the bank is going through the last phases of its restructuring programs, indicating that the

By international standards, however, there is still much scope for retail banking in India. After all, retail loans constitute less than seven per cent of GDP in India vis-à-vis about 35 per cent for other Asian economies — South Korea (55 per cent), Taiwan (52 per cent), Malaysia (33 per cent) and Thailand (18 per cent). As retail banking in India is still growing from modest base, there is a likelihood that the growth numbers seem to get somewhat exaggerated. One, thus, has to exercise caution is interpreting the growth of retail banking in India.

Banking Industry is the chief indicator of the growth of any country’s economy. India with its huge populations presents a huge scope for banking industry. State Bank of India is a public sector unit and enjoys the market leader position. HDFC is catching up on the back of its exquisite growth in last decade. And with the relaxation of government control, private players are in a much better position to compete. But both the banks have their own problems

The Banking sector in India has always been one of the most preferred avenues of employment. In the current decade, this has emerged as a resurgent sector in the Indian economy. As per the McKinsey report ‘India Banking 2010’, the banking sector index has grown at a compounded annual rate of over 51 per cent since the year 2001, as compared to a 27 per cent growth in the market index during the same period. It is

Business Portal of India [n.d] Starting a business: Financing a start up business [online] [Accessed 10 October 2013]

Competition in urban areas is fierce whereas it is extremely slow in rural areas. With the hope of reaching rural households the government has reduced some of the rules and regulations for banking. Since many banks don’t consider rural communities profitable, they only distribute loans when required by the government. Despite all these efforts, most rural households in India still do not have access to banking. This inhibits them from access to savings and credit. In India it is extremely difficult for the rural poor to get credit. In fact they don’t even have savings account from the formal banking sector. Some urban poor have access to the banking system because of their geographical location whereas most don’t

o The regulatory authorities, especially SEC, would need to be empowered to be active in the market to prevent hreat to competitive market and monopolistic tendencies of mega-banks from consolidation. Also, the NDIC and CBN would need to constantly monitor the activities and performance of the emerging mega-banks to prevent bank distress and failures. (pg 14)

21  7.1)The Role of Reserve Bank of India (RBI) – Banker’s Bank: ......................................................... 23  7.1.1)Main Objective: ................................................................................................................. 23  8)Co‐operative Banks: ........................................................................................................................ 26  8.1)There are two main categories of the co‐operative banks. ....................................................... 27  8.1.1)Features of Cooperative Banks .......................................................................................... 27

to strengthen the regulatory and accounting frameworks aimed at increasing the resilience of the institutions. However, higher capital standards, stricter liquidity and leverage ratios and a more cautious approach to risk are likely to raise the funding costs of banks. Compliance with Basel III stipulations along with the credit needs of a growing economy will require banks to tap various avenues to raise capital. Broad estimates suggest that for public sector banks, the incremental equity requirement due to implementation of Basel III norms by March 2018 is expected to be approximately `750-800 billion. Meeting these capital requirements will entail the use of innovative and attractive market based funding channels by the banks. The

The recent guidelines on New Bank Licenses by RBI have opened the doors for the entry of third set of private banks into the 73 trillion banking sector. Taking a look at the non-financial players like Aditya Birla Nuvo Ltd, Reliance Capital Ltd, L&T Finance Holdings Ltd, and Bajaj Finserv Ltd.which having a past record of sound credentials and integrity along with being financially sound have run the competition. Not only that, with a successful track record of 10 years, one would normally hope of improved productivity of the banking sector, which has been seen stagnating over the last few years and this gives a new opportunity for new

In a year’s time, the number of banks in India will rise by more than 45%. Until 2014 there were 25 public sector banks (PSBs) and 20 private banks, i.e. a total of 45 banks. With the Reserve Bank of India (RBI) having granted licenses to 2 private banks, 11 payment banks and 8 small finance banks, the number will rise to 66 in about 18 months when these banks get functioning. Contrast this with the period from 1990 to 2014 when only 9 banks were given licenses, but in 2014-15 alone, 21 licenses have been granted; it spells a serious change in market dynamics.

Indian Financial Sector is a well diversified arena experiencing high growth and development. The financial sector of India is comprised of commercial banks, insurance companies, non-banking cooperations, pension and mutual fund houses and lot more other financial institutions serving the Indian Economy. However, the financial sector is a major ly dominated by the Bankin Sector where the commercial banks comprise of 60 percent of total assets held by the financial system followed by Insurance Sector. Apart from the Banks and Insurance Companies, financial sector also comprise of Non-Banking Finance Companies also known as NBFC which in operate in specialized segments of micro finance,