IMPORTANCE OF FIXED DEPOSIT

RULES AND REGULATIONS CONCERNING MOBILIZATION OF DEPOSITS

IMPACT OF RBI REGULATIONS ON THE OPERATIONS OF NBFCs

INCOME RECOGNITION NORMS FOR NBFCs

PROVISIONING

CAPITAL ADEQUACY NORMS FOR NBFCs

PUBLIC DEPOSITS
The term public deposit has been defined on the lines of notification framed under the Companies Act, 1956 & the Reserve Bank of India Act. It includes: 1. Fixed, recurring etc. deposits received from public. 2. Deposits received from relatives & friends. 3. Deposits received by public limited co. from its shareholders. 4. Money raised by the issue of unsecured debentures/bonds. It excludes: 1. Money raised by issue of secured debentures/bonds. 2. Borrowings from banks/financial institutions. 3. Deposits from Directors. 4. Intercorporate deposits. 5. Deposits from foreign citizens.

CLASIFICATION OF NBFCs
NBFCs accepting public deposits under any scheme or arrangement. NBFCs engaged in loan, investment, hire purchase finance and equipment leasing activities, but not accepting public deposits. NBFCs which have acquired shares/securities of their group holding/subsidiary companies to the extent of not less than 90% of total assets, which do not trade in such securities/shares and which do not accept public deposits. Chit Funds.

FIXED DEPOSITS
Fixed deposits form the main source of funds for NBFCs, financial institutions and banks. Cost of deposits is normally lower than cost of funds. Application of such money is done in activities like hire purchase, leasing etc.

PRE CONDITION FOR FUND MOBILIZATION

It should have been in existence for at least two years. It should obtain a minimum credit rating of A (by CRISIL or ICRA) or BBB (by CARE) or BBB (by Fitch Credit Rating, India), if it is an equipment leasing/hire purchase co. and a minimum rating of A if it is a loan/investment company. It should not have overdue deposits, except those unclaimed.

Contd
It should be a profit making company. It should declare that it has complied with the latest guidelines concerning acceptance of fixed deposits by NBFCs which restrict borrowing on the basis of credit rating and the net worth criteria.

RBI Regulations
NOF should not be less than 25 lakhs. Classification as an lease/hire purchase company. Ceiling on interest deposits 11% NPA Installment overdue for 12 months & above Investment exposure norms:- Single company: 15% - Group of companies: 25%

Contd..
Prohibited from granting loans against the securities of its own shares. LMR restricted to public deposits only 15% (01/04/1899) Required to submit annual statutory returns and financial statements to RBI. Required to comply with prudential norms

ASSET CLASSIFICATION
Standard Assets Sub-Standard Assets Doubtful Assets Loss Assets

PROVISIONING
Why provisioning is required? Time lag between an account becoming doubtful of recovery, its recognition, the realization of security and the erosion over time in the value of security charged

Provisioning For Loans And Advances

Sub-standard Assets:10% of total outstanding Doubtful Assets - 100% to the extent of unsecured portion - Additional provisioning done depending on the period for which asset has remained doubtful
Period for which asset has been considered doubtful Upto 1 year % Provisioning

20%

1-3 yrs

30%

More than3 yrs

50%

Provisioning For Lease And Hire Purchase Assets

Total provisioning required to be made is broken up in two parts: Basic and Additional Basic Provisioning -only in case of hire purchase transactions, not in respect of lease transactions -reqd. to be made once an asset becomes NPA -not linked to the number of months for which the installments are overdue

Basic Provisioning for Hire Purchase Assets

The basic provisioning is 100% of the following: - Total dues - As reduced by the finance charges not credited to the profit and loss account and carried forward as un-matured finance charges - As further reduced by the depreciated value or net realizable value, whichever is lower

Additional Provisioning
Hire Purchase/Lease Assets - The additional provision is dependent on the number of months for which the hire charges/lease rentals are overdue Overdue hire charges/lease rentals %age of net book value Upto 12 months 12-24 months 24-36 months >36 months Provisio ning required NIL 10% 50% 100%

CAPITAL ADEQUACY OF NBFCS

Capital Adequacy was introduced due to sharp rise in the no. of NBFCs CA started on recommendation of A. C. Shah Committee Report Narasimhan Committee classified NBFCs into loan, investment, equipment leasing, hire purchase, mutual benefir finanace companies & HFCs

CA NORMS-RISK WEIGHTED CAPITAL RATIO

Capital to be divided into 2 tiers

1. Tier I 2. Tier II

TIER I
Tier I includes paid up equity capital, free reserves, share premium a/c etc., reserves arising from sale of assets Accumulated losses & book value of intangible assets to be deducted Investment in excess of 10% of the owned funds in terms of shares, debentures of other NBFCs or subsidiaries and group co. should be deducted

TIER II
Non Convertible Preference shares Revaluation Reserves General Provisions and Losses admitted up to a max. of 1.25% of weighted risk assets Hybrid Debt Capital Instruments Subordinated Debts limited up to 50% of Tier I capital

RISK WEIGHTED ASSETS

It means weighted aggregate of funded & non-funded items Degree of Credit risk to assets & the assets value is multiplied to get Risk Adjusted Values of Assets Balance Sheet

OFF BALANCE SHEET ITEMS

Calculated by multiplying face value of each items in balance sheet by Credit Conversion Factor x Risk weight (100)

Details