Financial Analysis for Selected NBFC

A

A COMPREHENSIVE PROJECT REPORT ONTHE PERFORMANCE ANALYSIS OF NBFCSubmitted to Marwadi Education Foundation Group of InstituteIN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ASMINISTRATION In Gujarat Technological University UNDER THE GUIDANCE OF Dr. Monica VermaAssistant ProfessorSubmitted by

ANKIT SURESHBHAI GOKANI: 128270592038ANIL JERAMBHAI MAKVANA: 128270592070 Batch: 2012-14MBA SEMESTER III/IV MARWADI EDUCATION FOUNDATION OF GROUP INSTITUTE MBA PROGRAMME Affiliated to Gujarat Technological University Ahmedabad April -2014

Students Declaration

We, Mr. ANKIT SURESHBHAI GOKANI and Mr. ANIL JERAMBHAI MAKVANA, hereby declare that the Report for Comprehensive Project entitled THE PERFORMANCE ANAYLYSIS OF NBFC is a result of our own work and our indebtedness to other work publications, references, if any, have been duly acknowledged.

.. ANKIT SURESHBHAI GOKANI

.. ANIL JERAMBHAI MAKVANA

Place: RAJKOT Date:

Institutes Certificate

Certified that this Comprehensive Project Report Titled THE PERFORMANCE ANAYLYSIS OF NBFC is the bonafide work of 1. Mr. ANKIT SURESHBHAI GOKANI Enrollment No 1282705920382. Mr. ANIL JERAMBHAI MAKVANA Enrollment No 128270592070Who carried out the research under my supervision. I also certify further, that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of the Faculty Guide Signature of Dean

.................................................... .................................

(Dr. Monica Verma) Dr. S Chinnam Reddy

Date: .................

Place: ...................

IndexNo.ParticularPage No.

Part 1 Industry Study

1About the industry overview6

2Growth of the industry 12

Part - 2 Primary Study

3Introduction Of Study

3.1 Literature Review38

4Financial Analysis40

5Future scope of the Study49

6Conclusion And Suggestions50

7Bibliography51

ABOUT THE INDUSTRYNon-Banking Financial Companies (NBFCs) A 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.A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (residuary non-banking company). NBFC in India are registered companies conducting business activities similar to regular banks. Their banking operations include making loans and advances available to consumers and businesses, acquisition of marketable securities, leasing of hard assets like automobiles, hire-purchase and insurance business. Though they are similar to banks, they differ in a couple of ways. NBFCs cannot accept demand deposits (deposits that can be withdrawn at immediate notice), they cannot issue checks to customers and the deposits with them are not insured by the DICGC (the India equivalent of FDIC in the US system). Either the RBI (Reserve Bank of India) or the SEBI (Securities and Exchange Board of India) or both regulate NBFCs. Though the NBFCs have been around for a long time, they have recently gained popularity amongst institutional investors, since they facilitate access to credit for semi-rural and rural India where the reach of traditional banks has traditionally been poor. NBFCs have also had a major impact in developing small business in rural India through local presence and strong customer relationships. Usually the loan officers in such NBFCs know the end customer or have a strong informal understanding of the credibility of the borrower and are able to structure their loans appropriately.

Classification of NBFCs basedon the Nature of its business: Equipment Leasing Company Hire-purchase company; Loan company; Investment company; Infrastructure finance companyTheNBFCsthatareregistered with RBIarebasicallydividedinto4categoriesdepending upon its nature of business:

Reclassification of NBFCs:

However in terms of the NBFC Acceptance of Public Deposits (Reserve Bank) Directions, 1988 with effectfromDecember6, 2006theaboveNBFCsregisteredwith RBI have been reclassified as:

1. Loan Company(LC)

Loancompanymeansanycompanywhichis a financial institution carrying on as its principalbusinesstheprovidingof financewhetherbymakingloansoradvancesor otherwise for any activity other than its own but does not include an Asset Finance Company.

2. Investment Company(IC)

InvestmentCompanyisacompanywhichisa financialinstitutioncarryingonas its principal business the acquisition of securities.

Investment Companies are further divided into following sub- categories:

Core Investment Companies:

The Reserve Bank of India vide its Notification No. DNBS(PD)CC.No.197/03.10.001/2010-11datedAugust12,2010,anewclassofNBFCsbythenameofCore Investment Companies (CIC) was added

Core Investment Companies in terms of RBIs Notificationmean49

A non-banking financial company carrying on the business of acquisition of shares and securitiesandwhichsatisfiesthefollowingconditions as on the date of the last audited balancesheet:-

(i)itholdsnotlessthan90%ofitsnetassetsintheformofinvestmentinequityshares, preference shares, bonds, debentures, debt or loans in group companies;

(ii) itsinvestmentsintheequityshares(includinginstrumentscompulsorilyconvertible intoequityshareswithin aperiodnotexceeding 10yearsfromthedateofissue)ingroup companies constitutes not less than 60% ofits net assets

Net assets, for the purpose of this proviso, would mean total assets excluding

cash and bank balances; investmentinmoneymarketinstruments and money market mutual funds advance payments of taxes; and deferred tax payment.

(iii)it does not trade in its investments in shares, bonds, debentures, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;

(iv)itdoesnotcarryonanyotherfinancialactivityreferred toinSection45I(c)and45I (f) of the Reserve Bank ofIndia Act, 1934 except:

a) investment in

i. bank deposits,ii. money market instruments, includingmoneymarketmutualfunds, iii. government securities, andiv. bonds or debentures issued by group companies;

b) granting of loans to group companies; and

c) issuing guarantees on behalf of group companies.

OtherCompanies

Asset Finance Company(AFC)

AFCwouldbedefinedasanycompanywhichisafinancialinstitutioncarryingonas its principal business the financing of physical assets supporting productive / economic activity,such asautomobiles,tractors,lathemachines,generatorsets,earthmovingand material handling equipment, moving on own power and general purpose industrial machines. Financing of physical assets may beby way of loans, lease or hire purchase transactions.

Mutual Benefit Financial Company(MBFC)

Mutual Benefit Financial Company means a company which is a financial institution notified by The Central Governmentundersection 620A of The Companies Act 1956.

Non-Banking Financial Companies in India Non-Banking Financial Companies (NBFCs) have come a long way from the era of concentrated regional operations, lesser credibility and poor risk management practices to highly sophisticated operations, pan-India presence and most importantly an alternate choice of financial intermediation. Today, NBFCs are present in the competing fields of vehicle financing, housing loans, hire purchase, lease and personal loans. More often than not, NBFCs are present where the risk is higher (and hence the returns), reach is required (strong last-mile network), recovery needs to be the focus area, loan-ticket size is small, appraisal and disbursement has to be speedy and flexibility in terms of loan size and tenor is required. NBFCs growth had been constrained due to lack of adequate capital. Going forward, we believe capital infusion and leverage thereupon would catapult NBFCs growth in size and scale. NBFCs are not required to maintain cash reserve ratio (CRR) and statutory liquid ratio (SLR). Priority sector lending norm of 40% (of total advances) is not applicable to them. While this is at their advantage, they do not have access to low cost demand deposits. As a result their cost of funds is always high, resulting in thinner interest spread

NO. Of NBFC Registered with the Reserve Bank:YearNo. of NBFC

19997855

20008451

200113815

200214077

200313849

200413764

200513261

200613014

200712668

200812809

200912740

201012630

201112409

201212385

201312225

1. Growth and Evolution of Industry in India.

YearGrowth

1970-1971 to 1996-1997Aggregate Deposits of Non-Banking Companies in India.

As on 01.01.2000Non Banking Financial Companies (NBFCs) in India.

As on 30.06.2001State-wise Disappearance of Companies after Collecting Funds from the Market in India.

As on 31.03.2001Non Banking Financial Companies (NBFCs) Holding Public Deposits More than Rs. 20 crore in India.

2002-2003 and 2003-2004Selected Assets and Liabilities of Primary Dealers (Residuary Non-Banking Companies) in India.


2006-2007 to 2009-2010Selected Assets and Liabilities of Primary Dealers (Residuary Non-Banking Companies) in India.

2008-2009 and 2009-2010Overseas Investments Made by SEBI Registered with Non Banking Finance Companies (NBFCs) of India.

2007-2008 to 2009-2010Investment of Non-Banking Finance Companies (NBFCs) in Overseas Joint Ventures (OJV)/Wholly Owned Subsidiaries without Approval of Reserve Bank of India.

As on 31.03.2011Loans, Advances and Investments by Non-Banking Financial Companies (MFIs) in India

As on 15.03.2012Selected State/RBI Regional Office-wise Number of NBFCs Registered in India.


2002-2003 to 2011-2012Performance of Primary Dealers (Residuary Non-Banking Companies) in India.

2008-2009 to 2011-2012-up to 27.03.2012Number of Non-Banking Finance Companies (NBFCs) Registered in India.

2013Deposits Mobilised by NBFC Sector in India.

2. Product Profile Type of Services provided by NBFCs: List of Major Products Offered by NBFCs in INDIA: Funding of Commercial Vehicles Funding of Infrastructure assets Retail Financing Loan against shares Funding of Plant and Machinery Small and Medium Enterprises FinancingNBFCs provide range of financial services to their clients. Types of services under non-banking finance services include the following:

1. Hire Purchase Services2. Leasing Services3. Housing Finance Services4. Asset Management Services5. Venture Capital Services6. Mutual Benefit Finance Services (Nidhi) banks.

The above type of companies may be further classified into those accepting deposits or those not accepting deposits.

Now we take a look at each type of service that an NBFC could undertake.

1. Hire Purchase Services:

Hire purchase the legal term for a conditional sale contract with an intention to finance consumers towards vehicles, white goods etc. If a buyer cannot afford to pay the price as a lump sum but can afford to pay a percentage as a deposit, the contract allows the buyer to hire the goods for a monthly rent. If the buyer defaults in paying the installments, the owner can repossess the goods. HP is a different form of credit system among other unsecured consumer credit systems and benefits. Hero Honda Motor Finance Co., Bajaj Auto Finance Company is some of the HP financing companies.

2. Leasing Services:

A lease or tenancy is a contract that transfers the right to possess specific property. Leasing service includes the leasing of assets to other companies either on operating lease or finance lease. An NBFC may obtain license to commence leasing services subject to , they shall not hold, deal or trade in real estate business and shall not fix the period of lease for less than 3 years in the case of any finance lease agreement except in case of computers and other IT accessories. First Century Leasing Company Ltd., Sundaram Finance Ltd. is some of the Leasing companies in India.

3. Housing Finance Services:

Housing Finance Services means financial services related to development and construction of residential and commercial properties. An Housing Finance Company approved by the National Housing Bank may undertake the services /activities such as Providing long term finance for the purpose of constructing, purchasing or renovating any property, Managing public or private sector projects in the housing and urban development sector and Financing against existing property by way of mortgage. ICICI Home Finance Ltd., LIC Housing Finance Co. Ltd., HDFC is some of the housing finance companies in our country.

4. Asset Management Company:

Asset Management Company is managing and investing the pooled funds of retail investors in securities in line with the stated investment objectives and provides more diversification, liquidity, and professional management service to the individual investors. Mutual Funds are comes under this category. Most of the financial institutions having their subsidiaries as Asset Management Company like SBI, BOB, UTI and many others.

5. Venture Capital Companies:

Venture capital Finance is a unique form of financing activity that is undertaken on the belief of high-risk-high-return. Venture capitalists invest in those risky projects or companies (ventures) that have success potential and could promise sufficient return to justify such gamble. Venture capitalist not only provides finance but also often provides managerial or technical expertise to venture projects.

6. Mutual Benefit Finance Companies (MBFC's):A mutual fund is a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities/bonds. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in.

3. Demand Determination of the

No of Customer sizePricing StrategyService qualityPromotional FeatureCustomer Relationship ManagementInnovation

4. Players in the Industry: Total Number of NBFCs in India Register with RBI is 12104 as on Feb 24, 2014. Out of them top twenty are as follows:1. HDFC11. Bajaj Holding

2. Power Finance Corp.12. M & M Finance

3. Reliance Capital13. LIC Housing Finance

4. IDFC14. Edelweiss Capital

5. Rural Electricity Corp.15. KGN Industries

6. Shree Global16. Shriram City

7. Shriram Transport Finance17. IFCI

8. Bajaj Finserv18. JM Finance

9. Indiabulls19. India Infoline

10. Religare Enterprise20. Centrum Finance

4. Distribution Channel in the Industry

Distribution Channel in the IndustryInternetAgentBrokerSales Person

5. Key Issues and Current Trends

Key Issues and Current Trends

1. High cost of getting bank license will be a challenge for NBFCsIn the last 15 years, NBFCs have grown significantly in terms of size, reach and the last mile connectivity with customers. Therefore, their ability to deliver on financial inclusion is irrefutable. Although challenges are there, like a high cost of getting a bank licence, since no forbearance onCRR/SLRwould mean profitability taking a dip. It will take at least three to four years to recover those margins.

2. 2NBFCsnegotiatinga challenging operating environment: ICRANBFCshave seen a slowdown in growth and an increase in delinquencies as a result of the deterioration in the operating environment during FY2013. However, the rise in delinquencies and credit costs for NBFCs has been on expected lines.Although a challenging operating environment could continue to weigh on the asset quality of NBFCs, diversity in the borrower base, security based lending and proactivemonitoringcould keep the eventual losses under check.3. Liquidity ratio to be introduced for 30 days.

RBI has recommended maintaining a liquidity ratio of for 30 days. Which means an NBFC has to set aside cash balance equivalent to its debt payments due every month. This debt may include repayment of bank loans, interest payment to bond subscribes and others.

4. Provisioning norms for NBFCs would be similar to those for banks.In April this year, RBI Increased provisioning norms for banks from 10 % to 15 % on sub-standard assets (where interest payments have not been made for two months) while restructured assets (where concessions have been given to the borrower to prevent the loan from going bad) too have to be provided at 2 % as against 0.25 1 % earlier. If accepted, NBFCs too have to follow this. NBFC heads feel such provisioning is good on a longer term basis. Interestingly, it has an income tax benefit. The proposed income tax deduction is seen as a big relief.6. PESTEL Analysis

POLITICAL Tax Polices:Non-banking financial companies (NBFCs) have demanded income tax benefit on provisioning, like banks. In a representation to the finance ministry recently, the Finance Industry Development Council (FIDC), an umbrella body of NBFCs, demanded that NBFCs be covered under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities (Sarfaesi) Act to be able to recover their loans like banks.

The NBFC representatives met Finance Minister P Chidambaram during the pre-Budget meetings.

Sarfaesi Act is a stringent recovery law that allows banks to take over assets of the defaulters and auction them, without any kind of court intervention.

In its draft norms for NBFCs released last month, the Reserve Bank of India (RBI) had asked NBFCs to classify loans as non-performing assets if borrowers default for 90 days, instead of the current practice of 180 days.

FIDC wants the guidelines implemented over a period of three years, instead of two years as proposed in the draft norms.

The industry body has had several meetings with RBI in this regard.

Among the other demands by NBFCs are maintaining tier-I capital requirement at 7.5 per cent instead of 10 per cent as proposed in RBIs draft norms.

According to NBFCs, if the tier-I requirement has to be raised, then risk weightage of productive assets such as commercial vehicles and construction equipment should be reduced. They have also requested RBI to allow them to tap external commercial borrowings.

RBI had constituted a working group under former deputy governor Usha Thorat to look into the issues and concern of the NBFC sector. The group had submitted its report to RBI in August 2011. Based on the committees report, RBI came out with draft guidelines for the sector in January 2013.

Consumer protection:The Non-Banking Financial Company Micro Finance Institutions (NBFC-MFI) (Reserve Bank) Directions, issued by the Reserve Bank of India (RBI) on December 2, 2011, include several consumer protection rules in the regulatory framework for NBFI-MFIs. On pricing and transparency, it sets caps on interest and processing charges and limits other fees that can be imposed; it simplifies price structures and forbids the imposition of penalty charges; it requires a standard form for loan agreements; and it requires the effective interest rate to be published and prominently displayed in branches. On over-indebtedness, it takes steps to prevent multiple borrowing even within a single institution. It also limits an NBFC-MFIs recovery methods.

ECONOMIC: Economic Growth:In line with the global trend, NBFCs in India too emerged primarily to fill in the gaps in the supply of financial services which were not generally provided by the banking sector, and also to complement the banking sector in meeting the financing requirements of the evolving economy. Over the years NBFCs have grown sizably both in terms of their numbers as well as the volume of business transactions (RBI, 2009). The number of such financial companies grew more than seven-fold from 7,063 in 1981 to 51,929 in 1996. Thus, the growth of NBFCs has been rapid, especially in the 1990s owing to the high degree of their orientation towards customers and simplification of loan sanction requirements (RBI, 2000). Further, the activities of NBFCs in India have undergone qualitative changes over the years through functional specialization. NBFCs are perceived to have inherent ability and flexibility to take quicker decisions, assume greater risks, and customise their services and charges according to the needs of the clients. These features, as compared to the banks, have tremendously contributed to the proliferation of NBFCs in the eighties and nineties. Their flexible structures allowed them to unbundle services provided by banks and market the components on a competitive basis. Banks on the other hand, had all along been known for their rigid structure, especially the public sector banks. This compelled them carry out such services by establishing banking subsidiaries in the form of NBFCs.

Inflation Rate :With falling interest rates, this may be your last chance to lock your savings in deposit-taking non-banking finance companies (NBFCs), an option thats currently been giving higher rates of return than banks domestic term deposits. The rates offered by NBFCs on one-year fixed deposits are 75-175 basis points higher than those top banks offer on their domestic fixed deposits.The countrys top commercial banks offer 8.5-9 per cent interest rates a year on fixed deposits with maturity of 2-3 years. Though there are some banks that offer even higher rates Axis Bank, for example, offers 9.30 per cent a year for 2-3-year tenure; slightly higher for senior citizens the deposit-taking NBFCs offer 9.75-10.75 per cent a year in the same maturity tenure.

For example, Shriram Transport Finance Company Ltd (STFCL), an AA+-rated deposit-taking NBFC, offers 9.75 per cent and 10.75 per cent on fixed deposits for two years and 3-5 years, respectively. But, State Bank of India offers 8.50 per cent in the same tenure, while ICICI Bank and HDFC Bank offer 8.75 per cent.These high rates, however, may not sustain for long, as the Reserve Bank of India (RBI) might cut interest rates further. In 2012-13 so far, RBI has already slashed the repo rate by 75 basis points. And, as the inflation rate falls, it is expected there would be another rate cut in RBIs mid-quarter review of the monetary policy on March 19.

SOCIAL Issues: False criminal complaints : harassment & threats FIRs lodged due to ignorance and misguidance Supreme court :Issue is CIVIL (not criminal) FIRs lodged at police stations other than the police station under whose jurisdiction the place of repossession lies and where the intimation by the recovery agents has been given Lack of awareness on legal rights leading to aggravation of problem Rights under finance agreement & Supreme Court ruling Civil & criminal disputes :need for clear distinction Ownership under Motor Vehicles Act & Sale of Goods Act Only 1 to 2% of the cases lead to repossession blown up by the mediaTECHNOLOGICAL: Software:Xentric Technologies is one of the leading NBFC software providers in India. Software applications designed for NBFC and Micro-finance companies have been developed from scratch to cover the entire working of a Company/Firm involved in Hire Purchase and related Business.Today people have understood clearly that long term investments in FD, RD or MIS is the first step towards a strong and peaceful future. Naturally the need of cost effective and efficient applications like MIS software or Recurring billing software has emerged highly.When many software development companies are thrashing about to develop such RD or MIS software, the experienced NBFC software development team of Xentric has already designed and developed several unique and highly useful applications like Fixed Deposit Software, MIS software etc. depending on the requirements of such companies.

Essential Features: User Friendly & Powerful Accurate Partial Payment Calculation/Tracking Easy Loan Payment Postings Charges/Collects Late Fees Charges/Collects Miscellaneous Fees

LicensingA company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I (a) of the RBI Act, 1934 should comply with the following:i. it should be a company registered under Section 3 of the companies Act, 1954ii. It should have a minimum net owned fund of Rs 200 lakh. (The minimum net owned fund (NOF) required for specialized NBFCs like NBFC-MFIs, NBFC-Factors, CICs is indicated separately in the FAQs on specialized NBFC

About major Companies in the Industry1. BAJAJ FINSERV LIMITED

Bajaj Finserv. Limited is the holding company for the financial services businesses of the Bajaj Group. Its insurance joint ventures with Allianz SE, Germany namely Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited are engaged in life and general insurance business respectively. Its subsidiary Bajaj Finance Limited is a Non Banking Finance Company engaged in consumer finance, SME finance and commercial lending. Bajaj Financial Solutions Limited, a wholly owned subsidiary of Bajaj Finserv Limited is engaged in wealth advisory business.Products and Services: -Consumer FinanceConsumer Durables Finance

Lifestyle Finance

EMI Card

Personal Loans Cross Sell

Co-branded Credit Cards

Two and three wheeler Finance

Salaried Personal Loans

SME FinanceMortgage

Business Loans

Commercial LendingConstruction Equipment Finance

Infrastructure Finance

Vendor Financing

Consumer Finance:The division of retail banking that deals with lendingmoney to consumers. This includes a wide variety of loans, including credit cards, mortgage loans, and auto loans, and can also be used to refer to loans taken out at either the prime rate or the sub prime rate.

SME Finance:SME finance is the funding of small and medium sized enterprises, and represents a major function of the general business finance market in which capital for different types of firms are supplied, acquired, and costed or priced. Commercial Lending:A debt-based funding arrangement that a business can set up with a financial institution. The proceeds of commercial loans may be used to fund large capital expenditures and/or operations that a business may otherwise be unable to afford.

2. Reliance Capital:-

Reliance Capital, a constituent of CNX Nifty Junior and MSCI India, is a part of the Reliance Group. It is one of India's leading and amongst most valuable financial services companies in the private sector.

Reliance Capital has interests in asset management and mutual funds; life and general insurance; commercial finance; equities and commodities broking; wealth management services; distribution of financial products; private equity; asset reconstruction; proprietary investments and other activities in financial services.

Reliance Mutual Fund is amongst top two Mutual Funds in India with six million investor folios. Reliance Life Insurance and Reliance General Insurance are amongst the leading private sector insurers in India. Reliance Securities is one of Indias leading retail broking houses. Reliance Money is one of Indias leading distributors of financial products and services.

Product and Services:-

Mutual FundGeneral Insurance

Life InsuranceInternational Business

Commercial FinanceNational Pension System

Securities

Mutual Fund:

Reliance Mutual Fund (RMF) is amongst top two Mutual Funds in India, with Average Assets Under Management (AAUM) of Rs. 1,02,487 crore (US$ 16.5 billion) for the quarter ended December 31, 2013.

RMF offers a well-rounded portfolio of products that meet varying investor requirements. Reliance Mutual Fund constantly endeavours to launch innovative products and customer service initiatives to increase value to investors.

RMF has six million investor folios and a wide distribution network with presence in over 170 branches and more than 42,000 empanelled distributors. In addition, it has offices in Singapore and Mauritius.

Life Insurance:

Reliance Life Insurance Company Limited (RLIC) is amongst the leading private sector life insurers with a private sector market share of 6% in terms of new business premium. RLIC has a strong distribution network of over 900 offices across India.

RLIC offers wide range of innovative life insurance products, targeted at individuals and groups. It offers need based products that caters to three distinct segments namely protection, retirement and investment plans. RLIC is committed to emerge as a leading Life Insurer with global scale and standards.

Commercial Finance:

Reliance Commercial Finance aims to enable people to fulfil all their ambitions by creating assets for personal & business requirements.

It offers an exhaustive suite of financial solutions - Mortgages Loans, Loans against property, Loans for Vehicles, Loans for Construction Equipment, SME Loans, business loans and Infrastructure Financing

Whats more, with the help of our easy-to-use loan calculator, you can decide on the tenure, interest rate and the loan amount that best suits you.

Reliance Commercial Finance has a loan book size of Rs. 13,691 crore (US$ 2.2 billion), with a customer base of over 71,000 customers, as on December 31, 2013, across the top 37 Indian metros.

Securities:

Reliance Securities, the broking arm of Reliance Capital is the one of the Indias leading retail broking houses in India, providing customers with access to equities, equity options and commodities futures, wealth management, wealth management services, mutual funds, IPOs and investment banking.

Reliance Securities has over 7 lac retail broking accounts through its pan India presence with over 6,600 outlets.

3. Infrastructure Development Finance Company(IDFC)

Our Group was born out of the need for a specialized financial intermediary for infrastructure. Incorporated on January 30, 1997 in Chennai, our company was set up on the recommendations of the 'Expert Group on Commercialization of Infrastructure Projects' under the Chairmanship of Dr. Rakesh Mohan.

Since then, we have been a leading catalyst for providing private sector infrastructure development in India. We focus on developing and leveraging our knowledge base in the infrastructure space to devise and provide appropriate financing solutions to our customers. Our strong capitalization reflects the crucial role that we play in infrastructure development.


Corporate Investment BankingProject Finance

Fixed Income & Treasury

Investment Banking

Securities & Investment Research

Alternative Asset ManagementPrivate Equity

Infrastructure

Real Estate

Public Market Asset ManagementMutual Fund

IDFC FoundationGovernment Advisory & Program Support Services

Policy Advocacy

Capacity Building Initiatives

Community Engagement

4. India Infoline Limited (IIFL)

The IIFL Group is a leading financial services company in India, promoted by first generation entrepreneurs. We have a diversified business model that includes credit and finance, wealth management, financial product distribution, asset management, capital market advisory and investment Banking.

We have a largely retail focussed model, servicing over 2 million customers, including several lakh first-time customers for mutual funds, insurance and consumer credit. This has been achieved due to our extensive distribution reach of close to 4,000 business locations and also innovative methods like seminar sales and use of mobile vans for marketing in smaller areas.

Our evolution from an entrepreneurial start-up to a market leadership position is a story of steady growth by adapting to the changing environment, without losing the focus on our core domain of financial services. Our NBFC and lending business accounts for 68% of our consolidated income in FY13 and has a diversified product portfolio rather than remaining a mono-line NBFC. We are a leader in distribution of life insurance and mutual funds among non-bank entities. Although the share of equity broking in total income was only 13% in FY13, IIFL continues to remain a leading player in both, retail and institutional space.


EquityStructured Product

DerivativesLife Insurance

Mutual FundsSIP

EquityWe offer a bouquet of Equity offerings suitable for high traders to long term investors, beginners to diverse class of capital market participants. We have a dedicated desk assisting clients on Asset allocation, trading strategies, portfolio optimization. Award winning research on Fundamental, Technical & Derivatives aimed at growing assets by outperforming market.DerivativesExtensive research coverage on strategies such as Hedging, Carry-overs, Spreads, etc., helps clients to balance the risk and rewards of derivative trading. Our experienced advisors support high traders to make most of this popular market segment.Mutual FundsA mixture of comprehensive coverage of all mutual fund offerings and seamless execution of instructions. IIFL research and Mutual Fund trackers helps clients to navigate the ever growing market of MF Offers with outmost ease.Structured ProductCustomized Structures offering unique combination of coupons, market participation representing wide variety of Industry segment helps High Net worth Clients manage and preserve their wealth.Life InsuranceIIFL -one of the largest insurance brokers presents its clients with a bouquet of products across multiple service providers in most convenient manner. Our expertise in different classes along with Insurance completes a client's financial planning process.

5. Muthoot FinanceMuthoot Finance

Muthoot Finance Ltd: Established in the year 1939 when M.George Muthoot ventured into financial services through a partnership firm under the name of Muthoot M. George & Brothers (MMG). MMG was aChit Fundbased out ofKozhencherry. In 1971, the firm was renamed as Muthoot Bankers, and had begun to finance loans using gold jewellery as collateral. . In 2001, the company was renamed once again and came to be known as Muthoot Finance Ltd.. Muthoot Finance falls under the category of Systematically ImportantNon-banking financial company(NBFC) of the RBI guidelines.The company has more than 4,050 branches spread across 23 states of the country Muthoot Finance, according to the IMaCS Research & Analytics Industry Reports[Gold Loans Market in India, 2009 and the 2010 update to the IMaCS Industry Report 2009], is the largest Gold Loan NBFC and has the largest network of branches for a Gold Loan NBFC in India.[4]Muthoot Finance is also the highest credit rated Gold Loan company in India, with a credit rating of AA- (CRISIL) and LAA-(ICRA) for its Long Term Debts and P1+ (CRISIL)[5]& A1+ (ICRA)[6]for its Short Term Debt Instruments.Muthoot Finance promotes "gold power", a concept which emphasises mobilising household Gold possessions (ornaments), estimated to be more than 20000 tonnes,[7]in times of financial crunch. The services can be used by anyone from any economic section of society, with minimal paperwork and hindrances. Muthoot Finance privately placed 4% of its paid up capital to Private Equity players Barings India and Matrix Partners India for Rs. 1.57 billion,[8]hence valuing the earlier privately held company at over $1 billion. In terms of market capitalisation, Muthoot Finance Ltd is the second largest company in Kerala, first beingFederal Bank.


Gold loanMoney Transfer

Gold coins

Foreign exchange

InsuranceMpower card

Gold Loan:The Muthoot Gold loan portfolio is the largest in India as well as all around the globe. It is humbling to know that more than 80,000 people avail our trusted services on a daily basis.For the past 127 years, the company has been serving the interests of customers as its top most priority. Our journey through centuries coupled with the fact that we are still a rapidly growing company highlights the trust and commitment that our customers worldwide have shown in us.With Muthoot Finance Ltd. gold loan services, it takes no more than a few minutes for your gold to generate cash. The simple procedure that we follow allows:Quick Loan disbursalLoan limit stretches from Rs. 1500 to Rs. 1 crorePre-payment option-without any penaltyMinimal documentationIn-house gold evaluationImproves customer service in a shorter response timeStrong rooms for providing safe custody for gold ornaments

Gold Coins:Muthoot Finance Ltd. is a trusted name when it comes to providing financial services in the shortest possible span of time. We at Muthoot Finance help you invest in the most powerful asset, which is gold. It is also a leading Silver and Gold Coins provider in India. Above all, we promise quality.Gold CoinsNow make your purchase of gold coin easier with the range of options that we provide. We differentiate our gold coin services on the following basisUnder our Kanaka Vrishty Scheme we provide gold coins under easy monthly installments without any interestGreater return on investmentMinimum risk of investmentDenominations available for gold coins include 0.5, 1, 2, 4, 8, 10, 20 and 50 grams999 purity/24 caratDistributed through more than 4,400 Muthoot Finance Branches pan India M Power CardYour ticket to heavy discounts, rebates and interesting services that add value to your membership, MPower Card is a CRM service provided by Muthoot Finance. A certain period of membership with us and we empower you to avail a number of special services with the help of MPower Card.You Get..An option to deposit your jewelry safely with us, free of costEarn points on any transaction from any Muthoot Finance BranchAbility to convert loyalty points into giftsSpecial overdraft schemesRUPEES 20 PER GRAM EXTRA ON GOLD LOANPersonal accident coverage of Rs. 50,000Power to deposit and withdraw money from any Muthoot Finance branch on real timeTravelsmart:An International Air Transport Association (IATA) accredited agency, Muthoot Travelsmart took no time to become a leading travel services provider. Muthoot Travel Smart was designed to be more than just a travel service. You can also avail our flexible and customized travel insurance and foreign exchange (two additional prominent services under the Muthoot Brand umbrella) alongside our travel packages and tour arrangements. All these services are aimed at aiding and assisting you with your travel, be it for professional or personal purposes.Highlights of Our ServiceInternational as well as Domestic Air ticketing at competitive ratesVisa ServicesA wide assortment of Tour PackagesPersonalized Hotel BookingCustomizable Travel Insurance ServicesCustomizable Forex plansFastest, Easiest and Most Efficient Money Transfer Service in IndiaMuthoot Money Transfer makes it possible for you to RECEIVE AND SEND money to your dear ones within a blink of an eye. With 2 million transfers being executed annually, the company is recognized as the largest single payout centre in India. Real-time transfer allows quicker delivery of the amount, which takes no more than 10 minutes.We are the only single money transfer payout agent servicing all transfer services at our branches in India.Muthoot services are carried out from the following associates:Western UnionMoney GramXpress MoneyInstant CashEzRemitTransfastRoyal MoneyMuthoot Global and Muthoot Finances own branches abroad

PART II Company Study

3.1RESEARCH DESIGN

Since the research is for industry analysis and it is structured for NBFCS. The research uses Secondary data for analysis and interpretation.

3.2 OBJECTIVE

The confined objectives of the present study are: A Comparative study with help of Different Ratio to know the Performance of NBFC. To Identify under value or over value stock of Leading NBFC.

3.3 SCOPE OF THE STUDY

The study was limited to the Financial Service market of India whichincluded NBFCsMainly from the. The study was completed within the time frame of 60 days(2 months)starting from 1st April, 2010 and ending on 1st June, 2010. The target group of the studywere theNBFCs

3.4 DATA COLLECTIONThere are two methods of data collection that can be considered when collecting data for research purpose. These data collection types include the following

3.4.1 SECONDARY DATAThe secondary data for the research was collected from journals, research articles, books andinternet websites, annual reports etc. whose details and references has been given in Chapter-2 and in References.

Literature Review:

Literature Review was done by referring previous studied, articles and books to know the areas of study and analyze the gap or study not done so far. There are various studies were conducted relating to operational performance of the company form which most relevant literatures were reviewed.

Kenned and Muller (1999),

Has explained that " The analysis and interpretation of financial statement are an attempt to determine the significance and meaning of financial statements data so that the forecast may be made of the prospects for future earnings, ability to pay interest and debt maturines (both current land long term) and profitability and sound dividend Policy."

T.S Reddy and Y. Hari Prasad Reddy (2009),

Have stated that The statement disclosing status of investments is known as balance sheet and the statement showing the result is known as profit and loss account"

Peeler J. Patsula (2006)

He define that a sound business analysis tells others a lot about good sense and understanding of the difficulties that a company will face. We have to make sure that people know exactly how we arrived to the final financial Positions. We have to show the calculation but we have to avoid anything that is too mathematical. A business performance analysis indicates the further growth and the expansion. It gives a physiological advantage to the employees and also a planning advantage.

I.M.Pandey (2007)

Had stated that the financial statement contain information about the financial consequences and sources and uses of financial resources, one should be able to say whether the financial condition of a firm is good or bad; whether it is improving or deteriorating. One can relate the financial variables given in financial statements in a meaningful way which will suggest the actions which one may have to initiate to improve the firm's financial condition.

Carlos Correia (2007),

Had explained that any analysis of the firm, whether by management, investors, or interested parties, must include an examination of the company's financial data. The most obvious and readily available source of this information is the firm's annual report. The financial statements shall, in conformity with generally accepted accounting practice, fairly present the state of the affairs of the company and the results of operations for the financial year.

Salmi, T. and T. Martikainen (1994)

in his " A review of the theoretical and empirical basis of Finance ratio analysis ", has suggested that a systematic framework of financial statement analysis along with the observed separate research trends might be useful for furthering the development of research results in financial ratio analysis are to be useful for the decision makers, the results must be theoretically consistent and empirically generalizable.

Chidambaram Rameshkumar & Dr, N, Anbumani (2006)

He argue that Ratio Analysis enables the business owner / Manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare your ratios with the average of businesses similar to yours and compare your own ratios for several successive years, watching especially for any unfavorable trends that may be starting. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before your business is destroyed by them.

Financial Analysis:Profitability RatioA class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

1. ROCEA financial ratio that measures a company's profitability and the efficiency with which its capital is employed. Return on Capital Employed (ROCE) is calculated as:

ROCE = Earnings Before Interest and Tax (EBIT) / Capital EmployedBajajIIFLIDFCMuthootReliance

1. ROCE20138.8513.3210.25

20127.5811.4820.110.59

201116.978.2613.575.64

201014.98.5514.059.02

20094.1715.4910.2413.1411.48

Analysis:From the above chart, ROCE of Muthoot is high compare to other four companies, which shown the high profitability. In 2012 Muthoot have 20.1 ROCE, as we seen in the chart IDFCS ROCE remain constant through 5 Years.2. Net Profit MarginA ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.BajajIIFLIDFCMuthootReliance

2. Net Profit Margin201333.3917.422.6917.11

201253.1210.1326.2619.615.64

2011150.3915.2929.8421.3312.1

201026.1822.0232.0620.8914.3

200936.3818.5122.1615.7532.48

Analysis:The chart represents the high profit margin of Bajaj, in which in 2011 Bajaj have 150.39%. IIFL have low profit margin compare to other four companies. Here IDFC have consistency in their net profit margin.

3. Dividend Payout Ratio:The percentage of earnings paid to shareholders in dividends.Calculated as:

BajajIIFLIDFCMuthootReliance

3. Dividend Payout Ratio201346.9594.1325.8848.18

201228.3479.6225.6619.3736.8

20118.6280.6427.1170.32

201049.6465.5721.4555.03

200940.9387.8323.819.29

Analysis:Chart shown the high dividend payout ratio of IIFL. As shown in chart Muthoot was paid only one time dividend in 2012 to their shareholder, which shown the negative impact. IDFC paid average dividend to their shareholder through 5 Years. Reliance have up-down position in 5 years.4. EPS:The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

Calculated as:


4. EPS20133.23.2511.6526.95

20125.292.1910.312421.13

201113.024.278.5215.439.33

20102.355.337.797.5613.82

20092.863.735.6819.9439.41

Analysis:As we seen in the chart Reliance have more EPS(Earning Per Share) compare to other Companies. In 2009 Reliance have 39.41% EPS, which can be decreased in 2013 to 26.95%. IIFL have lowest EPS compare to other companies. Here also IDFC remain consistant. Muthoot have no consistancy as we seen in the chart.Liquidity Ratio:A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.

5. Current Ratio:A liquidity ratio that measures a company's ability to pay short-term obligations.

The Current Ratio formula is:


5. Current Ratio20130.6112.631.94

20120.431.032.251.021.92

20110.151.038.471.086.5

20100.790.976.971.412.48

20091.171.115.51.541.57

Analysis:The chart represents that, Bajaj have lowest current ratio compare to other companies. On the other part IDFC have high current ratio. In 2011 IDFC have 8.47%. IIFL on the other hand remain consistant throgh 5 Years. Muthoot shown the growth in current ratio, which can in good for the Company.6. Quick Ratio:An indicator of a companys short-term liquidity. The quick ratio measures a companys ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio excludes inventories from current assets, and is calculated as follows:Quick ratio = (current assets inventories) / current liabilities, or

= (cash and equivalents + marketable securities + accounts receivable) / current liabilitiesBajajIIFLIDFCMuthootReliance

6. Quick Ratio20130.610.983.533.62

20120.414.524.633.36

20110.151.4724.7819.7913.81

20100.721.3128.1810.877.43

20090.911.126.7915.3226.31

Analysis:Chart represents that IDFC have high Quick Ratio compare to other companies, in 2010 it have 28.18%. As current ratio is low of Bajaj, Quick ratio is also low. Reliance have major decline in 2013 compare to 2009.Leverage RatioAny ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses.

Debt Equity RatioA measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.


Debt Equity Ratio20132.981.44

20120.013.065.291.3

20110.433.638.952.63

20100.260.453.899.031.72

20090.263.918.532.02

Analysis:In the chart Muthoot have more Debt Equity ratio compare to other companies, in 2010 it have 9.03. Reliance and IDFC have consistancy in debt equity ratio. IIFL have low debt equity ratio compare to other companies.Long term Debt Equity RatioA measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.


Long term Debt Equity Ratio20132.731.08

20122.462.131.3

20113.474.442.63

20100.263.445.471.72

20090.263.375.672.02

Analysis:As chart shown Muthoot have more Long term Debt Equity Ratio compare to other Companies. As we seen IDFC have consistency in Long term Debt Equity Ratio In 2009 Muthoot have 5.67%, Which can be decline to 2.13 in 2012.

SWOT Analysis of NBFC

1. Strength:-

Easy and fast appraisal & Disbursements Product innovation and superior delivery Strong market penetration and increased operating efficiency Collection Efficiency

2. Weakness:- Too much of diversification core business Increased regulatory coverage No access to SARF AESII or DRT for recovery from bad loans and no access to refinance. Volatile business Environment3. Opportunities:- Large untapped market, both rural & Urban and also geographically Tie-up with global financial sector giants New opportunities in credit card, personal finance, home equity, etc.4. Threats:- High cost of Funds Restrictions on Deposit taking NBFC Growing retail thrust within banks and competition from un organized money lends Significant slowdown in the economy affecting the various segments of NBFCs Deterioration of Asset quality and rising level of NPA.

PORTERS FIVE FORCES MODEL OF COMPETITION

The nature of competition in the industry in large part determines thecontentofstrategy,especiallybusinesslevelstrategy.baseditisonthefundamental economics of the industry, the very profit potential of an industry isdetermine by competition interaction. Where these interactions are intense, profittends to be whittled away by the activities of competing.Porters model is based on the insight that a corporate strategy shouldmeet the opportunities and threats in the organizations external environment.Especially, competitive strategy should base on and understanding of industrystructures andthe way theychange. Porter has identified five competitive forcesthat shape every industry and every market. These forces determine the intensityof competition and hence the profitability and attractiveness of an industry. Theobjective of corporate strategy should be to modify these competitive forces in a waythat improvestheposition oftheorganization.Porters modelsupportsanalysis of the driving forces in an industry. Based on the information derivedfrom the Five Forces Analysis, management can decide how to influence or toexploit particular characteristics of their industry.

Future OutlookNBFCs have been playing a very important role both from the macroeconomic perspective and the structure of the Indian financial system. NBFCs are the perfect or even better alternatives to the conventional banks for meeting various financial requirements of a business enterprise.They offer quick and efficient services without making one to go through the complex rigmarole of conventional banking formalities. However to survive and to constantly grow, NBFCs have to focus on their core strengths while improving on weaknesses. They will have to be very dynamic and constantly endeavour to search for new products and services in order to survive in this ever competitive financial market. Since NBFCs have been kept outside the purview of SARFAESI Act, a reform in this area in quite urgently needed.A suitable legislative amendment extending the operation of the said act to NBFCs too would go a long way in fortifying the faith of the investors and which in turn would greatly contribute to the growth of this sector. The coming year will be very crucial for NBFCs and only those who will be able to face the challenge and prove themselves by standing the test of time will survive in the Long run.Hold a Good Future in Indian Economy.

Although some improvement has been witnessed in auto sales in last few months, the demand for vehicle finance is likely to remain subdued. Besides, given the significant slowdown in the Indian economy, NBFCs were encountering structural challenges such as increased refinancing risk, short-term asset-liability mismatch leading to decelerating growth and declining margins. This is expected to have a bearing on the profitability of NBFCs in the medium term.Given that growth in vehicle finance might remain low in the medium term, NBFCs are expected to focus on rural and semi-urban markets. Credit requirements of rural population are primarily met by banks from organized sector or local money lenders. Though, in recent years there has been some penetration of NBFCs in this segment, the market still remains largely untapped. There is a large section of rural population which does not have access to credit either because of their inability to meet the lending covenants of banks or due to high interest rates of local money lenders. This provides a huge opportunity for NBFC sector to spread their business in the rural & semi-urban markets.

Finding and Conclusion ROCE not showing any specific Trend that is they are fluctuated. NPM for all the NBFCs have been on an average 20 % however there has been a sudden rise in Bajaj NPM in the year 2011. IIFL has the highest average DPR followed by RIL, there by showing that this companies are profitable. Average EPS of RIL is the highest, whereas that of IIFL is the lowest. IDFC has highest current ratio followed by RIL,. There by showing a better ability to pay. IDFC has highest quick ratio. Muthoot has Highest DER.

Bibliography

BibliographyBookFinancial Management M Y Khan & P K JainInvestment Valuation Damodaran AswathFinancial Management - I M Pandey

ArticlesReserve Bank of India Bulletin, August 2009, P. 591Economic Times, Ahmedabad Edition, 26/3/99, p.10

Documents

Financial Analysis for Selected NBFC