Jan 2016 NBFC & MSME Funding Overview of NBFC Sector NBFC Sector overview NBFCs are classified under 8 categories 7 under the purview of RBI while 1 isregulated by the National Housing Board (NHB). 12,029 registered NBFCs of which 241 are NBFCs-D (Deposit taking) and 465 areNBFC-ND-SI (Systemically Important Non Deposit taking). 90% of NBFC assets are accounted by NBFC-ND-SI. NBFC Assets comprise 9% of total Financial Assets in India. NBFC Sector OverviewContd.
Increasing size and systemic importance Share of NBFC assets as apercentage of Bank assets havesteadily grown from 10.7% in to 14.3% in FY14. Stronger regulatory environment leading to higher capital cover and better risk management Higher capital and provisioning requirement by RBI to manage risk in the sector. RBI has emphasizing on higher disclosures by large size NBFCs to safeguard public money and avert systemic shocks. Presence of NBFCs in the Indian Financial space
Increased Dominance of NBFCs in the Indian Financial Space NBFCs: Sizeable expansion in Credit Market Share as a % of Total Loans post FY10 Key Highlights Equity base of NBFCs has witnessed signification expansion, with equity base of some of the NBFCs surpassing that of banks like Federal Bank Share of NBFCs has increased at a CAGR of 6.0% during the last 5 years NBFC credit market share is expected go from 13% at present to 17% by FY19 5 NBFCs: Well Capitalized to Capture Loan Growth
NBFCs are likely to maintain capital buffers at comfortable levels in FY16. The new regulatory guidelines requiring transition to minimum Tier 1 Capital of 10% by FY17 are unlikely to impact most NBFCs in the short term Product Landscape of NBFC Sector NBFC Performance in Different Segments
Credit Breakup across Segments Total Segment Size (INR Crs) Key Players (Market Share %)
Market Size of Key Segments in NBFC Sector Segment Total Segment Size (INR Crs) Total Segment Size (%) Key Players (Market Share %) Total NBFC Credit Market 5,24,600 100% Auto & 2 Wheeler Loans 61,000 12% MMFSL (40%), KMPL (16%), TMFL (6%), SFL (4%) Equipment Finance 36,600 7% SEFL (26%), MMFSL (16%) Commercial Vehicle Finance 109,800 21% TMFL (10%), CIFCL (15%), SFL (5%) Personal Finance MFL (59%), MPFL (25%) Housing Finance (Home Loans, LAP) 158,600 30% LIC HFL (58%), IBHFL (23%), GFL (6%) Capital Market (LAS, MF, ESOP, IPO) 24,400 5% ABFL (17%), IIFL (10%), RFL (7%), KMPL (6%), ECL (4%), JMFPL (4%) Corporate Finance 85,400 16% BFL (18%), TCFSL (17%), RFL (10%), ABFL (5%), JMFPL (2%) Mezzanine (Structured Finance) 12,200 2% ECL (2%) MMFSL - Mahindra & Mahindra Financial Services Limited, KMPL - Kotak Mahindra Prime Limited, TMFL - Tata Motors Finance Limited, SEL - Sundaram Finance Limited, SEFL - SREI Equipment Finance Limited , CIFCL - Cholamandalam Investment and Finance Company Limited, MFL - Muthoot Finance Limited, MPFL - Mannapuram Finance Limited, LIC HFL - LIC Housing Finance Limited, GFL - Gruh Finance Limited, ABFL - Aditya Birla Finance Limited, RFL - Religare Finvest Limited, ECL - ECL Finance Limited,BFL - Bajaj Finance Limited, TCFSL - Tata Capital Financial Services Limited Source: RBI, ICRA, Annual Accounts of NBFC's, IRR Advisory Estimates * Equipment Finance & Corporate Finance comprises of MSME funding offered by NBFCs NBFCs who are focused on SME lending space are Religare, AU Finance, Vistar Capital among others Large NBFCs like L&T Fin, Aditya Birla etc have started focusing on this space as well 9 Overview of MSME Funding Brief overview of MSMEs
Enterprises with the capital investment (plant machinery and equipment) levels within 10 Crores INR (for services worth 5 crore INR qualify as MSMEs) The MSME sector contributes in a significant way to the growth of the Indian economy with a vast network of over :- 32 million units, creating employment of about 70 million, manufacturing more than 6000 products, contributing about 45% to manufacturing output and about 40% of exports, directly and indirectly. Investment in Plant and Machinery Investment in Equipment
MSME definition by RBI Type of Enterprise Manufacturing Services Micro < Rs. 25 lakhs < Rs. 10 lakhs Small > Rs.25 lakhs and Rs.10 lakhs and Rs.5 crores and Rs.2 crores and Investment in Plant and Machinery Investment in Equipment MSME: Micro, Small and Medium Enterprises Excluding land and building and furniture, fittings and other items as notified under the MSMED Act, 2006 Financing Options in SME space
In SME space, there are mainly two financing options:- Debt Option Equity Option DebtOption Public & Private Sector Banks Public & Private Sector Banks have been pioneers in providing financial assistance to several MSMEs which can approach the banks for loans under various schemes. Government institutes andschemes Few of the schemes offered by Government bodies are as under:- National Small Industries Corporation (NSIC) Small Industrial Development Agency (SIDA) Credit Linked Capital Subsidy Scheme (CLCSS) Small Industry Development Bank of India (SIDBI) National Bank Agriculture (NABARD) Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) NBFC & intermediaries NBFCS & intermediaries also provides financial assistance to several MSMEs. Fund Based facilities Offered to customer
Long Terms funds for capacity expansion/modernisation/technology up-gradation. To purchase fixed assets in the form of machinery, immovable property etc. Term Loan for capacity expansion Cash Credit/ Overdraft - Liquidity to run his business on a day to day basis and purchase stock/meet other business overheads Packing credit - Executing an export order for which he needs funds to procure raw material and manufacture goods to be shipped May be in both INR/ foreign currency Bill discounting - Immediate liquidity against bills (both import and export) under which the goods have been shipped/supplied to the buyer on credit Working Capital In order to infuse long term funds in a gradual manner To cater to general business purposes such as Marketing/ Promotional expense, security deposit,etc. General business purpose loans (Short/ Long Term) Non Fund Based facilities Offered to customers
For the bank to guarantee payment to the supplier for purchase of raw material Raw Material LC issued can be both domestic/ foreign Letter of Credit (Raw Material) For the bank to guarantee payment to the supplier for purchase of machinery Capex LC issued can be both domestic/ foreign Letter of Credit (Capex) For the bank to provide a guarantee in favour of the beneficiary to be able to bid for and execute a project being awarded by the beneficiary Can be issued as an Advance Payment Guarantee, Performance Guarantee Bank Guarantee To hedge risks that arise out of volatility in the exchange rate movement of Rupee against other major currencies Forward Cover Non Fund based credit exposure on the client computed as per the current marked to market value of the contract plus potential future exposure, arising on account of the interest rate, foreign exchange derivative transactions LER Financing Options in India..Contd.
Equity Option SME private equity Venture capital funds Venture Capital means of equity financing for rapidly growing MSMEs. Venture capital provides financial assistance primarily by way of equity or equity-linked capital investment. Institutions offering VC/ PE SIDBI Venture Capital Limited (SVCL) IFCI Venture Capital Funds Limited (IVCF) Helion Venture Partners/ Erasmic Venture Fund Accel India Venture Fund/ Seed Fund IL&FS Trust Company Limited SBI Capital Markets Limited Challenges in Financing for MSMEs
Despite showing a robust growth rate of over 10% over the last 5 years, the MSME sector is beset with operational problems due to size and nature of business. Key challenges in Financing for MSMEs Financing Related Legal and tax related Non-availability of adequate and time credit; High cost of credit; Collateral requirements; Limited access to equity capital. Multiplicity and procedural complexity of labour laws, No mechanism for quick revival of viable sick units and speedy shutdown of unviable ones; Issues relating to taxation, both direct and indirect and procedure thereof Operational related Infrastructure and technology related Problems in supply to government departments and agencies; Cost efficient procurement of raw materials; Problems of storage, designing, packaging and product display. Lack of access to global markets; Inadequate infrastructure; Lack of access to modern technologies; Lack of skilled manpower in manufacturing, services, marketing, etc. Addressing the challenges
Any company seeking financial assistance for the implementation of its business idea is required to prepare a project report covering the following aspects of the project: Promoter background and experience; Product with capacity to be built up and processes involved Project location Cost of the project and means of financing Availability of utilities Technical arrangements Market prospects and selling arrangements Environmentaspects Profitability projections and cash flows for the entire repayment period of financial assistance. Key update on MSME Financing
SME Rating Agency (SMERA Rating) SME Exchange Platform (For paid up capital upto Rs. 25 Crores) Factoring (Discounting of receivables) Supply chain funding CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) TUF Scheme (Technology Upgradation Fund) CLCSS (Credit Linked Capital Subsidy Scheme) Thank You