FSCL-Company analysis/Industry analysis Report

Name of the company:

Cholamandalam finance ltd
SUBMITTED TO
INDIRA INSTITUTE OF MANAGEMENT, PUNE
POST GRADUATION DIPLOMA IN MANAGEMENT
BY
Shubham Tammiwar
(PGDM BATCH 2018-2020)

UNDER THE GUIDANCE OF

Dr. Neetal Vyas

INDIRA INSTITUTE OF MANAGEMENT PUNE

(TAPASYA, PUNE-411033)

1
 INDEX

PAGE
Sr. No PARTICULARS NO.

1 Introduction of the company 5

2 Board of the directors 7

3 Products/Services offered by the company 6

Business model of the company

4 7

5 Marketing mix -

6 Major achievements 8

Corporate governance activities 9

7

8 Management outlook of the company 11

9 SWOT Analysis of company -

CAGR growth rate for net sales & net profit of the company
10 for last 3 years 14

Financial statement analysis of the company using ratio for

11 last 3 years 15

12 Market capitalization of the company for last 3 years -

13 Analysis of capital structure of the company 24

14 Market price analysis of the company for last 3 years -

15 Introduction to the outlook of Industry 25

Contribution of Industry towards India’s GDP, Employment

16 etc 27
2
 17 Major players in the Industry 28

18 PESTL Analysis of Industry 29

LIST OF TABLE

Sr No Table no Page No

1 1 13

2 2 15

3 3 16

4 4 18

5 5 19

6 6 20

7 7 22

8 8 23

9 9 24

LIST OF FIGURE

Sr No Figure no Page No
1 1 14

2 2 15

3 3 17

4 4 18

3
 5 5 20

6 6 21

7 7 22

8 8 23

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VISION & MISSION
Vision:
Enable Customers to Enter a Better Life.
Mission:
Customer first:
Switch from product focused to customer focused

Improving Efficiencies:
Long term Customer focus requires profitability and sustainability

People Power:
People are our Primary Asset. Happier people = Happier Customers

ABOUT COMPANY:
About Cholamandalam Investment and Finance Company Limited (Chola)
Cholamandalam Investment and Finance Company Limited (Chola), incorporated in 1978 as
the financial services arm of the Murugappa Group. Chola commenced business as an
equipment financing company and has today emerged as a comprehensive financial services
provider offering vehicle finance, home loans, home equity loans, SME loans, investment
advisory services, stock broking and a variety of other financial services to customers.
Chola operates from 885 branches across India with assets under management above INR
47,700 Crores. The subsidiaries of Chola are Cholamandalam Securities Limited
(CSEC) and Cholamandalam Home Finance Limited (CHFL).
The vision of Chola is to enable customers enter a better life. Chola has a growing clientele of
over 8 lakh happy customers across the nation. Ever since its inception and all through its
growth, the company has kept a clear sight of its values. The basic tenet of these values is a
strict adherence to ethics and a responsibility to all those who come within its corporate ambit
- customers, shareholders, employees

Cholamandalam Investment and Finance Company, earlier known as Cholamandalam DBS

Finance Limited was incorporated in 1978 as Cholamandalam Investment & Finance
Company Limited (CIFCL). The company began operations as a Non Banking Finance
Company (NBFC) offering equipment finance to small and medium sized companies in
South India. Today, Cholamandalam DBS Finance Limited is a joint venture between

5
Murugappa Group and DBS Bank of Singapore and is one of India's largest domestically
owned NBFCs. CDFL offers Personal Loans, Vehicle Finance, Corporate Finance, Capital
Market Finance and Home Equity Loans. In 2010 the name of the Company has been
changed from "M/s. Cholamandalam DBS Finance Ltd" to "M/s. Cholamandalam Investment
and Finance Company Ltd".

CDFL offers finance for a wide range of vehicles -- HCVs, LCVs, cars, MUVs and cargo
three-wheelers. CDFL also caters to the needs of Corporate and retail consumers through its
Retail and Corporate Finance wings. The company operates from over 160 locations. The
company has built up a portfolio of high quality. The company has an unbroken track record
of dividend payment for over 25 years. Following its partnership with DBS Bank, CDFL
offers consumer finance in the Indian market.

The Murugappa group has set up Cholamandalam DBS Finance Limited (CDFL).
Incorporated as Cholamandalam Investment and Finance Company Ltd (CIFCL) in 1978
with the primary objective of offering asset finance through leasing and hire purchase to
corporates and then to retail customers. It has since evolved itself into a large, composite
financial services organization. Today, Cholamandalam DBS offers stock broking, mutual
fund and investment advisory services through its subsidiaries. The shares of CDFL are listed
in the Mumbai (BSE) and National (NSE) Stock Exchanges.

The company offers a complete range of financial services. It is one of India’s largest
domestically owned NBFCs with a gross asset base (including securitised assets) of over Rs
4490 crore. CDFL is a leading player in automobile finance covering a wide range of vehicles
such as heavy and light trucks, cargo three-wheelers and multi-utility vehicles. The company
has presence in over 160 locations across India.

CDFL has evolved with time and built a portfolio of high quality. The company has
maintained an unbroken track record of dividend payment for over 26 years. Following its
partnership with DBS Bank, CDFL has introduced consumer finance into the Indian market.
To sustain and enhance the high quality CDFL service experience of customers, the company
is also working hard on its infrastructure and service capabilities technology initiatives that
will provide seamless transaction delivery across India and establishing call centres to
provide more efficient customer service delivery besides supporting and boosting cross-sell
and collection mechanism are in the pipeline.

Products and services:

Since its incorporation in 1978 as Cholamandalam Investment & Finance Company Limited
(CIFCL), a NBFC, the company has successfully branched into valuable services in the
competitive scenario such as:

Commercial vehicle finance focusing on high yield segments with diversified customer base
and exploring new segments like three-wheelers and used vehicles
Corporate finance sector servicing business needs of corporates, currently intending to extend
its services to small and medium enterprises (SMEs) in key markets
Personal loans & home equity loans business currently poised to expand nationally through a
delivery support channel across the country
Its subsidiaries and associates include:

6
DBS Cholamandalam Distribution Limited- Formerly called Cholamandalam AMC Ltd,
DCAM is the asset management company and the investment manager of DBS Chola Mutual
Fund, which offers mutual funds to retail and institutional investors. Established in 1996, the
company manages funds in excess of Rs 2,761 crore across 17 schemes with more than
200,000 customers. DCAM is present in over 22 locations and has a strong distribution
network in place.

DBS Cholamandalam Asset Management Company Limited- Formerly called

Cholamandalam Distribution Services Ltd, the company is in the business of distribution of a
wide array of financial services products -both in-house and third party-to high-net worth and
retail clients. Products offered include mutual funds; fixed income, share trading and savings
instruments; capital bonds; IT / PAN processing services; equity IPOs and life and general
insurance. The company combines its reach in over 27 cities with the richness of its
investment advisory services.

DBS Cholamandalam Securities Limited- Cholamandalam Securities Limited (C-Sec) is a

securities brokerage firm offering stock broking and equity research services to institutional
investors, including many of the largest mutual funds in India, and to select individual clients.
DCSec is a member of the Stock Exchange, Mumbai (BSE) and the National Stock Exchange
(NSE). It is also a depository participant with NSDL.

BOARD OF DIRECTORS:

1) Ms. Bharati Rao 4) Mr. M M Murugappan

Independent Director Chairman & Non-executive

director

2) Mr. N .Ramesh Rajan 5) Mr. Arun Alagappan

Independent Director Executive Director

3) Mr. Ashok Kumar Barat 6) Mr. V Srinivasa Rangan

Independent Director Independent Director

Business Model & Positioning:

1) Vehicle Finance:

* Quicker Turn Around Time (TAT)

* Reputation as a long term and stable player in the market

* Strong dealer and manufacturer relationships

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* Good penetration in Tier II and Tier III towns

* In-house highly experienced sales and collections team

* Low employee turnover

* Good internal control processes

* Customised products offered for target customers

* Strong collections management

2) Housing Finance:

* Process Differentiator

1) One of the best turnaround times in the industry

2) Personalised service to customers through direct interaction with each customer

*Pricing:

1)Fee Income adequate to cover origination & credit cost

2) Leverage cross sell opportunities for additional income

3) Effective cost management

*Underwriting Strategy:

1) Personal visit by credit manager

2) Assess both collateral and repayment capacity to ensure credit quality

*Structure:

1) Separate verticals for sales, credit & collections to drive focus

2) Convergence of verticals at senior levels

Major Achievements:
8
  Achieved whopping 40% net profit growth in Q4 in 2016

 Gross NPA ratio has come down from 4.3 per cent in the December 2015 quarter to
3.5 per cent in March 2016.

 Chola recognised as one of top 26 innovative organizations of India

 National award for excellence in CSR

 Listed in the ASSOCHAM 9th Global and CSR Sustainability Compendium-16-17

 Assets under management grew 32 per cent at ₹52,868 crore

 company ended the December 2018 quarter with GNPA (gross NPA) of 2.7 per cent,
down from 2.8 per cent in Q2 and 3.7 per cent in Q3 of this fiscal. Net NPA stood at
1.5 per cent (1.6 per cent in Q2 of this fiscal and 2.3 per cent in the year-ago quarter).

 In vehicle finance business, disbursements grew 11 per cent at ₹6,240 crores (₹5,607
crore).

 CIFCL has posted a 39 per cent growth in its net profit at ₹304 crores for the quarter
ended December 31, 2018 when compared with ₹219 crores in a year-ago period,
helped by growth in revenues.

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Corporate governance activities:
Corporate governance is about commitment to values and ethical business conduct. It is also
about how an organisation is managed viz., its corporate and business structure, its culture,
policies and the manner in which it deals with various stakeholders. Timely and accurate
disclosure of information regarding the financial position of the company, its performance
and ownership forms part of the corporate governance.

CORPORATE GOVERNANCE PHILOSOPHY:

The company is committed to the highest standards of corporate governance in all its
activities and processes. The company has always believed in and practices the highest
standards of corporate governance. The board recognises that governance expectations are
constantly evolving and is committed to keeping standards of transparency and dissemination
of information under continuous review to meet both letter and spirit of the law and its own
demanding levels of business ethics. The company believes that sound corporate governance
practices are crucial to the smooth and efficient operation of a company and its ability to
attract investment, protect the rights of its stakeholders and provide shareholder value.
Everything the company does is defined and conditioned by the high standards of
governance, which serve its values. The company firmly believes in and follows the below
principle:

“The fundamental principle of economic activity is that no man you transact with will lose;
then you shall not.”

The corporate governance philosophy of the company is driven by the following fundamental
principles:

*Adhere to corporate governance standards beyond the letter of law

* Maintain transparency and high degree of disclosure levels

* Maintain a clear distinction between the personal interest and the corporate interest

* Have a transparent corporate structure driven by business needs; and

* Ensure compliance with applicable laws.

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BOARD OF DIRECTORS:

The corporate governance practices of the company ensure that the board of directors (the
board) remains informed, independent and involved in the company and that there are
ongoing efforts towards better governance to mitigate “non-business” risks. The board is fully
aware of its fiduciary responsibilities and recognises its responsibilities to shareholders and
other stakeholders to uphold the highest standards in all matters concerning the company and
has empowered responsible persons to implement its broad policies and guidelines and has
set up adequate review processes. The board is committed to representing the long-term
interests of the stakeholders and in providing effective governance over the company’s affairs
and exercise reasonable business judgment on the affairs of the company. The company’s day
to day affairs are managed by the managing director and CEO, assisted by a competent
management team, under the overall supervision of the board. The company has in place an
appropriate risk management system covering various risks that the company is exposed to,
including fraud risks, which are discussed and reviewed by the audit committee and the board
every quarter. The company’s commitment to ethical and lawful business conduct is a
fundamental shared value of the board, the senior management and all employees of the
company. Consistent with its values and beliefs, the company has formulated a Code of
Conduct applicable to the board and senior management. Further, the company has also
adopted a Code of Conduct to regulate, monitor and report trading by insiders in the
securities of the company and a whistle blower policy for reporting any concerns or
grievances by directors / employees / customers and vendors in their dealings with the
company. In order to ensure that the whistle blower mechanism is effective and as prescribed,
direct access to the chairman of the audit committee is provided to the complainant.

Management Outlook:

While the momentum in the growth of commercial / passenger vehicles and tractors have
continued in Q1 of FY 18-19, there are external risks, clouding the overall economic
scenario. Higher oil prices, higher trade/ current account deficit, weakening Rupee, all have
an impact on the macro economy. RBI has already effected a rate hike of 0.25 bps in the
recent policy and the market interest rates are hardening. Despite this, FY 2018-19 promises
to be a better year for the rural economy. Prediction of a normal monsoon, good agricultural
output, implementation of minimum support price (MSP) of the Government, are expected to
boost the farmers’ income. Implementation of various infra projects and the continued growth
of the road sector will further augment rural income and create a demand for motor vehicles.

The company is confident of maintaining its growth in the vehicle financing business. The
home equity business is expected to return to normal growth in FY 18-19 by spreading its
wings in 60 more locations. We will also resolve and bring down the non-performing assets
of this business through a set of specific action plans. The Government’s emphasis on
housing for all, benefits announced for smaller units and credit linked subsidy scheme to end
users is giving a big impetus to the growth of affordable housing segment. We are targeting to

11
grow significantly in this segment. The Board has approved setting up of an independent
housing finance company (HFC) considering the opportunity in the home loans segment and
the home loans business will be scaled up in the new HFC, which will be a wholly owned
subsidiary of this company. company is a large player in the Vehicle Financing space; with
870 branches located pan India and a strong relationship with all OEMs in the country.
company continue to make significant investments in people, technology and analytics
capabilities, to redefine the business model, aiming superior processes and decision making.
These are expected to position the company to grow non-linear, handling higher volume with
efficiency and better profitability.

SWOT Analysis:

Strength:

Easy & fast appraisal & disbursements

Product innovation & superior delivery

Strong market penetration & increased operating efficiency

Collection efficiency

Weakness:

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Too much of diversification from core business

Increased regulatory coverage

Volatile business environment

Opportunities:

Large untapped market, both rural & urban & also geographically

Tie-up with global financial sector giants

New opportunities in Personal finance, home equity, etc

Threats:

High cost of funds

Growing retail thrust within banks & competition from unorganized money lenders

Deterioration of asset quality & rising levels of NPA’s

Quantitative Factors:

CAGR growth for net sales & net profit for last 3 years:

Year Net Sales (in crores) Net Profit (in crores)

2016 4193.71 568.45

2017 4660.35 718.74

2018 5425.77 974.12

CAGR 13.74% 30.9%

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 Table no. (1)

6000

5000

4000

3000

2000

1000

0
2016 2017 2018
net s al es net profit

Fig no. (1)

Interpretation:

*Over the course of 2 years/months net profit grew from 568.54 to 974.12. company’s
compound annual growth rate (CAGR) is 30.9 %.

*Over the course of 2 years/months net sales grew from 4193.71 to 5425.77. company’s
compound annual growth rate (CAGR) is 13.74 %.

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 Liquidity Ratios:

Current Ratio:

Years Current Assets Current liabilities Current Ratio

(in crores) (in crores)

2016 8,727.48 12,721.38 0.69

2017 9,364.47 4,687.34 2.00

2018 12,070.15 5,349.15 2.26

Table no. (2)

Current Ratio = Current Assets / Current Liabilities

15
 current ratio
2.5

1.5

0.5

0
2016 2017 2018
current ratio

Fig no.(2)

Interpretation:

* The current ratio measures a company’s ability to pay off its current
liabilities(payable within one year) with its current assets such as cash, accounts
receivable and inventories. The higher the ratio, better the company’s liquidity
position.

* As it can be seen in the year of 2016, current ratio was 0.69 which is less than 1
indicates that company was not in sound position to cover current or short term
liabilities.

* In two consecutive years i.e. 2017&2018, current ratio is showing increasing trend
which indicates company is well positioned to cover short term liabilities.

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 Profitability Position:

Net Profit Margin:

Years Net Profit Revenue Net Profit Margin

(in crores) (in crores) %

2016 568.45 4,193.71 13.55

2017 718.74 4,660.35 15.42

2018 974.12 5,425.77 17.95

Table no. (3)

Net Profit Margin % = (Net Profit/Revenue)×100

17
 net profit margin
20
18
16
14
12
10
8
6
4
2
0
2016 2017 2018
net profit margi n

Fig no. (3)

Interpretation:

* Net profit margin ratio is the percentage of net profit relative to the revenue earned
during a period.

* From above data, the net profitability margin is surging over the years from 2016 to
2018 which indicates that company is maintaining sound profitability position.

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 Return on Assets:

Years Net Profit Margin Total Asset Return on Assets %

Turnover
%

2016 13.55 15.03 2.03

2017 15.42 15.22 2.34

2018 17.95 13.73 2.46

Table no. (4)

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 Return On Assets % = (Net Profit Margin × Total Assets Turnover)/100

return on assets%
3

2.5

1.5

0.5

0
2016 2017 2018
return on a s s ets%

Fig no. (4)

Interpretation:

* Return on assets (ROA) is a profitability ratio that measures the rate of return on

Resources owned by business.

* The steady increase in return on assets from year 2016 to year 2018 indicates more

asset efficiency

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 Solvency Position:

Total Debt/Equity Ratio:

Year Long term Short term Total Debt/Equity

borrowings borrowings shareholders
funds
(in crores) (in crores)
(in crores)

2016 10,934.73 11,641.49 3,657.38 6.17

2017 20,840.14 3,268.96 4,284.74 5.63

2018 28,219.90 3,682.37 5,150.22 6.19

Table no. (5)

Total Debt/Equity Ratio = (Long term borrowings + Short term borrowings)/Total

Shareholders funds

Interpretation:

* As the company is having very high debt to equity ratio over the years it indicates
that a company may not be able to generate enough cash to satisfy its debt obligations.

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 debt/equity
6.3
6.2
6.1
6
5.9
5.8
5.7
5.6
5.5
5.4
5.3
2016 2017 2018

debt/equi ty

Fig no. (5)

Turnover Position:

Total Assets Turnover Ratio:

Year Total Revenue Total Assets Assets Turnover

(in crores) (in crores) Ratio %

2016 4,193.71 27,888.31 15.03

2017 4,660.35 30,594.80 15.22

2018 5,425.77 39,504.57 13.73

Table no. (6)

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 Total Assets Turnover Ratio % = (Total Revenue/Total Assets) × 100

Assets Turnover Ratio %

15.5

15

14.5

14

13.5

13

12.5
2016 2017 2018
As s ets Turnover Ratio %

Fig no. (6)

Interpretation:

* The asset turnover ratio is an efficiency ratio that measures a company’s ability to
generate sales from its assets. In other words, this ratio shows how efficiently a
company can use its assets to generate sales.

* In the above mentioned table the ratio is fluctuating over the period which means
company is not utilising assets efficiently.

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 Miscellaneous:

P/E Ratio:

Year Market price of EPS P/E Ratio

equity share(cr)

2015-2016 633.03 37.46 16.89

2016-2017 992.67 45.99 21.58

2017-2018 1199.83 62.26 19.27

Table no. (7)

P/E Ratio = Market price of equity share(cr)/EPS

24
 P\E Ratio
25

20

15

10

0
2015-2016 2016-2017 2017-2018
P\E Ratio

Fig no. (7)

Interpretation:

* The P/E ratio measures the relationship between a company’s stock price and its
earnings per share of stock issued.

* A stock with a high P/E ratio is not necessarily a better investment than one with a
lower P/E ratio, as a high P/E ratio can indicate that the stock is being overvalued.

Dividend Payout Ratio:

Year EPS (diluted) Dividend per Share Dividend Payout

25
 Ratio %

2016 37.46 4.50 12.35

2017 45.99 5.50 7.60

2018 62.26 6.50 10.42

Table no. (8)

Dividend Per Share % = (Dividend Per Share/EPS (diluted)) × 100

Dividend Payout Ratio %

14

12

10

0
2016 2017 2018
Di vi dend Payout Ratio %

Fig no. (8)

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 Interpretation:

* The dividend payout ratio measures the percentage of net income that is distributed
to shareholders in the form of dividends during the year.

* Since investors want to see a steady stream of sustainable dividends from a

company, the dividend payout ratio analysis ratio is important. A consistent trend in
the ratio is usually more important than a high or low ratio.

Capital Structure (Cholamandalam Investment and Finance Company)

Period Instrument Authorized Issued Capital - PA I D U P -
Capital
From To (Rs. cr) (Rs. cr) Shares (nos) Face Value Capital

27
2017 2018 Equity Share 240 156.47 156331371 10 156.33
2016 2017 Equity Share 240 156.41 156277533 10 156.28
2015 2016 Equity Share 240 156.28 156145644 10 156.15

Table no. (9)

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 Industry Analysis:

1) Outlook of Industry:

For a country like India which is diverse and vast, the financial sector is the fuel of the
economy, and NBFC’s are crucial links of the economy delivering a different set of
services such as lending, Investment banking, and capital market operations. Non-
banking financial Company is a company registered under the companies act 2013 1st
1956. These type of company mostly engaged in the business of lending, chit
business, insurance business, and acquisition of stocks, debentures, and securities.

Non-Banking companies have expansive reach as compared to the banking system of

our economy; this why NBFC’s in Indian financial sector provide credit facility for
small needs of the unbanked and rural sector of the economy. Many government-
backed schemes have made it possible for most of the Indian population to have their
own bank account, but the still certain population of India do not use banking facility.
To increase this number, the government has asked 21 other companies to establish a
special system to further and strengthen the financial sector of the economy.

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 Future Expansion of NBFC in India:

Indian banking sector has been facing a lot of trouble over the past few years due to
the burden of Non-Paying accounts. This scenario has opened up a new perspective
for the Non-Banking Financial Companies (NBFCs). NBFC have a greater important
role now as the banking system has constricted themselves and are not expanding
their lending activities.

The government has a strong focus on promoting entrepreneurship, and therefore they
can help the NBFC sector in the Indian economy to realize their full potential and
attain greater efficiency while performing the duties.

NBFC have emerged a cut above other financial institution as the largest receiver of
funds; this is supported by the financial stability report, and 2015. The increasing
growth in the NBFC’s has forced RBI to introduce additional safeguards to contain
the systemic risks. Unlike the other players in the banking and financial segment,
NBFCs grew by 15.5 percent in Financial Year (FY) 2016-17 as against 9.1 percent
growth in Financial Year 2015-16.

The growth of NBFC faced many problems seeing that they were considered a
systemic risk to the financial sector of the Indian economy. NBFC now have a large
presence in the retail lending sector the estimated account for automobile loan is
44%and 52%for a loan provided against the private sector

NBFC in India have a ground-level understanding of their customers and their credit
scores this provides them with an edge over their counterparts in the banking system.
A new measure for liquidity aggregate has been appropriated for NBFC, i.e. now net
credit account of NBFC should be 20 crores or more for it to be registered by RBI as
an NBFC company.

The growth of NBFC in the current economy amounts up to 16%, and this is twice the
bank credit growth in the same period.

The distribution reach of many Non-Banking Financial companies is wide-ranging

and unmatched by the banks which are there in that area.

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 NBFC are using digital surrogate data in the absence of income proof documents to
improve credit penetration in India. The share growth of NBFC in the Indian economy
has gone up from 10%to 15% between 2005 and 2015.

The growth of credit share is seen in all types of NBFC companies and not only
traditional NBFC like commercial vehicle finance companies The new regulations
which are laid down by RBI and companies act 2013 have paved the way for NBFC
growth in Indian economy.

Regulatory Framework: The reserve bank of India was amended on December 1st in
1934 by RBI amendment Act, 1963. Chapter III-B was introduced to regulate deposit
accepting NBFC’s. Different committees were introduced to review the regulatory
guidelines which were introduced in the RBI, Act. These banking committees were
introduced to examine the Non-Banking Financial Institutions.

Conclusion:

The growth of NBFC in the Indian economy is lower than many other developing
countries like Thailand and Malaysia where NBFC’S credit penetration is
25%whereas in Indian economy NBFC’s company’s credit penetration is only 15%
only. NBFC have gained momentum in the Indian economy recently where there has
been a significant increase in incorporation of companies since the 1990’s.
Government Initiatives like Pradhan Mantri Jan Dhan Yojna has introduced banking
system to that part of India which was not aware of it but still 15% of the adults don’t
use the banking facilities which are available to them and therefore government has
introduced 21 NBFC to curb this difference as NBFC's have far-reaching effect than
what commercial banks have.

NBFC are specialized players, and they are the companies which will entirely change
the banking value chain, this will ensure the sustainable growth of the economy for
the long run.

With the introduction of small finance banks and proposed bill payment service
providers would anatomize traditional banking in the country and this will open up
opportunities for NBFCs to provide financial offerings for its clients

31
 .

2) Contribution of Industry towards Indian Economy:

The contribution of NBFC to Indian Economy:

*Substantial employment generation

*Major thrust on semi-urban rural areas &first time buyers or users

*To finance economically weaker sections

*Help and increase wealth creation

*Supplement bank credit to the rural segment of the Indian economy

*Economic development

NBFCs (Non Banking Financial Companies) play an important role in promoting

inclusive growth in the country, by catering to the diverse financial needs of bank
excluded customers. Further, NBFCs often take lead role in providing innovative
financial services to Micro, Small, and Medium Enterprises (MSMEs) most
suitable to their business requirements. NBFCs do play a critical role in
participating in the development of an economy by providing a fillip to
transportation, employment generation, wealth creation, bank credit in rural
segments and to support financially weaker sections of the society. Emergency

32
 services like financial assistance and guidance is also provided to the customers in
the matters pertaining to insurance. NBFCs are financial intermediaries engaged
in the business of accepting deposits delivering credit and play an important role
in channelizing the scarce financial resources to capital formation. They
supplement the role of the banking sector in meeting the increasing financial
needs of the corporate sector, delivering credit to the unorganized sector and to
small local borrowers. However, they do not include services related to agriculture
activity, industrial activity, sale, purchase or construction of immovable property.
In India, despite being different from banks, NBFC are bound by the Indian
banking industry rules and regulations. NBFC focuses on business related to 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. The banking sector
would always be the most important sector in the field of business because of its
credibility in supporting manufacturing, infrastructural development and even
being the backbone for the common man's money. But despite this, the role of
NBFCs is critical and their presence in a country would only boost the economy in
the right direction.

Size of sector : The NBFC sector has grown considerably in the last few years
despite the slowdown in the economy.

Growth : In terms of year-over-year growth rate, the NBFC sector beat the
banking sector in most years between 2006 and 2013. On an average, it grew 22%
every year. This shows, it is contributing more to the economy every year.

Profitability : NBFCs are more profitable than the banking sector because of
lower costs. This helps them offer cheaper loans to customers. As a result, NBFCs'
credit growth - the increase in the amount of money being lent to customers – is
higher than that of the banking sector with more customers opting for NBFCs.

Infrastructure Lending : NBFCs contribute largely to the economy by lending to

infrastructure projects, which are very important to a developing country like
India. Since they require large amount of funds, and earn profits only over a
longer time-frame, these are riskier projects and deters banks from lending. In the
last few years, NBFCs have contributed more to infrastructure lending than banks.

Promoting inclusive Growth : NBFCs cater to a wide variety of customers - both

in urban and rural areas. They finance projects of small-scale companies, which is

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 important for the growth in rural areas. They also provide small-ticket loans for
affordable housing projects. All these help promote inclusive growth in the
country.

3) Major Players in Industry:

1) Bajaj Finance

2) M&M Financial

3) Shriram Trans

4) Sundaram Fin

5) Shriram City

6) Manappuram Fin

7) Magma Fincorp

8) SREI Infra

9) Optiemus Infra

10) Capital Trust

11) Arman Financial

12) VLS Finance

13) Maha Rasht Apex

14) Motor and Gen F

15) Sakthi Finance

16) Times Guaranty

17) Hb Stockholdings

18) Guj Lease Fin

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 19) Lloyds Finance

4) PEST Analysis:

*Political Legal Factors:

RBI Regulations:

Till 1997 there was an unorganized NBFC sector. As the NBFC emerged as

one of the major competitor of banks, the RBI made rules and regulation to

organize the sector. RBI made regulations that NBFCs have to register

themselves and made it mandatory for NBFC wanting to raise funds through

public deposits. RBI is constantly monitoring NBFCs and framing regulations

from time to time to regulate the sector.

Taxation Regulations:

NBFC sector is liable to pay income tax per the section 269T under income

tax regulation. As NBFCs fall under service tax norms, mostly hire purchase

and lease financing companies are liable to pay service taxes.

Companies Act Regulations:

The Companies Regulation Bill aims to consolidate the law relating to NBFCs

with a view to ensure depositor protection. This indicates that NBFCs will now

be classified as financial companies under RBI guidance and regulations.

Investigative powers have been vested with District magistrates and

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 Superintendents of Police.

Consumer Protection:

Company Law Boards will be authorized to adjudicate claims of depositors. In

case of defaults in repayments by NBFC’S of either the principal amount or

interest or both on deposits, the depositor can approach concerned regional

bench of Company Law Boards. Alternatively, consumer can approach

disputes redressal forum at district, state or national level

For Ceiling:

The ceiling of FDI in NBFC industry is 50%. This is also affects growth of the

sector because foreign direct investment adds viable leverage in the cost of

net owned funds and hence plays an important role in growth of NBFC.

*Economic Factors:

Following are the economical factors which affect the NBFC industry:

Gross Domestic Product (GDP):

Economic condition of any country and economy can be measured by GDP.

From the consumption side, GDP is equal to the sum of private consumption,

government consumption, investment and net exports. In 2006-2007 the

GDP was about 8% which was close to double than previous years.

Inflation

Recent inflation rate has been 3.6% but over the recent past months it has

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 ranged from 12% to 5% and has been highly volatile in the entire history.

This affects NBFCs in the long run as rise in inflation rate will affect the

disposable income and thus it will affect the savings and cost to raise funds.

Agriculture and NBFC:

If we consider various types of component of NBFC such as Hire purchase,

Lease finance and Loan than we can say that they are directly related with

NBFC, as in hire purchase most of tractors are mainly sold in instalment basis.
More than 50% farmers use loans and to purchase agricultural devices

they also use lease finance for agricultural development.

Industry and NBFC:

Mainly manufacturing industries and mining sector are acquiring the

equipment and machineries on lease basis or hire purchase. So the growth in

industry will impact the NBFC sector significantly. Industry has contributed

around 6.5% of GOP in the previous years.

Interest Rate:

As per the RBI regulation, the NBFC cannot offer more than 11% on public

deposit if than there is any change in for banking industry's interest rates it

will directly affect the NBFCs the collection of deposit from public.

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 *Social Factors:

Following are the social factors which affect non banking financial services

industry.

1. Due of industrialization more rural people are attracted towards the urban

areas, which has resulted into the emergence of a large middle class.

2. India is coming out of its typical mentality that the debt is bad. More and

more people of people of middle class and upper middle class are buying

computer, television, vehicles and also home on installment this is

positive sign of NBFCs .

3. NBFCs are providing loan to those whose application is denied by bank or

any other financial institution so it is providing venture capital for new

businesses. This is again helpful in generating further opportunities for

gainful employment and in turn creating an additional customer segment.

4. Development of rural areas is also on the wheel as rural class population

has gone up from 25% to 32% which indicate that there is vast

opportunity in rural area.

* Technical Factors:

Following are the technical factors, which affect the non-banking financial

services industry.

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 Internet:

Through internet an NBFC can provide its information of customers. Further,

it can also shorten the process as customers planning to avail loans can get

detail about the interest rate, EMI, tax benefits, etc.

Telecommunication Services:

Customer can use help lines for information about existing loans and many

NBFCs have replaced physical discussion by telephonic discussions. This

again benefits the way the business is conducted and facilitating customers.

Interconnected Branches:

NBFCs which are well managed and which are widely spread all over the

country are connected with one another through information technology.

MIS Application:

Information technology can be a great advantage to automate all the

functions of NBFCs it is useful in maintaining, gathering data and refine

organizational systems which enhance decisions and ensure data availability

easily whenever required by them.

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 Reference:

 www.cholamandalam.com

 www.moneycontrol.com

 www.yahoofinance.com

 www.economictimes.com

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  www.wikipedia.com

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