2 PW CA Inter NBFC

CA NITIN GOEL NON BANKING FINANCIAL COMPANIES
NON BANKING FINANCIAL COMPANIES
“Nothing is Impossible, even Impossible itself says ‘I M Possible’.”
WEIGHTAGE IN PAST YEAR EXAMS
10 5+
5 5 5 5
0
5 5 5
0
MAY 18 NOV 18 MAY 19 NOV 19 NOV 20 JAN 21 JULY 21 DEC 21 MAY 22
A Non-Banking Financial Company (NBFC) is a company registered

under the Companies Act 1956/ 2013, engaged in the business of loans
and advances, acquisition of shares, debentures and other securities,
leasing, hire-purchase, insurance business and chit business.
The term NBFC does not include any institution whose principal
business is that of agriculture activity, industrial activity or sale of any
MEANING
good (other than securities) or providing any services and
sale/purchase/ construction of any immovable property.
A non-banking institution which is a company and has principal business
of receiving deposits under any scheme or arrangement in one lump sum
or in instalments by way of contributions or in any other manner, is also
a non-banking financial company (Residuary non-banking company).
Under Section 45–IA of the RBI (Amendment) Act, 1997, no NBFC is
allowed to commence or carry on the business of a non-banking financial
institution without obtaining certificate of registration issued by RBI.
A company incorporated under the Companies Act, 1956/2013 and
desirous of commencing business of non-banking financial institution as
REGISTRATION defined RBI Act, 1934 should comply with the following:
AND a) it should be a company registered under Companies Act, 1956/2013.
REGULATION b) It should have a minimum net owned fund of ₹ 200 lakh.
OF NBFC
Owned Fund:
Aggregate of the paid-up equity capital, preference shares which are
compulsorily convertible into equity, free reserves, balance in share
premium account and capital reserves representing surplus arising out of
sale proceeds of asset, excluding reserves created by revaluation of asset,
after deducting there from accumulated balance of loss, deferred revenue
expenditure and other intangible assets.
Page 2.1
Net Owned Fund:

Owned Fund – Investments in shares of subsidiaries/companies in same
group/ Other NBFC – Book value of debentures, bonds, outstanding loans
and advances including hire purchase and lease finance made to and
deposits with subsidiaries and companies in the same group (to the extent
such sum exceeds 10% of owned fund)
In terms of Section 45-IC of the RBI Act, NBFCs are required to
create a reserve fund and transfer therein a sum not less than twenty
per cent of its net profit every year.
However, to obviate dual regulation, certain categories of NBFCs
which are regulated by other regulators are exempted from requirement
of registration with RBI.
A. Companies exempted from registration under RBI
➢ Alternative Investment Fund / Merchant Banking / Stock broking Co.’s
➢ Insurance Company
➢ Housing Finance Companies
➢ Micro Finance Companies
➢ Mutual Benefit Companies
➢ Nidhi Companies
➢ Chit Companies
➢ Securitization company or Reconstruction company
CLASSIFICATION ➢ Core Investment Company which is not a Systemically Important Core
OF NBFC’S Investment Company
B. NBFCs mandated to register under RBI

➢ Investment & Credit Company (ICC)
➢ Infrastructure Finance Company (IFC)
➢ Systemically Important Core Investment Company (CIC)
➢ Infrastructure Debt Fund-Non Banking Financial Company (IDFNBFC)
➢ NBFC -Micro Finance Institution (NBFC-MFI)
➢ Non-Banking Financial Company – Factors (NBFC Factors)
➢ NBFC- Non- Operative Financial Holding Company (NOFHC)
Accordingly, NBFCs are categorized into following three groups for

the purpose of administering prudential regulations:
1) Deposits taking NBFCs (NBFCs-D);
2) Non–deposit taking systemically important NBFCs (NBFCs-ND-SI)
CLASSIFICATION (those with assets of 500 crore and above); and
OF NBFC’S 3) Non-deposit taking NBFCs (NBFCs-ND) (those with assets of less than
500 crore)
All the Prudential norms (viz. Income Recognition, Provision of Advances,
Valuation of Investment & Capital Adequacy Ratio) apply to NBFC’s
mentioned in points 1) & 2) except Capital Adequacy Ratio to NBFC’s
mentioned in point 3).
Page 2.2
DISTINCTION BETWEEN AN NBFC AND A BANK

S. No. NBFC BANK
1. NBFC cannot accept demand deposits. Bank can accept demand deposits.
NBFC is not a part of the payment and Bank is a part of the payment and
2.
settlement system. settlement system.
NBFC cannot issue cheques drawn on Bank can issue cheques drawn on
3.
itself. itself.
Deposit insurance facility of the Deposit insurance facility of Deposit
Deposit Insurance and Credit Insurance and Credit Guarantee
4.
Guarantee Corporation (DICGC) is not Corporation (DICGC) is available for
available for NBFC depositors. banks.
PRUDENTIAL ACCOUNTING NORMS: 2 set of Directions
Provisions of “NBFC – Non-SI ND taking Company (Reserve Bank)
Directions, 2016”, shall apply to
❖ every NBFC not accepting / holding public deposits which is not
"NBFC – Non- systemically important (as defined in paragraph 3 (xxviii) of the
Systemically Directions;
Important Non- ❖ every NBFC-Factor registered with Bank u/s 3 of Factoring
Deposit taking Regulation Act & having asset size of below ₹ 500 crore;
Company ❖ every NBFC – Micro Finance Institution (NBFCMFI) registered
(Reserve Bank) with the Bank under the provisions of RBI Act, 1934 and having an
Directions, 2016"
asset size of below ₹ 500 crore;
❖ every NBFC - Infrastructure Finance Company (NBFC-IFC)
registered with the Bank under the provisions of RBI Act, 1934
and having an asset size of below ₹ 500 crore.
Provisions of “NBFC – SI ND taking Company and Deposit taking
Company (Reserve Bank) Directions, 2016” shall apply to:
❖ every Systemically Important Non-Deposit taking NBFC (NBFC-
ND-SI) registered with the Bank under the provisions of RBI
Act, 1934;
“NBFC
❖ every Deposit taking NBFC (NBFC-D) registered with the Bank
Systemically
Important Non- under the provisions of RBI Act, 1934;
Deposit taking ❖ every NBFC-Factor registered with the Bank under Sec 3 of the
Company and Factoring Regulation Act, 2011 and having an asset size of ₹ 500
Deposit taking crore and above;
Company ❖ every Infrastructure Debt Fund –NBFC (IDFNBFC) registered
(Reserve Bank) with the Bank under the provisions of RBI Act, 1934;
Directions,
❖ every NBFC –Micro Finance Institutions (NBFCMFIs) registered
2016”
with the Bank under the provisions of RBI Act, 1934 and having an
asset size of ₹ 500 crore and above;
❖ every NBFC - Infrastructure Finance Company (NBFC-IFC)
registered with the Bank under the provisions of RBI Act, 1934
and having an asset size of ₹ 500 crore and above.
Page 2.3
IMPORTANT DEFINITIONS
The equity capital and reserves as reduced by intangible assets and
Break-up value
revaluation reserves, divided by the number of equity shares of the
investee company.
Carrying cost Book value of assets & interest accrued thereon but not received.
The value of an equity share computed by taking the average of

profits after tax as reduced by the preference dividend & adjusted
for extra-ordinary and non-recurring items, for the immediately
preceding 3 years and further divided by number of equity shares of
the investee company and capitalized at the following rate:
Earning value
(a) in case of predominantly manufacturing company, 8%;
(b) in case of predominantly trading company, 10%; and
(c) in case of any other company, including NBFC, 12%;
Note: If an investee company is a loss making company the earning

value will be taken at zero.
Fair value
The mean of the earning value and the break-up value.
ASSET CLASSIFICATION NORMS FOR NBFCs-D and NBFCs-ND-SI
NPA ➢ if overdue for 3 months
Sub-standard ➢ an asset that has been classified as NPA for a period not exceeding
asset 12 months
➢ an asset that has remained sub-standard for a period exceeding 12
Doubtful asset
months.
ASSET CLASSIFICATION NORMS FOR NBFCs-ND-Non SI
➢ if overdue for 6 months
NPA ➢ However, in case of Lease Rental & Hire Purchase instalment, the
criterion is 12 months
Sub-standard ➢ an asset that has been classified as NPA for a period not exceeding
asset 18 months
➢ an asset that has remained sub-standard for a period exceeding 18
Doubtful asset
months.
PROVISIONING REQUIREMENTS
A. Loans, advances and other credit facilities including bills purchased &
Discounted
The provision for standard assets for NBFCs-ND-SI and for all
Standard Assets
NBFCs-D shall be 0.40%. However, the provision for standard assets
for NBFCs-ND-Non SI shall be 0.25%.
Sub-standard A general provision of 10% of total outstanding shall be made.
asset
Doubtful Assets (a) Unsecured Portion: 100% provision

(b) Secured Portion: Refer table below
Page 2.4
Period for which the asset has % of provision

been considered as Doubtful
Upto one year 20
One to three years 30
More than three years 50
Loss Assets 100% of the outstanding should be provided for.
B. Lease and Hire Purchase Assets
Hire purchase assets

(i) In respect of hire purchase assets, the total dues (overdue and
future instalments taken together) as reduced by
❖ the finance charges not credited to the P&L A/c & carried
forward as unmatured finance charges; and
❖ the depreciated value of the underlying asset,
Basic Provision
shall be provided for.
Explanation:
➢ Depreciated value of the asset = Original cost - Dep. @ 20% p.a.
on SLM; and
➢ In the case of second hand asset, the original cost shall be the
actual cost incurred for acquisition of such second hand asset
In respect of hire purchase and leased assets, additional provision

shall be made as under:
Overdue Period of hire charges or lease Provision as % of Net
rentals Book Value
(a) Upto 12 months Nil
(b) More than 12 months but upto 24 months 10%
(c) More than 24 months but upto 36 months 40%
(d) More than 36 months but upto 48 months 70%
(e) More than 48 months 100%
On expiry of a period of 12 months after the due date of last
Additional instalment of hire purchase/leased asset, the entire net book value
Provision shall be fully provided for.
‘Net book value’ means

➢ In the case of hire purchase asset, the aggregate of overdue and
future instalments receivable as reduced by the balance of
unmatured finance charges and further reduced by the provisions
made as per paragraph 13(2) of these Directions;
➢ In the case of leased asset, aggregate of capital portion of
overdue lease rentals accounted as receivable and depreciated
book value of the lease asset as adjusted by the balance of lease
adjustment account.
Page 2.5
REQUIREMENT AS TO CAPITAL ADEQUACY

All NBFCs-ND which have an asset size of ₹ 500 crore and above,
and all NBFCs-D, shall maintain minimum CAR of 15%. Also Tier 1
Capital has to be minimum of 10%.
Total of Tier II capital cannot exceed 100% of Tier I capital.
“Tier I Capital” means owned fund as reduced by investment in

shares of other NBFCs and in shares, debentures, bonds,
Tier 1 Capital
outstanding loans and advances including hire purchase and lease
finance made to and deposits with subsidiaries and companies in the
same group exceeding, in aggregate, 10% of the owned fund and
perpetual debt instruments issued by a non-deposit taking NBFC in
each year to the extent it does not exceed 15% of the aggregate
Tier I Capital of such company as on March 31 of the previous
accounting year.
includes the following:

➢ preference shares other than those which are compulsorily
convertible into equity;
➢ revaluation reserves at discounted rate of 55%;
➢ general provisions and loss reserves to the extent these are not
Tier II capital attributable to actual diminution in value or identifiable potential
loss in any specific asset and are available to meet unexpected
losses, to the extent of 1.25% of risk weighted assets;
➢ hybrid debt capital instruments; and
➢ subordinated debt
to the extent the aggregate does not exceed Tier I capital.
Risk Weighted Assets

The risk weighted asset shall be calculated as the weighted aggregate of funded items as
detailed hereunder
Weighted risk assets – On-Balance Sheet items Percentage Weight
(i) Cash and bank balances including fixed deposits and
0
certificates of deposits with banks
(ii) Investments
0
(a) Approved securities
(b) Bonds of public sector banks 20
(c) Others 100
(iii) Current assets 100
Loans to staff & Loans fully secured against deposits
0
held
(iv) Fixed Assets (net of depreciation) 100
Contingent Liabilities (off balance sheet items) have risk weight of 100% generally.
Page 2.6
ASSIGNMENT QUESTIONS
TOPIC 1: NET OWNED FUND
Question 1 (RTP May 2022) / RTP May 2021) (Similar) Pg no._____

Calculate ‘Owned Fund’ of a NBFC based on the following information:
Paid up share capital: ₹ 200 lakhs
Free reserves: ₹ 150 lakhs
Compulsory convertible preference shares (CCPS): ₹ 50 lakhs
Revaluation Reserve: ₹ 50 lakhs (created by revaluation of assets)
Securities Premium: ₹ 25 lakhs
Book value of intangible assets ₹ 10 lakhs
Capital Reserves (surplus arising due to sale proceeds of assets): ₹15 lakhs
Question 2 (ICAI Study Material) / RTP Nov 2021) (Similar) Pg no._____

Templeton Finance Ltd. is a NBFC. Extracts of its balance sheet are given below:
Liabilities Amount Assets Amount
(in crores) (in crores)
Paid-up equity capital 100 Leased out assets 800
Free reserves 500 Investment: In shares of 100
subsidiaries & group companies
Loans 400 In debentures of subsidiaries 100
and group Companies
Deposits 400 Cash and bank balances 200
Deferred expenditure 200
1,400 1,400
Compute 'Net owned Fund' of Templeton Finance Ltd. as per NBFC - Systemically Important
Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.
TOPIC 2: CLASSIFICATION OF ADVANCES AND PROVISION COMPUTATION
Question 3 (ICAI Study Material) Pg no._____

While closing books of account on 31st March, 2021, NBFC has its advances classified as:
₹ in Lakhs
Standard assets 16,800
Sub-standard assets 1,340
Secured portions of doubtful debts:
- upto one year 320
- one year to three years 90
- more than three years 30
Unsecured portions of doubtful debts 97
Loss assets 48
Calculate the amount of provision, which must be made against the Advances as per
(i) the Non-Banking Financial Company – Non-Systemically Important Non-Deposit taking
Company (Reserve Bank) Directions, 2016; and
(ii) Non-Banking Financial Company - Systemically Important Non-Deposit taking Company
and Deposit taking Company (Reserve Bank) Directions, 2016.
Page 2.7
Question 4 (RTP May 2019) (Similar)/ (ICAI Study Material) Pg no._____

Bright Finance Ltd. is a non-banking financial company. It provides you with the following
information regarding its outstanding amount, ₹ 200 lakhs of which instalments are overdue
on 200 accounts for last 2 months (amount overdue ₹ 40 lakhs), on 24 accounts for 3 months
(amount overdue ₹ 24 Iakhs), on 10 accounts for more than 30 months (amount overdue ₹ 20
lakhs) and on 4 accounts for more than three years (amount overdue ₹ 20 lakhs-already
identified as substandard assets) and one account of ₹ 10 lakhs which has been identified as
nonrecoverable by the management. Out of 10 accounts overdue for more than 30 months, 6
accounts are already identified as sub-standard (amount ₹ 6 lakhs) for more than 14 12
months and other are identified as sub-standard asset for a period of less than 14 12 months.
Classify the assets of the company in line with NBFC - Systemically Important Non-Deposit
taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.
Question 5 (Inter Jan 2021) (5 Marks) Pg no._____

Universal Financers Ltd. is a Non-Banking Financial Company. It provides you the following
information regarding its advances of ₹ 440 lakhs, of which instalments are overdue on:
• 550 accounts for last 3 months (amount overdue ₹ 105 lakhs)
• 75 accounts for 4 months (amount overdue ₹ 64 lakhs)
• 25 accounts for more than 30 months (amount overdue ₹ 66 lakhs)
• 15 accounts already identified as sub-standard for > 3 years (unsecured) (amount overdue
₹ 82 lakhs)
• 8 accounts of ₹ 33 lakhs have been identified as non-recoverable by the management.
• Out of 25 accounts overdue for more than 30 months, 17 accounts are already identified as
substandard for more than 12 months (amount overdue ₹ 19 lakhs) and others are identified
as substandard asset for a period of less than 12 months.
Classify the assets of the company In line with the NBFC - Systemically Important Non-
Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.
Question 6 Pg no._____
Abhiram Limited is a non-banking finance company. It accepts public deposits and also deals
in hire purchase business of trucks. As on 31st March, 2019, few trucks were sold on hire
purchase basis. The hire purchase price was set as ₹ 400 lakhs as against the cash price of
₹ 350 lakhs. The amount was payable as ₹ 50 lakhs down payment and the balance in 5 equal
instalments. The hire vendor collected the first instalment as on 31-03-2020 but could not
collect the second instalment which was due on 31-03-2021. Till 15-05-2021, the date on which
the Board of Directors signed the accounts, the second instalment was not collected.
Presume IRR to be 5.4%. Depreciation is to be charged at 20% per annum.
You are required to answer the following:
a) What should be the principal outstanding as on 01-04-2020? Should the company recognize
finance charges for the year 2020-21 as income?
b) What should be the net book value of assets as on 31-03-2021 so far Abhiram Ltd. is
concerned as per NBFC prudential norms requirement for provisioning?
c) What should be amount of provision to be made as per prudential norms for NBFC laid down
by RBI?

Peoples Financiers Ltd. is an NBFC providing Hire Purchase Solutions for acquiring consumer
durables. The following information is extracted from its books for the year ended 31st March,
2021:
Page 2.8
Asset Funded Interest Overdue but recognized in Net Book Value of

Profit & loss Assets
Period Overdue Interest Amount outstanding
(₹ in crore) (₹ in crore)
LCD Televisions Upto 12 months 480.00 20,123.00
Washing Machines For 24 months 102.00 2,410.00
Refrigerators For 30 months 50.50 1,280.00
Air Conditioners For 45 months 26.75 647.00
You are required to calculate the amount of provision to be made.
TOPIC 3: VALUATION OF INVESTMENTS & OTHER TOPICS

Sagar future is non banking finance company. It makes available to you the costs & market
price of various investments held by it as on 31-03-2021 as under: Figure (in Lakhs)
Scrips Cost Market Price
A. Equity Shares:
A 60.00 61.20
B 31.50 24.00
C 60.00 36.00
D 60.00 120.00
E 90.00 105.00
F 75.00 90.00
G 30.00 6.00
B. Mutual Funds-
MF-1 39.00 24.00
MF-2 30.00 21.00
MF-3 6.00 9.00
C. Government Securities
GV-1 60.00 66.00
GV-2 75.00 72.00
(a) Can the company adjust depreciation of a particular item of investment within a category?
(b) What should be the value of investments as on 31.03.2021?
(c) Is it possible to off set depreciation in investment in mutual fund against appreciation of
the value of investment in equity shares and government securities?

XYZ Limited is an NBFC registered with RBI as non-deposit accepting company. Its main
activity includes issuing term loans of different tenures. One of its major customers, ABC Ltd,
is engaged in the business of manufacturing. However, due to fall in demand and non-
recovery of existing trade receivables, ABC Ltd. is facing working capital difficulties. As on
31st March, 2021 outstanding amount in respect to ABC Ltd. is as under:
Principle amount outstanding (for more than 8 months): ₹ 250 lakhs
Interest and penalties on the above : ₹ 30 lakhs
XYZ Ltd. is following accrual system for accounting of its income. Following the same, the
Company has accrued ₹ 30 lakhs as interest income in the Financial Statements for the year
ended 31st March, 2021.
You are required to state whether income accrual of ₹ 30 lakhs is in accordance with NBFC –
Non Systemically Important Non Deposit taking Company Directions, 2016?
Page 2.9
Solution
As per the said directions, Non- performing asset shall mean: a term loan inclusive of unpaid
interest, when the instalment is overdue for a period of six months or more or on which
interest amount remained overdue for a period of six months or more. In the present case,
dues of ABC Ltd. is outstanding for more than 6 months. Hence, ABC Ltd. will need to be
classified as NPA in the books of XYZ Ltd. as on 31st March, 2021.
Once an asset becomes NPA, any income on the said asset need to be recognized on cash
basis. Also, previous income accrued but not received, need to be reversed. Based on the
same, XYZ Ltd. shall stop accruing further interest accrual on term loan of ABC Ltd. Also, ₹30
lakhs accrued but not realized, need to be reversed.
Page 2.10
PRACTICE QUESTIONS
TOPIC 1: NET OWNED FUND

Calculate ‘Owned Fund’ of a NBFC based on the following facts:
Paid up share capital: ₹ 150 lakhs Free reserves: ₹ 250 lakhs
Compulsory convertible preference shares (CCPS): ₹ 50 lakhs
Revaluation Reserve: ₹ 95 lakhs
(Ans: 450 Lakhs)
Question 2 (Inter Nov 2020) (5 Marks) Pg no._____
Vikas Finance Ltd. is a NBFC. Extracts of its balance sheet are given below:
Liabilities Amount Assets Amount
(in ‘000) (in ‘000)
Paid-up equity capital 250 Leased out assets 2,000
Free reserves 1,250 Investment: In shares of 275
subsidiaries & group companies
Loans 1,000 In debentures of subsidiaries 225
and group Companies
Deposits 1,000 Cash and bank balances 500
Deferred expenditure 500
3,500 3,500
You are required to compute 'Net owned Fund' of Vikas Finance Ltd. as per Non-Banking
Financial Company - Systemically Important Non-Deposit taking Company and Deposit
taking Company (Reserve Bank) Directions, 2016. [Ans: 600 (‘000)]
Question 3 (RTP Nov 2022) Pg no._____
XYZ Finance Ltd. is a non-banking finance company. It provides the following information:
Amount
(₹ in lakhs)
Equity and Liabilities
Paid-up equity capital 200
General Reserve 600
Non-Current Liabilities
Loans 500
Deposits 600
Assets
Non-current assets
Property Plant and Equipment 900
Investments:
In shares of subsidiaries 250
In debentures of group companies 400
Current Assets
Cash and bank balances 350
You are required to compute ‘Net Owned Fund’ of XYZ Finance Ltd. as per Non-Banking
Financial Company – Systemically Important Non-Deposit taking company and Deposit taking
company (Reserve Bank) Directions, 2016. [Ans: 230 Lakhs]
Page 2.11
Question 4 (Inter Dec 2021) (5 Marks) Pg no._____

GEM Ltd. is a NBFC providing Hire Purchase Solutions for acquiring consumer durables. The
following information is extracted from its books for the year ended 31st March 2021.
₹ In lakhs
Paid up Equity Capital 2520
Compulsory convertible preference shares 1035
Free Reserve 243
Share Premium 56
Capital Reserve (220 Lakhs surplus arising out of sale of Building) 319
Deferred Revenue Expenditure 54
Debenture issued 702
Cash & Bank Balances 243
Investments in Debentures of subsidiaries 171
Investments in shares of other NBFC 945
You are required to calculate Owned Fund and Net Owned Fund. [Ans: 3306 Lakhs]
TOPIC 2: CLASSIFICATION OF ADVANCES AND PROVISION COMPUTATION
Question 5 (ICAI Study Material) / (RTP May 2022) (Similar) Pg no._____

While closing its books of account at year end a NBFC has its advances classified as follows:
₹ in Lakhs
- upto one year 1,600
Loss assets 240
(i) the Non-Banking Financial Company – Non-Systemically Important Non-Deposit taking
(ii) Non-Banking Financial Company - Systemically Important Non-Deposit taking Company
(Ans: 2,135 Lakhs & 2,261 Lakhs)
While closing its books of account on 31st March, 2021 a NBFC has its advances classified as:
₹ in Lakhs
- upto one year 1,280
Loss assets 192
Page 2.12
(iii) the Non-Banking Financial Company – Non-Systemically Important Non-Deposit taking
(iv) Non-Banking Financial Company - Systemically Important Non-Deposit taking Company
(Ans: 1,708 Lakhs & 1,808.80 Lakhs)
Question 7 (RTP May 2018 / RTP Nov 2020 (Similar) Pg no._____
₹ in Lakhs
- upto one year 640
Loss assets 96
Calculate the amount of provision, which must be made as per the NBFC – Non-Systemically
Important Non-Deposit taking Company (Reserve Bank) Directions, 2016
(Ans: 904 Lakhs)
Question 8 (Inter Nov 2018) (10 Marks)/ (ICAI Study Material) Pg no._____
While closing its books of accounts on 31 March 2021, a NBFC has its advances classified as:
st
₹ (in lakhs)
Secured Portion of doubtful debts:
Upto one year 300
One year to three years 90
More than three years 30
Loss assets 47
Calculate the amount of provision which must be made against the Advances as per -
(i) The Non-banking Financial Company - Non-systemically Important Non-Deposit taking
(ii) Non-banking Financial Company - Systemically Important Non- Deposit taking Company
(Reserve Bank) Directions, 2016
(Ans: 412 Lakhs & 439.60 Lakhs)
₹ in Lakhs
Sub-standard assets 670
- upto one year 160
Page 2.13

Loss assets 24
You are required to calculate the amount of provision, which must be made against the
Advances as per the NBFC –Systemically Important Non Deposit taking Company (Reserve
Bank) Directions, 2016. (Ans: 248.10 Lakhs)
Question 10 ((RTP May 2020) / (ICAI Study Material) Pg no._____

LK Finance Ltd. is a non-banking financial company. It provides you with the following
information regarding its outstanding amount, ₹ 400 lakhs of which instalments are overdue
on 400 accounts for last two months (amount overdue ₹ 80 lakhs), on 24 accounts for three
months (amount overdue ₹ 48 Iakhs), on 10 accounts for more than 30 months (amount
overdue ₹ 40 lakhs) and on 4 accounts for more than three years (amount over due ₹ 40
lakhs-already identified as sub-standard assets) and one account of ₹ 20 lakhs which has
been identified as non-recoverable by the management. Out of 10 accounts overdue for more
than 30 months, 6 accounts are already identified as sub-standard (amount ₹ 12 lakhs) for
more than fourteen Twelve months and other are identified as substandard asset for a period
of less than fourteen Twelve months.
Classify the assets of the company in line with NBFC - Systemically Important Non-Deposit
(Ans: Balance Std Accounts 172 Lakhs)
PGL Finance Ltd. is a non-banking financial company. The following information is provided
by the company regarding its outstanding amounts: ₹ 600 Lakhs, of which instalments are
overdue on 300 accounts for last two months (amount overdue ₹ 150 Lakhs), on 48 accounts
for three months (amount overdue ₹ 64 Lakhs), on 20 accounts for more than 30 months
(amount overdue ₹ 120 Lakhs) and in 4 accounts for more than three years (amount overdue
₹ 60 Lakhs - already identified as sub-standard asset) and one account of ₹ 40 Lakhs which
has been identified as non-recoverable by the management. Out of 20 accounts overdue for
more than 30 months, 16 accounts are already identified as sub-standard (amount ₹ 28 Lakhs)
for more than fourteen Twelve months and others are identified as sub-standard asset for a
period of less than fourteen Twelve months.
Classify the assets of the company in line with NBFC Systemically Important Non-Deposit
(Ans: Balance Std Accounts 166 Lakhs)
Samvedan Limited is a non-banking finance company. It accepts public deposit and also deals
in hire purchase business. It provides you with the following information regarding major hire
purchase deals as on 31-03-2019. Few machines were sold on hire purchase basis. The hire
purchase price was set as ₹ 100 lakhs as against the cash price of ₹ 80 lakhs. The amount
was payable as ₹ 20 lakhs down payment and balance in 5 equal instalments. The hire vendor
collected first instalment as on 31-03-2020, but could not collect the second instalment which
was due on 31-03-2021. The company was finalising accounts for the year ending 31-03-2021.
Till 15-05-2021, the date on which the Board of Directors signed the accounts, the second
instalment was not collected. Presume IRR to be 10.42%. Required:
a) What should be the principal outstanding on 1-4-2020? Should the company recognize
finance charge for the year 2020-2021 as income?
Page 2.14
b) What should be the net book value of assets as on 31-03-2021 so far Samvedan Ltd. is
concerned as per NBFC prudential norms requirement for provisioning?
What should be the amount of provision to be made as per prudential norms for NBFC laid
down by RBI? (Ans: Provision 7.49 Lakhs & Net Book Value 48 Lakhs)
Lokraj Financiers Ltd. is NBFC providing Hire Purchase Solutions for acquiring consumer
durables. Following information is extracted from its books for year ended 31st March, 2021:
Asset Funded Interest Overdue but recognized in Profit Net Book Value of
& loss Assets
(₹ in crore) (₹ in crore)
Washing Machines Upto 12 months 450.00 20,550.00
Music systems For 30 months 15.25 225.00
Air purifiers Upto 12 months 18.25 980.00
LCD Televisions For 45 months 420.00 21,200.00
You are required to calculate the amount of additional provision to be made.
(Ans: 15,102.50 crores)
Question 14 (Inter May 2018) (5 Marks) Pg no._____
ABC Financiers Ltd. is NBFC providing Hire Purchase Solutions for acquiring consumer
durables. Following information is extracted from its books for year ending 31st March, 2021:
Asset Funded Interest Overdue but recognized in Profit & Net Book Value of
loss Assets
(₹ in Lakhs) (₹ in Lakhs)
Computers Upto 12 months 960.00 40,812.00
Televisions For 20 months 205.00 4,950.00
Washing Machines For 32 months 104.20 2,530.00
You are required to calculate the amount of provision to be made.
(Ans: 2,741.60 lakhs)
Question 15 Inter May 2019 (5 Marks)/RTP May 2021/Nov 2021 (Similar)/ (ICAI Study Material) Pg no._____
Babu Bhai Financiers Ltd. is NBFC providing Hire Purchase Solutions for acquiring consumer
durables. Following information is extracted from its books for year ended 31st March, 2021:
Asset Funded Interest Overdue but recognized in Net Book Value of
Profit & loss Assets outstanding
Period Overdue Interest Amount (₹ in crores)
(₹ in crores)
LCD Televisions Upto 12 months 500.00 20,000
Washing Machines For 24 months 100.00 2,000
Refrigerators For 30 months 50.00 1,250
Air Conditioners For 45 months 25.00 600
Mobile Phones For 60 months 10.00 100
You are required to calculate the amount of provision to be made. (Ans: 1,220 crores)
Page 2.15
Question 16 (Inter July 2021) (5 Marks) Pg no._____

Siddharth Auto Financiers Limited is a NBFC providing Finance for purchasing of Auto
Rickshaws. The following information is extracted from its books for the year 31st March, 2021:
Interest Overdue but recognized in Profit & loss Net Book Value of Assets
Period Overdue Interest Amount (₹ in crores) outstanding (₹ in crores)
Upto 12 months 750.00 30,000
For 24 months 200.00 4,000
For 30 months 200.00 3,750
For 45 months 250.00 3,000
For 60 months 500.00 10,000
You are required to calculate the amount of provision to be made. (Ans: 14,000 crores)
TOPIC 3: VALUATION OF INVESTMENTS & OTHER TOPICS

UCG Finance is a non-banking finance company. The following are the details of various
investments held by it as on 31.03.2021 Figure (in Lakhs)
Scrips Cost Market Price
A. Equity Shares:
A 55 57.50
B 34 31.20
C 72 67.00
D 48 53.00
E 88 102.30
F 24 18.50
B. Mutual Funds-
MF-1 50.55 46.10
MF-2 27.00 29.00
MF-3 16.00 12.90
C. PSU Bonds
PB-1 14.00 15.50
PB-2 9.00 8.70
PB-3 7.00 7.80
(i) Find out the value of investments as on 31.03.2021 when:
(a) Considered category-wise (b) Considered scrip-wise
Assuming investments in equity shares and mutual funds are current investments.
(ii) Can depreciation in the value of investment in mutual funds be offset against appreciation
in the value of investment in equity shares and bonds of PSUs. Comment
(Ans: Value Category wise 439 Lakhs, Scrip Wise 423.70 Lakhs)
Write short note on Earning Value (Equity Share) as per NBFC Prudential Norms (RBI)
directions?

Explain the criterion of income recognition in the case of Non Banking Financial Companies.
Page 2.16

2 PW CA Inter NBFC

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CA NITIN GOEL NON BANKING FINANCIAL COMPANIES

NON BANKING FINANCIAL COMPANIES

“Nothing is Impossible, even Impossible itself says ‘I M Possible’.”

WEIGHTAGE IN PAST YEAR EXAMS

A Non-Banking Financial Company (NBFC) is a company registered

Net Owned Fund:

B. NBFCs mandated to register under RBI

Accordingly, NBFCs are categorized into following three groups for

DISTINCTION BETWEEN AN NBFC AND A BANK

The value of an equity share computed by taking the average of

Note: If an investee company is a loss making company the earning

Doubtful Assets (a) Unsecured Portion: 100% provision

Period for which the asset has % of provision

B. Lease and Hire Purchase Assets

Hire purchase assets

In respect of hire purchase and leased assets, additional provision

‘Net book value’ means

REQUIREMENT AS TO CAPITAL ADEQUACY

“Tier I Capital” means owned fund as reduced by investment in

includes the following:

Risk Weighted Assets

TOPIC 1: NET OWNED FUND

Question 1 (RTP May 2022) / RTP May 2021) (Similar) Pg no._____

Question 2 (ICAI Study Material) / RTP Nov 2021) (Similar) Pg no._____

TOPIC 2: CLASSIFICATION OF ADVANCES AND PROVISION COMPUTATION

Question 3 (ICAI Study Material) Pg no._____

Question 4 (RTP May 2019) (Similar)/ (ICAI Study Material) Pg no._____

Question 5 (Inter Jan 2021) (5 Marks) Pg no._____

Question 7 (ICAI Study Material) Pg no._____

Asset Funded Interest Overdue but recognized in Net Book Value of

TOPIC 3: VALUATION OF INVESTMENTS & OTHER TOPICS

Question 9 (ICAI Study Material) Pg no._____

TOPIC 1: NET OWNED FUND

Question 1 (ICAI Study Material) Pg no._____

Question 4 (Inter Dec 2021) (5 Marks) Pg no._____

TOPIC 2: CLASSIFICATION OF ADVANCES AND PROVISION COMPUTATION

Question 5 (ICAI Study Material) / (RTP May 2022) (Similar) Pg no._____

Unsecured portions of doubtful debts 48

Question 10 ((RTP May 2020) / (ICAI Study Material) Pg no._____

Question 16 (Inter July 2021) (5 Marks) Pg no._____

TOPIC 3: VALUATION OF INVESTMENTS & OTHER TOPICS

Question 19 (Inter Nov 2019) (5 Marks) Pg no._____

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