EXECUTIVE SUMMARY The study presents a comparative study of NBFC’s in India. There are almost 13000 registered NBFC’s in India. The study is aimed to provide an holistic view of the NBFC Industry. NBFC fulfills the financial gap by providing loan at a lower rate of interest. The major players of each field 1) Housing Finance Industry: LIC Housing Finance. 2) Infrastructure Finance Industry: IDFC 3) Asset Financing: Shriram Transport Finance 4) Composite: Reliance Capital The study also compared the Indian Banks v/s NBFC. It was found that at even at the time of the economic slowdown NBFC was more profitable. Porters Five forces was also used to analyse the industry and to find the competitiveness in the industry. The industry is not tightly regulated as there are many regulatory bodies. Hence, there was an important need to study the NBFC as the industry plays an important role in the financial Services market of INDIA. It is encouraging that the NBFC sector‘s importance is finally being acknowledged across FS market constituents as well as the regulator. However, the importance attached to the sector is often transcending into misplaced exuberance. Over simplified and vague drivers
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EXECUTIVE SUMMARYThe study presents a comparative study of NBFC’s in India. There are almost 13000
registered NBFC’s in India. The study is aimed to provide an holistic view of the NBFC
Industry. NBFC fulfills the financial gap by providing loan at a lower rate of interest. The
major players of each field
1) Housing Finance Industry: LIC Housing Finance.
2) Infrastructure Finance Industry: IDFC
3) Asset Financing: Shriram Transport Finance
4) Composite: Reliance Capital
The study also compared the Indian Banks v/s NBFC. It was found that at even at the
time of the economic slowdown NBFC was more profitable. Porters Five forces was also
used to analyse the industry and to find the competitiveness in the industry. The industry
is not tightly regulated as there are many regulatory bodies. Hence, there was an
important need to study the NBFC as the industry plays an important role in the financial
Services market of INDIA.
It is encouraging that the NBFC sector‘s importance is finally being acknowledged
across FS market constituents as well as the regulator. However, the importance
attached to the sector is often transcending into misplaced exuberance. Over
simplified and vague drivers for NBFC valuations such as strategic fit and customer
base, can never substitute dispassionate business analytics. A rational assessment of
the intrinsic values of NBFCs factoring issues such as past performance, structural
weaknesses of the sector (for instance funding disadvantages), along with an
identification of real capabilities are essential to ensure that the equilibrium between
price paid and value realized is reached to the extent possible. In the absence of this,
India is sure to witness the re-opening of the NBFC horror story albeit with a new
chapter on the erosion of NBFC investment values affecting investors across
categories.
CHAPTER-1
INTRODUCTION
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).
NBFCs are doing functions akin to that of banks; however there are a few differences:
(i)an NBFC cannot accept demand deposits; (ii) an NBFC is not a part of the payment
and settlement system and as such an NBFC cannot issue cheques drawn on itself; and
(iii) deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation
is not available for NBFC depositors unlike in case of banks.
1.1 TYPES OF NBFC’S
Originally, NBFCs registered with RBI were classified as: (i)equipment leasing
company; (ii) hire-purchase company; (iii) loan company; (iv) investment company.
However, with effect from December 6, 2006 the above NBFCs registered with RBI
have been reclassified as (i) Asset Finance Company (AFC) (ii) Investment Company
(IC) (iii) Loan Company (LC)
1.2 REGULATIONS OF NBFC’S
In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every
NBFC should be registered with RBI to commence or carry on any business of
non-banking financial institution as defined in clause (a) of Section 45 I of the
RBI Act, 1934. However, to obviate dual regulation, certain categories of
NBFCs which are regulated by other regulators are exempted from the
requirement of registration with RBI viz. Venture Capital Fund/Merchant
Banking companies/Stock broking companies registered with SEBI, Insurance
Company holding a valid Certificate of Registration issued by IRDA, Nidhi
companies as notified under Section 620A of the Companies Act, 1956, Chit
companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982 or
Housing Finance Companies regulated by National Housing Bank.
A 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 have a minimum net owned fund
of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999). The company is
required to submit its application online by accessing RBI‘s secured website
https://secweb.rbi.org.in/COSMOS/rbilogin.do (the applicant companies do not
need to log on to the COSMOS application and hence user ids for these
companies are not required). The company has to click on ―CLICK for
Company Registration on the login page. A window showing the Excel
application forms available for download would be displayed. The company
can then download suitable application form (i.e. NBFC or SC/RC) from the
above website, key in the data and upload the application form. The company
may note to indicate the name of the correct Regional Office in the field ―C-8
of the ―Annx-Identification Particulars‖ worksheet of the Excel application
form. The company would then get a Company Application Reference Number
for the CoR application filed on-line. Thereafter, the company has to submit the
hard copy of the application form (indicating the Company Application
Reference Number of its on-line application), along with the supporting
documents, to the concerned Regional Office. The company can then check the
status of the application based on the acknowledgement number. The Bank
would issue Certificate of Registration after satisfying itself that the conditions
as enumerated in Section 45-IA of the RBI Act, 1934 are satisfied.
1.3 GUIDELINES FOR NEW DEPOSITS
Customer identification: 'Know The Customer' (KYC) should be the key guiding
principle for identification of an individual / corporate customer (depositor or
borrower).
Accordingly, the KYC framework should have two-fold objective, (i) to ensure
customer identification and verifying his identity and residential address; and (ii) to
monitor transactions of a suspicious nature.
NBFCs should ensure that the identity of the customer, including beneficial owner
is done based on disclosures by customers themselves.
Typically easy means of establishing identity would be documents such as
Permanent Account Number (PAN), ration card, driving licence, Election
Commission's identity card, passport, et cetera in case of individuals and registration
certificate, partnership deed/agreement, et cetera and other reliable documents in
respect of companies, firms and other bodies.
Verification through such documents should be in addition to the introduction by a
person known to the NBFC.
Procedures for existing customers
In respect of existing customers, NBFCs should ensure that gaps and missing
information in compliance of KYC guidelines on customer identification procedure is
filled up and completed before June 30, 2004.
Ceiling and monitoring of cash transactions
NBFCs would normally not have large cash withdrawals and deposits.
However, wherever transactions of Rs 10 lakh (Rs 1 million) and above are
undertaken, they should keep record of these transactions in a separate register
maintained at branch, as well as at Registered Office.
Such information should be made available to regulatory and investigating
authorities, when demanded.
Guidelines and monitoring procedures
The board of directors of NBFCs should formulate policies and procedures to
operationalise the guidelines and put in place an effective monitoring system to ensure
compliance by their branches.
Early computerisation of branch/office reporting will facilitate prompt generation of
such reports and monitoring.
Internal control systems
Duties and responsibilities should be explicitly allocated among the staff for
ensuring that policies and procedures are managed effectively and that there is full
commitment and compliance to an effective KYC programme in respect of both
existing and prospective customers/clients.
Internal audit/inspection
Internal auditors must specifically scrutinise and comment on the effectiveness of
the measures taken by branches / offices of NBFC in adoption of KYC norms and
steps towards prevention of money laundering.
Specific cases of violation should be immediately brought to the notice of head /
controlling / registered office.
Record keeping
NBFCs should prepare and maintain proper documentation on their customer
relationships and cash transactions of Rs 10 lakh and above.
The records of all such transactions should be retained for at least ten years after the
transaction has taken place and should be available for perusal and scrutiny by audit
functionaries as well as regulators and law enforcement authorities; as and when
required, at the branch as well as at registered office.
Training of staff and management
It is important that all the operating and management staff is made fully aware of
the implications and understand the need for strict adherence to KYC norms.
NBFCs may take suitable steps to impart training to their operational staff on anti-
money laundering measures.
1.4 RESPONSIBILITIES
The NBFCs accepting public deposits should furnish to RBI
i. Audited balance sheet of each financial year and an audited profit and loss account
in respect of that year as passed in the annual general meeting together with a copy of
the report of the Board of Directors and a copy of the report and the notes on accounts
furnished by its Auditors;
ii. Statutory Annual Return on deposits - NBS 1;
iii. Certificate from the Auditors that the company is in a position to repay the
deposits as and when the claims arise;
iv. Quarterly Return on liquid assets;
v. Half-yearly Return on prudential norms;
vi. Half-yearly ALM Returns by companies having public deposits of Rs. 20 crore and
above or with assets of Rs. 100 crore and above irrespective of the size of deposits ;
vii. Monthly return on exposure to capital market by companies having public
deposits of Rs. 50 crore and above; and
viii. A copy of the Credit Rating obtained once a year along with one of the Half-
yearly Returns on prudential norms as at (v) above.
1.5 CURRENT SCENARIO
Nearly 11 years after the last of the two banking licences were issued by RBI to
private sector entities, the government has again started the process of allowing the
better-managed non-banking finance companies (NBFCs) to graduate to full-fledged
banks. FM Pranab Mukherjee‘s Budget proposal on Friday was the first step towards
the same. The second step will be enacted on Tuesday morning. A select group of
officials from top NBFCs, under the aegis of the Finance Industry Development
Council (FIDC), the trade body for NBFCs in India, are meeting R Gopalan, the
banking secretary in the finance ministry, to present a case for select NBFCs to be
converted into full-fledged banks, sources said. About 12-15 NBFCs and corporate
houses having presence in the financial sector are expected to join the race to float a
bank.
‗‗The finance minister is convinced that there is a huge need for low-cost financing at
the semi-urban and rural areas in India,‘‘ said a industry source. The financial services
industry believes the Budget proposal was a reflection of the same. ‗‗In the finance
ministry things are moving in the right direction and the banking secretary‘s meeting
proves the same,‘‘ said the source. FIDC office bearers could not be contacted during
the extended weekend.
In the last Union Budget, the FM had announced that RBI is considering giving
additional banking licences to private sector players, including NBFCs. This was
ostensibly to further financial inclusion and also to improve the size and sophistication
of the Indian banking system. The announcement set the financial markets on fire with
a lot of conjecturing as to who would be the lucky few. The access to low-cost current
account and savings accounts and the ability to offer all financial products under one
roof were cited as major attractions for NBFCs to rush to seek banking licences. It
was also expected that RBI would give new licences to private players very soon. But,
an analysis reveals a different picture. Neither is RBI in a hurry to issue fresh licences
nor are many NBFCs keen to get into commercial banking.
The reasons for this are manifold. RBI rules are stringent for commercial banks as
they are the visible face of the Indian financial system and commercial banks are
primarily the custodians of public money. RBI places restrictions on commercial
banks in their lending operations. Out of Rs 100 taken in as deposits, approximately
Rs 30 has to be set apart as statutory requirements towards CRR and SLR. This leaves
the banks with Rs 70 to lend. Out of this, 40% has to be statutorily lent towards the
priority sector as defined by RBI. This leaves banks with approximately Rs 42 to lend
at their own discretion. Many NBFCs would definitely find this as restrictive to say
the least.
As per the guidelines of 2001, NBFCs seeking a banking licence should have a
minimum paid-up capital of Rs 200 crore, which must be increased to Rs 300 crore
within 3 years of conversion into a bank. Further, banks have to invest large funds in
fixed assets and information technology primarily to facilitate financial inclusion, risk
management, anti money laundering, etc. These huge capital expenditures increase the
payback period for the investments made. Also, banking-as-a-business model is far
more people-, process- and product-driven than a simple NBFC model. For example,
in order to adopt universal banking, the staff needs to be multi-skilled in banking
functions. So, the operating expenses will be substantially higher, which, in turn,
would reduce the profitability of operations. Also, there are restrictions on ownership
and voting rights. Current stipulations cap voting rights at 10%; higher rights require
the specific approval of...
Chapter-2
Literature review
2.1 IMPORTANCE OF NBFC’S
According to RBI Non Banking Finance Companies (NBFCs) is a constituent of the
institutional structure of the organized financial system in India. NBFCs perform a
significant and important role in our financial system. They facilitate the process of
channelising of public savings and provide better return to the depositors. We are
aware that due to liberalization and globalisation, banking industry and financial
sector has gone through many reforms. In the present economic environment it is very
difficult to cater need of society by Banks alone so role of Non Banking Finance
Companies and Micro Finance Companies become indispensable. The activities of
non-banking financial companies
(NBFCs) in India have undergone qualitative changes over the years through
functional specialisation. The role of NBFCs as effective financial intermediaries has
been well recognised as they have inherent ability to take quicker decisions, assume
greater risks, and customise their services and charges more according to the needs of
the clients. While these features, as compared to the banks, have contributed to the
proliferation of NBFCs, their flexible structures allow them to unbundle services
provided by banks and market the components on a competitive basis. The distinction
between banks and non-banks has been gradually getting blurred since both the
segments of the financial system engage themselves in many similar types of
activities. At present, NBFCs in India have become prominent in a wide range of
activities like hire-purchase finance, equipment lease finance, loans, investments, etc.
By employing innovative marketing strategies and devising tailor-made products,
NBFCs have also been able to build up a clientele base among the depositors, mop up
public savings and command large resources as reflected in the growth of their
deposits from public, shareholders, directors and their companies, and borrowings by
issue of non-convertible debentures, etc.
According to KPMG survery The Indian Non Banking Finance Company (NBFC)
sector has often been relegated to the shadows, in most discussions on the Indian
Financial Services (FS) industry. Banks, insurance companies and capital market
players take centre stage and invariably, NBFCs attract public attention only during
times of crisis. Little attention has been paid to the silent but effective manner in
which NBFCs have spread their operations across the country. NBFCs have provided
financial solutions to sections of society who hitherto were at the mercy of
unorganized players for credit and savings products, which were delivered on
economically and socially usurious terms. ronically, in recent times, NBFCs are once
again in the spotlight for their perceived strengths and capabilities rather than their
problems. While this re-rating ought to bring cheer to a much maligned sector, a
degree of caution needs to be instilled within potential investors in NBFCs, who need
to clearly understand the true drivers of value for finance companies. This
understanding is imperative to enable a better judgment of the intrinsic worth of
NBFCs. This article proceeds to illustrate the key factors responsible for the strong re-
rating of the NBFC sector, as well as discuss the validity of each of these factors, as
actual drivers of value. Today, the NBFC sector is as financially sound as it has ever
been.To an extent, this can be attributed to the very problems affecting the sector
which have resulted in the purging of several players, leaving the fittest few to
dominate the landscape. Taking the Reserve Bank of India‘s (RBI) definition of
‗reporting NBFCs‘ as a proxy for non-dormant players, a mere 24 NBFCs held 92.7
percent of the total assets of all NBFCs in 2005-2006. The balance assets, amounting
to less than 8 percent of the total, were fragmented across 439 NBFCs. In addition to
this consolidation, at present, NBFCs in general are well-capitalized with strong
parent support. A majority of active NBFCs reported capital adequacy ratios
exceeding 12 percent
2.2 ROLE OF NBFC’S
According to EPW Research Foundation (EPWRFThe Indian economy is going
through a period of rapid `financial liberalisation'. Today, the `intermediation' is being
conducted by a wide range of financial institution through a plethora of customer
friendly financial products. The segment consisting of Non-Banking Financial
Companies (NBFCs), such as equipment leasing/hire purchase finance, loan and
investment companies, etc. have made great strides in recent years and are meeting
the diverse financial needs of the economy. In this process, they have influenced the
direction of savings and investment. The resultant capital formation is important for
our economic growth and development. Thus, from both the macroeconomic
perspective and the structure of the Indian financial system, the role of NBFCs has
become increasingly important. The crucial role of Non Banking Finance Institutions
(NBFIs) in broadening access to financial services, and enhancing competition and
diversification of the financial sector has been well recognized. The main advantages
of these companies lie in their ability to lower transactions costs of their operations,
their quick decision-making ability, customer orientation and prompt provision of
services. While NBFIs are sometimes seen as akin to banks in terms of the products
and services offered, this is strictly not accurate, as more often, NBFIs play a range of
roles that complement banks. Further, Status Note on NBFCs
NBFIs can add to economic strength to the extent they enhance the resilience of the
financial system to economic shocks. A well developed and properly regulated NBFI
sector is thus an important component of broad, balanced, efficient financial system
that spreads risks and provides a sound base for economic growth and prosperity.
2.3 ON GLOBAL CRISIS
According to CARE: NBFC sector faced significant stresses on asset quality, liquidity
and funding costs due to the global economic slowdown & its impact on the domestic
economy. While all the NBFCs were affected, the impact varied according to the
structural features of each NBFC. Asset-liability maturity (ALM) profiles, type of
assets financed and origination / collection models followed were the primary
differentiators within NBFCs. The support provided by the Reserve Bank of India
(RBI) highlighted the explicit acceptance of the systemic importance of the sector.
FY10 was marked by re-aligning of the liability profiles, tightening of lending norms
coupled with closing down of many of the unsecured loan segments. On a structural
basis, the sector is now more robust due to the lessons learned by NBFCs from this
crisis. Profitability is expected to be lower than historical levels due to conservative
ALM management, higher provisioning and avoidance of high yielding unsecured
loan segments. However profits are at the same time expected to be much more stable
& less susceptible.
CHAPTER-3
RESEARCH
METHODOLOGY
3.1 RESEARCH DESIGN
Since the research is for industry analysis and it is structured for NBFC‘S. The
research uses secondary data for analysIs and interpretation.
3.2 OBJECTIVE
The confined objectives of the present study are:
To analyze the market of NBFC‘s in India
To study the financials of NBFC‘s
3.3 SCOPE OF THE STUDY
The study was limited to the Financial Service market of India which included
NBFC‘s mainly 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 study were the NBFC‘s
3.4 DATA COLLECTION
There are two methods of data collection that can be considered when collecting data
for research purpose. These data collection types include the following:
1. Primary data
2. Secondary data
Both the secondary and primary data collection methods were used in the study.
3.4.1 PRIMARY DATA
The primary data required for this study was collected by visiting the financial
services and analysing the information provided by them.
3.4.2 SECONDARY DATA
The secondary data for the research was collected from journals, research articles,
books and internet websites, annual reports etc whose details and references has been
given in Chapter-2 and in ―References‖. The source of the secondary data was
British Library, NBFC‘s and Internet.
Secondary data was the main source in formulating the constructs of ― A
comparative study of NBFC‘s in India‖
3.5 FIELD WORK PLAN
The study was conducted in New Delhi (NCR and Bangalore visiting different
institutions and analyzing the different NBFC‘s work.
CHAPTER-4
MAJOR PLAYERS AND
SELECTED COMPANY
FOR STUDY
4.1 LIC HOUSING FINANCE 4.1.1 Housing Finance Industry
India‘s housing finance industry comprises of banks and housing finance companies.
They have contributed to new residential home loans at a compounded annual growth
rate (CAGR) of more than 30 percent during the period 2002-2007. This has been due
to the combined effect of a booming economy and low interest rates.
Further, steady prices and continuation of tax concessions to self-occupied residential
home borrowers are contributors to the growth of the industry. The average age of
borrowers has declined over the years, while the number of double income households
has grown significantly enabling them to borrow higher loan amount due to higher
repaying capacity.
The scenario of unprecedented growth in housing finance, driven by low interest rates,
increasing purchasing power and attraction of the yield in this sector has begun to
show signs of change last year. There has been a decrease in demand during the last
one year. Earlier to that i.e., during 2006 to 2007 home prices increased at a CAGR of
30 to 40 percent against a 20 percent increment in salaries witnessed in metros and
large cities. This had affected the buyer‘s affordability.
As the borrowing cost for banks and housing finance companies steadily increased in
line with rising interest rates in the economy in the past two years up to Q3 of 2008-
09, banks and housing finance companies resorted to hike in interest rates so as to
maintain their interest spreads. Interest rates on new home loan originations have
increased significantly by 200 basis points during April‗2008 to September October‘
2008. As a result a higher proportion of monthly income was being paid out as home
loan equated monthly installments (EMI). The combined effect of an increase in
property prices and interest rates has meant that home loan buyers, who would have
had to borrow less at an interest rate of 8.75 percent a year ago, now have to borrow
more to buy the same property due to higher property prices at higher interest rates of
10.5 to 11 percent. This trend has resulted in both lower affordability i.e., an average
home at a higher multiple of annual income, and higher debt burden (meaning that a
larger proportion of income gets spent as home loan EMI). Further, the increase in
interest rates on fresh loans to 10.5 to 11 percent from 8.75 percent meant increase in
debt burden i.e., higher installment to income ratio. Along with, the economic down
turn and consequential apprehensions of job insecurity and income reduction led to
slump in the market. However, the scenario has taken the reverse turn in the last
quarter of the financial year 2008-09, which was evident from the higher booking of
flats, and sharp increase in the disbursements. Real estate developers have taken
sensible decision in reducing or slashing rates in major centres specially Mumbai,
Thane, Navi Mumbai, Delhi NCR and Bangalore to encash on the existing demand in
the real estate market. The good deals might be offered for a few weeks or for the first
ten properties or for a killer deal for a time-bound two days or similar schemes but
yes, the writing is clear on the wall that the willingness to connect with the ―real‖ pricing has dawned on the developers to sell at reduced prices to encourage more and
more sales. The sales teams in the builder/ developer offices are at their all-time
creative best with sales tactics. They now understand clearly that with buyers
unwilling to relent on unrealistic pricing, there is an even greater need to price
competitively, maybe with a lower profit margin, than holding on to the price and
project as the interest meter runs. These proactive steps should ensure renewed
demands and increased volumes during the current year.
The Indian economy, which was on a robust growth path up to 2007-08, averaging at
8.9 per cent during the period 2003-04 to 2007-08, witnessed moderation in 2008-09,
with the deceleration turning out to be somewhat sharper in the third quarter.
Industrial growth experienced a significant downturn and the loss of growth
momentum was evident in all categories, viz., the basic, capital, intermediate and
consumer goods.
However, the fiscal stimulus packages of the Government and the monetary easing of
the Reserve Bank will, however, arrest the moderation in growth and revive
consumption and investment demand, though with some lag, in the months ahead.
Furthermore, prospects of the agricultural sector also remain bright, and this will
continue to support the rural demand. Finally, in the wake of expected improvement
in agricultural production as well as low international commodity prices, inflationary
pressures are also anticipated to remain at a low level through the greater part of the
2009-10.
4.1.2 Indian Housing Finance scenario
India‘s housing finance industry comprises of banks and housing finance companies.
They have contributed to new residential home loans at a compounded annual growth
rate (CAGR) of more than 30 percent during the period 2002-2007. The scenario of
unprecedented growth in housing finance, driven by low interest rates and booming
economy, has begun to show signs of change last year. There has been a decrease in
home prices during the last one year.
Earlier to that i.e., 2006 to 2008 home prices increased at a CAGR of 30 to 40 percent
against a 20 percent increment in salariee witnessed in metros and larger cities. This
had affected the buyer‘s affordability. The average home buyer spent around 4 times
his net annual income for purchasing a new residential home in the 3-4 years till
March 2005. (source CRISIL report 19th February, 2009) As the borrowing cost for
banks and housing finance companies steadily increased in line with rising interest
rates in the economy in the past two years upto September‘ 2008, banks and housing
finance companies resorted to hike in interest rates so as to maintain their interest
spreads. Interest rates on new home loan originations had increased significantly by
200 basis points during April‗ 2008 to August September‘ 2008. As a result a higher
proportion of monthly incomes was paid as home loan equated monthly instalments
(EMI). But, the scenario has taken the reverse turn in the last quarter of the financial
year 2008-09 which was evident from the higher booking of flats and sharp increase
in the disbursements. As interest rates are heading southward, public sector banks
have set the pace. Housing finance companies would follow the suit. It may be
mentioned here that with the decline ininterest rates, LIC Housing Finance has passed
on 150 basis points rate cut to the customers i.e. 75 basis points each on 1st January,
2009 and 1st April, 2009. Our interest rates are among the lowest in the industry. This
has helped our company in retaining customers and maintaining high growth rates
even in tough conditions. And interest rate is just one of the factors. Transparency,
hassle-free services, property prices and buyer‘s repayment capacity are equally
important. The customer would not arrive at a decision solely based on the reduction
in interest rates for one year. LIC Housing Finance is one of the best players in the
industry in terms of EMI as our company has no hidden costs.
4.1.3 LIC Housing Finance
LIC Housing Finance Ltd. is one of the largest Housing Finance Company in India.
Incorporated on 19th June 1989 under the Companies Act, 1956, the company was
promoted by LIC of India and went public in the year 1994. The Company launched
its maiden GDR issue in 2004. The Authorized Capital of the Company is Rs.1500
Million (Rs.150 Crores) and its paid up Capital is Rs.850 Millions (Rs.85 Crores).
The Company is recognized by National Housing Bank and listed on the National
Stock Exchange (NSE) & Bombay Stock Exchange Limited (BSE) and its shares are
traded only in Demat format. The GDR's are listed on the Luxembourg Stock
Exchange.
The main objective of the Company is providing long term finance to individuals for
purchase / construction / repair and renovation of new / existing flats / houses. The
Company also provides finance on existing property for business / personal needs and
gives loans to professionals for purchase / construction of Clinics / Nursing Homes /
Diagnostic Centres / Office Space and also for purchase of equipments.
The Company possesses one of the industry's most extensive marketing network in
India : Registered and Corporate Office at Mumbai, 6 Regional Offices, 13 Back
Offices and 158 marketing units across India. In addition the company has appointed
over 1352 Direct Sales Agents (DSAs), 7085 Home Loan Agents (HLAs) and 777
Customer Relationship Associates (CRAs) to extend its marketing reach. Back
Offices spread across the country conduct the credit appraisal and administrative
functions.
The Company has set up a Representative Office in Dubai and Kuwait to cater to the
Non-Resident Indians in the GLCC countries covering Bahrain, Dubai, Kuwait, Qatar
and Saudi Arabia. Today the Company has a proud group of over 10,00,000 prudent
house owners who have enjoyed the Company's financial assistance.
Profile & Progress
Provides loans for homes, construction activities, and corporate housing schemes.
Around 91% of the loan portfolio derived from the retail segment and the rest from
large corporate clients
Formed three new wholly owned subsidiaries in 2007-08 to promote marketing of
financial products and venture capital fund.
Rated ‗AAA‘ by CRISIL for the 8th consecutive time in 2008-09; maiden Fixed
Deposit
program received an FAAA/stable rating by CRISIL.
An offshoot of Life Insurance Corporation of India (LIC), incorporate in 1989.
Registered & Corporate Office at Mumbai with 6 regional offices, 13 Back Offices
and 130 marketing units across the country .
1352 Direct Sales Agents (DSAs), 7085 Home Loan Agents (HLAs) and 777
Customer
Relationship Associates (CRAs) comprise its pan-Indian marketing network.
Representative overseas presence in Dubai and Kuwait.
4.1.4 Financial Performance
Interest income from housing loans increased 34.90 percent from Rs. 2036.79 crore in
2007- 08 to Rs. 2747.65 crore in 2008-09. The net interest income grew by 31.97
percent from Rs. 553.94 crore in 2007-08 to Rs. 731.04 crore in 2008-09. Profit after
tax surged 37.30 percent from Rs. 387.19 crore in 2007-08 to Rs. 531.62 crore in
2008-09.
Operations:
Funds mobilized grew 49.38 percent from Rs. 7489.70 crore in 2007-08 to Rs.
11,188.33 crore in 2008-09.
Sanctions (Ind.+Proj.) increased 26.46 percent from Rs. 8617.88 crore in 2007-08
to Rs. 10898.47 crore in 2008-09.
Disbursements (Ind.+Proj.) grew 23.90 percent from Rs. 7071.48 crore in 2007-08
to Rs. 8762.01 crore in 2008-09.
Loan portfolio grew 26.18 percent from Rs. 21936.41 crore in 2007-08 to Rs.
27679.28 crore in 2008-09.
Margins:
Net interest margin improved by 10 basis points from 2.85 percent in 2007-08 to
2.95 percent in 2008-09.
Return on equity grew by 267 basis points from 21.13 percent in 2007-08 to 23.80
percent in 2008-09.
Net profit margin improved by 49 basis points from 17.82 percent in 2007-08 to
18.31 percent in 2008-09.
Asset Quality: Gross NPA declined by 63 basis points from 1.70 percent in 2007-
08 to 1.07 percent in 2008-09.Net NPA levels declined 43 basis points from 0.64
percent in 2007-08 to 0.21 percent in 2008-09.
On funds
On the performance of the Company : In the turbulent times when Housing sector
was passing through rough patch, LIC Housing Finance largely could manage the
environment well, inspite of various global as well as domestic economic challenges
and was successful in producing good business growth by its inherent strength in
meeting difficult challenges through unceasing and untiring efforts. The Company has
not only ensured consolidation of the gains achieved in the past years, but also
ensured further growth and increased profitability. The year 2008-09 has been a year
of further containment of defaults and NPA levels when compared to previous years.
Lending operations
The main thrust continues on individual loans with a growth of 25 percent as against
20 percent in the previous year. However, project loans were also given due
weightage
resulting in a modest growth of 20 percent over previous year. During the year, the
Company sanctioned 67,886 individual loans for Rs. 8,186.02 crore and disbursed
67,237 loans for Rs. 7,351.09 crore during 2008-09. Individual retail loans constitute
75.11 percent of the total sanctions and 83.94 percent of the total disbursements for
the year 2008-09 compared to the last year‘s figure of 75.84 percent and 83.47 percent
respectively. The retail (individual) loan portfolio grew by over 22 percent from Rs.
20,618.78 crore as on 31st March, 2008 to Rs. 25,252.87 crore as on 31st March,
2009. The cumulative sanctions and disbursements since the incorporation, in respect