A STUDY OF FINANCIAL PERFORMANCE AND GROWTH OF NON-BANKING FINANCIAL COMPANIES

EXECUTIVE SUMMARY

Non- Banking Financial Companies are an important segment of the Indian Financial
system in extending credit to the unbanked segments of the society particularly to micro,
small and medium enterprises. They are classified into different categories based on their
status and principal activities. In this paper, an attempt has been made to analyze the
performance of the five different categories of NBFCs in India across 2015 to 2019. The
performance is analyzed by examining key indicators like Liquidity ratio, Profitability
Ratio and Debt to Equity Ratio. The findings indicate that the selected categories of
NBFCs differ significantly in terms of Liquidity and Profitability ratios from one another.

India is a developing country where large sections of the population are unbanked which
give rise to several forms of financial intermediaries including non - banking financial
companies. A Non- Banking Financial Company (NBFC) is a company registered under
the Companies Act 1956 engaged in the business of loans and advances acquisition of
stocks, equities, debt etc issued by government or any local authority or other marketable
securities like leasing, hire purchase, insurance business , chit business. NBFC sector has
evolved considerably in terms of size, operations, technological sophistication, and
entered into newer areas of financial services and products. It is essential to analyze and
measure the growth of NBFCs for better understanding about the transformation of
financial intermediaries in the context of Indian banking system. Financial performance
can be measured using solvency and profitability ratios and applying statistical tools to
analyze the results. NBFCs are playing a crucial role in economic development of a
country. They cater to needs of people in both rural and urban areas through various
schemes which helps in bridging the credit gaps. NBFCs do enjoy flexibility in
operations when compared to banks. Some of the top NBFCs in India are Power Finance
Corporation Limited, Mahindra & Mahindra Financial Services Limited,

Muthoot Finance Ltd. Etc. This project ss is mainly focused on the studying the growth
of NBFCs and finding the reasons or factors behind their performance and non-
performance. The financial performance is analyzed through ratio analysis technique and
results are interpreted for 5-year period.

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CHAPTER 1

INTRODUCTION

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OVERVIEW – PROTIUM FINANCE LIMITED

About
Protium’s role is to be the pre-eminent engineering led, risk focused lender in the country.
Protium is a full stack lender with pan India branch presence. They operate under -
Protium Finance, Protium Money & Protium Sakshara which lend to MSME, consumers
and educational institutions. Protium uses proprietary models to assess revenues and
growth to equip their customers with solutions. They serve our customers through diverse
channels including digital interfaces, platform-based partnerships, dedicated sales teams
and DSAs. Protium boasts of scalable, secure state management systems that deliver best
in class lending APIs, workflow and underwriting capabilities. Their lending capabilities
include providing both secured and unsecured lending solutions from INR 1 Lakh to 5
Crore to thriving small businesses in tier 1, 2 and 3 cities, financing durables of all price
ranges and personal loans to the consumer segment. Our mission is to fuel ambition –
make credit accessible to small & medium businesses and empower consumers to make
faster, flexible and convenient purchase decisions.

They achieve this through “Fundamental Thinking-to-Engineer Finance” that combines

our ability to simplify principles and create powerful proprietary fintech solutions to
empower customers and ourselves. Protium Finance offers secured and unsecured loans
to MSMEs anywhere in India. They assist small enterprises, owners to scale up and build
better with the capital & flexibility needed to pivot the business and thrive. Let’s talk
about what your business needs. No more holding back. Protium Money is our consumer
lending platform with a huge network of trusted partners offering effortless credit
solutions. So, more freedom for you, when you need it most. The purpose of education is
empowerment. Protium Sakshara offers customized loan products for edupreneurs and
educational institutions to help fund your capital or operational expenditure requirements.

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Protium Finance Limited's operating revenues range is INR 1 cr - 100 cr for the
financial year ending on 31 March, 2021. It's EBITDA has increased by 24.94 % over
the previous year. At the same time, it's book networth has increased by 106.82 %.
Here is a summary of financial information of PROTIUM FINANCE LIMITED for the
financial year ending on 31 March, 2021.

• Revenue / turnover of PROTIUM FINANCE LIMITED is INR 1 cr - 100 cr

• Net worth of the company has increased by 106.82 %

• EBITDA of the company has increased by 24.94 %
• Total assets of the company has increased by 128.92 %
• Liabilities of the company has increased by 1,638.85 %

Operating Revenue INR 1 cr - 100 cr

EBITDA 24.94 %

Networth 106.82 %

Debt/Equity Ratio 0.12

Return on Equity 0.09 %

Total Assets 128.92 %

Fixed Assets 245.87 %

Current Assets 36.32 %

Current Liabilities 1,638.85 %

Trade Receivables N/A

Trade Payables 10.53 %

Current Ratio 5.14

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The current status of Protium Finance Limited is - Active.

The last reported AGM (Annual General Meeting) of Protium Finance Limited, per our
records, was held on 11 September, 2023.
Protium Finance Limited has five directors - Sitaram Kunte, Parveen Kumar Gupta,
and others. The Corporate Identification Number (CIN) of Protium Finance Limited is
U65999MH2019PLC323293. The registered office of Protium Finance Limited is at 7th
Floor, Block B2, Phase I Nirlon Knowledge Park, Pahadi Village, Off. Western Express
Highway, Ca, Goregaon East, Mumbai, Maharashtra.

DIRECTORS - PROTIUM FINANCE LIMITED

The company has 5 directors and 3 reported key management personnel.

The longest serving director currently on board is Parveen Kumar Gupta who was
appointed on 23 December, 2021. Parveen Kumar Gupta has been on the board for 2
years and 6 months. The most recently appointed directors are Sitaram Kunte and
Dakshita Das, who were appointed on 16 February, 2024.

Parveen Kumar Gupta has the largest number of other directorships with a seat at a total
of 8 companies. In total, the company is connected to 14 other companies through its
directors.

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COMPETITORS

1. LIC HOUSING FINANCE LTD

LIC Housing Finance offers a vast range of financial products and services to customers
across India. Started in 1989 as an affordable housing finance company in Mumbai, India,
it is led by the Life Insurance Corporation of India (LIC), a state-owned insurance and
investment corporation and one of the largest institutional investors in India.

The company offers long-term financing for the purchase or construction of residential
houses. Different types of loans, such as home loans, loans against property, and real
estate financing for individuals and developers, are available with LIC. There is a wide
network of its agents, branches, and sales teams spread across India.

2. L&T FINANCE HOLDINGS LIMITED

L&T Finance Holdings Limited (LTFH) is a subsidiary of Larsen & Toubro Limited
(L&T), one of India's largest engineering and construction companies. Founded in 2008,
the NBFC has diversified its reach across a vast customer base, primarily consisting of
individuals, farmers, SMEs, and corporations.

Its operations are spread across urban, semi-urban, and rural areas of the country. The
company has expanded its network via branches, customer service points, and digital
channels, offering customers the utmost convenience in accessing their financial services.

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3. ADITYA BIRLA FINANCE LIMITED

It is a subsidiary of Aditya Birla Capital Limited and is supposed to be one of the most
sought-after NBFCs in the country. It offers a wide range of credit and wealth management
services across the country. Considering the AUM, it is counted among the top in the
finance sector.

It caters to a diverse range of clients, which include retail, SMEs, HNIs, and corporations
in different fields like wealth management, corporate finance, personal finance, etc. With
a strong distribution network, the company is steadily expanding its product portfolio and
strengthening its position as a leading NBFC in the country.

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4. CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY

LIMITED

This NBFC was established in 1978 and is a subsidiary of Murugappa Group Ltd., a
specialized non-banking finance entity. The company is primarily into providing loans for
vehicles and construction equipment. Other services that they provide are home loans,
home renovation loans, balance transfers, agriculture loans, SME loans, etc.

There are other investment options that the company offers, like stocks, mutual funds,
bonds, derivatives, demat accounts, etc. Headquartered in Chennai, this is one of the
fastest- growing NBFCs in the country, offering a diverse range of products and services
to its clients

5. MAHINDRA & MAHINDRA FINANCIAL SERVICES LIMITED

Mahindra & Mahindra Financial Services Limited (MMFSL), more popularly known as
Mahindra Finance, lists amongst the top-rated NBFCs in India. Established in 1991
primarily to finance Mahindra vehicles, it later diversified into other sectors. The company
boasts a broad customer base, mainly comprising individuals, rural households, farmers,
and small businesses.

It has established a major presence in rural and semi-urban areas of the country where
access to credit has limited reach. Mahindra Finance has a vast network of branches and
customer contact points across India, which has enabled its effective reach and support for
customers.

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6. BAJAJ FINANCE LIMITED

Bajaj Finance offers financial services to both individual and commercial customers and
has a wide presence across the country. With a high credit rating of FAAA/Stable, it has
managed to grab a major market presence at present. It includes a mix of SME’s and retail
and commercial clients and is a popular name across rural and urban sectors. With a
presence spanning over 35 years, the company also has an A1+ rating for short-term
borrowing as well as a global ‘BBB’ rating for long-term borrowing, according to S & P
Global Rating.

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7. TATA CAPITAL FINANCIAL SERVICES LIMITED

Tata Capital Housing Finance Limited (TCHFL) is a wholly owned subsidiary of Tata
Capital Limited, providing commercial and infrastructure financing, wealth management,
consumer loans, and Tata cards through its more than 100 branches. The NBFC is
registered with the National Housing Bank as a housing finance company.

Its wide range of products includes purchase and construction loans for residential units,
the purchase of land, home improvement loans, project finance loans for developers, etc.

8. SHRIRAM FINANCE LIMITED

Shriram Finance provides business loans, home loans, vehicle loans, gold loans, and small
business loans. It is a part of Shriram Group, which has been in business for the past four
decades.

This NBFC-D and NBFC-ICC offer consumer financing, EMI cards, vehicle loans, and
home loans, serving retail SMEs and commercial sectors. With a client base of 73 million
and resources ranging around 270,050 crores (US $34 billion), it is one of the fastest -
growing NBFCs in India.

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9. MUTHOOT FINANCE

Muthoot Fincorp was established in 1997 and has since grown into one of the leading
NBFCs in India. It is a part of Muthoot Pappachan Group and offers a wide range of
financial services, which include gold loans, housing loans, and vehicle loans.
The company serves a diverse client base, which includes individuals, small businesses,
and traders spanning across rural, semi-urban, and urban areas. It is known to provide
immediate funds for various needs, which makes it one of the most preferred lenders
when it comes to disbursing loans on priority.

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10. HDB FINANCIAL SERVICES LIMITED

HDB Financial Services (HDBFS) is a subsidiary of HDFC Bank that provides personal
loan products that are more business-oriented, consumer durables loan products, credit
cards, and insurance products to its customer base, including individuals and corporat e
bodies across India.

It was formed in 2007 and has a strong business today with robust capitalization. The
NBFC boasts CARE AAA and CRISIL AAA ratings and an A1+ rating for its long-term
and short-term debt, respectively.

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1.1 INTRODUCTION OF NON-BANKING FINANCIAL

COMPANIES
(NBFCS)
Non-Banking Financial Companies are financial companies which performs like banks
but they are not actual bank. These types of financial companies have to be registered
under Companies act,1956. These financial companies engage in the business of financial
loans and advances, acquisition of securities/bonds/debentures which are issued by
Government or local authority or the marketable securities of a like nature, leasing, hire-
purchase, insurance business, chit business but does not it does not include whose prime
principal business is that of agricultural activity, industrial activity, purchase or sale of
any goods. A Non-Banking Financial Companies have head business of accepting stores
under any plan or course of action in one singular amount or in portions by method for
commitments or in some other way, is additionally a non-banking budgetary
organization.

NBFCs garnered the attention of the Reserve Bank of India (‘RBI’) when several
depositors lost their money, during the failure of several banks in the late 1950s and early
1960s. In order to prevent the large number of depositors, RBI initiated regulating them
by introducing Chapter IIIB in the Reserve Bank of India Act, 1934.In March 1996, there
were around 41,000 NBFCs in India and they were not recognized as a separate class.
However, due to the failure of some of the institutions the regulatory structure along with
the reporting and supervision was constricted by RBI. In the late 90s, sweeping changes
were brought to protect the interest of depositors and ensuring the desired functioning of
NBFCs. The capital requirement was changed in the year 1999, NBFCs getting registered
on or after the issuance of notification dated April 21, 19991 were required to have the
minimum net owned funds of ` 200 lakhs in order to commence the business of an
NBFC. Due to snowballing trend in the sector and to ensure the growth of the sector in a
healthy and efficient manner various regulatory measures were taken for identifying the
systemically important companies and bringing them under the austere norms. The
NBFC-ND with asset size of `100 crores or more were considered to be systemically
important companies. During the FY 2011-12, two new categories of NBFCs were
introduced viz., IDF and MFI. DEFINITION ( Reserve Bank of India)
Definition for Non-Banking Financial Company, it carries functions like bank but it is not
actual bank. Reserve bank of India has defined NBFC as below. RBI has defined it in
systematic way, it has explained each term in detailed i.e. what is financial institution?
What is non-banking?

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An NBFC is a company registered under the Companies act, 1956 or Companies act,
2013 and is engaged in the Business of financial Institution.
Section 45I(f) of the Reserve Bank of India act, 1934 defines “Non-Banking Financial
Companies” as

(i) A financial Institution which is a company;

(ii) A non-banking financial institution which is company and which has its principal

business the receiving of deposits, under any scheme or arrangement or in any

order manner, or in lending in any manner;
(iii) Such other non-banking financial institution or class of such institution, as the
bank may, with the previous approval of the central government and by
notification in the Official gazette, specify; Section 45I(c) of the Reserve Bank of
India act, 1934 defines the term “Financial Institution” as

Financial institution means any non-banking institution which carries on as it’s business
or part of its business any of the following activities, namely:

(i) The financing, whether by way of making loans or advances or otherwise, of any
activities other than its own;
(ii) The acquisition of shares, stocks, bonds, debentures or securities issued by
government or local authority or other marketable securities of a like nature;
(iii) Letting or delivering of any goods to a hirer under hire-purchase agreement as
defined in clause (c) of section 2 of the hire purchase act, 1972;
(iv) The carrying on of any class of business;
(v) Managing, conducting or supervising, as foreman, agent or in any other capacity,
of chits or kooris as defined as any law which is for the time being in force in any
state, or in any business, which is similar thereto;
(vi) Collecting, for any purpose or under any scheme or arrangement by whatever
name called, monies in lump sum or otherwise, by way of subscription or by sale
of units, or other instruments or other any manner and awarding prizes or gifts,
whether in cash or kind, or disbursing monies in any other way, to persons from
whom monies are collected or to any other person, but does not include any other
institution, which carries on as its personal business:
• Agricultural operations; or
• Industrial activity; or
• The purchase or sale of any goods (other than securities) or the providing of any
services; or
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• The purchase, construction or sale of any immovable property, so however, that no

other portion of income of the institution is derived from the financing of the
purchases, constructions or sale of immovable property by other persons.

1.2 REQUIREMENT FOR REGISTRATION WITH RBI

Section 45-IA of the RBI Act, 1934 states that-

No Non-Banking Financial company shall commence or carry on the business of a Non-
Banking Financial Institution without-
 Obtaining Certificate of Registration; and
 Having Net Owned Fund of Rs. 2 crores (Prior to the issuance of notification dated
21st April, 1999 the requirement of having minimum Net owned fund was revised
from 25 lac to 2 crores)

However, as per revised regulatory framework if a NBFC having NOF less than Rs. 2
crores
then such companies need to increase the NOF in the following manner
 Rs. 1 crore before 1st April, 2016;
 and Rs. 2 crores before 1st April, 2017.

An application for the registration needs to be submitted by the company in the

prescribed
format along with the necessary documents for the RBIs consideration. RBI has specified
different indicative list of documentation/information to be submitted along with for the
application for NBFC-CIC (Core Investment Companies), NBFC-Factors, NBFC-MFI
(Micro Finance Company), and other NBFCs. However, in order to avert dual
registration, RBI has exempted certain class of companies from the requirement of
registration with the RBI.

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1.3 TYPES OF NBFCS

There are two types in classification of NBFCs by Liability.

LIABILITY

There are two types in classification of NBFCs by Liability.

➢ Deposit accepting NBFCs

➢ Non-Deposit accepting NBFCs

All Non-Banking Financial Companies don’t accept deposits. Only those NBFCs which
are holding a valid Certificate of Registration (COR) with authorization to accept Public
Deposits can accept/hold public deposit. Section 45-I(bb) of the Reserve Bank of India
Act, 1934 defines the term deposits as- Stores (Deposits) incorporates and will be deemed
always to have included any receipt of cash by way of deposit or credit or in any other
structure, h
owever does exclude –

(i) Amounts raised by the way share capital;

(ii) Amounts contributed as capital by partners of the firm;

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(iii) Amounts received from scheduled bank or co-operative bank or any other
banking company as defined in clause (c) of section 5 of the banking regulation act, 1949
(iv) Any amount received from, - a State financial corporation, any financial
institution specified in or under section 6 a of IDBI act, 1964, or any other
institution that may be specified by bank in
this behalf.
(v) Money got in normal course of business, by method for – Security Deposits,
Dealership Deposits, sincere cash, and advance against request of merchandise,
properties or administrations.
(vi) Any sum got from an individual or a firm or a relationship of a people not being a
body corporate, enlisted under any institution identifying with cash loaning which is for
now in power in any state.

SIZE

NBFCs are categorized into two different categories viz. Deposit accepting and non-
Deposit accepting. The non-depositing NBFCs further bifurcated into:

1. Systematically Important
- The term “Systematically important non-deposit taking non-banking financial
company” has been defined to means a Non-Banking Financial Company not
accepting/holding public deposits and having total assets of Rs. 500 crores and above.

2. Non-systematically Important
- The term “non-systematically important non-deposit taking non- banking financial
company” has been defined to means a Non-Banking Financial Company not
accepting/holding public deposits and having total assets less than Rs. 500 crores.

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ACTIVITY

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1.4 THE CURRENT STATUS OF NON- BANKING FINANCIAL

COMPANIES.
PRUDENTIAL NORMS:

The Reserve Bank put in place in January 1998 a new regulatory framework involving
prescription of prudential norms for NBFCs which deposits are taking to ensure that these
NBFCs function on sound and healthy lines. Regulatory and supervisory attention was
focused on the ‘deposit taking NBFCs’ (NBFCs – D) so as to enable the Reserve Bank to
discharge its responsibilities to protect the interests of the depositors. NBFCs - D are
subjected to certain bank –like prudential regulations on various aspects such as income
recognition, asset classification and provisioning; capital adequacy; prudential exposure
limits and accounting / disclosure requirements. However, the ‘non-deposit taking
NBFCs’(NBFCs – ND) are subject to minimal regulation.
The application of the prudential guidelines / limits is thus not uniform across the
banking and NBFC sectors and within the NBFC sector. There are distinct differences in
the application of the prudential guidelines / norms as discussed below:

i) Banks are subject to income recognition, asset classification and provisioning norms;
capital adequacy norms; single and group borrower limits; prudential limits on capital
market exposures; classification and valuation norms for the investment portfolio; CRR /
SLR requirements; accounting and disclosure norms and supervisory reporting
requirements.
ii) NBFCs – D are subject to similar norms as banks except CRR requirements and
prudential limits on capital market exposures. However, even where applicable, the
norms
apply at a rigor lesser than those applicable to bank. Certain restrictions apply to the
investments
by NBFCs – D in land and buildings and unquoted shares.
iii) Capital adequacy norms; CRR / SLR requirements; single and group borrower limits;
prudential limits on capital market exposures; and the restrictions on investments in land
and building and unquoted shares are not applicable to NBFCs – ND.
iv) Unsecured borrowing by companies is regulated by the Rules made under the
Companies Act. Though NBFCs come under the purview of the Companies Act, they are
exempted from the above Rules since they come under RBI regulation under the Bank of
India Act. While in the case of NBFCs – D, their borrowing capacity is limited to a
certain extent by the CRAR norm, there are no restrictions on the extent to which
NBFCs–ND may leverage, even though they are in the financial services sector.
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Financial Linkages between Banks and NBFC:

Banks and NBFCs compete for some similar kinds of business on the asset side. NBFCs
offer products/services which include leasing and hire-purchase, corporate loans,
investment in non-convertible debentures, IPO funding, margin funding, small ticket
loans, venture capital, etc. However, NBFCs do not provide operating account facilities
like savings and current deposits, cash credits, overdrafts etc. NBFCs avail of bank
finance for their operations as advances or by way of banks ‘subscription to debentures
and commercial paper issued by them. Since both the banks and NBFCs are seen to be
competing for increasingly similar types of some business, especially on the assets side,
and since their regulatory and cost-incentive structures are not identical it is necessary to
establish certain checks and balances to ensure that the banks’ depositors are not
indirectly exposed to the risks of a different cost-incentive structure. Hence, following
restrictions have been placed on the activities of NBFCs which banks may finance:
i) Bills discounted / rediscounted by NBFCs, except for rediscounting of bills discounted
by NBFCs arising from the sale of –
a) Commercial vehicles (including light commercial vehicles); and
b) Two-wheeler and three-wheeler vehicles, subject to certain conditions;
c) Investments of NBFCs both of current and long term nature, in any
company/entity
d) by way of shares, debentures, etc. with certain exemptions;
ii) Unsecured loans/inter-corporate deposits by NBFCs to/in any company.
iii) All types of loans/advances by NBFCs to their subsidiaries, group companies/entities.
iv) Finance to NBFCs for further lending to individuals for subscribing to Initial Public
Offerings (IPOs).
v) Bridge loans of any nature, or interim finance against capital/debenture issues and/or
in the form of loans of a bridging nature pending raising of long-term funds from the
market by way of capital, deposits, etc. to all categories of Non-Banking Financial
Companies, i.e. equipment leasing and hire-purchase finance companies, loan and
investment companies, Residuary Non-Banking Companies (RNBCs). Should not enter
into lease agreements departmentally with equipment leasing companies

Structural Linkages between Banks and NBFCs:

Banks and NBFCs operating in the country are owned and established by entities in the
private sector (both domestic and foreign), and the public sector.

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Some of the NBFCs are subsidiaries/ associates/ joint ventures of banks – including
foreign banks, which may or may not have a physical operational presence in the country.
There has been increasing interest in the recent past in setting up NBFCs in general and
by banks, in particular. Investment by a bank in a financial services company should not
exceed 10 per cent of the bank’s paid-up share capital and reserves and the investments in
all such companies, financial institutions, stock and other exchanges put together should
not exceed 20 per cent of the bank’s paid-up share capital and reserves.
Banks in India are required to obtain the prior approval of the concerned regulatory
department of the Reserve Bank before being granted Certificate of Registration for
establishing an NBFC and for making a strategic investment in an NBFC in India.
However, foreign entities, including the head offices of foreign banks having branches in
India may, under the automatic route for FDI, commence the business of NBFI after
obtaining a Certificate of Registration from the Reserve Bank. NBFCs can undertake
activities that are not permitted to be undertaken by banks or which the banks are
permitted to undertake in a restricted manner, for example, financing of acquisitions and
mergers, capital market activities, etc. The differences in the level of regulation of the
banks and NBFCs, which are undertaking some similar activities, gives rise to
considerable scope for regulatory arbitrage. Hence, routing of transactions through
NBFCs would tantamount to undermining banking regulation. This is partially addressed
in the case of NBFCs that are a part of banking group on account of prudential norms
applicable for banking groups

1.5 ROLE OF NON- BANKING FINANCIAL COMPANIES.

1. PROMOTERS UTILIZATION OF SAVINGS:

Non- Banking Financial Companies play an important role in promoting the utilization of
savings among public. NBFC’s are able to reach certain deposit segments such as
unorganized sector and small borrowers were commercial bank cannot reach. These
companies encourage savings and promote careful spending of money without much
wastage. They offer attractive schemes to suit needs of various sections of the society.
They also attract idle money by offering attractive rates of interest. Idle money means the
money which public keep aside, but which is not used. It is surplus money.

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2. PROVIDES EASY, TIMELY AND UNUSUAL CREDIT:

NBFC’s provide easy and timely credit to those who need it. The formalities and
procedures in case of NBFC’s are also very less. NBFC’s also provides unusual credit
means the credit which is not usually provided by banks such as credit for marriage
expenses, religious functions, etc. The NBFC’s are open to all. Every one whether rich or
poor can use them according to their needs.

3. FINANCIAL SUPERMARKET:

NBFC’s play an important role of a financial supermarket. NBFC’s create a financial

supermarket for customers by offering a variety of services. Now, NBFC’s are providing
a variety of services such as mutual funds, counseling, merchant banking, etc. apart from
their traditional services. Most of the NBFC’s reduce their risks by expanding their range
of products and activities.

4. INVESTING FUNDS IN PRODUCTIVE PURPOSES:

NBFC’s invest the small savings in productive purposes. Productive purposes mean they
invest the savings of people in businesses which have the ability to earn good amount of
returns. For example – In case of leasing companies lease equipment to industrialists, the
industrialists can carry on their production with less capital and the leasing company can
also earn good amount of profit.

5. PROVIDING HOUSING FINANCE:

NBFC’s, mainly the Housing Finance companies provide housing finance on easy term
and conditions. They play an important role in fulfilling the basic human need of housing
finance. Housing Finance is generally needed by middle class and lower middle-class
people. Hence, NBFC’s are blessing for them.

6. PROVIDING INVESTMENT ADVICE:

NBFC’s, mainly investment companies provide advice relating to wise investment of

funds as well as how to spread the risk by investing in different securities. They protect
the small investors by investing their funds in different securities. They provide valuable
services to investors by choosing the right kind of securities which will help them in

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gaining maximum rate of returns. Hence, NBFC’s plays an important role by providing
sound and wise investment advice.

7. INCREASE THE STANDARD OF LIVING:

NBFC’s play an important role in increasing the standard of living in India. People with
lesser means are not able to take the benefit of various goods which were once considered
as luxury but now necessity, such as consumer durables like Television, Refrigerators,
Air Conditioners, Kitchen equipment, etc. NBFC’s increase the Standard of living by
providing consumer goods on easy installment basis. NBFC’s also facilitate the
improvement in transport facilities through hire- purchase finance, etc. Improved and
increased transport facilities help in movement of goods from one place to another and
availability of goods increase the standard of living of the society.

8. ACCEPT DEPOSITS IN VARIOUS FORMS:

NBFC’s accept deposits forms convenient to public. Generally, they receive deposits
from public by way of depositor a loaner in any form. In turn the NBFC’s issue
debentures, units’ certificates, savings certificates, units, etc. to the public.

9. PROMOTE ECONOMIC GROWTH

NBFC’s play a very important role in the economic growth of the country. They increase
the rate of growth of the financial market and provide a wide variety of investors. They
work on the principle of providing a good rate of return on saving, while reducing the
risk to the maximum possible extent. Hence, they help in the survival of business in the
economy by keeping the capital market active and busy. They also encourage the growth
of well organized business enterprises by investing their funds in efficient and financially
sound business enterprises only. One major benefit of NBFC’s speculative business
means investing in risky activities. The investing companies are interested in price
stability and hence NBFC’s, have a good influence on the stock- market. NBFC’s play a
very positive and active role in the development of our country.

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1.6 FUNCTIONS OF NON- BANKING FINANCIAL COMPANIES:

1. RECEIVING BENEFITS:

The primary function of NBFC is receive deposits from the public in various ways such
as issue of debentures, savings certificates, subscription, unit certification, etc. thus, the
deposits of NBFC are made up of money received from public by way of deposit or loan
or investment or any other form.

2. LENDING MONEY:

Another important function of NBFC is lending money to public. Non- banking financial
companies provide financial assistance through.

3. HIRE PURCHASE FINANCE:

Hire purchase finance is given by NBFC to help small important operators, professionals,
and middle-income group people to buy the equipment on the basis on Hire purchase.
After the last installment of Hire purchase paid by the buyer, the ownership of the
equipment passes to the buyer.

4. LEASING FINANCE:

In leasing finance, the borrower of the capital equipment is allowed to use it, as a hire,
against the payment of a monthly rent. The borrower need not purchase the capital
equipment but he buys the right to use it.

5. HOUSING FINANCE:

NBFC’s provide housing finance to the public, they finance for construction of houses,
development of plots, land, etc.

6. OTHER TYPES OF FINANCE PROVIDED BY NBFCs INCLUDE:

Consumption finance, finance for religious ceremonies, marriages, social activities,

paying off old debts, etc. NBFCs provide easy and timely finance and generally those
customers which are not able to get finance by banks approach these companies.

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7. INVESTMENT OF SURPLUS MONEY:

NBFCs invest their surplus money in various profitable areas.

1.7 COMMERCIAL BANK VERSUS (V/S) NON-BANKING

FINANCIAL COMPANIES

While commercial banks and non-banking financial companies are both financial
intermediaries (middleman) receiving deposits from public and lending them.
Commercial bank is called as “Big brother” while the “NBFC” is called as the “Small
brother. But there are some important differences between both of them, they are as
follows:

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1.8 CREDIT RATING (INTERNAL RATING)

A credit rating organisation is an organisation that rates accounts holders

which are going to pay back the amount of credit which have been availed to
them on the basis of their ability to pay back interests and principal amount on
time and the probability of defaulting. These companies also analyse the
creditworthiness of debt and issuers and provide the credit ratings to only
organisations and not individuals consumers. The assessed entities may be
companies, special purpose entities, state governments, local government
bodies, non-profit organisations and even countries. There are specialized
credit bureaus which have been set upfor the individual. These bureaus assign
credit score to each of the individual on the basis of their history of payment
towards interest on loan and Principal amount.
Credit rating agencies, these are not too old agencies in the India. They
came intoexistence in the second half of the 1980’s. There are 6 Credit rating
agencies which have been recognized as the best Credit rating agencies in India
namely; CARE, CRISIL, ICRA,Brickworks rating, SMERA and IRRP. From
above, I get to learn about three agencies namely, CISIL, CARE, and ICRA.
Rating provided by these agencies determine the nature and integralsof the loan.
Banks, NBFCs, or any Financial Institutions look for Credit rating which have
been assigned by the recognized Credit Rating Agency of the borrowing party.
If Credit rating is high of the borrower company then they can be given loan on
lower rate of interest. There is common parameter to rate companies called as
CAMELS (Capital Adequacy, Assets Quality,Management Quality, Earning,
Liquidity, and Sensitivity) which is used by the credit ratingagency. This
CAMELS have been explained .

• Capital Adequacy
o Assess through Capital Trend Analysis.
o Compliance with regulations pertaining to risk based net worth requirement.
o Compliance with interest and dividend rules and practice.
o Other factors are involved in rating and assessing capital adequacy
are its growth plans, economic environment, ability to control risk,

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and Loan & investments concentration.

• Assets Quality
o Covers an institutional loan’s quality, which reflects the earnings
of the company.
o Analysing investment risk factors that company may face and
comparing these risks with company’s capital earnings,
which shows the stability of thecompany when faced with
particular risks.
o Analysis of Company’s fair market value of investments when
mirrored with the company’s book value of investments.

It reflected by the efficiency of a company’s investment policies and practices

• Management Quality
o Management assessment determines whether company is able to
properly react to financial stress or not
o This parameter is reflected by the management’s capability to
point out,measure, look after and control risks of the company’s
daily activities.
o Management of resources in systematic way which will reflect
in efficiency.
o It covers management’s ability to ensure the safe operation of the
company asthey comply with necessary and applicable internal and
external regulations.

• Earnings
o Company’s ability to create appropriate returns to be able to expand,
retain competitiveness, and add capital is a key factor in rating its
continued viability.
o Determined by assessing the company’s growth, stability,
valuation allowances, net interest margin, net worth level
and the quality of the company’s existing assets.

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• Liquidity
o Analyst look at interest rate risk sensitivity, availability of assets that can
beeasily be converted into cash, dependence on short term volatile
financial resources and Assets Liability Management (ALM) technical
competence.
• Sensitivity
o Covers how particular risk exposures can affect institutions.
o Analyst assess an institution’s sensitivity to market risk by
monitoring the management of credit concentration.
o How lending to specific industries affects company.
o Exposure to foreign exchange, commodities, equities, and derivatives
are also included in rating the sensitivity of a company to market risk.

CREDIT CHECKS

While learning in Finnable (NBFC Sector), I could learn the Credit Check. It is
term use to check company’s (Borrower) debt. That means, there are many
organisations who keepsthe data of all company regarding their Loans have been
taken from other financial institutions and banks. Analyst do check whether
directors of company, do they have any credit due or any suit filed against them.
Following are some aspects have been got to know.

CIBIL Check (Credit Information Report)

It has been recognised as the first Credit Information Company in India. It

collects and maintains records of individuals’ and companies’ loans and credit
cards. These records are submitted monthly to CIBIL by its members which are
banks and other financial institutions. As analyst, it is very useful to get to know
about companies’ all loans and credits. It makes easy that payment history or
credit-worthiness of company.

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Lenders generally treat all borrowers equally. Each borrower, if approved by the
lender’s internal credit policy, would get charged the same rate of interest for
particular loan size and purpose. Before sanctioning the loan to any financial
institution or any bank, analyst firstly does credit checking through the CIBIL.
It provides you the prompt payment, as well as default payment and all facilities
are mentioned in the report. The Credit Information Report additionally has a list
of enquiries made on your account by various members banks/ financial
institutions/ NBFCs for purpose of the approvingthe Credit Facility.

CRILC
Reserve bank of India has constituted a Central Repository of Information on
Large Credits (CRILC) to collect, store, and publish data on all borrowers’
credit exposures. Banks/ Financial institutions are expected to report findings
to CRILC. Banks have toprovide all information regarding their borrowers
with an aggregate fund-based and non-fund-based exposure of and over 5
crores. Banks also have to report the SMA status of their borrowers to the
CRILC. It has been built up for financial institutions to notify the status of their
stressed borrowers and submit the information to a central database of the
Reserve bank of India. CRILC reports have been useful to the lender, because
it can be found out that from how many banks or financial institutions
borrower has borrowed money.

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RISK ASSESSMENT MODEL (RAM)

During Summer internship in Finnable Credit , I got to learn about Risk

Assessment Model asI was working in Wholesale underwriting department.
This Risk Assessment Model was anexcel sheet in which I have to put
financial data into that excel sheet. There are different RiskAssessment Model
for NBFC-MFI (Micro Finance Institution and Other Non-BankingFinance
Companies. CRISIL i.e. Credit Rating Service of India Limited provides
RAM toFinancial Institution for internal credit rating. This internal credit is
used for making Credit Assessment Memo (CAM). While learning Risk
Assessment Model, there were many new concepts I got to learn which are
very important factors of Credit Analysis.

Following are the Some important concepts which have to be taken into
consideration while Credit Assessment Model.

Assets Classification

There are three types of assets classification which have been classified some
criteria.

o Standard Assets -
When there is no default in repayment of principal or
interest and does not disclose any problem or carry
more than normal risk attached to the businessthen
those assets are classified as standard assets.

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o Sub-standard assets -
Terms of the agreement regarding interest or
principal amount have been renegotiated,
restructured or rescheduled after initiating of
operating of organisation till one year then the
assets can be classified
as non-performing asset.

o Doubtful-assets -
Term loan, less assets, hire purchase asset or
any other asset remaining sub- standard of
period exceeding
18 months or such shorter period*.

o Loss-assets –
Identified the company/external or internal
auditor /RBI or an asset which is adversely
affected by a potential threat of non-
recoverability due to eithererosion in the value
of security or non-availability of security or due
to any fraudulent act or omission on the part of
borrower

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MCA (Ministry of Corporate Affairs) Report

Ministry of Corporate Affairs provides the company’s master

data. Lender has to keeprecord of MCA report of borrower.
It provides company’s CIN, Registration number,Company
Category and Sub-Category, and Class of Company that is
whether it isprivate or public company. It also provides how
much authorised capital company doeshold and how much
paid-up capital of company. Lender can refer information
regarding how much assets are there under charge. It provides
the data of all directors or signatories with their DIN/ PAN
number and provides information of directors whohold and
directorship in any other companies.

CIBIL Suit-filed Database

India’s first credit information bureau has been established to

cater to the credit information requirement of the financial sector and
serves as an effective mechanism of cubing the growth of Non-
Performing Assets (NPAs). The Reserve Bank of India constituted a
working group in December 2001 to examine the possibility of CIBIL
performing the role of collecting and disseminating information on
suit-filed accounts and list of defaulters, being reported to RBI by
banks and notified Financial Institutions. It provides the data that if
any director of borrower company has been there in suit filed
databased or not.

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There are two types of checking suit-filed accounts checking

1. Suit-filed accounts of Rs.1 crore and above

2. Suit filed accounts of (Wilful Defaulters) of Rs.25 lacs and above lender can refer
this data and can take decision regarding loan should be sanctioned or not.

CREDIT ASSESSMENT MEMORANDUM (CAM)

While working with the Fin-Tech startup, I got to learn how to prepare a
Credit Assessment Memorandum. It is the loan approval proposal which is
prepared by the lender bank. In this whole process there are key players who
play an important role. Sales manager, Relationship manager, Credit Officer,
and Credit analyst, these officials have to perform in this whole process.
This process is starts with sales manager, he is the one who brings the
customer. Sales manager is the official is someone who has to take prompt
decision on loan proposal that thisshould be accepted or not. After that this
loan proposal is identified by the relationship manager and he begins with the
preliminary discussion with the customer who wish for loan.Discussion
between relationship manager and the customer is typically regarding amount,
tenor and interest rate of the loan.

After approval of this loan proposal relationship manager request for some
documentsto use in evaluating the request. For documentation, there are
several documents which are important that are 2 years of tax returns for both
the business and the individual, a personal financial statement, a current
financial statement for the business which have to be prepared by Chartered
Account (CA), Cash Flow Statement, and Proforma if it is real estate
company, and any other documents that will require for the loan proposal.
These all documents have to be brought to Credit analyst by Relationship
Manager and both discuss on the loan proposal and the document which have
been sent by the borrower company. Then Credit analyst do analysis of the
borrower company in both aspect that are in Quantitative and Qualitative. This
analysis has to be in-depth analysis of credit risk factors, Critical assessment of
the client under the Credit policy guidelines of the bank. Then it is sent to
marketing department to enclose required recommendations and to commence
the Credit Approval process.

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1.9 THEORITICAL FRAMEWORK

INTRODUCTION TO RATIO ANALYSIS

Ratio analysis is used to evaluate relationships among financial statement items. The
ratios are used to identify trends over time for one organization or to compare two or
more Organizations at one point in time. Ratio analysis focuses on three key aspects of
business: liquidity, profitability, and solvency. Ratio Analysis is an important tool for any
business organization.

CLASSIFICATION OF RATIO

1. Liquidity ratios: Liquidity ratios are the ratios that measure the ability of a company to
meet its short- term debt obligations. These ratios measure the ability of a company to
pay off its short-term liabilities when they fall due.
2. Solvency ratios: The solvency ratio is a key metric used to measure an enterprise’s
ability to meet its debt obligations and is used often by prospective business lenders. The
solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-and
long-term liabilities. The lower a company’s solvency ratio, the greater the probability
that it will default on its debt obligations
3. Activity ratios: An activity ratio is a type of financial metric that indicates how
efficiently a company is leveraging the assets on its balance sheet, to generate revenues
and cash. Commonly referred to as efficiency ratios, activity ratios help analysts gauge
how a company handles inventory management, which is key to its operational fluidity
and overall fiscal health.
4. Profitability ratios: Profitability ratios are a class of financial metrics that are used to
assess a business’s ability to generate earnings relative to its revenue, operating costs,
balance sheet assets, and shareholder’s ; equity over time, using data from a specific point
in time.

ADVANTAGES OF RATIO ANALYSIS

•It helps to analyse and understand financial health and trend of a business, its past
performance, and makes it possible to forecast the future state of affairs of the
business.
• They diagnose the financial health by evaluating liquidity, solvency, profitability etc.
This helps the management to assess the financial requirements and the capabilities
of various business units. It serves as a media to link the past with the present and
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the future.
• It serves as a useful tool in management control process, by making a comparison
between the performance of the business and the performance of similar types of
business.
• Ratio analysis plays a significant role in cost accounting, financial accounting,
budgetary control and auditing.
• It accelerates the institutionalization and specialization of financial management
accounting ratios summarize and systematize the accounting figures in order to make
them more understandable in a lucid form. They highlight the inter-relationship
which exists between various segments of the business expressed by accounting
statements.

LIMITATIONS OF RATIO ANALYSIS

•Usefulness of ratios depends on the abilities and intentions of the persons who handle
them. It will be affected considerably by the bias of such person
• Ratios are worked out on the basis of money-values only. They do not take into
account the real values of various items involved. Thus, the technique is not realistic
in its approach.
• Historical values (specially in balance sheet ratios) are considered in working out the
various ratios. Effects of changes in the price levels of various items are ignored and
to that extent the comparisons and evaluations of performance through ratios
become unrealistic and unreliable. Ratios are only as accurate as the accounts on the
basis of which these are established. Therefore, unless the accounts are prepared
accurately by applying correct values to assets and liabilities, the statements
prepared wherefrom would not be correct and the relationship established on that
basis would not be reliable.

ANOVA TABLE

ANOVA, which stands for Analysis of Variance, is a statistical test used to analyze the
difference between the means of more than two groups.
A one-way ANOVA uses one independent variable, while a two-way ANOVA uses two
independent variables.

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ONE-WAY ANOVA EXAMPLE

As a crop researcher, you want to test the effect of three different fertilizer mixtures on
crop yield. You can use a one-way ANOVA to find out if there is a difference in crop
yields between the three groups. ANOVA tells you if the dependent variable changes
according to the level of the independent variable. For example: Your independent
variable is social media use, and you assign groups to low, medium, and
high levels of social media use to find out if there is a difference in hours of sleep per
night. Your independent variable is brand of soda, and you collect data on Coke, Pepsi,
Sprite, and Fanta to find out if there is a difference in the price per 100ml.
Your independent variable is type of fertilizer, and you treat crop fields with mixtures 1,
2 and 3 to find out if there is a difference in crop yield.
The null hypothesis (H0) of ANOVA is that there is no difference among group means.
The alternate hypothesis (Ha) is that at least one group differs significantly from the
overall mean of the dependent variable.
If you only want to compare two groups, use a t-test instead.

HOW DOES AN ANOVA TEST WORK ?

ANOVA determines whether the groups created by the levels of the independent variable
are statistically different by calculating whether the means of the treatment levels are
different from the overall mean of the dependent variable.
If any of the group means is significantly different from the overall mean, then the null
hypothesis is rejected.
ANOVA uses the F-test for statistical significance. This allows for comparison of
multiple means at once, because the error is calculated for the whole set of comparisons
rather than for each individual two-way comparison (which would happen with a t-test).
The F-test compares the variance in each group mean from the overall group variance. If
the variance within groups is smaller than the variance between groups, the F-test will
find a higher F-value, and therefore a higher likelihood that the difference observed is
real and not due to chance.

WHEN TO USE A ONE -WAY ANOVA

Use a one-way ANOVA when you have collected data about one categorical independent
variable and one quantitative dependent variable. The independent variable should have
at least three levels (i.e., at least three different groups or categories).
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ANOVA tells you if the dependent variable changes according to the level of the
independent variable.

ASSUMPTIONS OF ANOVA

The assumptions of the ANOVA test are the same as the general assumptions for any
parametric test:
Independence of observations: the data were collected using statistically-valid methods,
and there are no hidden relationships among observations. If your data fail to meet this
assumption because you have a confounding variable that you need to control for
statistically, use an ANOVA with blocking variables. Normally-distributed response
variable: The values of the dependent variable follow a normal distribution.
Homogeneity of variance: The variation within each group being compared is similar for
every group. If the variances are different among the groups, then ANOVA probably isn’t
the right fit for the data.

ONE WAY ANOVA SUMMARY

The ANOVA output provides an estimate of how much variation in the dependent
variable that can be explained by the independent variable.
The first column lists the independent variable along with the model residuals (aka the
model error).
The Df column displays the degrees of freedom for the independent variable (calculated
by
taking the number of levels within the variable and subtracting 1), and the degrees of
freedom
for the residuals (calculated by taking the total number of observations minus 1, then
subtracting the number of levels in each of the independent variables).
The Sum Sq column displays the sum of squares (a.k.a. the total variation) between the
group means and the overall mean explained by that variable. The Mean Sq column is the
mean of the sum of squares, which is calculated by dividing the sum of squares by the
degrees of freedom.
The F-value column is the test statistic from the F test: the mean square of each
independent variable divided by the mean square of the residuals. The larger the F value,
the more likely it is that the variation associated with the independent variable is real and
not due to chance.

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CHAPTER 2

LITRATURE
REVIEW

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REVIEW OF LITRATURE

There is universal agreement that a properly functioning financial system is required for a
thriving modern economy (Kroszner, 2010). In all advanced economies, for instance,
sophisticated financial systems efficiently deliver a broad range of financial services and
act as a critical pillar in contributing to macroeconomic stability and sustained economic
growth and prosperity (World Bank, 2003). Moreover, the well developed financial
markets facilitate mobilization of savings, by offering savers and investors wider choice
of instruments. With NBFCs coming up on the financial system, investors could park
their funds at more lucrative returns in comparison to the bank deposits.

Referring to NBFIs, Greenspan (1999) had stated: “enhance the resilience of the financial
system to economic shocks by providing it with an effective ‘spare tyre’ in times of
need”. Moreover, while short term loans needed by the industry and agriculture are
offered by the system, the other forms of services needed by industry as well as other
segments of economy are offered by NBFCs and other similar financial institutions, like
factoring, venture finance and so on.
Hasriman Kaur A. and Dr. Bhawdeep Singh Tanghi (2013) analyzed that NBFCs
played an essential role in terms of macroeconomic prospective as well as strengthening
the structure of the Indian monetary system. Consolidation in the sector and better
regulatory structure has become more focused.
Dr. Amardeep (2013) analysed that “The role of NBFCs in creation of productive
national assets can hardly be undermined. This is more than evident from the fact that
most of the developed economies in the world have relied heavily on lease finance route
in their development process”.
Dr. Yogesh Maheshwari (2013) in his paper state that “Changing Monetary scenario
have opened up opportunities for NBFCs to expand their global presence through self-
expansion strategic alliance etc. The Monetary reforms have brought Indian Monetary
system closer to global standards”.
Sornaganesh and Maria Navis Soris17 (2013) B “A Fundamental Analysis of NBFCs
in India” in ‘Outreach’. The study was made to analyze the performance of five NBFCs
in India. The annual reports of these companies are evaluated so as to ascertain
investments, loans disbursed, growth, return, risk, etc. To sum up, the study is concluded
that the NBFCs are earning good margins on all the loans and their financial efficiency is
good.
Jency (2017) tried to learn the performance of non-banking financial institutions. She has

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found that the NBFC sector assumes a critical role in financial inclusion as it caters to a
wide range of financial activities particularly in areas where commercial banks have
limited penetration. Moreover, the profitability of NBFCs has risen significantly than that
of commercial banks.
Akanksha Goel in her article in ‘ELK Asia Pacific Journal’ studied the growth prospects
of NBFCs in India.
Sunita yadav in her article in ‘International journal of recent scientific research’ studied
the financial performance of selected NBFCs on parameters like Net profit ratio, Return
on Investment, Annual growth rate etc.
Ranjan kshetrimayum in his article in ‘A journal of Radix International educational and
research consortium’ studied the evolution, growth and development of NBFCs in India.
Shollapur M.R in his article in ‘The Indian Journal of Commerce’ has revived concept
of NBFCs. As per him the abstract NBFCs constituted a significant part of financial
system and compliment the service provide by commercial bank in India. The efficiency
of financial services and flexibilities helped them build a large body of client including
small borrower and bigger corporate establishment. The pace of financial liberalization
has a intensified the competition. As a result, there has been a shift towards strategic
perspective marketing process of NBFCs. This perspective enable them to predict the
future impact of change and help to move out of week area and grab new opportunity
through continuous monitoring system.
R.M Srivastava & Divya Nigam in his book Management of Indian Financial Institution
background material for economic growth and financial institution, types of financial
institution, recent trend Indian financial market. He put enfaces on the fact that the money
market has passed through a phase of substantial adjustment and advancement in recent
year.
K.C Shekhar & Lakshmy Shekhar in his book has explain role of NBFCs in India has
shown rapid development especially in 1990 owing to their high degree of orientation
towards consumers and implication of section requirement. The role of NBFCs as
effective financial intermediaries arise has been well recognized as they have inherent
abilities to take quicker decision, assume risk and customize their services provided by
bank and market the components on a conceptual basis.
E. N. Murty suggests the advantage and outlook of NBFCs. In remarkable surgeon under
stringent production like prudential limit and capital adequacy just like M&M Finance,
DBS Chula, Sundaram Finance Sri Ram Transport Finance etc. In outlook NBFCs has
been searching for avenue for future growth, if they get regulatory treatment on for with
the bank. So that large NBFC will be converting and making available credit to credit.
L M Bhole in his book define the NBFCs perform a diversified range of function and
other various financial services to individual, corporate and institutional client. It also
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play positive role in accessing certain depositor segment and clearing credit requirement
of borrowers. It also discussing the major financial market in India. Along with related
financial instrument and services i.e. call money, call loan, other short term interest rate
instrument and the recent development in money market.
Shashi K. Gupta, Nisha Gupta & Neeti Gupta in his book define money market is an
opportunity for balancing the short-term surplus fund of the investor with the short-term
requirement to borrowers. Another feature of money market is that they are liquid with
varying degree. It also defines NBFCs play an important role in financial intermediaries
because they can take quick decision making assume greater risks and design their
product to the need of customer.
Kantawala, (1997), in his study “Financial Performance of Non-Banking Finance
Companies in India”, examined the performance of non-banking financial companies for
the period from 1985-86 to 1994-95. Based on secondary data collected from different
RBI bulletins regarding financial and investment companies, the study concluded that
there was a significant difference in the profitability ratios, leverage ratios, and liquidity
ratios of various categories of NBFCs. When two categories were compared, the selected
ratios were not statistically different from each other in majority of the cases. When all
the companies were taken together, null hypothesis was accepted for only three ratios,
indicating thereby that there was no significant difference. From this, it can be inferred
that the ratios for all categories of NBFCs were generally different from each other.

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CHAPTER 3

RESEARCH
METHODOLGY

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RESEARCH AND METHODOLOGY

3.1 MEANING OF RESEARCH METHODOLOGY

Research methodology is the specific procedures or techniques used to identify, select,

process, and analyze information about a topic. In a research paper, the methodology
section allows the reader to critically evaluate a study’s overall validity and reliability.

3.1.1 MEANING OF RESEARCH

Research is defined as the creation of new knowledge and/or the use of existing
knowledge in a new and creative way so as to generate new concepts, methodologies and
understandings. Research is an organized and systematic way of finding answers to
questions” Systematic because there is a definite set of procedures and steps which you
will follow. There are certain things in the research process which are always done in
order to get the most accurate results.

3.2 OBJECTIVE OF STUDY

(1) This study seeks to evaluate the financial performance of selected NBFCs from 2017
to 2021.
(2) This research aims to portray a brief comparison among selected NBFCs using trend
analysis and correlational analysis.
(3) This study aims to provide an overall subjective assessment of current status and
financial performance of top 5 NBFCs.

3.3 RESEARCH PROBLEM

The first step while conducting research is careful definition of Research problem. To
ERR IS THE HUMAN is a proverb which indicates that no one is perfect in this world.
Every researcher has to face many problems which conducting any research that is why
problem statement is defined to know which type of problems a researcher has to face
while conducting any study. It is said that, problem well defined is problem half solved.
The problem statement here is:

“A STUDY ON FINANCIAL PERFORMANCE AND GROWTH OF NON-

BANKING FINANCIAL COMPANIES”

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3.3.1 RESEARCH DESIGN

The present study based on quantitative research. The data of selected companies (for a
period of five years from 2017 to 2021) has been collected from annual report and the
balance sheet published by the companies and the websites of the respective firms.

TYPES OF RESEARCH DESIGN

1. Exploratory Research Design: This research design is preferred when researcher has a
vague idea about the problem the researcher has to explore the subject.
2. Experimental Research Design: The research design is used to provide a strong basis
for the existence of casual relationship between two or more variables.
3. Descriptive Research Design: It seeks to determine the answers to who, what, where,
when and how questions. It is based on some previous understanding of the matter.
4. Diagnostic Research Design It determines the frequency with which something occurs
or its association with something else. Research design used in this project - Research
Design chosen for this study is Descriptive Research Design. Descriptive study is based
on some previous understanding of the topic

3.3.2 SAMPLING DESIGN

The study is done with special reference to NBFCs. The reason being that the data or
financial statement are readily available for them. Also, NBFCs are bound to disclose all
their facts and figures publicly. Thus, the technique of Judgmental and Purposive
Sampling is adopted for the study. The selection of sample companies is made on the
basis of market capitalization. Five NBFCs were chosen as a sample size for the study on
account of having highest market capitalization, these are Bajaj Finance Limited, Shriram
Transport Finance Company Limited, Aditya Birla Capital Limited, L&T Finance
Holding Limited, Mahindra & Mahindra Financial Services Limited.

DATA COLLECTION METHOD(S)

Secondary data is used for this study which is collected from the annual report of
respective company and several financial websites like MoneyControl.com,
Investing.com, NSE.com, BSE.com. No primary data was used in this study.
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SECONDARY DATA
Secondary data refers to data that is collected by someone other than the user. Common
sources of secondary data for social science include censuses, information collected by
government departments, organizational records and data that was originally collected for
other research purposes. Primary data, by contrast, are collected by the investigator
conducting the research. In this project, we have used secondary data which has been
collected from following sources:
(1) Annual reports
(2) Books
(3) Internet
(4) Other material and report published by the companies

ANALYSIS OF DATA : TOOLS AND TECHNIQUES

To analyze this data, we used a data analyzing software named SPSS v20. The analysis
done through this software is Trend analysis and correlational analysis. The evaluation of
these analysis constitutes of five ratios like Earning per share, Net Profit, Return on
Equity, Debt to Equity and Price to Earnings ratio. This research is done with the
confidence level of 95% and 5% margin of error.

3.3.4 LIMITATIONS OF STUDY

(1) This research is limited to only top five performing NBFCs of the year 2021.
(2) This paper only uses data of previous five years, i.e. from 2017 to 2021.
(3) The study is confined to India, no foreign countries were encompassed.
(4) Only secondary data was used to build this research paper.
(5) This includes companies only from NBFC background.

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CHAPTER 4

DATA ANALYSIS

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Analyzing the Financial Performance of Top 5 NBFCs in India: An

Analytical Study

THE TOP FIVE NBFC CHOSEN IN THIS STUDY

(1) Bajaj Finance Limited (Market cap: ₹3,53,379 crores)

(2) Cholamandalam Investment and Finance Company (Market cap: ₹53,706 crores)
(3) Muthoot Finance Limited (Market cap: ₹43,078 crores)
(4) Mahindra & Mahindra Financial Services Limited (Market cap: ₹22,592 crores)
(5) L&T Finance Holding Limited (Market cap: ₹18,735 crores)

RESULTS AND DISCUSSION

FINDINGS OF STUDY
DESCRIPTIVE ANAYSIS
EPS

Earning per Share is calculated as company’s profit divided by the outstanding share of
its common stock. It shows the value of earning per outstanding share of common stock
of company. EPS designate the organization profitability through display the how much
money a business produce for each share of its stock. EPS have higher indicated great
value because if the investors realize or think the company growth or relative share price
going in higher profit, so the investor will pay more for the company.

Formula: It is calculated as Net Income divided by Available Shares.

Earning per Share = (Net Income - Preferred Dividends) ÷ End-of-Period Common Share
Outstanding

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INFERENCE
The chart EPS Showing the return on capital Earning per share of selected non-banking
financial companies in India from year 2017-21. The year 2017 to 2019, the
Cholamandalam Investment and Finance Company growth was high, but in 2019 to 2021,
the growth of the Muthoot Finance Limited and remaining all company like Bajaj
Finance Limited, Mahindra & Mahindra Financial Services Limited, L&T Finance
Limited, these all companies' growth was very low, and in the future, the Muthoot
Finance expectation future growth was going to be high. Accordingly, the return of the
Muthoot Finance was very high compared to other 4 companies.
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Net Profit Margin

Net profit margin represent the money the business earns after deducting all operating,
interest over a given period of time. It shows net profit after taxes to the net sales of a
firm. All the efforts and decisions making in the business is to achieve a higher net profit
margin with an increase in net profit. It is a short term profit measurable; and in long
term, it was not able to measure immediately, it does not revels profit in that period.

Formula: It is measured by Net Profit divided by Net Sales into hundred.

Net Profit Margin = (Net Profit ÷ Net Sales) × 100

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INFERENCE
The chart net profit margin shows the actual profit of the company. Muthoot Finance
gained the highest profit in years 2017 to 2018, but after that the growth is negative from
2019 to 2021. Bajaj Finance Limited gained the highest profit, but in next years, the chart
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shows the profit growth was negative. Muthoot Finance gains the previous place and they
acquire their position in future means the expected net profit growth of the company was
Muthoot Finance according to remaining 4 companies like, Cholamandalam Investment
and Finance Company, Mahindra & Mahindra Financial Services Limited, L&T Finance
Holding Limited.
ROE
Return on equity sometimes it called as return on net worth. It is a measure of
profitability that calculate how many dollars of profit a company generates with each
dollar of shareholder equity. ROE Ratio help to compare with other firms in the same
industry and evaluate the financial performance and asset valuation of the company.
Generally, it shows the company how well uses their fund for growth and how much they
will gain.

Formula = ROE measure by Total Liabilities divided by Total Shareholders' Equity.

ROE = Total Liabilities ÷ Total Shareholders' Equity

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INFERENCE
The chart Return on equity is a measure of the profitability of a business in relation to the
equity. ROE can also be thought of as a return on assets minus liabilities. The chart
shows the profit on the business according to chart the L&T Finance Holding Limited
shows the highest profitability in 2017 to 2021 but in 2021 the profitability growth was
going the downward but in 2021 the 3 company combine with each other and these 3
companies were L&T Finance Holding Limited, Mahindra & Mahindra Financial
Service Limited, Muthoot Finance Limited and there have very confusion with 3
companies for the growth of the companies which companies achieve the highest future
profitability growth.

DEBT TO EQUITY RATIO

It is dividing a company’s total liabilities through its shareholder equity; it is used to
evaluate a company’s financial leverage. Higher Debt-to-Equity ratio indicates higher
risk of closure. Generally, this ratio was used in corporate finance. It is difficult to
compare across industry groups where debt amount will vary. Generally, the information
available of debt to equity in a company balance sheet.

Formula = Total Personal Liabilities divided by Personal Asset minus Liabilities

Debt to Equity = Total Personal Liabilities ÷ (Personal Assets - Liabilities)

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INFERENCE
The Chart Debt equity indicates the how much debt a company is using to finance its
assets relatives to the value of shareholders equity, according to this the company are in
high debt L&T Finance Holding Limited to equity from the year 2017 to 2021 according
to others companies like Mahindra & Mahindra Financial Service Limited, Muthoot
Finance Limited, Cholamandalam Investment and Finance Company, Bajaj Finance
Limited, and the future expected growth of debt to equity according to chart it shows the
Muthoot finance growth in highest in debt to equity according to remaining 4 companies
which are shortlisted by us.

P/E RATION
The price earning ratio, often called as P/E ratio, can be calculated only for listed
companies. It is the
ratio of company stock price to the earning per share. Market price per share and earning
per share after
that P/E ratio was formed.
It helps the investors to compare between market share with the company growth. It
shows the how
much company have to pay for a company company’s growth. Before investing in any
company
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investors want to know about the growth of the company and worth of the equity share of
the company
so, that’s why company analyze the company as a P/E Ratio.

Formula = Share Price divided by Earning per Share.

P/E Ratio = Share Price ÷ Earning per Share

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INFERENCES
The price to earnings ratio, also known as P/E ratio, is the ratio of a company’s share
price to the company’s earning earnings per share. The chart Price to earning shows the
share earning price so according to chart the highest earning per share of the company is
L&T Finance Holding Limited because in year 2017 to 2021 the only this company
growth will higher and in future the excepted growth will be also the L&T Holding
Limited company according to remaining 4 companies which are Mahindra & Mahindra
Financial Services Limited, Muthoot Finance Limited, Cholamandalam Investment and
Finance Company, Bajaj Finance Limited. Their growth was below to L&T Finance
Holding Limited.

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CORRELATION ANALYSIS

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INFERENCES

Correlation is a statistic that measures the degree to which two securities move in relation
to each other. Correlation is used in advanced portfolio management, computed as the
correlation coefficient, which has a value that must fall between -1.0 and +1.0. A positive
correlation is a relationship between two variable moves in which both variable move in
the same direction. Therefore, when one variable increase as the other variable increase,
or one variable decrease the other variable decrease. A Negative correlation is a
relationship between two variables in which an increase in one variable is associated with
a decrease in other. We except those correlation who shows the Pearson correlation
because Pearson correlation show the two types like negative or positive which is from 0
to -1 and 0 to 1 but we focused on 0.06 and -0.6 If the correlation between the ratio is less
the 0.6 or -0.6 then the correlation between them is weak and if the ratio is more the 0.6
and -0.6 then correlation between them is strong like the correlation between EPS a Net
Profit is .930, so the correlation between them is strong. The correlation
between EPS and ROE is .972 so the correlation between them is also strong, and
between EPS and Debt to Equity is .305 the correlation between them is negligible
because it is less than 0.6 that’s why it is negligible but the correlation between EPS and
P/E ratio is -0.662 it is also form a strong correlation bond.

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CHAPTER 5

FINDINGS,
SUGGESTIONS,
RECOMMENDATION

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DISCUSSION ON FINDINGS OF THE STUDY

DISCUSSION ON TREND ANALYSIS

Trend analysis is a technique used in technical analysis that attempts to predict future
stock price movements based on recently observed trend data.

We find a result after doing a trend analysis is:

(1) After doing a trend analysis we analyze the EPS shows the Earning Per Share,
according to the minimum growth of the company is Bajaj Finance Limited, Mahindra &
Mahindra Financial Services Limited, L&T Finance Holding Limited, Cholamandalam
Investment and Finance Company and the highest growth company is Muthoot Finance
Limited.
(2) In Net Profit Ratio we analyze that the maximum profit of the company is Bajaj
Finance Limited, Muthoot Finance and the minimum profit company is Cholamandalam
Investment and Finance company, Mahindra & Mahindra Financial Services Limited,
L&T Finance Holding Limited.
(3) In Debt-to-Equity the company which are going to debt is L&T Finance Holding
Limited and the remaining companies which are minimum in debt-to-equity according to
L&T Finance Holding Limited is Mahindra & Mahindra Financial Service Limited,
Muthoot Finance Limited, Cholamandalam Investment and Finance Company, Bajaj
Finance Limited.
(4) In Return to Equity the highest return of the company is L&T Finance Holding
Limited and Mahindra & Mahindra Financial Service Limited minimum return in equity
is L&T Finance Holding Limited, Cholamandalam Investment & Finance Company,
Muthoot Finance Limited.
(5) In Price-to-Earning Ratio we analyze the highest earning share price of the company
is L&T Finance Holding Limited and minimum earning per share company is Mahindra
& Mahindra Financial services Limited, Muthoot Finance Limited, Cholamandalam
Investment and Finance Company, Bajaj Finance Limited.

DISCUSSION ON CORRELATION ANALYSIS

(1) It was found that there was very strong positive correlation between EPS and ROE (ρ
= 0.972).
(2) The correlation between EPS and Net Profit was strong as well as positive correlation
with ρ =0.930.

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(3) The correlation between EPS and Debt-to-Equity was found to be almost negligible
with ρ = 0.305.
(4) EPS and Price to Earning Ratio had a correlation of ρ = -0.662 which signifies
negative correlation between them.

SUGGESTIONS
(1) Research should input the data carefully, one mistake in feeding data may cause
whole result to diverge.
(2) Investors and stakeholders should analyse the data properly before reaching to any
decisions.
(3) Companies should also take the analyses part seriously and should be more concerned
about their companies’ growth.
(4) Researchers should look after accurate result as some the websites might mislead and
display
manipulated data.
(5) Companies should make their financial data easily available for the researchers to
conduct research

DIRECTION FOR FUTURE RESEARCH

(1) Future researcher can conduct research on international basis, companies across the
world can be considered for the study.
(2) Time frame of the study can be extended to 10 or more years to get more accurate
result.
(3) Companies from other background can also be taken for research in the future.
(4) Exploration of more new analyses can be done like regression analysis, solvency
analysis, bivariate analysis and many more.
(5) Primary data can be used for analyses that can be collected from stakeholder, worker
and normal people.

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CHAPTER 6

CONCLUSION

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CONCLUSIONS

It can be concluded from the above analysis that in case of trend analysis, the company
which showed highest rate of earning per share was Muthoot Finance, followed by Bajaj
Finance Limited, then Cholamandalam Investment and Finance Company, Mahindra &
Mahindra Financial Services Limited and lastly, L&T Finance Holding Limited. After
analyzing the Net Profit Ratio, it was found that the high net profit was accumulated by
Bajaj Finance Limited and remaining companies lied below it. In term of ROE, Muthoot
Finance Limited outperformed, followed by Bajaj Finance Limited, then Cholamandalam
Investment and Finance Company, then Mahindra & Mahindra Financial Services
Limited and lastly, L&T Finance Holding Limited. Graph of Debt-to-Equity reflects that
in the year 2021, Cholamandalam Investment and Finance Company has maximum
amount of debt. The company which has least amount debt is L&T Finance Holding
Limited. L&T Finance Holding Limited has maximum amount of Price-to-Earning Ratio,
followed by Bajaj Finance Limited, then Mahindra & Mahindra Financial Services
Limited, then Cholamandalam Investment and Finance Company and lastly, Muthoot
Finance Limited.

Second analysis of this paper is correlational analysis which tells about the correlation
between ratios. EPS had maximum positive correlation with ROE (ρ = 0.972).
Correlation between Net Profit and EPS was (ρ = 0.930) which is also strong as well as
positive whereas correlation between P/E Ratio and EPS is (ρ = -0.662) which is negative
correlation. Lastly, correlation between EPS and Debt-to-Equity is almost negligible (ρ =
0.305).

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