SR.

NO PARTICULARS
1. Introduction of NBFC

2. Role of NBFCs

3. Difference between Banks and NBFCs

4. Registration of NBFCs

5. NBFCs and Reserve Bank of India

6. Types of NBFCs

7. Growth of Non Bank Financial Services

8. Regulations Regarding Deposits by NBFCs

9. Incorporation of NBFC

10. POWERS TO COMMISION

MUTUAL BENEFITS FINANCIAL COMPANIES

11.

13. Tata Investment Corporation

14.
Tata Capital

15. Conclusion:
 Non-Banking Finance
Companies – NBFCs
Introduction:

There are different types of institutions involved in financial services.

These include commercial banks, development financial institutions (DFIs)
and non-banking finance companies (NBFCs). Unlike DFIs e.g. IFCI and
IDBI, that have a specified objective besides efficient business conduct, like
wise NBFCs are formed purely with the commercial objectives.

Non-banking financial companies (NBFCs) are fast emerging as an

important segment of Indian financial system. It is an heterogeneous group
of institutions (other than commercial and co-operative banks) performing
financial intermediation in a variety of ways, like accepting deposits,
making loans and advances, leasing, hire purchase, etc. They raise funds
from the public, directly or indirectly, and lend them to ultimate spenders.
They advance loans to the various wholesale and retail traders, small-scale
industries and self-employed persons. Thus, they have broadened and
diversified the range of products and services offered by a financial sector.
Gradually, they are being recognised as complementary to the banking
sector due to their customer-oriented services; simplified procedures;
attractive rates of return on deposits; flexibility and timeliness in meeting the
credit needs of specified sectors etc.
Meaning and Definition :

Non-banking financial companies, or NBFCs, are financial

institutions that provide banking services, but do not hold a banking license.
These institutions are not allowed to take deposits from the
public. Nonetheless, all operations of these institutions are still covered
under banking regulations.

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. 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 do offer all sorts of banking services, such as loans and

credit facilities, retirement planning, money markets, underwriting, and
merger activites. The number of non-banking financial companies has
expanded greatly in the last several years as venture capital companies, retail
and industrial companies have entered the lending business.
Role of NBFCs:

Non-banking finance companies (NBFCs) are an integral part of

India’s financial system. They play an important role in financial
intermediation by acting as a link between savers and investors, and have
been able to mobilize deposits on a substantial scale in recent years. There
are various categories of NBFCs including loan companies, investment
companies, hire-purchase finance companies, equipment leasing companies,
mutual benefit finance companies, chit funds and housing finance
companies. While housing finance companies are regulated by the National
Housing Bank, other NBFCs are regulated by the Reserve Bank of India
Difference between banks & NBFCs :

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
REGISTRATION :

Under 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.

The working and operations of NBFCs are regulated by the Reserve Bank of
India (RBI) within the framework of the Reserve Bank of India Act, 1934
(Chapter III B) and the directions issued by it under the Act. Under the Act,
it is mandatory for a NBFC to get itself registered with the RBI as a deposit
taking company. This registration authorises it to conduct its business as an
NBFC. For the registration with the RBI, a company incorporated under the
Companies Act, 1956 and desirous of commencing business of non-banking
financial institution, should have a minimum net owned fund (NOF) of Rs
25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999).

The registration process involves submission of an application by the

company in the prescribed format along with the necessary documents for
RBI's consideration. If the bank is satisfied that the conditions enumerated in
the RBI Act, 1934 are fulfilled, it issues a 'Certificate of Registration' to the
company. Only those NBFCs holding a valid Certificate of Registration can
accept/hold public deposits. The NBFCs accepting public deposits should
comply with the Non-Banking Financial Companies Acceptance of Public
Deposits ( Reserve Bank) Directions, 1998, as issued by the bank
However, 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.
NBFCs and the Reserve Bank of India:

The Reserve Bank of Bank of India has separate department to deal with
the NBFCs. It was originally called the department of non-banking
companies. Now, it is referred to as Department of Financial Companies.
The main objective of this Department is to exercise some control over the
NBFIs by collecting data, issuing directions and inspecting them wherever
necessary.
Functions of the Department :-
The main functions of the Department of Financial companies are as
follows
To identify non-bank financial companies and classify them.

To attend legislative matters and issue directions to NBFCs on various

matters

To advise the Central Government and state Government on matters

pertaining to NBFCs.

To receive and scrutinse the balance sheet the balance

sheets,returns,accounts and statements of NBFCs

To inspect them and take follow-up action

To deal strictly with those companies who do not follow rules and
regulations issued by the RBI
Types of NBFCs registered with RBI:
Originally, NBFCs registered with RBI were classified as:

(i) equipment leasing company;

(ii) hire-purchase company;
(iii) loan company
(iv) investment company.

Reserve Bank of India re-grouped the asset-financing non-bank financing

companies (NBFCs) engaged in financing real and physical assets
supporting economic activity — such as automobiles and general purpose
industrial machinery — as asset financing companies (AFCs). The
remaining companies will continue to be called loan and investment
companies, i.e 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)
Growth of Non-Bank Financial Services:

The roles of banks in non-bank financial services began to grow from

the time of the amendment to the Banking Regulation Act in 1949. Many
merchant banking divisions and mutual funds were set up by the public
sector banks since then. Banks began to increase their non-bank and non-
funded business which are called financial services. More recently some
more development took place to expand the scope for such services:
1) Keeping open Indian capital market to foreign financial institutions
and oversea corporate bodies to invest in India.
2) FERA dilution to encourage both the inflow and outflow of funds and
foreign investments in India, some of which might flow into the stock
and capital markets.
3) Opening up mutual fund business and even banking to the private
sector. Already a number of private sector companies/firms are
engaged in financial services, such as investment financing, hire-
purchase, mortgage financing and housing finance etc. private sector
was permitted to set up mutual funds, banks and financial institutions.
Types of Non – Bank Financial Services:

NBFCs provide range of financial services to their clients. Types of services

that fall under the domain of non-banking finance services include the
following:

1. Merchant Banking Services

2. Venture Capital Services
3. Leasing and Hire Purchase Services
4. Housing Finance Services
5. Discounting Services
6. Asset Management Services
7. Investment Finance Services
8. Investment Advisory Services
9. Mutual Fund Services
10. Advice on Mergers and Acquisition and Capital Restructuring

11. Stock Broking, Underwriting etc.

Important regulations relating to acceptance of deposits
by the NBFCs are:
The RBI has relaxed its norms for non-bank finance companies (NBFCs)
with regard to taking deposits from the public. It has allowed equipment
leasing and hire-purchase finance companies with investment-grade ratings
to access public deposits, raised the ceiling on the amount of public deposits

 They are allowed to accept/renew public deposits for a minimum

period of 12 months and maximum period of 60 months.

 They cannot accept deposits repayable on demand.

 NBFCs cannot offer interest rates higher than the ceiling rate
prescribed by RBI from time to time. The present ceiling is 12.5 per
cent per annum.

 They cannot offer gifts/incentives or any other additional benefit to

the depositors.

 NBFCs (except certain AFCs) should have minimum investment

grade credit rating
 The deposits with NBFCs are not insured

 The repayment of deposits by NBFCs is not guaranteed by RBI.

Incorporation of NBFC:
a. To conduct any one or more type of non-banking business, prior

permission of the SECP (the Commission) is required.

b. If the Commission grants permission to form an NBFC, the promoters of

NBFC shall get the NBFC incorporated under the Companies Ordinance
1984 as a public company.
c. After incorporation under the Companies Ordinance 1984, the directors

shall make separate application to the Commission for the grant of

license for carrying on each type of business along with a nonrefundable
fee of Rs. 100,000 for each such license.
d. The license granted by the Commission to NBFC would be valid for one

year and each license shall be renewable annually on the payment of a

fee of Rs.25, 000.
e. The Commission before granting such license ensures that the board of

directors comprises personnel with adequate qualification; expertise and

integrity e.g. have no record of corruption, insolvency or default.
TABLE SHOWING PUBLIC DEPOSITS AND
DISTRIBUTION OF ASSETS OF NBFC’S
Powers of the Commission in Regulating NBFCs
Section 282A – 282M was inserted in the Companies Ordinance 1984 in
November 2002 that gave the Commission following powers in regulating
NBFCs:

1. Prior approval of the Commission is required to incorporate an

NBFC.
2. After incorporation, NBFC needs license from the Commission to

conduct any type of business.

3. The Commission may issue directions to any such company or may

cancel any prior instructions.

4. The Commission is empowered to remove any director, chief

executive, chairman or any officer from the office of the company for
a period upto 3 years.
5. The Commission may require the company to furnish any particulars

within the time specified by it.

6. The Commission may order a special audit to be conducted to the

affairs of the business of the company.

7. The Commission may cause an inquiry or inspection to be made by

any person appointed by the Commission for this purpose.

8. The Commission may impose penalty for contravention or
noncompliance of any of its directions or rules or upon any false
statement made by the company.
IV. Mutual Benefit Finance Companies (MBFCS)

Mutual benefit finance companies (nidhis) were exempt from most of

the provisions of the reserve bank’s, NBFC’s directions. However, the RBI
imposed on July 8,1996,a ceiling of 15 percent interest rate on deposits and
prohibited them from issuing advertisements in any form and paying any
brokerage for soliciting deposits. NBFCS deposit interest rates were freed on
august 24,1996 along with the rationalization measures for registered
NBFCS. The ceiling however doesnot apply unless MBFCS have positive
net owned funds (NOFs0 as on March 31, 1996, will be able to repay the
amount of their liabilities including the interest payable to their depositors
and have the ratio of NOF to deposits not exceeding 1:20 as on the date of
application.

Again on January 15, 1997, the prescribed ratio of NOF to deposits

not exceeding 1:20 was made applicable only on the incremental deposit
liabilities after January 15, 1997. However, MBFCs with NOF to deposit
ratio of 1:20 or less on January 15, 1997, should not exceed the prescribed
ratio of 1:20 on the aggregate deposit liabilities.
 Regulation of NBFCs"

Address by S.P. Talwar Deputy Governor Reserve Bank of India at Round

Table on "The Role and Regulation of NBFCs" Organised by The
Associated Chambers of Commerce & Industry of India, New Delhi on
August 20, 1997
"The Role and Regulation of NBFCs"

1. The Indian economy is going through a period of rapid `financial

isation'. Today, the `intermediation' is being conducted by a wide
range of financial institution through plethora of customer friendly
financial products. The segment consisting of Non-Banking
Financial Companies (NBFCs), such as equipment leasing/hire
purchase finance companies, 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 macro
economic perspective and the structure of the Indian financial
system, the role of NBFCs has become increasing ly important. It
is interesting to note that as at the end of March 1996 the regulated
deposits (deposits which RBI regulates) of 10194 NBFCs
amounted to Rs.45,439 crore. The borrowing of these companies
stood at Rs.62,995 crore. One of the most impor tant component of
these deposits/ borrowings is deposits from public in which RBI is
more concerned. Such deposits stood at Rs.17,883 crore
(excluding HFCs) which comes out to 4.25 per cent of the total
deposits of scheduled commercial banks.

2. The momentum of recent developments in non-banking

financial sector has evinced considerable debate. While there is a
class in the industry strongly opposing the strengthening of
regulatory framework and focusing closer supervisory attention,
ostensibly in support of principle of free market, the another
urging Reserve Bank to intervene and enhance the image quotient
of the industry so that a moderate level of sustainable growth is as
sured of. To appreciate and understand the present predicament, it
is better to look back to the history of the regulation of NBFCs.
3. To briefly recapitulate, the scheme of regulation of NBFCs
originated in mid-sixties when sudden upsurge in deposit
mobilisation by Non-Banking Companies was noticed. However,
the focus of regulation was mainly intended to ensure that it serves
as an Adjunct to monetary and credit policy and also provides an
indirect protection to the depositors. The focus continued to be the
same till early 90s. Over a period of time, especially during late
80s and early 90s, NBFCs have penetrated into the main stream of
financial sector and have established themselves as complements
of banking industry.

4. At the dawn of liberalisation era, the Narasimham Committee

(1991) had broadly touched upon the role of NBFCs in the
emerging financial sector and made certain valuable
recommendations for their healthy growth. The general tone of the
committee was that these companies should be encouraged to grow
with corresponding reinforcement of regulatory and supervisory
frame work. As a sequel to Narasimham Committee, Reserve Bank
had appointed a Working Group on Financial Companies
(Chairman, Dr. A.C. Shah) to make an in-depth study of the role of
NBFCs and suggest regulatory and control measures to ensure
healthy growth and operation of these companies. The Committee
had made several recommendations with far reaching implications.
Accepting most of the recommendations of the Committee,
Reserve Bank had considered the Report as an Approach
Document for furtherance of the NBFCs sector. Some of the major
recommendations of the Group were relating to shift of regulatory
approach from the liability to the asset side, introduction of
scheme of registration and entry point norm with minimum net
owned fund (NOF) of Rs.50 lakhs for existing/new NBFCs, issue
of prudential norms for income recognition, provisioning, capital
adequacy etc., and amendments to RBI Act, 1934 giving enhanced
power to RBI for better regulation of NBFCs. The
recommendations of the committee were implemented in a phased
manner. While the scheme of registration was introduced in April
1993 for all NBFCs having NOF of Rs.50 lakhs and above,
prudential norms/ guidelines were issued in June 1994 for all
 registered NBFCs. These norms were more in the nature of guide
lines which were not mandatory in the absence of necessary
statutory powers. Subsequent to this, in April 1995, underscoring
the importance of setting out a effective Supervisory frame work,
an expert group under the Chairmanship of Shri P.R. Khanna,
Member of the Advisory Council for the Board for Financial
Supervision was appointed to design an effective and
comprehensive supervisory framework for NBFC sector. Most of
the recommendations of the Committee have been accepted and a
supervisory framework comprising on-site inspection for bigger
companies and off-site surveillance system for other companies
has been designed and the same is being implemented in a phased
manner.

5. As mentioned earlier, since mid 60s legislative frame work was

structured mainly to regulate the deposit acceptance activities of
NBFCs. However, in the changed scenario and in the light of the
recommendation of the Shah Working Group so also the
observations of the Joint Parliamentary Committee a
comprehensive draft legislation was prepared in 1994 which
however, required discussion with Ministry of Finance and Law.
Finally, an Ordinance was promulgated by the Government in
January 1997, effecting comprehensive changes in the provisions
of RBI Act. The ordinance has since been replaced by an Act in
March 1997. The amended Act, among other things, provide for
entry point norm of a minimum NOF of Rs.25 lakhs (even though
the Ordinance provided for the minimum limit at Rs.50 lakhs) and
mandatory registration for new NBFCs for commencing business,
maintenance of liquid asset ranging from 5 to 25 per cent of
deposit liabilities, creation of reserve fund by transferring not less
than 20 percent of the net profit every year, power to the Bank to
issue directions relating to prudential norms, capital adequacy,
deployment of funds, etc. power to issue prohibitory order and
filing of winding-up petition for non-compliance of
Directions/Act. The above legislative changes would enable
Reserve Bank to better regulate the NBFCs.

6. While the amendments have been mostly welcomed by the

industry and the others concerned, it was alleged by a section of
 people that the amendments are reflection of RBI's expansionist
attitude which would negate the true spirits of the current
liberalization programme. For a more complete understanding, one
should keep in mind that economic liberalization is about bringing
market closer to the participants so that they have the freedom to
make economic decisions. Obviously, this means better regulatory
interference. A well functioning market does not suddenly emerge devoid of
deliberate acts of the Regulators. Many economic historians have noted a
complex interaction between State regulation and growth of the market as an
institution. One of them, Karl Polyani called it a `double-movement'. To
simply state "every time the market widens its scope of operation, new
regulations by the State are needed to make the market function well. Such
double movement is a complex process of adaptive interaction where both
must learn to co-operate." Therefore, the legislative changes should be seen
as a conscientious act of regulatory response. In fact, this response emerged
with an intention to act as facilitator for the industry which has established
itself in the emerging market and surely not as an overkill. Moreover, the
changes have the following objectives;
i. to ensure healthy growth of NBFC sector;
ii. to ensure that they function on prudential lines;
iii. to quickly remove bad ones in the industry to avoid
contamination effect through regulatory intervention

7. Another dimension to the legislative changes is the presence of

heterogeneous and some time questionable accounting practices
being followed by NBFCs and the imperative need to bring
uniformity in the accounting practices which would enable inter
firm and inter-industry comparison. It is beyond doubt that well
knit accounting practices in conformity with international
standards are a pre-requisite to repose faith in the industry. There
are several instances where NBFCs have capitalized from the
absence or inadequacies of the standard accounting practices. One
such example is `Leasing'. It is commonly noticed that `Leasing'
route has been used mainly as a tool for deferring tax liability. The
sale and lease back transaction was rampant supposedly on the
items of 100 per cent depreciable category, which has prompted
Government to come out with amendments to I.T. Act recently.
8. In the light of the amendments and also in the backdrop of
recent developments relating to CRB Capital Market Ltd, several
policy changes have been introduced/being contemplated. The
major highlights of the changes are as follows :

a. In order to enhance financial soundness by ensuring

a moder ate level of liquidity in the companies' asset portfolio and
also as a measure of in-built protection to the depositors, the
percentage of liquid assets has been increased in a phased manner to
12.5 per cent and 15 per cent with effect from January 1, and April 1,
1998 for Equipment Leasing & Hire Purchase Finance Companies,
Loan & Investment Companies (registered under the earlier scheme).
There were also some disquieting practices among NBFCs e.g.
creating encumbrance on the SLR securities and thereby defaulting in
meeting the liquidity requirement. As this practice jeopardises the
interest of depositors/investors, it has been decided that NBFCs
should entrust the securities to one of the scheduled commercial banks
at the place where the registered office of the company is located.
These securities are allowed to be withdrawn only for repayment of
deposits or for substitution or in case of reduction in the deposit.

b. After the issue of prudential norms in June 1994, it

was observed that some of the norms were subjected to various
interpretations by different NBFCs leading to non-compliance with
the requirements. With a view to removing doubts as also to
rationalize the same in the light of recent developments, the prudential
norms are being reissued under the appropriate powers vested with
Reserve Bank. Pending registration, the norms are being made
applicable to all NBFCs with NOF of Rs.25 lakhs and above.
Furthermore, having regard to risk profile of NBFCs, the capital
adequacy ratio is being proposed to be raised in a phased manner to
10 per cent and 12 per cent to be achieved by end March 1998 and
1999, respectively.

c. It was also observed in the recent past that certain

NBFCs were not disclosing the provisioning made for non-performing
assets and for diminution in the value of investments in the financial
statements prepared by the concerned NBFCs. With a view to making
NBFCs' financial statements more transparent, it is being proposed
 that they have to disclose the provisions made in the financial
statement under appropriate heads.

d. In our perception, non-banking financial sector will

be vibrant and shock proof only if its constituents are sound, strong,
agile and amenable to market discipline. Accordingly it is only natural
that a more liberal leveraging capacity can be sustained only by well
performing companies. Of course, a holistic view will be taken on the
level of performance of a company which normally would include
compliance with prudential norms with emphasis on capital adequacy
and exposure norms, other directions relating to deposit acceptance
and obtention of specified credit rating etc. Needless to mention that
there will be continuous vigil on the companies which enjoy the
increased freedom, especially the bigger NBFCs in terms of out-side
liabilities, so as to minimise any systemic risk. Afterall, freedom
given should necessarily be utilised for the betterment of the NBFC
and the industry. Let it not be frittered away by the industry in their
anxiety to make quick profits.
e. In the backdrop of recent legislative changes, several trade bodies have
represented to Reserve Bank to consider giving a separate
dispensation for closely-held investment companies. The principal
reason adduced is that these companies in essence are not doing any
financial intermediation including trading in stocks as such but only
functioning as vehicle for holding shares of other group companies for
strategic reasons. They have also mentioned that such companies are
not accepting deposits from public. There appears to be some merit
and the issue is under active consideration of Reserve Bank. However,
I urge the industry to bring down the multiplicity of NBFCs belonging
to same group through the route of merger and acquisition. This
would go a long way in enabling regulators to read the pulse of the
industry near to the perfection. Of course, this also helps in arriving at
the number of serious players in the market.

f. Norms for classification of NBFCs into various categories are also

being revised and accordingly only those NBFCs whose assets and
income constitute 60 percent or more of their total assets and income
will be recognised as EL/HP finance companies. The existing EL/HP
finance companies will be given time to meet this new requirement. I
may also mention that there were demands from certain section to do
away with the system of classification of NBFCs into various
categories. It should be appreciated that the classification is done on
the basis of principal business and it is very much necessary to
differentiate NBFCs for setting out discriminatory dispensation.

9. In pursuance of the requirements under recent legislative

amendments, w.e.f. 9th January, 1997, no NBFC shall commence
or carry on financial activity without obtaining/applying for a
Certificate of Registration from/to the Reserve Bank. The industry
has promptly responded to the legal requirement and around
37,500 applications have been received before the dead line. Out
of this, from a preliminary quick scrutiny it is found that only
around 8300 NBFCs were having threshold limit of NOF of Rs. 25
lakhs and above. The onerous task of issuing Certificate of
Registration is being attended to on war footing. In terms of the
provisions of the Act, Reserve Bank among other things is
required to satisfy that ;. the NBFC is in a position to pay its
depositors when claim accrue;
i. the general character of the management of the NBFC is
not prejudicial to the interest of the depositors/public;
ii. it has adequate capital structure and earning prospects;
iii. any other condition specified by Reserve Bank.

10. Having regard to the huge number of applications to be

processed, it is proposed to utilize the services of Chartered
Accountants as a one time exercise for conducting special audit of
applicant companies and to help RBI in determining the suitability
for issue of Certificate of Registration. I hasten to add that, those
existing NBFCs which have failed to submit their application for
certificate should stop functioning as NBFCs forthwith or else face
the stringent penal provisions of the Act. Once the checks and
balances are put in place in pursuance to the amended provisions
of the Act, we are sure that companies with poor record of
recovery, weak financials, large exposures to the group companies
and following unethical practices will find it hard to escape the
rigours of regulations.
11. With a view to setting out foolproof disclosure standards by
removing the shortcomings in the existing reporting formats of
Balance Sheet and Profit and Loss Account, as prescribed under
the Companies Act, 1956, an in-house study group has been
constituted with members from the Institute of Chartered
Accountants of India. The formats of the financial statements when
reviewed, is expected to make the affairs of an NBFC more
transparent.

12. Another important point I wish to highlight is the role of

Statutory Auditors in certification of financial statements and other
documents of NBFCs. Some instances have come to our notice
where the assets and investments shown in the Balance Sheet were
not truly reflective of the existence of actual assets. Obviously, in
such cases, the concerned statutory auditors should have qualified
the Balance Sheet. Therefore, there is an urgent need for the
accounting profession to be more responsible. We foresee that in
the post amendment period the `financial audit' should converge
into a more broad based `management audit'.

13. While Reserve Bank is gearing itself to take on the increased

regulatory responsibility, at the same time I urge upon the industry
to appreciate the increasing need for promoting Self Regulating
Organizations(SROs) especially in the light of divergent nature
and heterogeneous practices of NBFCs. Such Organisation can
effectively function as channel of communication be tween the
regulators and the industry. Besides, these SROs can also bring in
peer pressure on the members so that they adhere to fair business
practices.

14. In the recent past, the role of credit rating agencies in assessing
the debt servicing capacity of NBFCs has assumed much
importance. The agencies which have since come out of their
infancy are required to establish themselves with more credible
assessment of their clients. This would go a long-way in enabling
the investors and the regulators to place more reliance on the credit
rating.
 15. Finally, I may also call upon the investors/depositors to be
more cautious while placing their deposits especially with those
companies which offer very high rates of interest. They should
note that the dictum of high interest co-exist with high risk is
equally true in case of NBFCs also.

Tata Investment Corporation

Tata Investment Corporation (TIC) is a non-banking financial company.

Earlier named the Investment Corporation of India, the company is primarily
involved in investing in long-term investments such as equity shares and
equity-related securities.
TIC was promoted by Tata Sons in 1937 and went public in 1959, when it
became one of the few publicly held investment companies listed on the
Mumbai Stock Exchange.

Areas of business
TIC, along with Tata Sons, promotes the Tata Mutual Fund. The company
has built up a significant portfolio of investments.

Business Sectors:

This subsection details the Tata group's operations according to the seven
business sectors that its companies function in

Information systems and communications: The Tata group

has well-established enterprises in the fields of software and other
information systems, telecommunications and industrial automation.

Engineering: The Tata group has a robust presence in

engineering, with operations in automobiles and auto components and a
variety of other engineering products and services.
 Materials: The Tata group is among the global leaders in this
business sector, with operations in steel and composites.

Services: The Tata group has widespread interests in the

hospitality business, as also in insurance, realty and financial and other
services.

Energy: The Tata group is a significant player in power

generation and is also involved in the oil and gas segment.

Consumer products: The Tata group has a strong and

longstanding business in watches and jewellery, and a growing presence in
the retail industry.
 Chemicals: The Tata group is one of the largest producers of
soda ash in the world. Additionally, it has interests in fertilisers and in the
pharmaceuticals business.

Tata products and services for consumers

Agrochemicals: Rallis manufactures a range of insecticides,

fungicides and herbicides for rice, cotton, vegetables and other crops,
specifically targeted to meet the requirements of the Indian farming
community.

Food: The Tata group is involved in the making and

marketing of a variety of food additives and spices.
 Beverages: The Tata group has a global market
for its beverages, with Tata Tea and Tata Coffee.

Water: The Tata Group produces and markets the Himalayan

brand of bottled mineral water through the Mount Everest Mineral Water
Company.

Watches: Titan Industries has four main watch brands -- Titan,

Raga, Fastrack and Sonata Titan Industries sells more than 9 million
watches every year through some 12,000 retail outlets, exclusive Titan
stores and franchises

Automobiles: Tata Auto comp GY Batteries sells car batteries under the
brand name of Tata Green. India's first sports utility vehicle, the Tata Indica,
India's first indigenously manufactured passenger car, and the Nano, the
world's least expensive car. The company also makes the Tata Indigo and
the Tata Sumo. Additionally, it markets and distributes Fiat cars in India.

Air services: The Tata group has, through TajAir, extended its
luxury hospitality services TajAir offers flights to Indian and foreign
destinations.

Financial services: The Tata group provides multiple services for individual
and corporate customers

Credit cards: The Empower programme is India's first multi-

brand loyalty programme. Members of programme can earn and redeem
points across the brands.

Insurance: The Tata Group and AIG Inc have joined hands to
provide a complete basket of life and non-life insurance schemes in India
through Tata AIG Life Insurance and Tata AIG General Insurance.
 Mutual funds: Tata Mutual Fund has a range of debt, equity
and balanced funds.

Housing: Tata Housing constructs residential buildings and

complexes, commercial properties and information technology parks.

Retail: The Tata group operates some of India's largest and

fastest-growing retail chains. Croma Has nearly 6,000 types of products
and 180 brands in consumer electronics and durables.

Other services: Tata Capital offers many financial services

under one roof, including distribution and broking, retail finance,
commercial finance, wealth management, private equity, capital markets and
rural finance.

Telecommunications: The Tata Group's telecom services are

offered under the Tata Indicom brand, which covers all segments, from retail
and enterprise to wholesale and international, and delivers a complete range
of sstelecom solutions.

Tata Capital
Tata Capital is a finance company that fulfills the financial needs of retail
and institutional customers in India. It was established in 2007 as a wholly
owned subsidiary of Tata Sons and is registered with the Reserve Bank of
India as a systemically important non-deposit taking non-banking financial
company (NBFC).

Areas of Business

Tata Capital has financial products and services in the following seven
sectors:

1. Distribution and broking: Third-party investment products, equity

and commodity trading for retail and institutional customers.

2. Retail finance: Passenger and commercial vehicle loans, used car

loans, personal loans, home loans, credit cards and consumer durable
loans for retail customers.
3. Commercial finance: Financial products for small and medium

enterprises and project finance for capital equipment and

infrastructure.
4. Investment banking: Advisory and debt and equity market products

for corporate and small and medium enterprises.

5. Private equity: Investments in India and other countries.

6. Wealth management: Suite of advisory and investment offerings for

high net worth individuals.

7. Rural finance: Relevant financial products for rural customers,

including financing of farm equipment, agricultural inputs and

agricultural enterprises.
The company has entered into an understanding with Japan-based Mizuho
Securities Co to promote an alliance in private equity, investment banking
including cross border merger and acquisition, securities business including
broking and distribution, structured finance and other business areas such as
wealth management

Joint ventures, subsidiaries, associates

• Tata Securities (TSL): A wholly owned subsidiary of Tata Capital

Limited engaged in retail and institutional distribution and broking.
TSL distributes third-party investment products and offers stock
broking services of buying, selling or dealing in securities, including
futures and options, in its capacity as a member of the Bombay Stock
Exchange and the National Stock Exchange. TSL is also a depository
participant.
 • Tata Capital Markets (TCML): A wholly owned subsidiary of Tata
Capital engaged in debt and equity capital markets and M&A
advisory. TCML has a category I merchant banking license from the
Securities and Exchange Board of India.
• e-Nxt: A KPO unit specializing in the area of financial services;
owned by Tata Capital, Tata Sons and others.
• Tata Capital also owns around 4 per cent of equity capital of
Development Credit Bank, a growing private sector bank.

Conclusion:

The NBFCs are playing a very unique role in mobilizing funds,

directing investments, providing a push to development, especially in
industrial sector, catering to the varied financial needs of the medium and
rural sector. A healthy and growing non –banking financial sector is
necessary for promoting the growth of an efficient and competitive
economy. NBFCs need to make efforts to reduce their high operating
expenses and increase the level of operating efficiency. They should
inculcate professionalism in managing the NBFCs.
 Protection of deposits, improvement in corporate governance practices
and financial disclosures by NBFCs needs to be focused in future. NBFCs,
which are smaller and more flexible intermediaries, can be more efficient in
retailing banks actives in consumer finance, hire purchase and equipment
leasing.

Thus, NBFCs have emerged as a unique institution in the Indian

Financial system, bridging the gaps in several sectors.