The study

on
functioning of Religare Finvest Ltd,An N
&
its financial analysis-camel approach

ROHIT BHATIA
SMS
PUNJABI UNIVERSITY
As per RBI act,A Non Banking
Financial Institution is
defined
 as:-
a financial institution which is a company
 a non banking institution which is a company and which has as its
principal business the receiving of deposits, under any scheme or
arrangement or in any other manner, or lending in any manner
 such other non-banking institution or class of such institutions, as the
bank may, with the previous approval of the Central Government and by
notification in the Official Gazette, specify
 NBFC 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.
Company profile

 Religare enterprises ltd is a diversified financial services group of India

offering a multitude of investment options.

 Its services extend from asset management, Life Insurance, wealth

management to equity broking, commodity broking, investment banking,
lending services, private equity and venture capital

 REL, through its subsidiaries, has launched India's first holistic arts
initiative - with a gallery - as well as the first SEBI approved film fund,
which is an initiative towards innovation and spotting new opportunities
for creation and maximization of wealth for investors.
 To make a mark in the global arena, REL acquired UK-based Hichens,
Harrison & Co. in 2008 which was subsequently re-named as Religare
Hichens Harrison PLC ("RHH"). Hichens, Harrison & Co. was
incorporated in London in the year 1803 and is believed to be one of the
oldest firms of stockbrokers in the City of London.

 With the addition of RHH the REL group now operates out of multiple
global locations, other than India, (the UK, the USA, Brazil, South
Africa, Dubai and Singapore).

 REL operates from seven domestic regional offices, 43 sub-regional

offices, and has a presence in 498*cities and towns controlling 1,837
business locations all over India with a man power of more than 10,000
in number
Vision and Mission of the company
 Vision - To build Religare as a globally trusted brand in the
financial services domain and present it as the ‘Investment
Gateway of India'.

 Mission - Providing complete financial care driven by the

core values of diligence and transparency.

 Brand Essence - Core brand essence is Diligence and

Religare is driven by ethical and dynamic processes for
wealth creation.
Company wings
Board of Directors - Religare Enterprises Limited
 Mr. Malvinder Mohan Singh (Non Executive Chairman)

 Mr. Sunil Godhwani (Managing Director & Group CEO)

 Mr. Shivinder Mohan Singh (Non Executive Director)

 Mr. Harpal Singh (Non Executive Director)

 Mr. Deepak Ramchand Sabnani (Independent Director)

 Mr. Padam Bahl (Independent Director)

 Mr. J. W. Balani (Independent Director)

OBJECTIVES
 To study the overall functioning of Religare Finvest Ltd(NBFC)
 To understand the sources & application of fund
 To understand the process involved in raising fund through different
instrument like Commercial paper, Non convertible debenture .
 To understand the process involved in borrowing through ICDs(inter
corporate deposit)
 To understand the process involved while offering LAS facility & IPO
financing in application/deployment of fund raised .
 To understand the risk control measure including margin maintenance &
credit appraisal.
 To improve the performance & strengthening the financial
position of the company by analysis the financials of Religare
Finvest Ltd through CAMEL approach.
Religare Finvest Limited (RFL)
 Religare Finvest Limited (RFL), a 100% subsidiary of Religare
Enterprises Limited, is registered with the Reserve Bank of India (RBI)
as a Non-Banking Finance Company (NBFC) and is presently engaged
in providing Consumer Finance, IPO Financing and Personal Financial
Services. RFL, is aggressively making a name in the Financial Services
arena in India. In a fast paced, constantly changing dynamic business
environment, RFL has developed a change resilient vertically integrated
value chain for delivering the most competitive products and services.
FUNCTIONING OF RELIGARE FINVEST LTD
 The Functioning of Religare Finvest Ltd revolves around
two basic activities.
 Raising of fund
 Lending of fund

 SOURCE OF REVENUE

INTEREST EARNED – INTEREST PAID

Sources & Application of fund

NON CONVERTIBLE LOAN AGAINST SECURITIES

DEBENTURE(NCD)

COMMERCIAL PAPER CONSUMER FINANCE

RFL
INTERCORPORATE
DEPOSIT(ICD) IPO FINANCING

BANK LOAN INTERCORPORATE

DEPOSIT(ICD)
Non Convertible Debenture
(NCD)
 NCD is a debt instrument which is issued for a fixed maturity and in
which no part of the debenture is convertible into equity. The face value
of the debenture is redeemed in one installment (a bullet payment) or in
trenches. Usually redemption period range from 3 months to 4 years.
Interest is normally paid monthly, quarterly or half yearly. The interest
rate that is offered varies from company to company. The interest that is
earned by investors on the debentures is taxable.
TYPES OF NCD
 ON THE BASIS OF SECURITY
 Secured NCD
 Unsecured NCD
 ON THE BASIS OF INTEREST .
 Fixed NCD
 Floating NCD
Process of issuance of NCD
 Information about the deal
Provided by broker or director like how much is to raised ,what should be
the rate of interest,etc

 Preparation of Term Sheet

Client Name,Date,Debenture Details, Rating, Debenture Trustee,
Name of the Debenture Trustee,Face Value,No.of Debentures
,Amount,Date of Disbursement,Put/call option ,Date of Maturity
,Delivery,Interest etc

 Allotment Process
 DEMAT Mode
 Physical Mode
 Allotment through DEMAT mode
 Letter of Application
Client Name, Client I.D., DP Name, DP ID, Scheme Name, Applied
Quantity, Applied Date
 Preparation of Master Creation Form
 ISIN No. from NSDL
 Prepare Corporate Action Form
This form confirms that the issuer has received all the required details for
the issuance of NCD and wish to execute corporate action to credit the
required securities to the accounts in NSDL. The form contains the
following details:
 ISIN
 Security Description
 Allotment Date
 Face Value per Security
 Confirmation Letter
NSDL will send Confirmation Letter to the company confirming the
allotment The securities will be made available for Dematerialization on
receipt of CAF by NSDL. NSDL will inform all DPs electronically about
the availability of securities for Dematerialization
Point to remember
 Put/call option should be exercise with one day notice & before 14:30 hrs of
the previous day of redemption .

 Payment are made through RTGS but the transfer of amount should be more
than Rs 1,00,000.If less than 100000 transfer should be made through NEFT.

 Redemption can be in bullet or in trenches. Bullet mean payment at the time of

maturity and trenches mean payment made in parts.

 Interest rate, in the case of floating NCD is depends upon NSE MIBOR which
change daily. so the interest on these NSE MIBOR linked debentures are
compounded daily.
Commercial Paper
 Commercial Paper (CP) is a short term instrument, introduced in 1990,
to enable non-banking companies to borrow short-term funds through
liquid money market instruments. CP’s were intended to be part of the
working capital finance for corporate, and were therefore part of the
working capital limits as set by the maximum permissible bank finance.
CP issues are regulated by RBI Guidelines issued from time to time
stipulating term, eligibility, limits and the amount and methods of
issuance. It is mandatory for CPs to be credit rated.
Process map of commercial paper

F
o
 POINT TO REMEMBER
 Commercial paper is always issued at discount price to face value
determined by the issuer.

 Individual banking companies, other corporate bodies registered or

incorporated in India and unincorporated bodies, non resident
Indian(NRIs)and foreign institutional investor (FIIs) etc can invest in CPs.
However amount invested by single investor shouldn’t be less then 5lakh
(face value).

 Only schedule bank can act as an IPA(issuing &paying agent) for

issuance of CP.

 CP can be issued on a single date or in parts ,provided later should have

same maturity date.

 CP can only be issued in denomination of 5 lakh or multiples thereof..

 Limit of CP shall be depend upon the limit fixed by board of director or the
quantum indicated by credit rating agency (CRA) for the specified rating, which
ever is lower.

 CP should be raised within a period of two week from the date on which the
issuer opens the issue for subscription.

 CP maturity period should lies between a minimum of 15 days and a maximum

up to one year from the date of issue.

 CP is a stand alone product., so it wouldn’t be obligatory in any manner on the

parts of bank and FIs to provide stand by facility to the issuer of CP.

 Company would be eligible for issue CP provided the tangible

 Net worth of the company, as per the latest audited balance sheet, is not less
than 4crore
IPO FINANCING
 IPO( initial public offer) mean issuing of stock or share by
company to the public for the first time.

 So IPO financing is a loan facility provided to investor by

company for investing in IPO.

 Religare finvest ltd has recently financed the IPO of

mahindra’s & of adani power.
Multiplier to the investment
capacity of investor
Own Through IPO
Investment financing
Investor’s fund (Rs.) 10,00,000 10,00,000
Financing (Rs.) * 0 90,00,000
Application size 10,00,000 1,00,00,000
No. of shares applied for 10,000 100,000
(assuming issue price to be
100/-)
No. of times issue is 10 10
oversubscribed
Shares allotted 1000 10000

*10% margin but may varies

PROCEDURE FOLLOWED WHILE IPO
FINANCING
 Determining margin and interest rate .

 Apply for loan by investor.

 Then risk management cell determine the limit of loan

 Loan agreement is signed and margin & the interest amount for the period of
application to allotment (generally 15 days) is taken in advance by IPO financer.

 Application of share is made by IPO financer on behalf of investor.

 After the allotment of share ,investor has to refund back the money either by selling
the share or with his own fund and on the other hand company will return the POA
of both bank account and DEMAT account to investor.
 How the margin & interest rate is

decided…?
Margins have inverse relationship with the subscription of share ,which
mean higher the chance of over subscription of share, lower will be the
margin percentage.

margin

subscription

 The interest rate on loan is determined on the basis of the rate at which
fund is borrowed.
In religare finvest ltd they decide the interest rate by adding 4%-6% to the
rate of interest on borrowed fund.

Cost of fund + 4%-6% = Interest rate of loan

Is IPO financing is risk free for company….?
Yes it is….because

 Interest amount is taken in advance, so there is no risk to

earning

 POA of both bank account and DEMAT account is with the

financer ,which mean borrower cannot sell share or
withdraw refunded amount from bank account. so no risk to
loan amount.

 Margin amount is available for recover any kind of loss due

to decrease in the value of share.
POLICY OF RELIGARE FINVEST RELATED TO IPO
FINANCING

 Loan is generally granted for the period range from date of

application of share to the date of allotment of share.

 Grant loan only to non institutional investor. They do not

grant loan to retail investor.

 Interest from the date of application to the date of allotment is

taken in advance.
Loan Against Share (LAS)
 “Loan Against Shares” allows the investor to take advantage of investment
opportunities in the market without the involvement of fresh funds. So
investor can use the shares in his current portfolio as an collateral(margin)
for LAS and increase the size of his current portfolio with loan fund.We can
say LAS provide the leverage to current investment of investor. In other
words it is a facility by which one can avail loan by depositing certain
amount of shares as a security/ margin with the lender.

 Religare Finvest Ltd. ( a subsidiary firm of Religare) also grants loan but
only to existing customers of Religare Securities Ltd (RSL) which is an
subsidiary of Religare enterprises. The loan is given in the form of limit to
buy share rather than in cash. It is also worth to mention here that LAS is a
major source of revenue for Religare Finvest ltd.
 Procedure followed while
offering LAS facility…
 Determination of MPLA (maximum permissible loan amount) by credit
appraisal of client.

 Filling of LAS form

.
 After the execution of loan agreement both POA bank account and POA
DEMAT account is opened
POA bank account
It’s a special account opened in the name of borrower(client) but the
POA(power of attorney) is in the favour of Religare Finvest Ltd. The
Religare Finvest Ltd open POA account of client in Axis bank only.
POA DEMAT account
The Religare Finvest Ltd.is a DP registered under CDSL. So it open
DEMAT account of the client under its registered DP, where the
securities of the borrower is kept. The POA of this account is also in the
favour of Religare Finvest Ltd.
 How MPLA is determined…?
 The MPLA (maximum permissible loan amount) is determined on the
basis of financial position of the client. For calculating MPLA, Religare
Finvest ltd use following formula:-

Net worth * 5 or five time of Net worth

Other Paramenter:-
 Trading pattern of the client
 Bank statement
 Past record from defaulter list
Risk Management
 Religare Finvest Ltd also has risk management cell. The basic
responsibility of RMC of company is to maintain margin of LAS client .
The margin can be in form of cash or in the form of securities. The
market value of every securities held as margin keep on changing so
RMC keep watch on the value of stock held by client and maintain
margin by making margin call if any reduce in the value of share. So
basically RMC perform two following activities:-

 Maintain Margin Report

 Make Margin call
Maintain margin report
Financial Stock NET Span Margin NAM after Gross % margin
Position Available Span Exposure After span
Margin Margin

 ODIN (Open Dealer integrated Network) : This is very popular

software manufacture by financial tech. Through ODIN, risk
management team get the information of sale & purchase of securities
by client and also get information about the m to m (mark to market
profit /loss) on them.

 UNISON : It is a company’s own software. This software is used by risk

management team for preparing live margin report, stock report
( report of a particular security/scrip held by different client),net
integrated position of client etc.
 Make Margin call
Code Client Name Financial Stock NET Available Gross Margin % Shortage
Position Margin Exposure

First day
BRING in Rs 10000
10100MRXX MR X -10000 0 10000 0 - Nil

Second day
BUYS 40000 WORTH SHARES
10100MRXX MR X 30000 40000 10000 40000 25% Nil

Third day
NO TRADE -MARKET VALUE OF SHARES GO DOWN BY Rs 5,000, THE MARGIN
WILL FALL SHORT BY Rs 3750
10100MRXX MR X 30000 35000 5000 35000 14.28 3750

THIS FIGURE OF Rs 3750 IS A ARRIVED AT AS (GROSS EXOSURE/4-NET MARGIN ) , i.e., (Rs 35000/4-5000)

* Required margin is 25%.

Code Client Name Financial Stock NET Available Gross Margin % Shortage
Position Margin Exposure

10100MRX MR X 30000 35000 5000 35000 14.28 3750

OPTION 1: SELL STOCKS WORTH Rs 15000 (BEING 4 TIMES THE SHORTAGE)

10100MRXX MR X 15000 20000 5000 20000 *25% Nil

OPTION 2: BRING IN CASH Rs 3750 (BEING THE AMOUNT OF SHORTAGE)

10100MRXX MR X 26250 35000 8750 35000 *25% Nil

OPTION 3: BRING IN STOCKS WORTH Rs 5000 (BEING 1.33 TIMES THE AMOUNT OF
SHORTAGE
10100MRXX MR X 30000 40000 10000 40000 *25% Nil

* Required margin is 25%.

FINANCIAL ANALYSIS-CAMEL approach
 The CAMEL approach was developed by bank regulators in the United
States as a means of measurement of the financial condition of a
financial institution. The Methodology is now the industry standard. It
provide the suitable framework for the evaluation of financial institution
through the complete coverage of the factor affecting creditworthiness of
financial institution.

 This model cover five elementary factor:-

 Capital Adequacy
 Asset Quality
 Management
 Earnings
 Liquidity

 On the basis of different financial ratios above factor can interpreted

and financial condition of company can be measured .
Research methodology
 Objective - “To improve the performance & strengthening the financial
position of the company”

 Methodology - Usually CAMEL approach is used to do comparative

analysis of financial position of two or more companies .As the Religare
Finvest Ltd is new and is in growing stage so, rather comparing it with
other big companies, Its better to analysis the financials of company of
two successive years ,so that its performance and financial position can
be compared and if there is need of improvement ,recommendation can
be made.

 Source of information - Financial statement of financial year 2007 &

2008.
 CAPITAL ADEQUACY 
 NETWORTH
2006-07 2007-08 %Change
Net Worth 1,685,130,827 3,533,502,818 109%

ACCESS TO DIVERSIFIED SOURCES OF CAPITAL

2006-07 Share capital Intercorporate Ncd -
deposit

2007-08 Share capital Intercorporate Ncd CP

deposit

MARKET-TAPPING ABILITY

ICRA has assigned a rating of A1+ for the short term debt issuance programme
of RFL for Rs 18,500 million .Currently company is using its entire borrowing
capacity .which shows its market tapping ability is satisfactory .
NET CURRENT ASSETS TO TOTAL DEBT
2006-07 2007-08
1.07:1 1.29:1

TOTAL DEBT TO EQUITY RATIO

2006-07 2007-08
2.85 : 1 5:01
ASSET QUALITY
 Weighted classified asset to tierI
Weighted classified asset is defined as the sum of (1)20%of substandard
(2)50% of doubtful (3)100% of loss asset. The tierI includes share capital fund
and loan loss provision (provision for NPA) It mean this ratio is a Indicator of
future losses to the financial institution and its ability to absorb anticipated
losses. So lower the ratio better it is.
2006-07(%) 2007-08(%) Total Change

0.14% 0.98% 0.84

 Loan loss provision to total loan

Indicator 2006-07 2007-08 change

Loan loss Provision/ Total Loan*100 0.04% 0.23% 0.18%

MANAGEMENT

 Earning Asset TO Total Asset

 Profit Generation Capacity

2006-07 2007-08 Difference

Earning asset/total asset*100 92% 86% -6%

PBT/Salaries and Wages Rs 3.74 Rs 2.93 Rs(0.81)

EARNINGS
Ratio 2006-07 2007-08 Difference

Return on Net worth 11.24(%) 10.10(%) -1.14

Return on asset 4.43(%) 2.57(%) -1.86

PAT to total income 19.46(%) 13.76(%) -5.7

EPS 4.29(Rs) 3.71(Rs) -0.58

Interest spread 3.00(%) 5 .68(%) 2.68
Why the effect of increased interest spread ,which is the main
source of Revenue for any financial institution ,is not seen on
return on asset or return on share holder ,which is decreasing
instead of increasing in Religare Finvest Ltd.?
 The under utilization of loan raised is the main reason . The company
couldn’t able to utilized the loan amount raised fully. which can be
judged from the following ratio :-

2006-07 2007-08
Amount(Rs) Amount(Rs)

Loan Given 5618648400 15260782077

Loan Taken 4504086800 16953753315

Loan given/loan taken*100 125% 90%

 In 2006-07 company not only using the loan raised but also using
shareholder fund for giving loan. So company was also earning from
that fund on which no interest is paid or whose cost is nil.

 But in 2007-08 ,the problem is that the company couldn’t even utilized
its loan raised fully. So burden of unutilized fund or we can say under
utilization of fund available ,has effected the overall return of company.
LIQUIDITY

Ratio 2006-07 2007-08

OPBIT/Interest and Finance Charges 1.568:1 1.367:1

Basic Defense Interval 190 days 408 days

RECOMMENDATION
 Need to raise shareholder fund to lower the leverage because company use major
portion of there fund for giving loan against securities.. As it is related to stock market
which is very vulnerable or instable. so there is lack of stability in income.

 Company should make effort to raise long term fund. so that it can use fund more
freely .it will also give company a scope to reduce its liquid asset and use that fund for
any income generating activity.

 Company should try to raise fund according to requirement because mismatch

of raised and lend fund is hampering the company’s growth .This mismatch leads to
under utilization of loan which ultimately did not allow the company to convert the
benefit of higher interest spread in higher return .

 Company should increase the pay package of its employee to industry standard
,which will help them to improve efficiency level. So ultimately it will increase the profit
generation capacity of employee which is decreased in the last financial year.
Key learning

 Working knowledge of Oracle

 Working knowledge of TMS (Treasury
management software ,its for managing lending
and borrowing through ICDs)
 Basic of Mutual Funds
 Transfer of funds through RTGS
 Tax provision related to TDS