1

Chapter [Link]

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 banks. 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 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, [Link] 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 ensure 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
 2
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.
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1.2 DEFINITION by ( 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 detail i.e. what is financial institution? What

is non-banking?

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 its 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,

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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

• 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.

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1.3 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 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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1.4 TYPES OF NBFCS

Based on :

[Link]

There are two types of 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 deposits.

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, however does exclude –

(i) Amounts raised by the way share capital;

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

(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 the bank on this behalf.

[Link]

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

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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.

[Link]
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1.5 THE CURRENT STATUS OF NON- BANKING FINANCIAL COMPANIES

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 banks. 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
 11
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 Reserve.
 12
1.6 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 the public. NBFC’s are able to reach certain deposit segments such as

unorganized sector and small borrowers were commercial banks cannot reach. These

companies encourage savings and promote careful spending of money without much

wastage. They offer attractive schemes to suit the needs of various sections of the society.

They

also attract idle money by offering attractive rates of interest. Idle money means the money

which the public keeps aside, but which is not used. It is surplus money.

2. Provides easy, timely and unusual credit:

NBFC’s provide easy and timely credit to those who need it. The formalities and procedures

In the case of NBFC’s are also very few. 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 as 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
 13
returns. For example – In case leasing companies lease equipment to industrialists, they

earn a good amount of profit.

5. Provide Housing Finance:

NBFC’s, mainly the Housing Finance companies provide housing finance on easy terms 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 [Link]

,earn a good amount of profit.

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1.7 TOP NBFCS IN INDIA

1. Power finance corporation ltd.

Power Finance Corporation Ltd is a leading power sector public financial institution and a

non-banking financial company providing fund and non-fund based support for the

development of the Indian power sector. The company is engaged in power sector financing

and the integrated development of the power and associated sectors. They provide large

range of Financial Products and Services like Project Term Loan Lease Financing Direct

Discounting of Bills Short Term Loan and Consultancy Services etc for various Power

projects in Generation Transmission and Distribution sector as well as for Renovation &

Modernization of existing power projects.

2. Mahindra & Mahindra Limited

Mahindra & Mahindra Limited is the flagship company of the Mahindra Group which
 15
consists of diverse business interests across the globe and aggregate revenues of around

USD 19.4 billion. The company operates in nine segments: automotive segment comprises

of sales of automobiles spare parts and related services; farm equipment segment

comprises of sales of tractors spare parts and related services; information technology (IT)

services comprises of services rendered for IT and telecom; financial services comprise of

services relating to financing leasing and hire purchase of automobiles and tractors; steel

trading and processing comprises of trading and processing of steel infrastructure comprise

of operating of commercial complexes project management and development; hospitality

segment comprises of sale of timeshare; Sys tech segment comprises of automotive

components and other related products and services and its others segment comprise of

logistics after-market two wheelers and investment.

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 17
3.. Muthoot Finance Limited

Muthoot Finance Limited is the largest gold financing company in India in terms of loan

portfolio. The company provides personal and business loans secured by gold jewellery or

Gold Loans primarily to individuals who possess gold jewellery but could not access formal

credit within a reasonable time or to whom credit may not be available at all to meet

unanticipated or other short-term liquidity requirements.

[Link] financial services

Mahindra Finance is a leading non-banking financial company (NBFC) that is part of the

Mahindra Group, primarily serving rural and semi-urban customers in India. It started in 1991

and initially focused on financing Mahindra vehicles, but has since expanded its services to

include financing for other brands, commercial vehicles, construction equipment, and small

and medium enterprises (SME). The company aims to empower its customers through

various financial products and services, including its subsidiary operations in mutual funds.

Mahindra & Mahindra Financial Services Ltd (MMFSL) is demonstrating significant growth,

marked by an expanding loan book, solid profit increases in recent quarters, and a strategic
 18
diversification into non-vehicle financial products. The company maintains a strong market

position in rural and semi-urban India, which provides a large scope for future expansion.

[Link] Finance Ltd.

Bajaj Finance Limited - Bajaj GroupBajaj Finance Ltd. is a leading Indian non-banking

financial company (NBFC) and a subsidiary of Bajaj Finserv Ltd. It offers a wide range of

financial products, including consumer lending (personal loans, durable finance), SME

lending, commercial lending, and deposits. The company focuses on innovation and

financial inclusion to provide services across various customer segments, leveraging

technology to serve millions of customers across India.

Bajaj Finance Ltd. has shown strong growth in recent years, driven by significant increases

in its Assets under Management (AUM), customer base, and net income. While the company

experienced a recent dip in its stock price due to a lowered AUM growth forecast for FY26,

its historical performance remains strong, with impressive year-over-year growth in core

business metrics. Recent strategic initiatives, such as digital platform expansion and AI

implementation, have also contributed to improved operating efficiency.

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1.8 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

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).
 21
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 companie.

1.9 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.

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
 22
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

1.10 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,

againstthe 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
 23
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.

1.11 Commercial Banks vs Non banking financial companies

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[Link] OF LITERATURE

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 a wider choice of instruments.

WithNBFCs 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

banking 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.

[Link] 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.

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[Link]. 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”.

3 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”.

[Link] 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 concluded that the NBFCs are

earning good margins on all the loans and their financial efficiency is good.

[Link] (2017) tried to learn the performance of non-banking financial institutions. She has

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.

[Link] Goel in her article in ‘ELK Asia Pacific Journal’ studied the growth prospects of

NBFCs in India.

[Link] 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.

[Link] in his article in ‘A journal of Radix International educational and

research consortium’ studied the evolution, growth and development of NBFCs in India.

[Link] 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 the financial system

and complemented the service provided by commercial banks in India. The efficiency of
 27
financial services and flexibility helped them build a large body of clients including small

borrowers and a bigger corporate establishment. The pace of financial liberalization has

intensified the competition. As a result, there has been a shift towards the strategic

perspective of the marketing process of NBFCs. This perspective enables them to predict

the future impact of change and help to move out of weak areas and grab new opportunities

through continuous monitoring systems.

10.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 in the 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 years.

11.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 requirements. The role of NBFCs as effective

Financial intermediaries have been well recognized as they have inherent abilities to take

quicker decisions, assume risk and customize their services provided by banks and market

the components on a conceptual basis.

 28

[Link] methodology

[Link] of the study

The rationale behind studying the growth of NBFCs (Non-Banking Financial Companies)

Stem in from the crucial role NBFCs plays in accelerating financial inclusion, economic

growth complementing traditional banking and the overall reshaping of financial landscape

Understanding the increase in growth is essential for several reasons:-

1. Technological Advancements: The growth of NBFC's is often linked to technological

advancements, leading to more accessible and efficient financial services.

2. Investment opportunities:-The growth of the financial market is definitely influenced by the

simultaneous growth in NBFC's, creating more investment opportunities.

[Link] Credit gaps: NBFC's fill gaps in the financial system where traditional banks may

struggle to penetrate or provide specific financial services.

4. Market Dynamics:- Analyzing the factors driving NBFC growth, such as rising middle

class, changing demographics, and evolving Consumer needs is essential for understanding

the sector's future.

5. Policy Formulation and Regulation: Understanding the growth trajectories and operational

dynamics of NBFCs helps regulatory bodies like the Reserve Bank of India (RBI) design

appropriate and effective regulatory frameworks. This ensures a balance between fostering

growth, promoting innovation, and maintaining financial stability

 29

3.2 Statement of problem:

The "statement of problems" regarding the growth of Non-Banking Financial Companies

(NBFCs) in India typically centers on the inherent vulnerabilities and systemic risks that arise

despite their significant contribution to financial inclusion and economic development.

Key problem areas identified in research studies include:

Dependence on Short-Term Borrowing: NBFCs often rely heavily on bank loans and the

capital markets for resources, in contrast to banks which have access to low-cost public

deposits. This creates an asset-liability mismatch, as their loans (assets) are often long-term,

making them vulnerable to liquidity crunches if funding sources dry up suddenly (as seen in

the 2018 IL&FS crisis).

Absence of Refinancing Options: Unlike banks and Housing Finance Companies (HFCs)

that have access to dedicated refinancing facilities, many NBFCs lack these options, which

hinders the sustainability of their growth.

Increased Cost of Capital: New regulatory measures, such as increased risk weights for

bank exposure to NBFCs, can lead to higher borrowing costs for NBFCs, impacting their

profitability and ability to lend at competitive rates.

Rising Non-Performing Assets (NPAs): NBFCs often lend to higher-risk segments, such as

SMEs and borrowers with lower credit scores, resulting in a higher potential for

non-performing assets, especially during economic slowdowns or unforeseen events like the

COVID-19 pandemic.

Credit Risk Assessment: Many NBFCs struggle with effective credit risk assessment due to a

lack of access to comprehensive defaulter databases or the ability to leverage utility

payment databases for credit checks.

 30
Governance and Internal Controls: Weak governance frameworks and inadequate risk

management practices have historically been a vulnerability in the sector, leading to

instances of mismanagement and financial instability.

Regulatory and Operational Hurdles

Evolving Regulatory Environment: The constant introduction of new and often stricter

regulatory norms by the RBI (e.g., scale-based regulations, new Prompt Corrective Action

framework) increases the compliance burden, which can be particularly challenging for

smaller NBFCs with limited resources.

Competitive Pressure: The sector faces intense competition from both traditional banks

expanding their reach and agile FinTech companies leveraging advanced technology for

digital lending and customer experience.

Digital Divide: Smaller NBFCs often lack the resources to invest in advanced technology and

digital transformation, putting them at a disadvantage against larger, more technologically

adept competitors.

Lack of Statutory Recovery Tools: NBFCs often face the long-standing challenge of not

having a statutory recovery mechanism similar to those available to banks, making loan

recovery more difficult.

The core problem is how NBFCs can ensure sustainable growth and financial stability while

navigating these multifaceted risks, regulatory pressures, and competitive dynamics

.
 31

3.3 Objective of the study:

1. To analyze the short-term solvency of the selected NBFCS.

2. To appraise the long-term solvency of the selected NBFCS.

3. Financial performance of NBFCS in terms of profitability.

4. Financial performance of NBFCs in terms of return on net worth equity and return on

capital employed .

5. To study whether the NBFCs are different or similar in terms of debt-to-equity ratio,

current ratio, return on net worth ratio, return on equity ratio,net profit ratio.

[Link] study seeks to evaluate the financial performance of selected NBFCs from 2017 to

2021.

[Link] research aims to portray a brief comparison among selected NBFCs using trend

analysis and correlational analysis.

8. This study aims to provide an overall subjective assessment of current status and financial

performance of top 5 NBFCs.

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3.4 Scope of the Study

(1) These analyses help the people to analyze the NBFCs companies for better results,

because the NBFCs is a non-banking financial company registered under the Companies

Act 1956.

(2) It shows the growth of the companies, which company is best for the future investment

and which

company growth is high and which company growth is low according to that the people have

to make a decision for the investment.

(3) To evaluate the company's performance, because it knows the performance of the

company, which company goes to debt to equity, return on equity, net profit, P/E (Price to

Earning) ratio, according to that this research helps people to reach their investment

company without any problem.

(4) It shows the financial ranking of the company which company growth is high and which

company growth is low. According to the ranking the investor decides the position of the

company in the market.

(5) It shows the growth of the company in the financial market because investors and other

people help to decide which company has more financial instruments and what’s the current

growth in the financial market.

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3.5 Research design

Research Design is the conceptual structure within which research is conducted. It

constitutes the blueprint for the collection measurement and analysis of data. Research

Design includes an outline of what the researcher will do from writing the hypothesis and its

operational implication to the final and collection and analyzing the data. It is a strategy

specifying which approach will be used for gathering and analyzing the data.

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 causal relationships 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.
 34

3.6 Nature and source of data

Sampling

Sampling is necessary because it is almost impossible to examine the entire parent

population (I.e the entire universe) various factors such as time available cost, purpose of

study etc. make it necessary for the researchers to choose a sample. It should neither be too

small nor too big. It should be manageable. The sample size of the past 6 years is taken for

present study.

Key advantages of Sampling

The main advantages of the sampling method are that it is more economical, time-saving,

and allows for more detailed data collection compared to a full census. It is also often the

only feasible method for very large or infinite populations, and can be faster and more

accurate when samples are taken carefully.

Key advantages of sampling

Economical: Sampling is less expensive because you only collect data from a small portion

of the total population, reducing costs associated with staff, resources, and time.

Time-saving: Gathering data from a smaller group takes significantly less time than

surveying an entire population. This is especially true for large populations.

More detailed information: Because less time and money are spent on data collection, more

resources can be allocated to asking more detailed and in-depth questions of the sample.

Greater accuracy and reliability: If a sample is chosen judiciously, the results can be highly

reliable and accurate, and sometimes even more accurate than a census if the census is

poorly executed.

Feasible for large or infinite populations: Sampling is often the only practical or even possible

method for studying populations that are extremely large or infinite in size.
 35
Data collection through secondary sources

Secondary information has been collected through various sources which include data from

RBI Publications, Money control Website, Journals and Reports on NBFCs. For conducting

study, 10 companies of five different categories are chosen for which data is available.

The five different categories of NBFCs chosen are Asset Finance Companies, Core

Investment Companies, Factors NBFCs, Infrastructure Finance Companies and

Microfinance Companies. In the course of the analysis in this study, the use of various

accounting and statistical techniques have been made. Ratio analysis, mean, standard

deviation and ANOVA has been applied. The variables selected for analyzing the

performance of NBFCs are Current ratio, Debt-Equity Ratio and Net profit Ratio.
 36

3.7 Sample and sampling methods with Rationale Sampling strategies in research

vary widely across different disciplines and research areas, and from study to study.

There are two major types of sampling methods: probability and non-probability

sampling used .

[Link] sampling, also known as random sampling, is a kind of sample selection

where randomisation is used instead of deliberate choice. Each member of the population

has a known, non-zero chance of being selected

Rationale behind this method- It is easy to do and cheap. Designed to ensure that every

member of the population has an equal chance of being selected, it reduces the risk of bias

compared to non-probability [Link] is efficient and straightforward, especially when

dealing with populations that have a clear order. It ensures a uniform selection across the

population.

[Link] non-probability sampling methodology doesn’t offer the same bias-removal benefits

as probability sampling, but there are times when these types of sampling are chosen for

expediency or simplicity. Here are some forms of non-probability sampling and how they

work.

Rationale behind this method- It is the most straightforward method, requiring minimal

planning, making it quick to implement.

 37

3.8 Details of the Tools

Ratio analysis

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
 38
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

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
 39
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

 40
Some of the ratios used in this research project:

[Link]

Earning per Share is calculated as a 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 a

company. EPS designate the organization profitability through display the how much money

a business produce for each share of

its stock. EPS has higher indicated great value because if the investors realize or think the

company growth or relative share price going into higher profit, so the investor will pay more

for the company.

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

Purpose:EPS not only helps measure a company's current financial standing but also helps

track its past performances. For instance, a company with a steadily increasing EPS is often

considered to be a reliable investment option. Likewise, companies with faltering or irregular

EPS are usually not preferred by seasoned investors.

[Link] profit margin represents 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 the long term, it was

not able to be measured immediately; it does not reveal 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

Purpose:The net profit margin indicates a business's profits as a percentage of total

revenue. In addition to other measures, the net margin is a key indicator of a company's

profitability and can be used to determine whether a business's strategy is working or

whether changes to increase profitability are needed.

 41
3 .Return on equity, sometimes called the return on net worth. It is a measure of

profitability that calculates 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.

Purpose: ROE is useful for comparing a company's profitability over time or against

competitors within the same industry. It's important to note that ROE is calculated using net

income and shareholders' equity over a set period—typically a company's financial reporting

year, known as a fiscal year.

4 Debt to Equity Ratio

It is dividing a company’s total liabilities through its shareholder equity; it is used to evaluate

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 amounts 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)

Purpose:The debt-to-equity (D/E) ratio is a financial metric that helps businesses evaluate

their funding strategies—whether operations are financed more by debt or equity. It

compares a company's total liabilities to its shareholder equity and is a key indicator of

financial leverage and stability

5 .ANOVA TABLE
 42
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.

Purpose:Use of 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).

ANOVA tells you if the dependent variable changes according to the level of the independent

variable.

6. CURRENT RATIO

Current Ratio is a liquidity ratio that measures ability of the enterprise to pay its short-term

financial obligations i.e. liabilities. The Formula for calculating the ratio is

Current Ratio = Current Assets/Current Liabilities

The generally accepted standard of current ratio is 2:1 i.e. current assets should be twice the

current liabilities. The table provides the data related to current ratios calculated for the

sample NBFCs taken for the study. These ratios are calculated for 5 consecutive years from

2015 to 2020.

Purpose: The purpose of the current ratio is to assess a company's ability to meet its

short-term obligations using its short-term assets. It is a liquidity ratio used by creditors,

investors, and management to gauge financial health, with a ratio above indicating the

company has more than enough current assets to cover its current liabilities.

[Link] Profit Ratio

Net Profit Ratio establishes the relationship between Net Profit and Revenue from

Operations i.e. Net Sales. It shows the percentage of Net Profit earned on Revenue from

Operations.

Formula: Net Profit Ratio = Net Profit after Tax /Revenue from Operations * 100
 43
Purpose: The main purpose of the net profit ratio is to show a company's overall profitability

by measuring how much of each dollar of sales is left as profit after all expenses are

deducted. It is used by managers to track efficiency, investors to compare companies of

different sizes, and lenders to assess a company's ability to repay

3.9 Reliability and validity of tools used.

Reliability (Consistency): Refers to the consistency of a measure. A tool is reliable if it

produces the same or very similar results when used repeatedly under the same conditions.

For example, a reliable current ratio calculation will yield the same result when computed

from the same set of financial statements.

Validity (Accuracy): Refers to the accuracy of a measure—whether the tool truly measures

what it is intended to measure. A tool is valid if its results genuinely represent the underlying

concept (e.g., financial health, operational efficiency, or a specific statistical relationship).

The reliability and validity of using financial tools like ratio analysis and statistical methods

such as ANOVA (Analysis of Variance) and mean deviation depend heavily on the context,

the quality of the data, and how the assumptions of the methods are met.

📊 Statistical Analysis Tools

Statistical tools (like mean , standard deviations , ANOVA, etc.) rely on assumptions about

the data for their results to be valid and reliable.

Key Factors Affecting Reliability and Validity

[Link] Quality: If the sample is not representative of the population or the sample size is

too small, the results may be unreliable and invalid for generalization.

[Link] of Assumptions: Most parametric statistical tests (e.g., t-tests, ANOVA, linear

regression) assume data properties like normality, homogeneity of variance, and

independence of observations. Violating these assumptions can reduce the validity of the

test results.
 44
[Link] Error: Poorly designed surveys, inaccurate sensors, or subjective scoring

can introduce measurement error, which directly compromises both reliability and validity.

[Link] Specification (for Regression): Using the wrong statistical model (e.g., missing

important variables or using a linear model for a non-linear relationship) will lead to an invalid

representation of the relationship.

⚖️ Ratio Analysis Tools (Financial Ratios)

Ratio analysis (e.g., Current Ratio, Debt-to-Equity, P/E Ratio) is a quantitative approach to

financial statement analysis. While mathematically reliable (the calculation itself is

consistent), the validity and utility of the interpretation are often limited.

Key Limitations Affecting Validity

[Link] on Historical Data: Ratios are calculated using past financial statements. This

makes them less valid for forecasting or reflecting a company's current or future financial

health, especially in rapidly changing environments.

[Link] Method Variations: Different companies, even within the same industry, may

use different accounting principles (e.g., FIFO vs. LIFO for inventory, different depreciation

methods). This inconsistency makes inter-firm comparisons (a key use of ratio analysis)

potentially invalid or misleading.

[Link] Effects: Financial statements often do not account for inflation, which can

distort comparisons of a single company's ratios over long time periods, affecting the validity

of trend analysis.

[Link] of Financial Statements: "Creative accounting" or deliberate

misrepresentation can make the underlying figures unreliable, causing the resulting ratios to

be reliable (consistent with the false figures) but entirely invalid for assessing the true

economic reality.

[Link] of Qualitative Factors: Ratios are purely quantitative and do not capture

non-numerical, but critical, factors such as management quality, employee morale, market

reputation, or pending legal issues, which limits their holistic validity in assessing overall

business health.
 45
Conclusion on how reliable and valid the tools are:

While statistical tests and ratio analyses are indispensable, analysts must be aware of their

specific limitations—such as non-representative samples, unstated assumptions, or the

inherent flaws of historical accounting data—to ensure the conclusions drawn are sound.

3.10 Statistical tools used for data analysis: Mean and standard deviation

Mean deviation is a statistical measure that calculates the average absolute difference

between each data point and the mean, median, or mode of a dataset. It shows how far, on

average, all values in a dataset are from a central point, providing a simple measure of data

variability. To calculate it, find the central point (mean, median, or mode), find the absolute

value of the difference between each data point and that central point, and then find the

average of those absolute differences.

How to calculate mean deviation

-The steps for calculating mean deviation differ slightly for ungrouped and grouped data.

-For ungrouped data (raw data)

[Link] the central point: Find the mean, median, or mode of the data set.

[Link] the absolute deviations: Calculate the absolute value of the difference between each

data point and the central point you found

[Link] the absolute deviations: Add up all the absolute deviations from the previous step.

[Link] the average: Divide the sum from by the total number of data points in the set.

-For grouped data (data organized in a frequency table)

[Link] the midpoint of each class: For each class interval, find its midpoint (add the two

numbers and divide by two).

[Link] the weighted deviations: Multiply each midpoint by its corresponding frequency.

[Link] the weighted deviations: Add up the products from step 2.

 46
[Link] the mean deviation: Divide the sum from step 3 by the total frequency of all
classes.

Standard deviations

Standard deviation is a statistical measure that shows how spread out data points are from

their average (mean). A low standard deviation means data points are clustered closely

around the mean, indicating consistency, while a high standard deviation means the data is

more spread out, indicating greater variability. It is the square root of the variance, providing

a standardized way to understand the dispersion of a dataset.

How to calculate standard deviations:

To calculate standard deviation, first find the mean of your data set. Then, subtract the mean

from each data point, square the result, and find the average of those squared differences

(the variance). Finally, take the square root of the variance to get the standard deviation.
 47

Ch.4 Results of the study

1.​ Current ratio

[Link]-EQUITY RATIO
48
 49

The table value of F for degree of freedom 50 at 5 per cent level of significance is 2.38.

Since

the calculated value of F (35.64) is less than the table value, the null hypothesis is rejected.

It is concluded that the debt equity ratio does differ significantly for the NBFCs under study.

[Link] Profit Ratio

50
 51

4..ANOVA

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.

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?

 52
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).

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 [Link] 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.
 53

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.

Hypothesis: There is not any significant difference in Debt Equity Ratio of NBFCs under

study.

Alternative Hypothesis: There is significant difference in Debt Equity Ratio of NBFCs

under study.
 54
[Link] per share
 55

[Link] on equity
 56

[Link] 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, Power house 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 this.

company, Mahindra & Mahindra Financial Services Limited, power house imited.

(3) In Debt-to-Equity the company which are going to debt is Bajaj finance and the

remaining companies which are minimum in debt-to-equity according to

Mahindra & Mahindra Financial Service Limited, Muthoot Finance Limited,

Bajaj Finance Limited.

(4) In Return to Equity the highest return of the company is Mahindra & Mahindra Financial

Service Limited minimum return in equity is power house limited Muthoot Finance Limited.

(5) In Price-to-Earning Ratio we analyze the highest earning share price of the company is

Bajaj finance and minimum earning per share company is Mahindra & Mahindra

Financial services Limited, Muthoot Finance Limited, Bajaj Finance Limited.

 57
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.
 58

CH.4.1 FINDINGS

➢ From the analysis above it follows that current are high for the asset finance

companies and infrastructure finance companies. The debt-to-equity ratio was lower

for microfinance companies

➢ Core Investment companies showing that the enterprise is depending more on

shareholder’s funds and lenders are at a lower risk.

➢ The Net Profit Ratio was high for infrastructure finance companies and micro

finance companies predicting good returns in these sectors.

➢ The return on capital of micro finance companies and assets finance companies

higher. This shows that how efficiently a company is using its total capital to generate

profit

➢ The return on net worth equity is higher for microfinance companies and asset

financing companies. This shows how well the company management is using the

shareholders capital

➢ From the table it follows that for all the three ratios calculated, the value of F is

more than the table value of F at 5% level of significance. This implies that null

hypothesis is rejected and indicates that the majority of selected ratios for this study

differ significantly between various categories of NBFCs. Different categories of

NBFCs behave differently.

 59

Ch.5 Interpretation of the data

The interpretation of data for a study on the growth of Non-Banking Financial Companies

(NBFCs) in India can be summarized into four key areas: Volume, Quality, Profitability, and

Context.

In short, the data shows that NBFC growth is robust, consumer-led, digitally enabled, and

financially sound, positioning them as critical drivers of financial inclusion and economic

credit growth in India.

Based on the interpretation of various studies, the Non-Banking Financial Companies

(NBFC) sector in India shows a narrative of robust growth, increasing systemic importance,

and resilience, coupled with evolving regulatory scrutiny and persistent challenges,

particularly around funding and asset quality.

Here is a breakdown of the key interpretations:

Drivers of NBFC Growth

[Link] Inclusion: NBFCs have been instrumental in bridging the credit gap left by

traditional banks, particularly for Micro, Small, and Medium Enterprises (MSMEs) and

individuals in unserved or underserved rural and semi-urban areas. They are often the

"lender of first resort" for niche segments.

[Link] Flexibility and Speed: They offer greater flexibility in product design, faster loan

disbursement, and fewer bureaucratic hurdles compared to traditional banks, making them

attractive for urgent financial assistance.

[Link] and Technology Adoption: Rapid adoption of technology, digital platforms, AI,

and Machine Learning has streamlined operations, reduced costs, enhanced customer

experience, and enabled a wider reach, driving growth in segments like unsecured personal

loans and digital lending

 60
[Link] Credit Demand: The overall growing demand for credit in the expanding Indian

economy (targeting a $5-7 trillion GDP) provides ample opportunities, which NBFCs are

effectively capturing.

[Link] Shift to Retail: There is a significant and positive shift from wholesale to retail

lending, with housing loans and vehicle loans being major contributors to their portfolio

growth.

Current Performance and Resilience

[Link] Growth: The sector has exhibited double-digit year-on-year growth in its

consolidated balance sheet and gross advances in recent times (e.g., 20.8% growth in gross

advances between September 2022 and September 2023).

[Link] Financial Metrics: Key indicators suggest resilience:

Capital Buffers: NBFCs generally maintain strong capital adequacy ratios (CRAR) well

above regulatory minimums.

[Link] Quality: Asset quality has shown improvement, with the Gross Non-Performing

Assets (GNPA) ratio moderating.

[Link]: Indicators like Return on Assets (RoA) and Net Interest Margin (NIM) have

remained strong.

[Link] Importance: Their increasing asset size (which has grown multifold and accounts

for a significant share of the overall credit in the economy) underscores their crucial role in

the Indian financial system and economic development.

Key Challenges and Regulatory Environment

[Link] and Liquidity: NBFCs rely heavily on market borrowings and loans from banks,

lacking the low-cost deposit base of commercial banks. This makes them vulnerable to

liquidity shocks and fluctuations in interest rates, as highlighted by the 2018 IL&FS crisis.

[Link] Regulatory Environment: The Reserve Bank of India (RBI) has increased its

regulatory oversight, introducing measures like the Scale-Based Regulation (SBR) to ensure
 61
financial stability. While necessary, this imposes a greater compliance burden on NBFCs,

especially smaller ones.

[Link] Quality Risk: While improving, NBFCs lend to high-risk segments (like SMEs and

sub-prime retail), making them susceptible to Non-Performing Assets (NPAs), especially

during economic slowdowns.

[Link] and Digital Disruption: They face intense competition from both traditional

banks (which are also becoming more aggressive in retail lending) and emerging Fintech

companies.

In essence, studies conclude that the NBFC sector is an integral engine of financial inclusion

and economic growth in India, but its rapid expansion and interconnectedness with the

banking system necessitate continuous, proportional regulatory action to ensure long-term

stability and manage inherent funding and credit risks.

 62

Ch.6 Summary and conclusions

SUMMARY -CONCLUSION

The analysis of solvency reveal a fact that the sample NBFCs do their business taking high

risk i.e. they hold very low percentage of total assets as their owned funds and depend more

on borrowed funds and holds more current assets with low percentage of liquid assets with

reference to current liabilities. Profit making is in direct proportion to risk taking. Thus,

These NBFCs take more risk to earn profits. However, the performance of these NBFCs

proves that they have sufficient solvency, as they manage the risks and have cash

generation capacity. However these NBFCs need to improve their profitability ratios and

cash management. NBFCs have to focus on their core strengths while improving on

weakness. Presently, the economic disruptions caused by the coronavirus outbreak, MSME

sector seems to be worst hit due to both businesses coming to a standstill and reduced

consumer spending. As MSMEs contribute to major chunk of NBFCs loan portfolio, in

In case of a default, it will affect NBFCs ability to repay the loans to other financial lenders.

However, Indian authorities and regulator have taken several measures to ease borrower’s

financial burden. Reserve Bank of India introduced a three-month moratorium on loan

repayments for distressed bank and NBFC borrowers. A sizeable Rs 3.74 trillion injection

liquidity into the system should help to improve liquidity in local credit markets.
 63

Ch.7 Recommendations

Here are the key recommendations for a comprehensive study:

[Link] vs. Wholesale: Quantify the shift in Asset Under Management (AUM) from

corporate/wholesale lending (historically risky) to retail lending (e.g., gold loans, vehicle

finance, small-ticket personal loans). Recommendation: Analyze the correlation between

GDP growth and the growth of the top 5 retail NBFCs versus the top 5 wholesale NBFCs

over the last five years.

[Link] Markets: Deeply investigate the role of NBFCs in financial inclusion. Focus on the

growth of Microfinance Institutions (NBFC-MFIs) and their penetration in rural and

semi-urban areas, especially in light of the liberalized MFI lending regulations.

[Link] Finance: Analyze the growth of Housing Finance Companies (HFCs),

distinguishing between affordable housing and prime/high-value segments, and assess the

impact of interest rate changes on their loan book expansion.

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Ch.8 Implications of the study

Implications of the Study

The implications of studying the financial performance and growth of NBFCs significant for

some shareholders:-

1. Strategic Insight for Investors: Investors who are interested in investing in this company

will get benefitted by going through this study and the investor can easily take the decision

whether to invest or not in the company. The investor will get a comprehensive comparison

between different companies.

2. Clear distinction of NBFCs contributing to financial inclusion: through this study, RBI

can know how much the NBFCS are contributing to the economy's financial inclusion by

extending credit to individuals and businesses.

3. Financial stability: Monitoring NBFCs' financial performance is essential for maintaining

financial stability, as their failure may have systematic implications.

[Link] oversight:- This study gives wholesome oversight of prescribed NBFCs

growth and performance which informs regulatory decisions aimed at promoting stability and

protecting consumers.

5. Innovation and Evolution:-Studying the five NBFCs help understand their evolution and

adaptation to diverse financial landscapes, including the rise of digital and fintech lending.
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Ch.9 Limitations of the study

• The study is restricted only for five years i.e., 2015, 2016, 2017, 2018, 2019and 2020.

• The study is completely based on secondary data and the accuracy of the analysis

depend on the data obtained.

• The study may not be extensive enough to cover all the ratios to be considered in

evaluating the financial soundness of the NBFCs.

° the data may vary as use of sampling techniques are there

°Heterogeneity of the Sector: The NBFC sector is highly diverse, ranging from large,

systematically important entities to small, niche companies. This vast heterogeneity makes

generalizing findings difficult and complicates the collection of uniform, comprehensive data.

°Limited Public Data for Smaller NBFCs: While data for large, listed, or systematically

important NBFCs is usually available, research on the growth of smaller, non-deposit-taking

NBFCs can be constrained by a lack of publicly available, detailed financial and operational

information.

°Lack of Targeted Sustainable Growth Data: While many studies look at traditional financial

metrics (profitability, liquidity, capital adequacy), there is often a dearth of targeted research

that specifically links these metrics to sustainable long-term growth strategies.

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Ch.10 Direction for further research

(1) Future researchers can conduct research on an international basis, companies across

the world can be considered for the study.

(2) The time frame of the study can be extended to 10 or more years to get a more accurate

result.

(3) Companies from other backgrounds 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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Ch.11 References

Using APA style:

1. B. Biswas. (2019, January). Financial Performance of Non Banking Financial Companies

(NBFCS): A Critical Analysis. IITM Journal of Business Studies (JBS), 6(1), 65-78

2. P. Chadha, V. Chawla. (2013, July). Comparative Analysis of Indian Housing Finance

Companies

Based on Corporate Governance Disclosures. 4D International Journal of Management and

Science, 3(2), 72-86.

3. J. Joseph. (2021, November). A study on Personal Loan at Bajaj Finserv Limited.

International Journal of Innovative Research in Technology (IJIRT), 8(6), 442-451.

4. S. Kannan. (2021, January 28). A Study on Financial Performance of Muthoot Finance

and

Cholamandalam Finance. SSRN, 1-78.

5. S. Keelery. (2022, April 26). Number of registered non-banking financial companies

(NBFC) in India as of December 2021, by category.

[Link]

6. S.P. Kumar, K.D. Reddy, A. Dhanunjaya. (2016, October). Growth & Development of

NBFC in India. Anveshana's International Journal of Research in Regional Studies

(AIJRRLSJM), 1(9), 91-97.

[Link]

[Link]

7. O.M. Nzioka, F.M. Maseki. (2017, April). Effects of Hedging Foreign Exchange Risk on

Financial Performance of Non-Banking Companies Listed at the Nairobi Securities

Exchange. European Scientific Journal, 13(10), 402-416.

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8. R. Parakh, R. Deshmukh. (2020). A Comparative Analysis on Credit Risk Management in

NBFC Sector and Its Impact on Their Market Capitalisation. International Journal of

Research Publication and Reviews (IJRPR), 1(7), 37-45.

9. C.S. Pellissery, C.J. Koshy. (2015, January). An Evaluation Of Financial Performance Of

Public Sector Banking Companies And Non-Banking Financial Companies In India.

International Journal of Management Research and Business Strategy, 4(1), 92-110.

10. P.H. Rao. (2018, March). Performance Assessment Of Housing Finance Companies In

India. 24(1), 99-109.

11. P.H. Rao. (2021, December). COVID-19 and Performance of Housing Finance

Companies in [Link] Business Review (International), 14(6), 39-50.

12. N.G. Samy, M. Nandhini. (2017). A Study on Financial Performance of Selected

Non-Banking Financial Companies in India. International Journal of Current Research and

Modern Education. (IJCRME), 2(2), 111-114.

13. P. Saroha, S. Yadav. (2013, September). An Analytical Study of Housing Finance in India

with special reference to HDFC and LIC Housing Finance Ltd. Lokavishkar International

E-Journal, 2(3), 60-77. [Link]

14. V. Soranganesh, N.N. Soris. (2013). A Fundamental Analysis of NBFC in India.

Outreach, VI, 119-125.

15. Srinivas Gumparthi SSn. (2010, June). Risk Assessment Model for Assessing NBFCs’

(Asset Financing) Customers. International Journal of Trade, Economics and Finance, 1(1),

121-130.
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[Link]

1. [Link]

AFS04.

2. [Link]

#pfc02

3. [Link]

4. [Link]

5. [Link]

6. [Link]

7. [Link]

8. [Link]

sVI/mmf04#mmf04

9. [Link]

10. [Link]

11. [Link]

12. [Link]

13. [Link]

[Link]/archive/v9i10/SR2010 [Link]&ved=2ahUKEwiRkNCbu-

PyAhUDdysKHTXaAF4QFnoECA0QAQ&usg=AOvVaw0urHne0jSV5MlW

Lma1DAu6

14. [Link]

[Link]/project%2520doc/201

15. 8/IJMIE_OCTOBER2018/[Link]&ved=2ahUKEwjK7866u-

PyAhVaKysKHa_LCDwQFnoECBQQAQ&usg=AOvVaw1ts5Nb-
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Chapter 13

Appendices (questionnaires asked )

Questionnaire on Organizational Growth (NBFCs & Financial Institutions) - Sample

Completed

Section A: Respondent Profile

1. Current Role/Designation:

[ ] Senior Management/Leadership

[X] Middle Management

[ ] Front-Line/Execution Role

[ ] Support/Enabling Function (e.g., HR, IT, Compliance)

[ ] Other: _________________________

2. Years of Experience in the Financial Sector:

[ ] Less than 1 year

[ ] 1–3 years

[X] 4–6 years

[ ] More than 6 years

3. Primary Area of Operation (Select all that apply):

[X] Lending/Credit (e.g., Retail, Corporate, MSME)

[ ] Operations/Back Office

[X] Risk Management/Compliance

[ ] Sales/Business Development

[ ] Technology/Digital

[ ] Other: _________________________

Section B: Perception of Company Strategy and Market Position

Scale: 1 (Strongly Disagree) to 5 (Strongly Agree)

Question 1 2 3 4 5
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4. I clearly understand the company's long-term growth strategy and vision. [ ] [ ] [ ] [X] [ ]

5. Our company's products/services are innovative compared to competitors. [ ] [ ] [X] [ ] [ ]

6. The company effectively targets and serves underserved customer segments (e.g., rural,
MSMEs), contributing to growth. [ ] [ ] [ ] [X] [ ]

7. I believe our current market position is strong and sustainable for future growth. [ ] [ ] [ ] [X]
[]

8. Senior leadership makes timely and effective decisions to capitalize on market

opportunities. [ ] [ ] [X] [ ] [

Section C: Operational Efficiency and Technology Adoption

Scale: 1 (Strongly Disagree) to 5 (Strongly Agree)

Question 1 2 3 4 5

9. The company has successfully digitized core processes (e.g., loan origination, customer

onboarding). [ ] [ ] [ ] [X] [ ]

10. Our current technology infrastructure adequately supports the company's growth

ambitions. [ ] [ ] [X] [ ] [ ]

11. Data and analytics are effectively used to assess credit risk and drive business

decisions. [ ] [ ] [ ] [X] [ ]

12. There is sufficient collaboration and communication between different departments to

achieve growth targets. [ ] [X] [ ] [ ] [ ]

13. Regulatory compliance requirements significantly hinder our ability to grow quickly. [ ] [ ] [

] [X] [ ]

Section D: Human Capital and Employee Contribution

Scale: 1 (Strongly Disagree) to 5 (Strongly Agree)

Question 1 2 3 4 5

14. My role has a direct and visible impact on the company's growth and success. [ ] [ ] [ ] [ ]

[X]

15. The company provides ample opportunities for professional growth and skill

development. [ ] [ ] [ ] [X] [ ]
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16. I feel the company is effective at retaining top talent, which is essential for growth. [ ] [ ]

[X] [ ] [ ]

17. Our company culture encourages innovation and calculated risk-taking to foster new

business lines. [ ] [X] [ ] [ ] [ ]

18. Employee attrition/turnover poses a significant challenge to our operational stability and

growth plans. [ ] [ ] [ ] [X] [ ]

Section E: Open-Ended Feedback on Growth

Please provide brief and specific answers.

19. In your opinion, what is the single biggest factor driving the growth of our company right

now?

The focus on digital loan origination (fintech model) allows for quicker customer acquisition

and scalable reach, especially in semi-urban and tier-2 markets, where traditional banks are

slower.

20. What is the one major obstacle or risk that you believe could limit our company's growth

in the next 1-3 years?

The biggest obstacle is rising cost of funds due to increased competition for

deposits/financing, which narrows our margins and forces us to take on higher-risk assets to

maintain targeted Return on Assets (ROA).

21. If you could implement one change to significantly accelerate our company's growth,

what would it be?

Integrate AI/ML models not just for credit scoring, but also for predictive collections and

risk-based pricing, allowing us to offer personalized loan products faster and minimize credit

losses.

22. How effectively does the company utilize employee feedback (like this survey) to inform

strategic decisions?

Feedback is often collected but rarely translated into tangible strategic changes. There is a

disconnect between recognizing operational pain points (e.g., archaic internal systems) and

allocating budget/resources to fix them effectively.

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Thank you