Non- Banking Financial Institutions (Part 2 of 2)

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Non- Banking Financial Institutions (Part 2 of 2)

Table V.19: Range of Deposits held by Non-Banking Financial Companies
						(Amount in Rs. crore)

Deposit range				As at end-March

			No. of NBFCs			Amount of deposits

		2003	2004	2005	2003	2004	2005
1		2	3	4	5	6	7

1.	Less than Rs.0.5 crore	491	428	287	65	53	37
					(1.3)	(1.2)	(1.0)
2.	More than Rs.0.5 crore and up to Rs.2 crore	233	210	168	225	206	164
					(4.5)	(4.8)	(4.5)
3.	More than Rs.2 crore and up to Rs.10 crore	90	82	70	360	352	320
					(7.1)	(8.2)	(8.8)
4.	More than Rs.10 crore and up to Rs.20 crore	21	18	16	284	242	250
					(5.6)	(5.6)	(6.9)
5.	More than Rs.20 crore and up to Rs.50 crore	12	17	14	364	569	507
					(7.2)	(13.2)	(13.9)
6.	Rs.50 crore and above	23	19	15	3,737	2,895	2,368
					(74.3)	(67.0)	(64.9)
Total		870	774	570	5,035	4,317	3,646
					(100.0)	(100.0)	(100.0)
Note: Figures in parentheses are percentages to total deposit.

‘more than Rs.20 crore and up to Rs.50 crore’, which increased sharply during 2003-04. Fifteen companies in the deposit size of ‘Rs.50 crore and above’ held 64.9 per cent of total public deposits held by all NBFCs at end-March 2005. Twenty nine NBFCs with deposit size of ‘Rs.20 crore and above’, held more than 78.8 per cent of total deposits, while remaining 541 companies held little more than 21.2 per cent of total public deposits (Table V.19).

Region-wise Composition of Deposits held by NBFCs

5.58 Deposits held by NBFCs across all the regions declined during 2003-04 and 2004-05. The Southern region accounted for the largest share of deposits (75.9 per cent) held by NBFCs at end March 2005, followed distantly by other regions This was on account of largest share of deposits (71.1 per cent) held by Chennai (Table V.20).

Table V.20: Public Deposits held by Registered and Unregistered NBFCs - Region-wise
					(Amount in Rs. crore)

Region	2002-03		2003-04		2004-05

	No. of NBFCs	Amount	No. of NBFCs	Amount	No. of NBFCs	Amount

1	2	3	4	5	6	7

Northern	271	543	248	442	195	351
		(10.8)		(10.2)		(9.6)
North-Eastern	1	2	1	1	–	–
		(0.0)		(0.0)
Eastern	18	212	17	204	13	158
		(4.2)		(4.7)		(4.3)
Central	82	112	75	101	66	92
		(2.2)		(2.3)		(2.5)
Western	63	687	41	365	27	280
		(13.6)		(8.5)		(7.7)
Southern	435	3,479	392	3,205	269	2,765
		(69.1)		(74.2)		(75.9)
Total	870	5,035	774	4,318	570	3,646
*Metropolitan cities:*
Mumbai	45	672	23	351	14	268
Chennai	318	3,162	304	2,879	217	2,591
Kolkata	15	203	14	187	11	158
New Delhi	108	443	98	345	71	266
Total	486	4,480	439	3,762	313	3,283
– : Nil/Negligible. Note: Figures in parentheses are percentages to total.

Interest Rate and Maturity Pattern of Public Deposits with NBFCs

5.59 Deposits contracted by NBFCs at interest rates up to 10 per cent increased sharply during the year ended March 2004 as well as March 2005, while deposits contracted at all other interest rates declined significantly. However, some portion of the deposits accepted by NBFCs was at interest rate of above 14 per cent or even 16 per cent. About 71 per cent of the deposits contracted at end-March 2005 were at interest rate up to 10 per cent (Table V.21).

5.60 In line with the general decline in the interest rate over the years, interest rates paid by NBFCs on deposits have also declined steadily over the years, which was reflected in the increase in the share of deposits contracted at interest rate of up to 10 per cent and decline in the share of deposits accepted at 12 to 14 per cent (Chart V.3).

The Maturity Pattern of Public Deposits

5.61 Deposits contracted by NBFCs in all maturity ranges declined significantly during 2003-04 and 2004-05. Deposits in the maturity range of ‘more than 2 and up to 3 years’ accounted for the largest share (35.5 per cent) at end-March 2005 (Table V.22).

5.62 The spread between the maximum interest rate on public sector bank deposits of ‘one to three

Table V.21: Distribution of Public Deposits of NBFCs According to Rate of Interest
	(Amount in Rs. crore)

Interest Range	As at end-March

	2003	2004	2005

1	2	3	4

Up to 10 per cent	1,174	1,896	2,604
	(23.3)	(43.9)	(71.4)
More than 10 per cent
and up to 12 per cent	2,101	1,586	726
	(41.7)	(36.7)	(19.9)
More than 12 per cent
and up to 14 per cent	1,137	505	164
	(22.6)	(11.7)	(4.5)
More than 14 per cent
and up to 16 per cent	475	254	109
	(9.4)	(5.9)	(3.0)
16 per cent and above	148	76	43
	(3.0)	(1.8)	(1.2)
Total	5,035	4,317	3,646
	(100.0)	(100.0)	(100.0)
Note: Figures in parentheses are percentages to total deposits.

year’ maturity and the interest rate offered by NBFCs on deposits with the same maturity narrowed down over the years (Table V.23).

Borrowings

5.63 The outstanding borrowings by NBFCs, which declined by 14.8 per cent during the year ended March 2004 on account of decline in the borrowings by equipment leasing companies and

Table V.22: Maturity Pattern of Public Deposits held by NBFCs
		(Amount in Rs. crore)

Maturity Period @	As at end-March

	2003	2004	2005

1	2	3	4

Less than 1 year	1,203	1,176	1,145
	(23.9)	(27.3)	(31.4)
More than 1 and up
to 2 years	1,241	1,046	862
	(24.6)	(24.2)	(23.6)
More than 2 and up
to 3 years	1,927	1,573	1,295
	(38.3)	(36.4)	(35.5)
More than 3 and up
to 5 years	619	492	330
	(12.3)	(11.4)	(9.0)
5 years and above	45	30	14
	(0.9)	(0.7)	(0.4)
Total	5,035	4,317	3,646
	(100.0)	(100.0)	(100.0)
@ :On the basis of residual maturity of outstanding deposits. Note: Figures in parentheses are percentages to total deposits.

Table V.23: Maximum/Ceiling Interest Rates on Banks and NBFC Deposits
							(Per cent)

Interest Rate				As at end-March

		2000	2001	2002	2003	2004	2005

1		2	3	4	5	6	7

1.	Maximum interest rate on public sector bank deposits
	of 1-3 year maturity	10.5	9.5	8.5	6.75	6.75	7.00
2.	Ceiling interest rate for NBFCs	16.0	14.0	12.5	11.0	11.0	11.0
3.	Spread (2-1)	5.5	4.5	4.0	4.25	4.25	4.00

hire purchase companies, increased marginally during the year ended March 2005. Hire purchase companies continued to account for the largest share (59.6 per cent) of total borrowings by all NBFCs (Table V.24).

5.64 Borrowings by NBFCs from banks and FIs and external sources declined, while those by way of debentures increased during 2003-04 and 2004-05. Borrowings from the Government, which had increased marginally during the year ended March 2004, declined sharply in the following year. Borrowings from the Government relate mostly to one State-owned NBFC operating in the Southern region. Hire purchase companies have been the most active in raising resources from banks/FIs and the debt market. Borrowings from banks and financial institutions by equipment leasing and hire purchase companies, which declined sharply during 2003-04, increased marginally in 2004-05. On the other

hand, borrowings by loan companies from banks and FIs after increasing sharply in 2003-04, declined in 2004-05 (Table V.25). Debentures emerged as the most important source of funds for NBFCs during the year ended March 2005, relegating the borrowings from banks and FIs to the second position. Between end-March 2003 and end-March 2005, while the share of borrowings by way of debentures increased from 21.9 per cent to 30.6 per cent, that of borrowings from banks and FIs declined from 36.6 per cent to 27.1 per cent.

Assets of NBFCs

5.65 Advances constitute the main assets of NBFCs. Reflecting the decline in deposits and borrowings, advances extended by all NBFCs declined during the year, barring those by loan companies during the year ended March 2004. While advances by equipment leasing companies and hire

Table V.24: Borrowings by NBFCs –Group-wise
							(Amount in Rs. crore)

NBFC Group			As at end-March				Percentage
							Variation
		No. of NBFCs			Total Borrowings

	2003	2004	2005	2003	2004	2005	2003-04	2004-05

1	2	3	4	5	6	7	8	9

Equipment Leasing	58	46	38	6,472	2,811	3,112	-56.6	10.7
				(26.4)	(13.5)	(14.2)
Hire Purchase	439	396	316	13,650	12,141	13,008	-11.1	7.1
				(55.8)	(58.2)	(59.6)
Investment	19	11	5	1,613	1,718	1,092	6.5	-36.4
				(6.6)	(8.2)	(5.0)
Loan	122	87	54	2,600	3,775	3,679	45.2	-2.5
				(10.6)	(18.1)	(16.8)
Others	232	234	157	145	407	950	180.7	133.4
				(0.6)	(2.0)	(4.4)
Total	870	774	570	24,480	20,852	21,841	-14.8	4.7
				(100.0)	(100.0)	(100.0)
Note: Figures in parentheses are percentages to total borrowings.

Table V.25: Sources of Borrowings of NBFCs
														(Amount in Rs. crore)

NBFC Group							As at end-March
	Government				External		Banks and				Debentures				Others
							Financial Institutions

	2003	2004	2005	2003	2004	2005	2003	2004	2005	2003		2004	2005	2003	2004	2005

1	2	3	4	5	6	7	8	9	10	11		12	13	14	15	16

Equipment Leasing	61	21	–	571	291	190	3,080	1,141	1,252	1,639		893	1219	1,121	465	452
		(-65.6)	(-100.0)		(-49.0)	(-34.7)		(-63.0)	(9.7)			(-45.5)	(36.5)		(-58.5)	(-2.8)
Hire Purchase	85	91	–	124	332	327	5,613	4,114	4,223	2,721		3,919	4,425	5,107	3,684	4,033
		(7.1)	(-100.0)		(167.7)	(-1.5)		(-26.7)	(2.6)			(44.0)	(12.9)		(-27.9)	(9.5)
Investment	1,423	1,467	885	–	–	–	14	14	10		–	42	12	176	196	185
		(3.1)	(-39.7)						(-28.6)			(-)	(-71.4)		(11.4)	(-5.6)
Loan	–	–	86	–	–	–	245	1,132	413	992		1,065	1,037	1,363	1,579	2,142
								(362.0)	(-63.5)			(7.4)	(-2.6)		(15.8)	(35.7)
Others	–	–	–	–	–	–	7	13	31		–	–	–	138	394	920
								(85.7)	(138.5)						(185.5)	(133.5)
Total	1,570	1,579	971	695	623	517	8,959	6,413	5,929	5,352		5,919	6,693	7,905	6,318	7,732
		(0.6)	(-38.5)		(-10.2)	(-17.0)		(-28.4)	(-7.5)			(10.6)	(13.1)		(-20.1)	(22.4)
– : Nil/Negligible. Note: Figures in parentheses are percentage change over the previous year.

purchase companies increased during the year ended March 2005, those by investment and loan companies declined. Investment by NBFCs also declined during the years ended March 2004 and March 2005, reflecting mainly the impact of decline in investment by two major groups, i.e., equipment leasing and hire purchase companies (Table V.26).

Distribution of NBFCs According to Asset Size

5.66 The asset size of NBFCs varies significantly from less than Rs.25 lakh to above

Rs.500 crore. Most of the companies were in the asset range of more than Rs.50 lakh and up to Rs.10 crore. However, bulk of the assets were held by NBFCs in the large asset size. Sixteen companies with asset size of above Rs.500 crore held 79.4 per cent of total assets of all NBFCs as at end-March 2005 (Table V.27).

Distribution of Assets of NBFCs – Type of Activity

5.67 Assets held by NBFCs in loans and inter-corporate deposits, investments, and equipment and

Table V.26: Major Components of Assets of NBFCs – Group-wise
								(Amount in Rs. crore)

NBFC Group					As at end-March
		Assets			Advances			Investment

	2003	2004	2005	2003	2004	2005	2003	2004	2005

1	2	3	4	5	6	7	8	9	10

Equipment Leasing	7,996	3,744	4,721	7,087	3,020	3,875	1,028	348	331
	(21.2)	(11.4)	(13.9)	(22.8)	(11.3)	(13.9)	(23.7)	(9.1)	(9.4)
Hire Purchase	22,163	19,929	20,039	18,849	17,114	18,312	1,909	1,805	1,202
	(58.8)	(60.8)	(59.2)	(60.7)	(64.1)	(65.8)	(44.0)	(47.3)	(34.3)
Investment	2,208	2,422	1,890	1,520	1,617	1,061	629	750	788
	(5.9)	(7.4)	(5.6)	(4.9)	(6.1)	(3.8)	(14.5)	(19.6)	(22.5)
Loan	4,109	5,485	5,319	2,763	4,208	3,456	527	604	657
	(10.9)	(16.7)	(15.7)	(8.9)	(15.8)	(12.4)	(12.1)	(15.8)	(18.7)
Others	1,233	1,173	1,874	818	745	1,129	245	311	530
	(3.3)	(3.6)	(5.5)	(2.6)	(2.8)	(4.1)	(5.6)	(8.1)	(15.1)
Total	37,709	32,753	33,843	31,037	26,704	27,833	4,338	3,818	3,508
	(100.0)	(100.0)	(100.0)	(100.0)	(100.0)	(100.0)	(100.0)	(100.0)	(100.0)
Note: Figures in parentheses represent percentage share in total.

Table V.27: Non-Banking Financial Companies According to Asset Size
						(Amount in Rs. crore)

Asset size				As at end-March

		2003	2004	2005	2003	2004	2005

		No. of reporting companies				Assets

1		2	3	4	5	6	7

1.	Less than 0.25	62	59	34	6	6	4
					(0.0)	(0.0)	(0.0)
2.	More than 0.25 and up to 0.50	77	73	41	28	27	15
					(0.1)	(0.1)	(0.1)
3.	More than 0.50 and 2	354	317	209	388	352	232
					(1.0)	(1.0)	(0.7)
4.	More than 2 and up to 10	245	209	164	1,131	964	724
					(3.0)	(2.9)	(2.1)
5.	More than 10 and up to 50	68	69	71	1,399	1,593	1,765
					(3.7)	(4.9)	(5.2)
6.	More than 50 and up to 100	19	13	18	1,315	850	1,216
					(3.5)	(2.6)	(3.6)
7.	More than 100 and up to 500	28	17	17	6,492	3,819	3,007
					(17.2)	(11.7)	(8.9)
8.	Above 500	17	17	16	26,950	25,143	26,880
					(71.5)	(76.8)	(79.4)
Total		870	774	570	37,709	32,754	33,843
					(100.0)	(100.0)	(100.0)
Note: Figures in parentheses are percentages to total.

leasing declined during 2003-04 and 2004-05. However, assets in hire purchase, which declined during 2003-04, increased sharply in the following year. As a result, assets held in hire purchase

activity accounted for the largest share (42.0 per cent) of total assets of NBFCs, followed by loans, including inter-corporate deposits (33.4 per cent) (Table V.28).

Table V.28: Distribution of Assets of NBFCs - Activity-wise
(Amount in Rs. crore)

Activity		As at end-March			Percentage Variation

		2003	2004	2005	2002-03	2003-04	2004-05

1		2	3	4	5	6	7

1.	Loans and Inter-corporate deposits	13,398	12,363	11,301	-2.3	-7.7	-8.6
		(35.4)	(37.7)	(33.4)
2.	Investments	4,338	3,818	3,508	0.1	-12.0	-8.1
		(11.5)	(11.7)	(10.4)
3.	Hire Purchase	13,031	11,649	14,200	-1.3	-10.6	21.9
		(34.5)	(35.6)	(42.0)
4.	Equipment and Leasing	2,011	1,115	778	-35.4	-44.6	-30.2
		(5.3)	(3.4)	(2.3)
5.	Bills	450	436	464	-33.1	-3.2	6.4
		(1.2)	(1.3)	(1.4)
6.	Other assets	4,581	3,375	3,592	-4.6	-26.3	6.4
		(12.1)	(10.3)	(10.6)
Total		37,809	32,756	33,843	-5.3	-13.4	3.3
		(100.0)	(100.0)	(100.0)
Note: Figures in parentheses are percentages to total.

Financial Performance of NBFCs

5.68 Financial performance of NBFCs improved during 2003-04 and 2004-05 due mainly to containment of expenditure. Both fund-based and fee-based income of NBFCs declined during the year ended March 2004. During 2004-05, fund-based income and fee-based income improved marginally. Financial and operating expenditure declined during 2003-04 and 2004-05, resulting in improvement in the operating profit and net profit. Increase in net profit for the year ended March 2004, to an extent, was also due to decline in tax provisions. Improvement in net profit combined with decline in total assets led to an improvement in the net profit to asset ratio in 2003-04 and further in 2004-05 (Table V.29 and Chart V.4).

Interest Cost to Total Income

5.69 Interest cost as per cent to total income which increased marginally during 2003-04, declined sharply in the following year. Non-interest costs relative to total income declined in both the years. As a result, cost to income ratio declined

significantly from 88.3 per cent in 2002-03 to 83.8 per cent in 2003-04 and further to 78.8 per cent during 2004-05 (Table V.30).

Table V.29: Financial Performance of NBFCs
							(Amount in Rs. crore)

	Item						Percentage Variation

			2002-03	2003-04	2004-05	2002-03	2003-04	2004-05

1			2	3	4	5	6	7

A.	Income (i+ii)		5,084	4,332	4,435	-5.1	-14.8	2.4
			(100.0)	(100.0)	(100.0)
	(i)	Fund-based	4,709	4,005	4,062	-5.9	-15.0	1.4
			(92.6)	(92.5)	(91.6)
	(ii)	Fee-based	375	327	373	6.5	-12.8	14.1
			(7.4)	(7.5)	(8.4)
B.	Expenditure (i+ii)		4,491	3,621	3,495	-15.6	-19.4	-3.5
			(100.0)	(100.0)	(100.0)
	(i)	Financial	2,757	2,099	2,054	-16.4	-23.9	-2.1
			(61.4)	(58.0)	(58.8)
	(ii)	Operating	1,734	1,522	1,441	-14.3	-12.2	-5.3
			(38.6)	(42.0)	(41.2)
C.	Tax	Provisions	254	180	349	2.4	-29.1	93.9
D.	Operating Profit (PBT)		593	711	940	1,547.2	19.9	32.2
E.	Net Profit (PAT)		339	531	591	-259.9	56.6	11.3
F.	Total Assets		37,709	32,754	33,843	-5.3	-13.1	3.3
G.	Financial Ratios*
	(i)	Income	13.5	13.2	13.1
	(ii)	Fund Income	12.5	12.2	12.0
	(iii)	Fee Income	1.0	1.0	1.1
	(iv)	Expenditure	11.9	11.0	10.3
	(v)	Financial Expenditure	7.3	6.4	6.1
	(vi)	Operating Expenditure	2.9	3.1	4.2
	(vii)	Tax Provisions	0.7	0.5	1.0
	(viii)	Net Profit	0.9	1.6	1.7
* : As percentage to total assets. Note: Figures in parentheses are percentages share to the respective total.

Table V.30: Interest Cost to Total Income
(Amount in Rs. crore)

Year	Total	Total	Interest	Non-Interest
	Income	Cost	Cost	Cost

1	2	3	4	5

2002-03	5,084	4,491	974	3,517
		(88.3 )	(19.2)	(69.2)
2003-04	4,322	3,621	888	2,733
		(83.8)	(20.5)	(63.2)
2004-05	4,435	3,495	760	2,735
		(78.8)	(17.1)	(61.7)
Note: Figures in parentheses indicate percentage to total income.

Soundness Indicators
Asset Quality of NBFCs

5.70 Gross and net non-performing assets of the reporting NBFCs, as a group, registered a steady decline between end-March 2001 and end-March 2004. While gross NPAs continued to decline during the year ended March 2005, net NPAs increased significantly (Table V.31).

Table V.31: Non-Performing Assets of NBFCs*
(per cent of credit exposure)

End-March	Gross NPAs	Net NPAs
1	2	3
2001	11.5	5.6
2002	10.6	3.9
2003	8.8	2.7
2004	8.2	2.4
2005	7.0	3.4

* : Excluding MBFCs, MBCs and MNBCs.

5.71 Asset quality of different NBFC groups showed a divergent trend. Gross NPAs as a percentage to total assets of equipment leasing companies, hire purchase companies and investment companies increased during 2003-04, but declined during 2004-05. Gross NPAs of loan companies, however, declined in both the years. More or less the same trend was discernable in respect of net NPAs. Investment companies had the lowest gross NPA ratio at end-March 2005 (1.8 per cent), followed by loan companies (3.7 per cent), hire purchase companies (4.6 per cent) and equipment leasing companies (12.3 per cent) (Table V.32).

Table V.32: NPAs of NBFCs - Group-wise
(Amount in Rs. crore)

NBFC Group/	Gross		Gross NPAs		Net		Net NPAs
End-March	Advances				Advances
		Amount	Per cent to	Per cent to		Amount	Per cent to	Per cent to
			Gross Advances	Assets			Net Advances	Assets
1	2	3	4	5	6	7	8	9

Equipment Leasing
2001	4,118	304	7.4	6.1	3,826	12	0.3	0.2
2002	1,625	646	39.7	28.0	1,330	351	26.3	15.2
2003	5,969	932	15.6	11.1	5,506	469	8.5	5.6
2004	3,306	582	17.6	13.3	3,067	344	11.2	7.8
2005	5,611	718	12.8	12.3	5,310	418	7.9	7.1
Hire Purchase
2001	8,296	1,324	16.0	12.3	7,604	631	8.3	5.9
2002	6,825	1,167	17.1	14.8	6,068	410	6.8	5.2
2003	16,489	1,288	7.8	6.8	15,305	104	0.7	0.5
2004	10,437	942	9.0	7.3	9,748	253	2.6	2.0
2005	12,812	619	4.8	4.6	12,498	306	2.4	2.3
Investment
2001	232	53	22.9	5.1	223	45	20.0	4.3
2002	149	2	1.6	0.1	147	1	0.4	0.0
2003	93	11	11.9	2.1	90	8	8.9	1.5
2004	63	15	24.2	2.6	55	7	12.7	1.2
2005	58	10	17.2	1.8	58	10	17.2	1.8
Loan
2001	7,414	595	8.0	5.9	7,118	299	4.2	3.0
2002	3,986	549	13.8	10.1	3,615	177	4.9	3.3
2003	2,707	144	5.3	4.8	2,503	–	–	–
2004	2,038	142	7.0	4.1	1,833	–	–	–
2005	1,906	83	4.4	3.7	1,780	–	–	–
Others
2001	1,394	493	35.4	24.2	1,308	407	31.1	20.0
2002	175	9	5.1	3.0	165	–	–	–
2003	294	2	0.6	0.5	294	1	0.5	0.4
2004	–	–	–	–	–	–	–	–
2005	–	–	–	–	–	–	–	–
– : Nil/Negligible.

Table V.33: Classification of Assets of NBFCs – Group-wise
(Amount in Rs. crore)

Item/End of the Period	Standard		Sub-Standard		Doubtful		Loss		Gross		Total
	Asset		Asset		Asset		Asset		NPAs		Assets

	Amount	per cent	Amount	per cent	Amount	per cent	Amount	per cent	Amount	per cent

1	2	3	4	5	6	7	8	9	10	11	12

Equipment Leasing
Mar-03	5,037	84.4	520	8.7	205	3.4	207	3.5	932	15.6	5,969
Sep-03	2,986	77.9	502	13.1	194	5.1	154	4.0	850	22.1	3,836
Mar-04	2,724	82.4	396	12.0	84	2.5	102	3.1	582	17.6	3,306
Sep-04	3,389	87.2	365	9.4	19	0.5	114	2.9	498	12.8	3,887
Mar-05	4,893	87.2	393	7.0	98	1.7	227	4.1	718	12.8	5,611

Hire Purchase
Mar-03	15,201	92.2	746	4.5	273	1.7	269	1.6	1,288	7.8	16,489
Sep-03	15,621	92.4	758	4.5	245	1.5	283	1.7	1,286	7.6	16,907
Mar-04	9,495	91.0	613	5.9	103	1.0	226	2.2	942	9.0	10,437
Sep-04	11,420	91.5	730	5.9	118	0.9	213	1.7	1,061	8.5	12,481
Mar-05	12,193	95.2	401	3.1	128	1.0	90	0.7	619	4.8	12,812

Investment
Mar-03	82	88.1	9	9.3	2	2.4	–	0.2	11	11.9	93
Sep-03	43	80.6	9	16.9	1	2.4	–	0.1	10	19.4	54
Mar-04	48	75.8	–	–	10	15.3	6	8.9	15	24.2	63
Sep-04	71	86.4	1	1.4	10	12.1	–	–	11	13.6	82
Mar-05	48	82.0	1	1.1	10	16.7	–	0.2	10	18.0	58

Loan
Mar-03	2,563	94.7	37	1.3	20	0.7	88	3.2	145	5.3	2,708
Sep-03	5,693	95.8	81	1.4	59	1.0	112	1.9	252	4.2	5,945
Mar-04	1,896	93.0	40	2.0	20	1.0	82	4.0	142	7.0	2,038
Sep-04	1,697	93.9	28	1.6	9	0.5	73	4.0	110	6.1	1,807
Mar-05	1,823	95.6	14	0.7	41	2.1	28	1.5	83	4.4	1,906

Others
Mar-03	293	99.4	1	0.4	1	0.2	–	–	2	0.6	295
Sep-03	1	55.0	–	25.9	–	19.0	–	–	1	45.0	2
Mar-04	–	–	–	–	–	–	–	–	–	–	–
Sep-04	–	–	–	–	–	–	–	–	–	–	–
Mar-05	–	–	–	–	–	–	–	–	–	–	–

– : Nil/Negligible.

5.72 Composition of NPAs of NBFC groups also showed divergent trends during 2003-04 and 2004-05. Composition of NPAs of equipment leasing companies, after showing improvement during the year ended March 2004, deteriorated in the following year. Composition of NPAs of hire purchase companies, investment companies and loan companies deteriorated during 2003-04, but improved in the following year (Table V.33).

Capital Adequacy Ratio

5.73 Capital to risk-weighted assets ratio (CRAR) norms were made applicable to NBFCs in 1998, in terms of which every deposit-taking NBFC is required to maintain a minimum capital

consisting of Tier-I and Tier-II capital of not less than 12 per cent (15 per cent in the case of unrated deposit-taking loan/investment companies) of its aggregate risk-weighted assets and of risk-adjusted value of off-balance sheet items. Total of Tier-II capital, at any point of time, is required not to exceed 100 per cent of Tier-I capital. The number of NBFCs with CRAR less than 12 per cent, which constituted 6.4 per cent of all NBFCs at end-March 2003, declined to 5.2 per cent at end-March 2004, but increased to 19.8 per cent at end-March 2005. On the other hand, number of NBFCs with more than 20 per cent CRAR increased from 85.3 per cent at end-March 2003 to 89.7 per cent at end-March 2004, but declined sharply to 73.5 per cent at end-March 2005 (Table V.34).

Table V.34: Capital Adequacy Ratio of NBFCs *

Range					As at end-March

		2003				2004				2005
	EL	HP	LC/IC	Total	EL	HP	LC/IC	Total	EL	HP	LC/IC	Total

1	2	3	4	5	6	7	8	9	10	11	12	13
Less than 12 per cent	10	17	15	42	5	12	8	25	4	55	5	64
More than 12 and up to 15 per cent	1	8	1	10	1	4	1	6	–	–	1	1
More than 15 and up to 20 per cent	4	32	9	45	2	15	2	19	2	15	4	21
More than 20 and up to 30 per cent	9	54	11	74	6	38	7	51	5	26	1	32
Above 30 per cent	32	334	121	487	28	300	55	383	25	153	28	206
Total	56	445	157	658	42	369	73	484	36	249	39	324

– : Nil/Negligible. * : Excluding MBFCs, MBCs and MNBCs. Note : 1. EL - Equipment Leasing. 2. HP - Hire Purchase. 3. LC/IC - Loan Companies /Investment Companies.

Net Owned Fund vis-à-vis Public Deposits of NBFCs

5.74 Net owned fund (NOF) of NBFCs is the aggregate of paid-up capital and free reserves, netted by (i) the amount of accumulated balance of loss, (ii) deferred revenue expenditure and other intangible assets, if any, and adjusted by investments in shares and loans and advances to (a) subsidiaries, (b) companies in the same group and (c) other NBFCs (in excess of 10 per cent of owned fund). Information of NOFs can complement the information on CRAR. The ratio of public deposits to NOF in respect of almost all NBFC groups except loan companies, after increasing marginally during the year ended March 2004, declined during the year ended March 2005 (Table V.35).

5.75 Net owned funds of NBFCs range from less than Rs.25 lakh to over Rs.500 crore. The

number of companies in nearly all NOF ranges declined during 2003-04 and 2004-05. NOF of NBFCs, which declined marginally during 2003-04, increased during 2004-05. NBFCs in the NOF range of ‘up to Rs.25 lakh’ continued to have negative NOF. One NBFC had NOF above Rs.500 crore at end-March 2005 as against two at end-March 2004. The ratio of public deposits to NOF maintained by NBFCs declined from 1.2 at end-March 2003 to 1.1 at end-March 2004 and further to 0.8 per cent at end-March 2005. NBFCs in the NOF range of Rs.100 crore to Rs.500 crore held the largest share (29.3 per cent) of public deposits (Table V.36).

Residuary Non-Banking Companies (RNBCs)

5.76 Three RNBCs were operating in the country at end-March 2004 and end-March 2005 as against five at end-March 2003. Assets of RNBCs

*Table V.35: Net Owned Fund vis-à-vis* Public deposits of NBFCs* – Group-wise**
(Amount in Rs. crore)

NBFC Group		Net Owned			Public Deposits			Public Deposits to
		Fund						Net Owned Fund

	2003	2004	2005	2003	2004	2005	2003	2004	2005

1	2	3	4	5	6	7	8	9	10

Equipment Leasing	154	96	427	511	344	343	3.3	3.6	0.8
Hire Purchase	2,979	2,235	2,597	3,539	2,963	2,315	1.2	1.3	0.9
Investment	553	607	662	125	106	93	0.2	0.2	0.1
Loan	367	893	428	177	178	157	0.5	0.2	0.4
Others	88	265	331	683	727	738	7.8	2.7	2.2
Total	4,141	4,096	4,445	5,035	4,317	3,646	1.2	1.1	0.8

* : Including MBFCs, MBCs and MNBCs.

Table V.36: Range of Net Owned Funds vis-à-vis Public Deposits of NBFCs*
(Amount in Rs. crore)

	Range of						As at end-March
	NOF
			2003				2004				2005

		No. of	Net	Public	Public	No. of	Net	Public	Public	No. of	Net	Public	Public
		reporting	Owned	Deposits	Deposits	reporting	Owned	Deposits	Deposits	reporting	Owned	Deposits	Deposits
		companies	Funds		as	companies	Funds		as	companies	Funds		as
					multiple				multiple				multiple
					of NOFs				of NOFs				of NOFs
1		2	3	4	5	6	7	8	9	10	11	12	13
1.	Up to 0.25	208	-1,356	843	–	175	-881	667	–	93	-591	456	–
2.	More than 0.25
	and up to 2	497	309	369	1.2	451	289	430	1.5	332	228	372	1.6
3.	More than 2
	and up to 10	110	461	467	1	92	394	384	1	97	428	392	0.9
4.	More than 10
	and up to 50	30	677	447	0.7	35	683	577	0.8	29	661	470	0.7
5.	More than 50
	and up to 100	10	639	255	0.4	7	478	204	0.4	6	456	158	0.3
6.	More than 100
	and up to 500	15	3,411	2,654	0.8	12	2,039	1,342	0.7	12	2,595	1,067	0.4
7.	Above 500	–	–	–	–	2	1,094	713	0.7	1	669	731	1.1
	Total	870	4,141	5,035	1.2	774	4,096	4,317	1.1	570	4,446	3,646	0.8
– : Nil/Negligible. * :Including MBFCs, MBCs and MNBCs

declined by 3.5 per cent during the year ended March 2004 and 6.4 per cent during the year ended March 2005. Fixed deposits with banks, bonds/debentures and other fixed income investments, however, increased sharply during 2004-05. Net owned funds of RNBCs increased during 2003-04 and 2004-05.

5.77 Financial performance of RNBCs was lacklustre during 2003-04 and 2004-05. Despite increase in income, their operating profit and net profit declined during 2003-04 due mainly to increase in expenditure. A sharp decline in income of RNBCs during 2004-05 resulted in a further decline in their net profit (Table V.37).

Table V.37: Profile of Residuary Non-Banking Companies (RNBCs)
(Amount in Rs. crore)

Item			As at end-March			Percentage Variation

			2003	2004	2005	2003-04	2004-05
1			2	3	4	5	6
A.	Assets (i to v)		21,104	20,362	19,057	-3.5	-6.4
	(i)	Unencumbered approved securities	6,129	5,824	2,037	-5.0	-65.0
	(ii)	Fixed deposits with banks	1,470	2,033	4,859	38.3	139.0
	(iii)	Bonds or debentures or commercial papers of Govt. companies/	6,553	6,048	9,225	-7.7	52.5
		public sector banks/ public financial institutions/ corporations
	(iv)	Other investments	912	2,059	1,639	125.8	-20.4
	(v)	Other Assets	6,040	4,398	1,297	-27.2	-70.5
B.	Net Owned Funds		809	1,002	1,065	23.9	6.3
C.	Total Income (i+ii)		1,801	2,055	1,532	14.1	-25.5
	(i)	Fund Income	1,801	2,055	1,530	14.1	-25.5
	(ii)	Fee Income	–	–	2	–	–
D.	Total Expenses (i+ii+iii)		1,435	1,813	1,396	26.3	-23.0
	(i)	Financial Cost	1,212	1,368	1,196	12.9	-12.6
	(ii)	Operating Cost	105	129	146	22.9	13.2
	(iii)	Other cost	118	316	74	167.8	-76.6
E.	Taxation		134	32	48	-76.1	50.0
F.	Operating Profit (PBT)		366	242	136	-33.9	-43.8
G.	Net profit (PAT)		232	210	88	-9.5	-58.1
– : Nil/Negligible. * : Comprising only fund-based income. Note :1. PBT - Profit before tax 2. PAT - Profit after tax

Regional Pattern of Deposits of RNBCs

5.78 Of the three RNBCs, two are based in the Eastern region and one in the Central region. While deposits held by RNBCs in the Eastern region declined during the year ended March 2004 and March 2005, those held by RNBCs in the Central region increased in both the years. The RNBCs together held a sizeable portion (82.0 per cent) of total deposits held by all NBFCs at end-March 2005 (Table V.38).

Investment Pattern of RNBCs

5.79 Directions for investments by RNBCs were rationalised in June 2004 with a view to reducing the overall systemic risk in the financial sector and safeguarding the interests of depositors. In this regard, the following road map was prescribed: (a) from the quarter ended June 2005 and onwards, RNBCs were permitted to invest only to the extent of 10 per cent of the aggregated liabilities to the depositors (ALDs) at the second preceding quarter or one time of their net owned fund, whichever is lower, in the manner which in the opinion of the company is safe as per the

approval of its Board of Directors; (b) from the quarter ended June 2006 and onwards, this limit would stand abolished and RNBCs would not be permitted to invest any amount out of the ALDs at the second preceding quarter as per their discretion. Thus, from the quarter ended June 2006 and onwards, RNBCs would be required to invest the entire amount of ALDs at the second preceding quarter in the directed investments.

5.80 Further, the requirement of AA+ rating and listing on the stock exchanges was introduced for bonds/debentures which qualify towards directed investments. These measures are expected to impart greater liquidity and safety to the investments of RNBCs and thus enhance protection available to depositors.

5.81 Aggregated liabilities to depositors (ALDs) increased during the year ended March 2004 and March 2005. Investments in unencumbered approved securities declined sharply, while fixed deposits with banks as also investments in bonds/ debentures increased. As a result, unencumbered approved securities as a percentage of ALDs declined significantly at end-March 2005 from end-March 2003 (Table V.39).

Table V.38: Public Deposits held by Registered and Unregistered RNBCs - Region-wise
					(Amount in Rs. crore)

Region	2003		2004			2005
	No.	Amount	No.	Amount	No.	Amount

1	2	3	4	5	4	5
Northern	–	–	–	–	–	–

North-Eastern	–	–	–	–	–	–

Eastern	3	7,422	2	6,523	2	5,070
		(49.3)		(42.6)		(30.5)
Central	1	7,640	1	8,804	1	11,530
		(50.7)		(57.4)		(69.5)
Western	–	–	–	–	–	–

Southern	1	3	–	–	–	–
		(0.0)

Total	5	15,065	3	15,327	3	16,600
Metropolitan cities
Mumbai	–	–	–	–	–	–
Chennai	–	–	–	–	–	–
Kolkata	3	7,422	2	6,523	2	5,070
New Delhi	–	–	–	–	–	–

Total	3	7,422	2	6,523	2	5,070
– Nil/Negligible. Note : Figures are as at end-March.

Table V.39: Investment Pattern of Residuary Non-Banking Companies
(Amount in Rs. crore)

Item			End-March			Per cent to ALDs

		2003	2004	2005	2003	2004	2005

1		2	3	4	5	6	7

Aggregated Liabilities to the Depositors (ALDs):		15,065	15,327	16,600	100	100	100
a)	Unencumbered approved securities	6,129	3,702	2,036	40.7	24.2	12.3
b)	Fixed deposits with banks	1,470	2,431	4,859	9.8	15.9	29.3
c)	Bonds or debentures or commercial papers of
	Government companies/ public sector banks/ public
	financial institutions/ corporations	6,553	8,319	9,225	43.5	54.3	55.6
d)	Other investments	913	2,059	1,639	6.1	13.4	9.9

NBFCs not Accepting Public Deposits and With Assets Size of Rs.500 crore and Above

5.82 In terms of Section 45IA of the RBI Act, 1934 as amended on January 8, 1997, the companies carrying on NBFI activities are required to obtain a Certificate of Registration (CoR) from the Reserve Bank. Further, companies accepting public deposits are required to submit regulatory returns such as Annual Return on public deposits (NBS-1), Half-yearly Return on Prudential Norms (NBS-2) and Quarterly Return on Statutory Liquidity Ratio (NBS-3) as per the NBFC Directions issued on January 31, 1998.

5.83 The Reserve Bank issued CoR to 13,261 NBFCs as on June 30, 2005, out of which only 507 NBFCs are accepting public deposits and submitting the regulatory returns prescribed under the Directions. In order to assess the operations of large non-deposit taking companies, a quarterly return was introduced with effect from September 2004.

To begin with, NBFCs with asset size of Rs.500 crore and above were advised to submit quarterly return covering information on their sources and applications of funds as also on their exposures to the capital market, NPAs and profitability.

5.84 Information based on the returns received from nearly 50 NBFCs with asset size of Rs.500 crore and above for the quarters ended March and June 2005 suggests a marginal increase in their assets/liabilities. Unsecured loans constituted the single largest source of funds for NBFCs, followed by secured loans (Table V.40).

Borrowings

5.85 Borrowings constitute the single most important source of funds (74.2 per cent) for large sized NBFCs. Total borrowing (secured and unsecured) by NBFCs for the quarter ended March and June 2005 were placed at Rs.1,26,823 crore

Table V.40: Liabilities of Large Sized NBFCs*
(Amount in Rs. crore)

Item			Quarter Ended

		March 2005		June 2005

		Amount	Per cent to	Amount	Per cent to
			total Assets		total Assets

1		2	3	4	5

Total Liabilities		1,70,957	100.0	1,79,311	100.0
of which :
a)	Paid up Capital	11,233	6.6	11,294	6.3
b)	Preference Shares	689	0.4	689	0.4
c)	Reserve & Surplus	22,827	13.4	22,976	12.8
d)	Secured Loans	52,774	30.9	56,233	31.4
e)	Unsecured Loans	74,049	43.3	76,758	42.8

* : NBFCs not accepting public deposits with asset size of Rs.500 crore and above.

Table V.41: Borrowings by Large Sized NBFCs*
(Amount in Rs. crore)

Item					Quarter Ended
				March 2005			June 2005
				Amount	Per cent to	Amount	Per cent to
					total Borrowings		total Borrowings

1				2	3	4	5
A)	Secured Borrowings (i to vi)			52,774	41.6	56,233	42.3
	i)	Debentures		30,777	24.3	31,914	24.0
	ii)	Deferred Credit		–	–	–	–
	iii)	Term Loans from Banks		11,043	8.7	11,893	8.9
	iv)	Term Loans from FIs		4,411	3.5	6,574	4.9
	v)	Others		5,433	4.3	5,169	3.9
	vi)	Interest accrued		1,110	0.8	683	0.6
B)	Unsecured Borrowings (i to viii)			74,049	58.4	76,758	57.7
	i)	Loans from	Relatives	1,310	1.0	1,221	0.9
	ii)	ICDs		7,993	6.3	7,866	5.9
	iii)	Loans from Banks		19,717	15.5	21,661	16.3
	iv)	Loans from FIs		2,326	1.8	2,723	2.0
	v)	Commercial Papers		12,487	9.8	13,382	10.1
	vi)	Debentures		13,769	10.9	14,256	10.7
	vii)	Others		15,419	12.3	14,512	10.9
	viii)	Loans Interest accrued		1,028	0.8	1,137	0.9
Total Borrowings				1,26,823	100.0	1,32,991	100.0

– : Nil/Negligible. * : NBFCs not accepting public deposits with asset size of Rs.500 crore and above.

and Rs.1,32,991 crore, respectively. Secured borrowings by way of debentures and term loans from banks/FIs increased significantly during the quarter ended June 2005. Unsecured borrowings in the form of loans from banks, debentures and commercial papers also increased during the quarter. Increased borrowings enabled large NBFCs to expand their operations on the asset side (Table V.41).

Application of Funds

5.86 Loans (both secured and unsecured) by NBFCs, which is the single largest item on the asset side, increased by 4.6 per cent during the quarter ended June 2005. A sharp increase (23.7 per cent) was also noticed in their current investment. Long-term investments and hire purchase financing declined marginally. Capital market exposure of large NBFCs also declined marginally (Table V.42).

Table V.42: Select Indicators on Application of Funds by Large Sized NBFCs*
(Amount in Rs. crore)

Item				Quarter Ended

			March 2005			June 2005
		Amount	Per cent to	total	Amount	Per cent to total
			application of funds			application of funds
1		2		3	4	5
1.	Secured Loan	42,552		28.4	44,502	28.5
2.	Unsecured Loan	60,855		40.6	63,669	40.7
3.	Hire Purchase	20,763		13.9	19,982	12.8
4.	Long-term Investment	14,847		9.9	14,689	9.4
5.	Current Investment	10,883		7.2	13,466	8.6
Total		1,49,900	100.0		1,56,308	100.0
Memo Item:
Capital Market Exposure		17,874		11.9	17,132	11.0
of which:	in Equity	12,242		8.2	11,817	7.6
* : NBFCs not accepting public deposits with asset size of Rs.500 crore and above.

Table V.43: Financial Performance of Large Sized NBFCs*
(Amount in Rs. crore)

Item		Quarter Ended

	March 2005		June 2005

	Amount	Per cent	Amount	Per cent
		to total		to total
		Assets		Assets

1	2	3	4	5

Total Income	12,954	7.6	4,225	2.4

Total Expenses	9,612	5.6	2,753	1.5

Net Profit	2,255	1.3	1,059	0.6

Total Assets	1,70,957	100.0	1,79,311	100.0

* : NBFCs not accepting public deposits with asset size of Rs.500 crore and above.

Financial Performance

5.87 Total income and expenditure of large NBFCs worked out to 7.6 per cent and 5.6 per cent of total assets, respectively, for the year ended March 2005. Net profit to asset ratio was 1.3 per cent during the year ended March 2005. Large NBFCs earned a sizeable profit of Rs.1,059 crore during the quarter ended June 2005, which was little less than 50 per cent of the total profit earned during the year ended March 2005 (Table V.43).

Asset Quality

5.88 While gross NPAs/total assets ratio remained unchanged, gross NPAs/credit exposure ratio increased significantly during the quarter ended June 2005. Net NPAs relative to both total assets and credit exposure declined during the quarter ended June 2005 (Table V.44).

Table V.44: Gross and Net NPAs of Large Sized NBFCs*
		(Per cent)

Item		End-	End-
		March	June
		2005	2005

	1	2	3

1.	Gross NPAs to Total Assets	2.3	2.3

2.	Gross NPAs to Total Credit Exposure	6.3	7.9

3.	Net NPAs to Total Assets	1.2	1.1

4.	Net NPAs to Total Credit Exposure	3.4	2.5

* :NBFCs not accepting public deposits with asset size of Rs.500 crore and above.

4. PRIMARY DEALERS

5.89 The primary dealer (PD) system, created in 1996 continues to be important from the perspective of successful completion of the Government borrowing programme, the size of which is substantial, and the need to further develop the debt markets in India. PDs (at present 17 in number) deal largely in Government securities and other interest rate products and support the borrowing programme of the Central and the State Governments. A number of measures were initiated during 2004-05 to further strengthen the role of PDs in the Government securities market.

Policy Developments

5.90 Prudential guidelines were issued to PDs in June 2004 on dividend distribution policy with focus on pay-out ratio and capital adequacy ratio. Dividend pay-out ratio for PDs, having capital to risk-weighted assets ratio (CRAR) at 20.0 per cent or above in all the four quarters of the previous year, was capped at 50.0 per cent and at 33.3 per cent for PDs not fulfilling the above conditions. A primary dealer cannot declare dividend if the CRAR in any of the four quarters is below the minimum prescribed CRAR of 15 per cent.

5.91 PDs were advised to hold all their equity investments only in dematerialised form by the end of December 2004 and make all fresh investments only in dematerialised form thereafter.

5.92 Guidelines allowing PDs to issue subordinated debt instruments for Tier-II capital and Tier-III capital were issued in October 2004. The guidelines provided for the amount of subordinated debt to be decided by the Board of Directors, ceiling on interest rate spread, restrictions on the type of instrument, mandatory credit rating, compliance with SEBI guidelines, obtaining permission from the Reserve Bank for issuing instruments to NRIs/FIIs, assignment of 100 per cent risk weight for investments in other PDs/ banks and disclosure requirements.

5.93 Since the Reserve Bank would no longer play the role of an underwriter of the last resort from 2006-07, PDs would need to be adequately prepared to ensure success of the market borrowing programme.

5.94 An Internal Technical Group in the Reserve Bank, which examined primary issuance process under the FRBM period, recommended that PDs

must underwrite the entire issuance amount of each auction. Given this significantly higher responsibility for PDs, the Group proposed adoption of risk mitigating measures such as short-selling, introduction of ‘when-issued’ market and exclusivity in primary auctions. In consonance with the proposed incentives, the Group recommended certain market-making obligations for PDs, particularly in the mid-segment. Earlier, another Group (Chairman: Dr. R.H. Patil) had examined the role of PDs in the Government securities market. Both the Reports were discussed in the Technical Advisory Committee (TAC) and certain recommendations were accepted by the Reserve Bank for implementation. Accordingly, several measures were proposed in the Annual Policy Statement for 2005-06. These included: (i) permitted structures of PD business to be expanded to include banks which fulfill certain minimum criteria subject to safeguards and in consultation with banks, PDs

and the Government; (ii) to consider the recommendations of the Technical Group on restructuring the underwriting obligations of PDs, allowing exclusivity to PDs in primary auctions, introduction of ‘when issued’ market and limited short-selling in Government securities in consultation with the Government.

5.95 The operationalisation of these proposed measures is being examined by the TAC and the Reserve Bank/Government of India. The role of PDs in the Government securities market in the post-implementation of FRBM Act, 2003 is envisaged to be more important not only from the debt management perspective, but also from the viewpoint of market development (Box V.2). The risk mitigation tools that are being contemplated by the Reserve Bank and the proposal to expand permitted structures of PD business to include banks might require changes in the regulatory guidelines.

Box V.2: Role of Primary Dealers (PDs) under the FRBM Environment

The primary dealer system, with its current underwriting and bidding commitments, ensured to a great extent the smooth execution of Government borrowing programmes. However, there have been a few instances when some auctions of Government securities remained undersubscribed and devolved on the Reserve Bank. The Reserve Bank’s participation in the primary auction process so far, albeit at the margin, has ensured that (i) the Government borrows as and when it requires funds; and (ii) irrational bidding behavior is avoided.

Under the FRBM Act, 2003, the Reserve Bank with effect from April 1, 2006, will not be allowed to participate in primary auctions. As such the current institutional mechanism requires a relook to ensure that debt management objectives are met and the Government is able to borrow under all market conditions without exacerbating market volatility.

The Internal Technical Group on Central Government Securities Market, which deliberated on various issues concerning Government securities market, suggested that the Reserve Bank’s role in the primary market be replaced by a more active and dynamic participation by PDs. This has necessitated some restructuring of current institutional processes.

Since the current system of annual bidding commitments does not guarantee the success of notified amount being sold at each auction, the Group felt that a system of bidding commitments for each auction is preferable, whereby all PDs put together must commit to bid 100 per cent of each auction, ensuring that the notified amount is sold at each auction. However, since 100 per cent bidding commitments by PDs per se do not ensure that the cost of issuance is minimised or is in line with price discovery, the Group felt that instead of bidding commitments, PDs could be required to underwrite the entire notified amount of an auction. The

methodology for such arrangement was also broadly suggested by the Group.

Recognising that the envisaged system casts a much larger responsibility on the PDs than under the current arrangements, it was suggested by the Group to compensate PDs with appropriate incentives over and above those already available such as access to the call market, cash and securities account with the Reserve Bank, refinance facility and access to the Liquidity Adjustment Facility (LAF). The Group also suggested that the possibility of providing PDs with a facility to repo their auctioned stock with the Reserve Bank for a limited period after the auction allotment, be examined to help them tide over temporary funding risk.

The Group suggested that the participation in the PD system be expanded to include banks to undertake PD activity departmentally. In almost all countries, the concept of primary dealers is limited to an activity and not an entity. That is, institutions such as commercial banks and investment banks, financial institutions and broker-dealers are designated as primary dealers, and no separate entity is required to be formed for this purpose. The Group, therefore, recommended that in addition to current eligibility norms, permitted structures for PD business be expanded to include banks directly undertaking PD activity as a department with independent subsidiary books of account. The operations of the bank may be kept scrupulously distinct from the PD activities. The Group, therefore, recommended that appropriate restructuring of the PD system be encouraged, with smaller PDs either raising the capital base or merging with parent banks, where there are bank subsidiaries.

The Group further suggested that the primary dealers be granted exclusivity in primary auctions and such exclusivity be granted in phases commencing with Treasury Bills and a few auctions of dated securities.

Operations and Performance of the PDs

5.96 PDs continued to be important players in the Government securities market during 2004-05. The liquidity support limits for PDs for 2004-05 were fixed at Rs.3,000 crore as against Rs.4,500 crore for the previous year. The liquidity support was made available at the Reserve Bank’s Repo Rate.

5.97 Bidding commitments in Treasury Bill auctions for all PDs taken together for 2004-05 were fixed at 123 per cent of the issue amount. Total bids received at Rs.1,10,112 crore amounted to 205.8 per cent of the total Treasury Bill issues of Rs.53,500 crore and 74.1 per cent of the total Treasury Bill issues of Rs.1,48,500 crore (inclusive of Market Stabilisation Scheme). For dated securities auctions, the bidding commitments for all PDs taken together were originally fixed at Rs.1,20,300 crore. Subsequently, the bidding commitments were reduced to Rs.77,900 crore on account of reduction in the market-borrowing programme of the Government. The actual bids tendered by the PDs were for Rs.85,474 crore. PDs offered to underwrite the primary issues to the tune of Rs.58,335 crore during the year, out of which bids for Rs.34,720 crore were accepted by the Reserve Bank. The shares of total primary purchases by PDs for Treasury Bills and dated securities at 63 per cent and 47 per cent, respectively, during the year were marginally lower than those of 67 per cent and 50 per cent, respectively, in the preceding year.

5.98 The turnover of transactions by PDs (both outright and repo) in the secondary market for Treasury Bills and Government dated securities at Rs.4,66,242 crore and Rs.12,69,454 crore, respectively, constituted 28.0 per cent and 18.6 per cent, respectively, of the total market turnover of Rs.16,66,020 crore and Rs.68,23,054 crore, respectively.

Sources and Application of Funds

5.99 The investments by PDs in Government securities and corporate bonds declined sharply. Among sources of funds unsecured loans declined sharply (Table V.45).

5.100 The share of Government securities in total assets of PDs declined sharply from 82.3 per cent at end-March 2004 to 69.3 per cent at end-March 2005. Capital funds of the PDs declined to

Table V.45: Sources and Application of Funds of Primary Dealers
(Amount in Rs. crore)

Item		2003-	2004-	Percentage
		04	05^#	Variation

				2003-04	2004-05

1		2	3	4	5

Sources of Funds		17,135	11,911	2.2	-30.5
1.	Capital	2,354	2,332	17.5	-0.9
2.	Reserves and Surplus	3,675	3,334	32.3	-9.3
3.	Loans (a+b)	11,106	6,245	-7.4	-43.8
	a) Secured	1,654	2,445	-70.2	47.8
	b) Unsecured	9,452	3,800	47.0	-59.8
Application of Funds		17,135	11,911	2.2	-30.5
1.	Fixed Assets	71	75	6.0	5.6
2.	Investments (a to d)	16,436	10,224	3.6	-37.8
	a) Government Securities	14,094	8,255	-2.2	-41.4
	b) Commercial papers	123	443	16.0	260.2
	c) Corporate Bonds	2,055	1,176	75.9	-42.8
	d) Others	164	350	–	113.4
3.	Loans and Advances	2,567	2,322	41.8	-9.5
4.	Non Current Assets	–	–	–	–
5.	Others*	-1,939	-710	100.8	-63.4
– : Nil/Negligible. #: Figures are unaudited. *: Including cash bank balance, accrued interest, deferred tax, less current liabilities and provisions.

Rs.5,603 crore at end-March 2005 from Rs.6,015 crore at end-March 2004 (Table V.46). Despite this decline, however, PDs were able to maintain capital to risk weighted assets ratios far in excess of the minimum requirement of 15 per cent (Table V.46 and Appendix Table V.7).

Table V.46: Select Indicators of Primary Dealers
		(Amount in Rs. crore)

Item		End-March

		2004	2005 ^#

1		2	3

Total Assets*		17,135	11,911
Of which:	Government securities	14,094	8,255
Government securities as
percentage of total assets		82.3	69.3
Total Capital Funds		6,015	5,603
CRAR		42.7	54.3
Liquidity Support Limit		2,250	3,000
		(normal)	(normal)
		2,250
		(backstop)

*: Net of current liabilities and provisions. #: Unaudited. Note : Figures for 2004 and 2005 do not include SBI Gilts.

Table V.47: Financial Performance of Primary Dealers
(Amount in Rs. crore)

Item		2003-	2004-	Percentage
		04	05^#	Variation

				2003-04	2004-05

1		2	3	4	5

A. Income (i to iv)		2,845	574	5.4	-79.8
i)	Interest	1,132	778	1.8	-31.3
ii)	Discount	174	44	-4.4	-74.7
iii)	Trading Profit	1,131	-700	-1.4	-161.9
iv)	Others	408	452	57.5	10.8
B. Expenses (i+ii)		977	769	-2.6	-21.3
i)	Interest	655	459	-9.3	-29.9
ii)	Administrative Costs	322	310	14.6	-3.7
C. Profit Before Tax		1,868	-195	10.1	-110.4
D. Net Profit		1,229	-250	14.8	-120.3
# : Unaudited.

Financial Performance of PDs

5.101 Net interest income of PDs declined during 2004-05. This combined with trading losses incurred during the year due to hardening of

Table V.48: Financial Indicators of Primary Dealers
(Amount in Rs. crore)

	Indicator		2003-04	2004-05

	1		2	3
i)		Net Profit	1,229	-250
ii)		Average Assets	18,860	15,228
iii)		Return on Average Assets (per cent)	6.5	-1.6
iv)		Net Worth	5,998	5,592

Note:1. Average net worth is the average of opening and Closing net worth of the financial year. 2.Average assets are averageof the month-end balances.

interest rates resulted in net losses before and after taxes (Table V.47). Ten PDs out of 17 posted net profits during the year (Appendix Table V.8).

5.102 The return on average assets of PDs was negative during the year, reflecting the impact of net losses. The losses suffered by PDs eroded their net worth which declined to Rs.5,592 crore at end-March 2005 from 5,998 crore in the previous year (Table V.48).

Table V.19: Range of Deposits held by Non-Banking Financial Companies
						(Amount in Rs. crore)

Deposit range				As at end-March

			No. of NBFCs			Amount of deposits

		2003	2004	2005	2003	2004	2005
1		2	3	4	5	6	7

1.	Less than Rs.0.5 crore	491	428	287	65	53	37
					(1.3)	(1.2)	(1.0)
2.	More than Rs.0.5 crore and up to Rs.2 crore	233	210	168	225	206	164
					(4.5)	(4.8)	(4.5)
3.	More than Rs.2 crore and up to Rs.10 crore	90	82	70	360	352	320
					(7.1)	(8.2)	(8.8)
4.	More than Rs.10 crore and up to Rs.20 crore	21	18	16	284	242	250
					(5.6)	(5.6)	(6.9)
5.	More than Rs.20 crore and up to Rs.50 crore	12	17	14	364	569	507
					(7.2)	(13.2)	(13.9)
6.	Rs.50 crore and above	23	19	15	3,737	2,895	2,368
					(74.3)	(67.0)	(64.9)
Total		870	774	570	5,035	4,317	3,646
					(100.0)	(100.0)	(100.0)
Note: Figures in parentheses are percentages to total deposit.

Region-wise Composition of Deposits held by NBFCs

Table V.20: Public Deposits held by Registered and Unregistered NBFCs - Region-wise
					(Amount in Rs. crore)

Region	2002-03		2003-04		2004-05

	No. of NBFCs	Amount	No. of NBFCs	Amount	No. of NBFCs	Amount

1	2	3	4	5	6	7

Northern	271	543	248	442	195	351
		(10.8)		(10.2)		(9.6)
North-Eastern	1	2	1	1	–	–
		(0.0)		(0.0)
Eastern	18	212	17	204	13	158
		(4.2)		(4.7)		(4.3)
Central	82	112	75	101	66	92
		(2.2)		(2.3)		(2.5)
Western	63	687	41	365	27	280
		(13.6)		(8.5)		(7.7)
Southern	435	3,479	392	3,205	269	2,765
		(69.1)		(74.2)		(75.9)
Total	870	5,035	774	4,318	570	3,646
*Metropolitan cities:*
Mumbai	45	672	23	351	14	268
Chennai	318	3,162	304	2,879	217	2,591
Kolkata	15	203	14	187	11	158
New Delhi	108	443	98	345	71	266
Total	486	4,480	439	3,762	313	3,283
– : Nil/Negligible. Note: Figures in parentheses are percentages to total.

Interest Rate and Maturity Pattern of Public Deposits with NBFCs

The Maturity Pattern of Public Deposits

5.62 The spread between the maximum interest rate on public sector bank deposits of ‘one to three

Table V.21: Distribution of Public Deposits of NBFCs According to Rate of Interest
	(Amount in Rs. crore)

Interest Range	As at end-March

	2003	2004	2005

1	2	3	4

Up to 10 per cent	1,174	1,896	2,604
	(23.3)	(43.9)	(71.4)
More than 10 per cent
and up to 12 per cent	2,101	1,586	726
	(41.7)	(36.7)	(19.9)
More than 12 per cent
and up to 14 per cent	1,137	505	164
	(22.6)	(11.7)	(4.5)
More than 14 per cent
and up to 16 per cent	475	254	109
	(9.4)	(5.9)	(3.0)
16 per cent and above	148	76	43
	(3.0)	(1.8)	(1.2)
Total	5,035	4,317	3,646
	(100.0)	(100.0)	(100.0)
Note: Figures in parentheses are percentages to total deposits.

year’ maturity and the interest rate offered by NBFCs on deposits with the same maturity narrowed down over the years (Table V.23).

Borrowings

5.63 The outstanding borrowings by NBFCs, which declined by 14.8 per cent during the year ended March 2004 on account of decline in the borrowings by equipment leasing companies and

Table V.22: Maturity Pattern of Public Deposits held by NBFCs
		(Amount in Rs. crore)

Maturity Period @	As at end-March

	2003	2004	2005

1	2	3	4

Less than 1 year	1,203	1,176	1,145
	(23.9)	(27.3)	(31.4)
More than 1 and up
to 2 years	1,241	1,046	862
	(24.6)	(24.2)	(23.6)
More than 2 and up
to 3 years	1,927	1,573	1,295
	(38.3)	(36.4)	(35.5)
More than 3 and up
to 5 years	619	492	330
	(12.3)	(11.4)	(9.0)
5 years and above	45	30	14
	(0.9)	(0.7)	(0.4)
Total	5,035	4,317	3,646
	(100.0)	(100.0)	(100.0)
@ :On the basis of residual maturity of outstanding deposits. Note: Figures in parentheses are percentages to total deposits.

Table V.23: Maximum/Ceiling Interest Rates on Banks and NBFC Deposits
							(Per cent)

Interest Rate				As at end-March

		2000	2001	2002	2003	2004	2005

1		2	3	4	5	6	7

1.	Maximum interest rate on public sector bank deposits
	of 1-3 year maturity	10.5	9.5	8.5	6.75	6.75	7.00
2.	Ceiling interest rate for NBFCs	16.0	14.0	12.5	11.0	11.0	11.0
3.	Spread (2-1)	5.5	4.5	4.0	4.25	4.25	4.00

Assets of NBFCs

Table V.24: Borrowings by NBFCs –Group-wise
							(Amount in Rs. crore)

NBFC Group			As at end-March				Percentage
							Variation
		No. of NBFCs			Total Borrowings

	2003	2004	2005	2003	2004	2005	2003-04	2004-05

1	2	3	4	5	6	7	8	9

Equipment Leasing	58	46	38	6,472	2,811	3,112	-56.6	10.7
				(26.4)	(13.5)	(14.2)
Hire Purchase	439	396	316	13,650	12,141	13,008	-11.1	7.1
				(55.8)	(58.2)	(59.6)
Investment	19	11	5	1,613	1,718	1,092	6.5	-36.4
				(6.6)	(8.2)	(5.0)
Loan	122	87	54	2,600	3,775	3,679	45.2	-2.5
				(10.6)	(18.1)	(16.8)
Others	232	234	157	145	407	950	180.7	133.4
				(0.6)	(2.0)	(4.4)
Total	870	774	570	24,480	20,852	21,841	-14.8	4.7
				(100.0)	(100.0)	(100.0)
Note: Figures in parentheses are percentages to total borrowings.

Table V.25: Sources of Borrowings of NBFCs
														(Amount in Rs. crore)

NBFC Group							As at end-March
	Government				External		Banks and				Debentures				Others
							Financial Institutions

	2003	2004	2005	2003	2004	2005	2003	2004	2005	2003		2004	2005	2003	2004	2005

1	2	3	4	5	6	7	8	9	10	11		12	13	14	15	16

Equipment Leasing	61	21	–	571	291	190	3,080	1,141	1,252	1,639		893	1219	1,121	465	452
		(-65.6)	(-100.0)		(-49.0)	(-34.7)		(-63.0)	(9.7)			(-45.5)	(36.5)		(-58.5)	(-2.8)
Hire Purchase	85	91	–	124	332	327	5,613	4,114	4,223	2,721		3,919	4,425	5,107	3,684	4,033
		(7.1)	(-100.0)		(167.7)	(-1.5)		(-26.7)	(2.6)			(44.0)	(12.9)		(-27.9)	(9.5)
Investment	1,423	1,467	885	–	–	–	14	14	10		–	42	12	176	196	185
		(3.1)	(-39.7)						(-28.6)			(-)	(-71.4)		(11.4)	(-5.6)
Loan	–	–	86	–	–	–	245	1,132	413	992		1,065	1,037	1,363	1,579	2,142
								(362.0)	(-63.5)			(7.4)	(-2.6)		(15.8)	(35.7)
Others	–	–	–	–	–	–	7	13	31		–	–	–	138	394	920
								(85.7)	(138.5)						(185.5)	(133.5)
Total	1,570	1,579	971	695	623	517	8,959	6,413	5,929	5,352		5,919	6,693	7,905	6,318	7,732
		(0.6)	(-38.5)		(-10.2)	(-17.0)		(-28.4)	(-7.5)			(10.6)	(13.1)		(-20.1)	(22.4)
– : Nil/Negligible. Note: Figures in parentheses are percentage change over the previous year.

Distribution of NBFCs According to Asset Size

5.66 The asset size of NBFCs varies significantly from less than Rs.25 lakh to above

Distribution of Assets of NBFCs – Type of Activity

5.67 Assets held by NBFCs in loans and inter-corporate deposits, investments, and equipment and

Table V.26: Major Components of Assets of NBFCs – Group-wise
								(Amount in Rs. crore)

NBFC Group					As at end-March
		Assets			Advances			Investment

	2003	2004	2005	2003	2004	2005	2003	2004	2005

1	2	3	4	5	6	7	8	9	10

Equipment Leasing	7,996	3,744	4,721	7,087	3,020	3,875	1,028	348	331
	(21.2)	(11.4)	(13.9)	(22.8)	(11.3)	(13.9)	(23.7)	(9.1)	(9.4)
Hire Purchase	22,163	19,929	20,039	18,849	17,114	18,312	1,909	1,805	1,202
	(58.8)	(60.8)	(59.2)	(60.7)	(64.1)	(65.8)	(44.0)	(47.3)	(34.3)
Investment	2,208	2,422	1,890	1,520	1,617	1,061	629	750	788
	(5.9)	(7.4)	(5.6)	(4.9)	(6.1)	(3.8)	(14.5)	(19.6)	(22.5)
Loan	4,109	5,485	5,319	2,763	4,208	3,456	527	604	657
	(10.9)	(16.7)	(15.7)	(8.9)	(15.8)	(12.4)	(12.1)	(15.8)	(18.7)
Others	1,233	1,173	1,874	818	745	1,129	245	311	530
	(3.3)	(3.6)	(5.5)	(2.6)	(2.8)	(4.1)	(5.6)	(8.1)	(15.1)
Total	37,709	32,753	33,843	31,037	26,704	27,833	4,338	3,818	3,508
	(100.0)	(100.0)	(100.0)	(100.0)	(100.0)	(100.0)	(100.0)	(100.0)	(100.0)
Note: Figures in parentheses represent percentage share in total.

Table V.27: Non-Banking Financial Companies According to Asset Size
						(Amount in Rs. crore)

Asset size				As at end-March

		2003	2004	2005	2003	2004	2005

		No. of reporting companies				Assets

1		2	3	4	5	6	7

1.	Less than 0.25	62	59	34	6	6	4
					(0.0)	(0.0)	(0.0)
2.	More than 0.25 and up to 0.50	77	73	41	28	27	15
					(0.1)	(0.1)	(0.1)
3.	More than 0.50 and 2	354	317	209	388	352	232
					(1.0)	(1.0)	(0.7)
4.	More than 2 and up to 10	245	209	164	1,131	964	724
					(3.0)	(2.9)	(2.1)
5.	More than 10 and up to 50	68	69	71	1,399	1,593	1,765
					(3.7)	(4.9)	(5.2)
6.	More than 50 and up to 100	19	13	18	1,315	850	1,216
					(3.5)	(2.6)	(3.6)
7.	More than 100 and up to 500	28	17	17	6,492	3,819	3,007
					(17.2)	(11.7)	(8.9)
8.	Above 500	17	17	16	26,950	25,143	26,880
					(71.5)	(76.8)	(79.4)
Total		870	774	570	37,709	32,754	33,843
					(100.0)	(100.0)	(100.0)
Note: Figures in parentheses are percentages to total.

leasing declined during 2003-04 and 2004-05. However, assets in hire purchase, which declined during 2003-04, increased sharply in the following year. As a result, assets held in hire purchase

activity accounted for the largest share (42.0 per cent) of total assets of NBFCs, followed by loans, including inter-corporate deposits (33.4 per cent) (Table V.28).

Table V.28: Distribution of Assets of NBFCs - Activity-wise
(Amount in Rs. crore)

Activity		As at end-March			Percentage Variation

		2003	2004	2005	2002-03	2003-04	2004-05

1		2	3	4	5	6	7

1.	Loans and Inter-corporate deposits	13,398	12,363	11,301	-2.3	-7.7	-8.6
		(35.4)	(37.7)	(33.4)
2.	Investments	4,338	3,818	3,508	0.1	-12.0	-8.1
		(11.5)	(11.7)	(10.4)
3.	Hire Purchase	13,031	11,649	14,200	-1.3	-10.6	21.9
		(34.5)	(35.6)	(42.0)
4.	Equipment and Leasing	2,011	1,115	778	-35.4	-44.6	-30.2
		(5.3)	(3.4)	(2.3)
5.	Bills	450	436	464	-33.1	-3.2	6.4
		(1.2)	(1.3)	(1.4)
6.	Other assets	4,581	3,375	3,592	-4.6	-26.3	6.4
		(12.1)	(10.3)	(10.6)
Total		37,809	32,756	33,843	-5.3	-13.4	3.3
		(100.0)	(100.0)	(100.0)
Note: Figures in parentheses are percentages to total.

Financial Performance of NBFCs

Interest Cost to Total Income

significantly from 88.3 per cent in 2002-03 to 83.8 per cent in 2003-04 and further to 78.8 per cent during 2004-05 (Table V.30).

Table V.29: Financial Performance of NBFCs
							(Amount in Rs. crore)

	Item						Percentage Variation

			2002-03	2003-04	2004-05	2002-03	2003-04	2004-05

1			2	3	4	5	6	7

A.	Income (i+ii)		5,084	4,332	4,435	-5.1	-14.8	2.4
			(100.0)	(100.0)	(100.0)
	(i)	Fund-based	4,709	4,005	4,062	-5.9	-15.0	1.4
			(92.6)	(92.5)	(91.6)
	(ii)	Fee-based	375	327	373	6.5	-12.8	14.1
			(7.4)	(7.5)	(8.4)
B.	Expenditure (i+ii)		4,491	3,621	3,495	-15.6	-19.4	-3.5
			(100.0)	(100.0)	(100.0)
	(i)	Financial	2,757	2,099	2,054	-16.4	-23.9	-2.1
			(61.4)	(58.0)	(58.8)
	(ii)	Operating	1,734	1,522	1,441	-14.3	-12.2	-5.3
			(38.6)	(42.0)	(41.2)
C.	Tax	Provisions	254	180	349	2.4	-29.1	93.9
D.	Operating Profit (PBT)		593	711	940	1,547.2	19.9	32.2
E.	Net Profit (PAT)		339	531	591	-259.9	56.6	11.3
F.	Total Assets		37,709	32,754	33,843	-5.3	-13.1	3.3
G.	Financial Ratios*
	(i)	Income	13.5	13.2	13.1
	(ii)	Fund Income	12.5	12.2	12.0
	(iii)	Fee Income	1.0	1.0	1.1
	(iv)	Expenditure	11.9	11.0	10.3
	(v)	Financial Expenditure	7.3	6.4	6.1
	(vi)	Operating Expenditure	2.9	3.1	4.2
	(vii)	Tax Provisions	0.7	0.5	1.0
	(viii)	Net Profit	0.9	1.6	1.7
* : As percentage to total assets. Note: Figures in parentheses are percentages share to the respective total.

Table V.30: Interest Cost to Total Income
(Amount in Rs. crore)

Year	Total	Total	Interest	Non-Interest
	Income	Cost	Cost	Cost

1	2	3	4	5

2002-03	5,084	4,491	974	3,517
		(88.3 )	(19.2)	(69.2)
2003-04	4,322	3,621	888	2,733
		(83.8)	(20.5)	(63.2)
2004-05	4,435	3,495	760	2,735
		(78.8)	(17.1)	(61.7)
Note: Figures in parentheses indicate percentage to total income.

Soundness Indicators
Asset Quality of NBFCs

Table V.31: Non-Performing Assets of NBFCs*
(per cent of credit exposure)

End-March	Gross NPAs	Net NPAs
1	2	3
2001	11.5	5.6
2002	10.6	3.9
2003	8.8	2.7
2004	8.2	2.4
2005	7.0	3.4

* : Excluding MBFCs, MBCs and MNBCs.

Table V.32: NPAs of NBFCs - Group-wise
(Amount in Rs. crore)

NBFC Group/	Gross		Gross NPAs		Net		Net NPAs
End-March	Advances				Advances
		Amount	Per cent to	Per cent to		Amount	Per cent to	Per cent to
			Gross Advances	Assets			Net Advances	Assets
1	2	3	4	5	6	7	8	9

Equipment Leasing
2001	4,118	304	7.4	6.1	3,826	12	0.3	0.2
2002	1,625	646	39.7	28.0	1,330	351	26.3	15.2
2003	5,969	932	15.6	11.1	5,506	469	8.5	5.6
2004	3,306	582	17.6	13.3	3,067	344	11.2	7.8
2005	5,611	718	12.8	12.3	5,310	418	7.9	7.1
Hire Purchase
2001	8,296	1,324	16.0	12.3	7,604	631	8.3	5.9
2002	6,825	1,167	17.1	14.8	6,068	410	6.8	5.2
2003	16,489	1,288	7.8	6.8	15,305	104	0.7	0.5
2004	10,437	942	9.0	7.3	9,748	253	2.6	2.0
2005	12,812	619	4.8	4.6	12,498	306	2.4	2.3
Investment
2001	232	53	22.9	5.1	223	45	20.0	4.3
2002	149	2	1.6	0.1	147	1	0.4	0.0
2003	93	11	11.9	2.1	90	8	8.9	1.5
2004	63	15	24.2	2.6	55	7	12.7	1.2
2005	58	10	17.2	1.8	58	10	17.2	1.8
Loan
2001	7,414	595	8.0	5.9	7,118	299	4.2	3.0
2002	3,986	549	13.8	10.1	3,615	177	4.9	3.3
2003	2,707	144	5.3	4.8	2,503	–	–	–
2004	2,038	142	7.0	4.1	1,833	–	–	–
2005	1,906	83	4.4	3.7	1,780	–	–	–
Others
2001	1,394	493	35.4	24.2	1,308	407	31.1	20.0
2002	175	9	5.1	3.0	165	–	–	–
2003	294	2	0.6	0.5	294	1	0.5	0.4
2004	–	–	–	–	–	–	–	–
2005	–	–	–	–	–	–	–	–
– : Nil/Negligible.

Table V.33: Classification of Assets of NBFCs – Group-wise
(Amount in Rs. crore)

Item/End of the Period	Standard		Sub-Standard		Doubtful		Loss		Gross		Total
	Asset		Asset		Asset		Asset		NPAs		Assets

	Amount	per cent	Amount	per cent	Amount	per cent	Amount	per cent	Amount	per cent

1	2	3	4	5	6	7	8	9	10	11	12

Equipment Leasing
Mar-03	5,037	84.4	520	8.7	205	3.4	207	3.5	932	15.6	5,969
Sep-03	2,986	77.9	502	13.1	194	5.1	154	4.0	850	22.1	3,836
Mar-04	2,724	82.4	396	12.0	84	2.5	102	3.1	582	17.6	3,306
Sep-04	3,389	87.2	365	9.4	19	0.5	114	2.9	498	12.8	3,887
Mar-05	4,893	87.2	393	7.0	98	1.7	227	4.1	718	12.8	5,611

Hire Purchase
Mar-03	15,201	92.2	746	4.5	273	1.7	269	1.6	1,288	7.8	16,489
Sep-03	15,621	92.4	758	4.5	245	1.5	283	1.7	1,286	7.6	16,907
Mar-04	9,495	91.0	613	5.9	103	1.0	226	2.2	942	9.0	10,437
Sep-04	11,420	91.5	730	5.9	118	0.9	213	1.7	1,061	8.5	12,481
Mar-05	12,193	95.2	401	3.1	128	1.0	90	0.7	619	4.8	12,812

Investment
Mar-03	82	88.1	9	9.3	2	2.4	–	0.2	11	11.9	93
Sep-03	43	80.6	9	16.9	1	2.4	–	0.1	10	19.4	54
Mar-04	48	75.8	–	–	10	15.3	6	8.9	15	24.2	63
Sep-04	71	86.4	1	1.4	10	12.1	–	–	11	13.6	82
Mar-05	48	82.0	1	1.1	10	16.7	–	0.2	10	18.0	58

Loan
Mar-03	2,563	94.7	37	1.3	20	0.7	88	3.2	145	5.3	2,708
Sep-03	5,693	95.8	81	1.4	59	1.0	112	1.9	252	4.2	5,945
Mar-04	1,896	93.0	40	2.0	20	1.0	82	4.0	142	7.0	2,038
Sep-04	1,697	93.9	28	1.6	9	0.5	73	4.0	110	6.1	1,807
Mar-05	1,823	95.6	14	0.7	41	2.1	28	1.5	83	4.4	1,906

Others
Mar-03	293	99.4	1	0.4	1	0.2	–	–	2	0.6	295
Sep-03	1	55.0	–	25.9	–	19.0	–	–	1	45.0	2
Mar-04	–	–	–	–	–	–	–	–	–	–	–
Sep-04	–	–	–	–	–	–	–	–	–	–	–
Mar-05	–	–	–	–	–	–	–	–	–	–	–

– : Nil/Negligible.

Capital Adequacy Ratio

5.73 Capital to risk-weighted assets ratio (CRAR) norms were made applicable to NBFCs in 1998, in terms of which every deposit-taking NBFC is required to maintain a minimum capital

Table V.34: Capital Adequacy Ratio of NBFCs *

Range					As at end-March

		2003				2004				2005
	EL	HP	LC/IC	Total	EL	HP	LC/IC	Total	EL	HP	LC/IC	Total

1	2	3	4	5	6	7	8	9	10	11	12	13
Less than 12 per cent	10	17	15	42	5	12	8	25	4	55	5	64
More than 12 and up to 15 per cent	1	8	1	10	1	4	1	6	–	–	1	1
More than 15 and up to 20 per cent	4	32	9	45	2	15	2	19	2	15	4	21
More than 20 and up to 30 per cent	9	54	11	74	6	38	7	51	5	26	1	32
Above 30 per cent	32	334	121	487	28	300	55	383	25	153	28	206
Total	56	445	157	658	42	369	73	484	36	249	39	324

– : Nil/Negligible. * : Excluding MBFCs, MBCs and MNBCs. Note : 1. EL - Equipment Leasing. 2. HP - Hire Purchase. 3. LC/IC - Loan Companies /Investment Companies.

Net Owned Fund vis-à-vis Public Deposits of NBFCs

5.75 Net owned funds of NBFCs range from less than Rs.25 lakh to over Rs.500 crore. The

Residuary Non-Banking Companies (RNBCs)

5.76 Three RNBCs were operating in the country at end-March 2004 and end-March 2005 as against five at end-March 2003. Assets of RNBCs

*Table V.35: Net Owned Fund vis-à-vis* Public deposits of NBFCs* – Group-wise**
(Amount in Rs. crore)

NBFC Group		Net Owned			Public Deposits			Public Deposits to
		Fund						Net Owned Fund

	2003	2004	2005	2003	2004	2005	2003	2004	2005

1	2	3	4	5	6	7	8	9	10

Equipment Leasing	154	96	427	511	344	343	3.3	3.6	0.8
Hire Purchase	2,979	2,235	2,597	3,539	2,963	2,315	1.2	1.3	0.9
Investment	553	607	662	125	106	93	0.2	0.2	0.1
Loan	367	893	428	177	178	157	0.5	0.2	0.4
Others	88	265	331	683	727	738	7.8	2.7	2.2
Total	4,141	4,096	4,445	5,035	4,317	3,646	1.2	1.1	0.8

* : Including MBFCs, MBCs and MNBCs.

Table V.36: Range of Net Owned Funds vis-à-vis Public Deposits of NBFCs*
(Amount in Rs. crore)

	Range of						As at end-March
	NOF
			2003				2004				2005

		No. of	Net	Public	Public	No. of	Net	Public	Public	No. of	Net	Public	Public
		reporting	Owned	Deposits	Deposits	reporting	Owned	Deposits	Deposits	reporting	Owned	Deposits	Deposits
		companies	Funds		as	companies	Funds		as	companies	Funds		as
					multiple				multiple				multiple
					of NOFs				of NOFs				of NOFs
1		2	3	4	5	6	7	8	9	10	11	12	13
1.	Up to 0.25	208	-1,356	843	–	175	-881	667	–	93	-591	456	–
2.	More than 0.25
	and up to 2	497	309	369	1.2	451	289	430	1.5	332	228	372	1.6
3.	More than 2
	and up to 10	110	461	467	1	92	394	384	1	97	428	392	0.9
4.	More than 10
	and up to 50	30	677	447	0.7	35	683	577	0.8	29	661	470	0.7
5.	More than 50
	and up to 100	10	639	255	0.4	7	478	204	0.4	6	456	158	0.3
6.	More than 100
	and up to 500	15	3,411	2,654	0.8	12	2,039	1,342	0.7	12	2,595	1,067	0.4
7.	Above 500	–	–	–	–	2	1,094	713	0.7	1	669	731	1.1
	Total	870	4,141	5,035	1.2	774	4,096	4,317	1.1	570	4,446	3,646	0.8
– : Nil/Negligible. * :Including MBFCs, MBCs and MNBCs

Table V.37: Profile of Residuary Non-Banking Companies (RNBCs)
(Amount in Rs. crore)

Item			As at end-March			Percentage Variation

			2003	2004	2005	2003-04	2004-05
1			2	3	4	5	6
A.	Assets (i to v)		21,104	20,362	19,057	-3.5	-6.4
	(i)	Unencumbered approved securities	6,129	5,824	2,037	-5.0	-65.0
	(ii)	Fixed deposits with banks	1,470	2,033	4,859	38.3	139.0
	(iii)	Bonds or debentures or commercial papers of Govt. companies/	6,553	6,048	9,225	-7.7	52.5
		public sector banks/ public financial institutions/ corporations
	(iv)	Other investments	912	2,059	1,639	125.8	-20.4
	(v)	Other Assets	6,040	4,398	1,297	-27.2	-70.5
B.	Net Owned Funds		809	1,002	1,065	23.9	6.3
C.	Total Income (i+ii)		1,801	2,055	1,532	14.1	-25.5
	(i)	Fund Income	1,801	2,055	1,530	14.1	-25.5
	(ii)	Fee Income	–	–	2	–	–
D.	Total Expenses (i+ii+iii)		1,435	1,813	1,396	26.3	-23.0
	(i)	Financial Cost	1,212	1,368	1,196	12.9	-12.6
	(ii)	Operating Cost	105	129	146	22.9	13.2
	(iii)	Other cost	118	316	74	167.8	-76.6
E.	Taxation		134	32	48	-76.1	50.0
F.	Operating Profit (PBT)		366	242	136	-33.9	-43.8
G.	Net profit (PAT)		232	210	88	-9.5	-58.1
– : Nil/Negligible. * : Comprising only fund-based income. Note :1. PBT - Profit before tax 2. PAT - Profit after tax

Regional Pattern of Deposits of RNBCs

Investment Pattern of RNBCs

Table V.38: Public Deposits held by Registered and Unregistered RNBCs - Region-wise
					(Amount in Rs. crore)

Region	2003		2004			2005
	No.	Amount	No.	Amount	No.	Amount

1	2	3	4	5	4	5
Northern	–	–	–	–	–	–

North-Eastern	–	–	–	–	–	–

Eastern	3	7,422	2	6,523	2	5,070
		(49.3)		(42.6)		(30.5)
Central	1	7,640	1	8,804	1	11,530
		(50.7)		(57.4)		(69.5)
Western	–	–	–	–	–	–

Southern	1	3	–	–	–	–
		(0.0)

Total	5	15,065	3	15,327	3	16,600
Metropolitan cities
Mumbai	–	–	–	–	–	–
Chennai	–	–	–	–	–	–
Kolkata	3	7,422	2	6,523	2	5,070
New Delhi	–	–	–	–	–	–

Total	3	7,422	2	6,523	2	5,070
– Nil/Negligible. Note : Figures are as at end-March.

Table V.39: Investment Pattern of Residuary Non-Banking Companies
(Amount in Rs. crore)

Item			End-March			Per cent to ALDs

		2003	2004	2005	2003	2004	2005

1		2	3	4	5	6	7

Aggregated Liabilities to the Depositors (ALDs):		15,065	15,327	16,600	100	100	100
a)	Unencumbered approved securities	6,129	3,702	2,036	40.7	24.2	12.3
b)	Fixed deposits with banks	1,470	2,431	4,859	9.8	15.9	29.3
c)	Bonds or debentures or commercial papers of
	Government companies/ public sector banks/ public
	financial institutions/ corporations	6,553	8,319	9,225	43.5	54.3	55.6
d)	Other investments	913	2,059	1,639	6.1	13.4	9.9

NBFCs not Accepting Public Deposits and With Assets Size of Rs.500 crore and Above

Borrowings

Table V.40: Liabilities of Large Sized NBFCs*
(Amount in Rs. crore)

Item			Quarter Ended

		March 2005		June 2005

		Amount	Per cent to	Amount	Per cent to
			total Assets		total Assets

1		2	3	4	5

Total Liabilities		1,70,957	100.0	1,79,311	100.0
of which :
a)	Paid up Capital	11,233	6.6	11,294	6.3
b)	Preference Shares	689	0.4	689	0.4
c)	Reserve & Surplus	22,827	13.4	22,976	12.8
d)	Secured Loans	52,774	30.9	56,233	31.4
e)	Unsecured Loans	74,049	43.3	76,758	42.8

* : NBFCs not accepting public deposits with asset size of Rs.500 crore and above.

Table V.41: Borrowings by Large Sized NBFCs*
(Amount in Rs. crore)

Item					Quarter Ended
				March 2005			June 2005
				Amount	Per cent to	Amount	Per cent to
					total Borrowings		total Borrowings

1				2	3	4	5
A)	Secured Borrowings (i to vi)			52,774	41.6	56,233	42.3
	i)	Debentures		30,777	24.3	31,914	24.0
	ii)	Deferred Credit		–	–	–	–
	iii)	Term Loans from Banks		11,043	8.7	11,893	8.9
	iv)	Term Loans from FIs		4,411	3.5	6,574	4.9
	v)	Others		5,433	4.3	5,169	3.9
	vi)	Interest accrued		1,110	0.8	683	0.6
B)	Unsecured Borrowings (i to viii)			74,049	58.4	76,758	57.7
	i)	Loans from	Relatives	1,310	1.0	1,221	0.9
	ii)	ICDs		7,993	6.3	7,866	5.9
	iii)	Loans from Banks		19,717	15.5	21,661	16.3
	iv)	Loans from FIs		2,326	1.8	2,723	2.0
	v)	Commercial Papers		12,487	9.8	13,382	10.1
	vi)	Debentures		13,769	10.9	14,256	10.7
	vii)	Others		15,419	12.3	14,512	10.9
	viii)	Loans Interest accrued		1,028	0.8	1,137	0.9
Total Borrowings				1,26,823	100.0	1,32,991	100.0

– : Nil/Negligible. * : NBFCs not accepting public deposits with asset size of Rs.500 crore and above.

Application of Funds

Table V.42: Select Indicators on Application of Funds by Large Sized NBFCs*
(Amount in Rs. crore)

Item				Quarter Ended

			March 2005			June 2005
		Amount	Per cent to	total	Amount	Per cent to total
			application of funds			application of funds
1		2		3	4	5
1.	Secured Loan	42,552		28.4	44,502	28.5
2.	Unsecured Loan	60,855		40.6	63,669	40.7
3.	Hire Purchase	20,763		13.9	19,982	12.8
4.	Long-term Investment	14,847		9.9	14,689	9.4
5.	Current Investment	10,883		7.2	13,466	8.6
Total		1,49,900	100.0		1,56,308	100.0
Memo Item:
Capital Market Exposure		17,874		11.9	17,132	11.0
of which:	in Equity	12,242		8.2	11,817	7.6
* : NBFCs not accepting public deposits with asset size of Rs.500 crore and above.

Table V.43: Financial Performance of Large Sized NBFCs*
(Amount in Rs. crore)

Item		Quarter Ended

	March 2005		June 2005

	Amount	Per cent	Amount	Per cent
		to total		to total
		Assets		Assets

1	2	3	4	5

Total Income	12,954	7.6	4,225	2.4

Total Expenses	9,612	5.6	2,753	1.5

Net Profit	2,255	1.3	1,059	0.6

Total Assets	1,70,957	100.0	1,79,311	100.0

* : NBFCs not accepting public deposits with asset size of Rs.500 crore and above.

Financial Performance

Asset Quality

Table V.44: Gross and Net NPAs of Large Sized NBFCs*
		(Per cent)

Item		End-	End-
		March	June
		2005	2005

	1	2	3

1.	Gross NPAs to Total Assets	2.3	2.3

2.	Gross NPAs to Total Credit Exposure	6.3	7.9

3.	Net NPAs to Total Assets	1.2	1.1

4.	Net NPAs to Total Credit Exposure	3.4	2.5

* :NBFCs not accepting public deposits with asset size of Rs.500 crore and above.

4. PRIMARY DEALERS

Policy Developments

5.91 PDs were advised to hold all their equity investments only in dematerialised form by the end of December 2004 and make all fresh investments only in dematerialised form thereafter.

5.94 An Internal Technical Group in the Reserve Bank, which examined primary issuance process under the FRBM period, recommended that PDs

Box V.2: Role of Primary Dealers (PDs) under the FRBM Environment

methodology for such arrangement was also broadly suggested by the Group.

Operations and Performance of the PDs

Sources and Application of Funds

5.99 The investments by PDs in Government securities and corporate bonds declined sharply. Among sources of funds unsecured loans declined sharply (Table V.45).

5.100 The share of Government securities in total assets of PDs declined sharply from 82.3 per cent at end-March 2004 to 69.3 per cent at end-March 2005. Capital funds of the PDs declined to

Table V.45: Sources and Application of Funds of Primary Dealers
(Amount in Rs. crore)

Item		2003-	2004-	Percentage
		04	05^#	Variation

				2003-04	2004-05

1		2	3	4	5

Sources of Funds		17,135	11,911	2.2	-30.5
1.	Capital	2,354	2,332	17.5	-0.9
2.	Reserves and Surplus	3,675	3,334	32.3	-9.3
3.	Loans (a+b)	11,106	6,245	-7.4	-43.8
	a) Secured	1,654	2,445	-70.2	47.8
	b) Unsecured	9,452	3,800	47.0	-59.8
Application of Funds		17,135	11,911	2.2	-30.5
1.	Fixed Assets	71	75	6.0	5.6
2.	Investments (a to d)	16,436	10,224	3.6	-37.8
	a) Government Securities	14,094	8,255	-2.2	-41.4
	b) Commercial papers	123	443	16.0	260.2
	c) Corporate Bonds	2,055	1,176	75.9	-42.8
	d) Others	164	350	–	113.4
3.	Loans and Advances	2,567	2,322	41.8	-9.5
4.	Non Current Assets	–	–	–	–
5.	Others*	-1,939	-710	100.8	-63.4
– : Nil/Negligible. #: Figures are unaudited. *: Including cash bank balance, accrued interest, deferred tax, less current liabilities and provisions.

Table V.46: Select Indicators of Primary Dealers
		(Amount in Rs. crore)

Item		End-March

		2004	2005 ^#

1		2	3

Total Assets*		17,135	11,911
Of which:	Government securities	14,094	8,255
Government securities as
percentage of total assets		82.3	69.3
Total Capital Funds		6,015	5,603
CRAR		42.7	54.3
Liquidity Support Limit		2,250	3,000
		(normal)	(normal)
		2,250
		(backstop)

*: Net of current liabilities and provisions. #: Unaudited. Note : Figures for 2004 and 2005 do not include SBI Gilts.

Table V.47: Financial Performance of Primary Dealers
(Amount in Rs. crore)

Item		2003-	2004-	Percentage
		04	05^#	Variation

				2003-04	2004-05

1		2	3	4	5

A. Income (i to iv)		2,845	574	5.4	-79.8
i)	Interest	1,132	778	1.8	-31.3
ii)	Discount	174	44	-4.4	-74.7
iii)	Trading Profit	1,131	-700	-1.4	-161.9
iv)	Others	408	452	57.5	10.8
B. Expenses (i+ii)		977	769	-2.6	-21.3
i)	Interest	655	459	-9.3	-29.9
ii)	Administrative Costs	322	310	14.6	-3.7
C. Profit Before Tax		1,868	-195	10.1	-110.4
D. Net Profit		1,229	-250	14.8	-120.3
# : Unaudited.

Financial Performance of PDs

5.101 Net interest income of PDs declined during 2004-05. This combined with trading losses incurred during the year due to hardening of

Table V.48: Financial Indicators of Primary Dealers
(Amount in Rs. crore)

	Indicator		2003-04	2004-05

	1		2	3
i)		Net Profit	1,229	-250
ii)		Average Assets	18,860	15,228
iii)		Return on Average Assets (per cent)	6.5	-1.6
iv)		Net Worth	5,998	5,592

Note:1. Average net worth is the average of opening and Closing net worth of the financial year. 2.Average assets are averageof the month-end balances.