The 10 Most Valuable NBFC Companies to Watch in 2019

www.primeview.co

JULY 2019

Fullerton India THE

10

MOST VALUABLE

NBFC

2019

Editor’s Note

www.primeview.co

JULY 2019

Fullerton India THE

10

MOST VALUABLE

NBFC

2019

India has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of existing financial services firms and new entities entering the market. The sector comprises commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities.

There are 11,522 Non-Banking Financial Companies (NBFCs) registered with the Reserve Bank of India out of which a lion's share of 98.5 percent are non-deposit accepting with the balance 1.5 percent being deposit accepting NBFCs. Around 218 non-deposit accepting NBFCs have been classified as systemically important. NBFCs have established presence in specialized segments, for e.g. HDFC, Mahindra Finance, Power Finance Corporation & Shriram Transport Finance.

With a combined push by both government and private sector, India is undoubtedly one of the world's most vibrant capital markets. In 2017, a new portal named 'Udyami Mitra' was launched by the Small Industries Development Bank of India (SIDBI) with the aim of improving credit availability to Micro, Small and Medium Enterprises' (MSMEs) in the country. India has scored a perfect 10 in protecting shareholders' rights on the back of reforms implemented by Securities and Exchange Board of India (SEBI).

NBFCs that have focussed on traditional data sources to extend lending need to realise the value of alternative data and the need to invest in technology and analytics to develop advanced credit scoring models that incorporate non- traditional data sources. Only then will they be able to participate in the wave of change that has the potential to extend lending to India’s creditworthy yet financially excluded population, and also simultaneously assisting the Indian government to achieve its goal of full financial inclusion.

Furthermore, as newer business models evolve, so must the regulations governing the NBFCs. In order for the NBFCs to realise their true potential in the economy, the regulatory framework must succeed in walking the thin line between under-regulation and over-regulation.

With this objective, the Reserve Bank of India (RBI) has brought about a spate of reforms in the NBFC regulations. Regulations for smaller NBFCs that are not systemically important have been rationalised, while systemically important NBFCs have been continuously strengthened to bring them on a par with the global standards. Some changes are also in the pipeline and should be rolled out soon. It will be interesting to see how the NBFC sector and the regulator work with each other to usher in an era of financial inclusion.

This edition of Prime View Magazine brings out “The 10 Most Valuable NBFC Companies to Watch in 2019.� This carefully crafted list comprises of best in class NBFCs companies who are setting an alcove with their top score offerings.

The 10 Most Valuable NBFC Companies to Watch in 2019

UMESH B SOPAN K

Sales & Marketing Manager RISHIKESH D

Business Development Executive SANKET G ANIS S

CONTENTS

COVER STORY

PROFILE

OLETY FINANCE

ARTICLE

Fullerton India

Creating Business Stories with the Right Financial Assistance The important role played by the non-banking finance companies (NBFCs) in the Indian financial system has complemented the banking system and bought about enhanced coherence and diversity in financial intermediation. NBFCS have progressed considerably in terms of operations, heterogeneity, asset quality, regulatory architecture and profitability. NBFCs disbursing credit to the overall commercial sector has increased and gained importance in the preceding few years as banks have faced challenges in lending amid the non-performing assets (NPAs) overhang.

Fullerton India Credit Company (FICCL) is a leading NBFC that offers retail finance products to rural households, and to small and medium enterprises. It offers instant personal loans, business loans, SME loans and housing loans with low interest rates and easy EMI options. Fullerton India Credit Company Limited is a wholly owned subsidiary of Fullerton Financial Holdings which in turn is a wholly owned subsidiary of Temasek Holdings, Singapore.

Since its launch in January 2007, Fullerton India has successfully and strongly established itself, spread across the country's broad financial landscape, with a network of over 626 branches that serves over 2.8 million customers.

Working together with over 13,000 employees, we reach our market by connecting with millions of customers, be it in cities, towns or villages, right at their doorstep. We penetrate deep inside the market through more than 626 branches, covering 600 towns and approximately 58,000 villages.

Making a Mark in the Industry Fullerton India is a customer centric organisation, which works on fulfilling the specific needs of the customers. Fullerton India is a responsible financial services partner that seeks strength from its people who partner in the firm’s success. We foster innovation and use our relationship and market understanding to deliver on customised solutions. Also, provide long term and sustainable shareholder value balancing risk and reward.

We have created a robust multi-product organisation that will help provide a one-stop-shop proposition representing convenience for the customer, and substantial cross selling opportunities for the organisation. Furthermore, we have been at the forefront of becoming digitally enabled and integrating with our businesses in creating customer efficiencies. We have adopted latest technologies to support the efficiency of our business processes; deliver superior customer experience; reduce turnaround time; and enhance employee productivity.

A one stop solution for all the NBFC assistance.

As a responsible corporate, we are enabling our customers with seamless access to the formal credit system; we are endeavouring to become an employer of choice in our sector; we act responsibly in the communities in which we work in; and are always focusing on generating higher returns for our shareholders.

Based on our commitment to performance and innovation, we have been able to deliver sustainable growth, while maintaining our asset quality and contributing to the overall progress.

The leader behind the success Rajashree Nambiar is the Managing Director and Chief Executive Officer (CEO) at Fullerton India Credit Company Limited. She is responsible for the overall corporate strategy of the company and its subsidiaries covering Risk, Operations, Technology, Analytics and Digital Initiatives.

Fullerton India has been recognised and rewarded for its commitment and in working towards contributing towards the financial requirements of its customers. It has been the organisation’s endeavour to be a financial services partner and drive financial inclusion. Some of the awards and recognition are mCube Conference and Awards 2018, Ad Tech India award 2018, Outlook Money magazine 2018, Mumbai Brand Summit 2018, Two Golds in Digital Industry Awards 2017 and many more.

Fullerton India

OLETY FINANCE Experts in providing best in class Loans with end to end solution Non-Bank Financial Institutions (NBFIs) play a significant role in meeting the diverse financial needs of various sectors of an economy and thus contribute to the economic development of the country as well as to the deepening of the country’s financial system. As the development process proceeds, NBFIs become prominent alongside the banking sector. Both play significant roles in influencing and mobilizing savings for investment. However, they are also complementary to each other as each can develop its own niche, and thus may venture into an area where the other may not, which ultimately strengthens the financial mobility of both. Established in the year 1996, Olety Finance is a well known brand in Bangalore specialized in NBFC providing loans on Pre-owned Two Wheelers & Used Car Loans, using simple underwriting policy and able to sanction loans to customers with bare minimum documentation,entire processing time in one day.

“We were one of the first NBFC providing loans for used two wheeler in the industry. The firm also provides customer to buy certified used two wheeler from its own Olety Two wheeler & car dealership, which buys and sells two wheeler and cars under one roof. So we can proudly say we were the First NBFC with captive funding model providing customers an option to buy two wheeler & get Loan from the same company, first of its kind in the industry in early 1996,” says Kumaran Sampath, CEO, Olety Finance.

The Pillars behind the screen Mr Santosh Olety is the Founder and Chairman of Olety finance, pioneer in pre owned two wheelers & cars in Karnataka, founded KUMARAN SAMPATH in the year 1993. During the firstyear of operations, Olety Finance achieved a milestone sales of about 120 two wheelers per month DIRECTOR & CEO from its Sajjan Rao Road outlet, which had given enough confidence to scale up the business by having more number of branches across Bangalore. During the year 1996, the second branch was inaugurated in V.V. Puram and in 1998 the third one in Diagonal Road with a display capacity of 100 two wheelers each.

Kumaran Sampath is the Director & CEO of Olety Finance. He joined the company in the year 2018. A pioneer in lending business and worked with various corporate finance companies at Senior Management level, a Retail Banker with more than 23 years of experience specialized in retail loans covering all kinds of loan products from Car Loans, SME, Mortgages, CV & CE, and Inventory funding. He also worked at leadership roles in 20th Century Finance Corporation, General Motor Finance, Kotak Mahindra Prime & Reliance Capital Ltd. Kumaran managed retail Loans across all functions and geographies in India for nearly a decade handling, Business, Credit, Product, Leasing & Collections at Area, Regional, Zonal & National Level. He has joined the board with his expertise in consumer retail lending across geographies and taking business forward and spread across the country and makes it a Pan India player. He leads the vision of the company to be first choice of customers in Pre Owned Two Wheeler & Used Car Loans. Being an experienced speaker on Retail Loans, Policy & Procedures relating to NBFC’s Kumaran is also a Certified Speaker on public speaking from Dale Carnegie Intuition. Further Kumaran was a National Trainer at 14

Reliance Capital and awarded with various National Award at leadership roles in Sales, Marketing, and CRM & Cross Selling from General Motors Acceptance Corporation ( GMAC ), Kotak Mahindra Prime & Reliance Capital Ltd. A regular marathon runner Kumaran, completed National Marathon Circuit 2017-18 conducted by NEB sports, a pan india running event for amateur runners and Procam Slam in 2018-19 conducted by Procam International, a prestigious competition for Amateur runners and first of its kinds in India.

Olety Cars had a path breaking Agreement with M/s Mysore Sales International Ltd (MSIL) a state government organization. A state Government organization venturing into a private used car dealer was a tremendous achievement of Olety Group. Inventory Funding / Credit lines with MSIL, this was a path breaking relationship with MSIL, a state government run organization providing limit to the Olety group was a great recognition for the brand and business model built over 2 decades in the market. Excellence Award in the recently held 8th MINE India 2019 – Microfinance & NBFC conference at Chennai for continues contribution in support retail vehicle loans for over 24 years.

25 years of hands on experience in 2 and 4 wheeler, buying, selling and financing.

SANTOSH OLETY

“The NBFC acquire customer in view to retain him for life, our credit process is customer centric and not majorly depended on financial centric, we analysis customer to customer so that their needs are addressed rather having a fixed policy which cannot fit all the potential customer segments in our financial sector.

Olety Finance help customer to indentify quality vehicles under our group company so the sense of belief is built which helps customer to prefer loans through our own NBFC more over we offer multiple loan options pre-approved if their repayment track remains clean and this we communicate to customer during our first loan disbursement so that customer recalls and come back to us for multiple loans,” elaborates Kumaran.

FOUNDER

Olety Finance has a very sociable organization with a highly experienced team. “We are building our company with senior level corporate resources who have vast & experienced back ground from top bank & finance companies. We are a people friendly organization, empower employees, ease up employee policy, provide quality training, helping employees to learn new techniques on sourcing new business & develop selling skills as per market changes. We have a robust employee & customer policies so in all we are an employee & customer friendly corporate organization,” added Kumaran.

The firm with an optimistic outlook aspires to increase its clients and revenue in the years to come. Olety Finance also aims to spread its wings geographically pan India. “NBFC is also called shadow banking in our sector so it’s critical for Govt in ensuring this sector grows as faster as possible to be in the line with economic growth of the country. With new stable Govt at centre and RBI taking lot of measure to support NBFC liquidity requirement, we are certain & confident in raising capital smoothly to build our biz,” concludes Kumaran.

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How to start NBFC Business

Complete Guidance on Imitating Non-banking Finance Company in India NBFC is the most popular and common terms who want to initiate a finance or lending business. While in India they are doing well, there is a growing interest in the country to register new companies. In the last few years, the incorporation procedure of NBFC under companies has have been simplified, and it can be registered with MCA without the prior approval from RBI. After establishment, you need to approach RBI office for Cor. You can begin any lending business in India without a Valid NBFC license from RBI. The Registration procedure of NBFC begins with name approval of the purposed company. Ensure that in Inc-1 the ultimate goal of your corporation is financing.

Types of NBFC Registration in India One can register an NBFC in India in 90 to 120 Working days and begin finance business. New NBFC registration is highly prescribed over the NBFC takeover. NBFC registration holds a few processes; the process start with the State of Capital test and Business Planning, there after Profile Assessment, submit experience in finance, go through the Eligibility test of Business and Public interest concern of the Regulator. When you pass altogether, Cor may be issued by the Department of Non-Banking Regulation.

In India, Section 45-IA of the RBI Act of 1934 rules the NBFC registration, and companies are registered as per the rules, provision, and regulations of these sections. The registration is categorized into two types - nature of the activity and the other is on deposits

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Types of NBFC companies as per the nature of activity • • • • • • • •

Mortgage Guarantee Company Asset Finance Company Core Investment Company Microfinance Company Housing Finance Company Investment Company Loan Company Infrastructure Finance Company

On the basis of deposits • •

Companies eligible to accept deposits Companies not eligible to accept deposits

Registration Process of NBFC Go through the RBI’s website www.rbi.org.in.

File here an online application After the submission, you would receive a reference number to help inquiry in the future Now, submit the photocopies of your business documents to the concerned regional office of RBI as a hardcopy.

The regional office will verify your documents. And, after verification, the regional office will transfer the application for NBFC registration to the central office.

If you satisfy all the all prescribed things in the section 45-IA, of its act of 1934, the central office of RBI grants the NBFC registration The RBI regulates and oversees NBFC Registration in India. If any unincorporated thing or an NBFC without authorization to gain deposit is found receiving public deposits, it is subject for criminal action.

Basic criteria are for NBFC registration is as follow: • • • • • • • • • • • • • •

Your corporation needs to be registered in India as Pvt. Ltd. or Ltd. Company.

Your company must hold a minimum Net Owned Fund of Rs.200 lakhs. Here, the Net Owned Funds are calculated on the basis of the last audited balance sheet of the Company.

Important Documents for NBFC Registration Certified Copy of Registration Certificate Submit updated KYC & Income proof of Directors and Shareholders of the company Net worth Certificate Collect updated net worth certificate of Directors, Shareholders, and Company head Clean Banker Report Proof of Education Qualification Credit report of Directors and shareholders Experience in the financial sector Present the profiles of Directors with 10+ years’ experience in the financial field Submit the complete detailed plan about your loan products, fair practice code, credit, and risk assessment policy of your company Provide organizations structure and decision-making process

19

Registration Fees To register as NBFC, you should hold minimum capital of Rs. 2 cr; therefore, you need to register the company with the prescribed capital and the requisite government fees.

Who does not Require NBFC Registration?

Here, there are several types of companies who do not need NBFC license to operate. The list is mentioned below: Housing Finance Companies: It is regulated by the National Housing Insurance Companies: Insurance Regulatory and Development Authority of India (IRDA) controls all insurance companies.

Stock Broking: Stock Broking is managed by Securities and Exchange Board of India.

Merchant Banking Companies: When it comes to Merchant Banking Companies, they are functioning under the Securities and Exchange Board of India.

Venture Capital Companies: Securities and Exchange Board of India regulates all Venture Capital Companies.

Companies with Collective Investment Schemes: They are regulated by the Securities and Exchange Board of India.

Mutual Funds: Mutual Funds work under the control of Securities and Exchange Board of India.

Nidhi Companies: They are regulated by the MCA.

Bottom Line The pathway of building the business of an NBFC is neither too comfortable nor very difficult. The government has come with much leverage to promote NBFC Registration at the present time. Although, a few regulations are essential in order to ensure smooth functioning of the financial system of the country.

20

Latest Trends in the Non-Banking Finance Sector that You Must Know

Latest Trends in the Non-Banking Finance Sector that You Must Know Non-banking finance companies or NBFCs have played an amazing role in making credit reach to the last-mile borrowers. Now, the sector is focusing on the adoption of new technology and innovation in order to simplify the entire process so that the consumption demand of the country can be met efficiently.

And, that is why, in the last few years, the NBFC sector has witnessed a huge surge of a technological revolution. With the increasing innovation and development in the NBFC sector, advanced technological trends are catching the pace. Also, as the different industries are advancing their process, it is even more important that NBFCs bring in technology to boost their growth. It is like an investment that will surely pay off in a big way.

To keep up with the current market environment, here we are throwing some light on the latest digital trends of the NBFC sector

INNOVATION 22

Artificial intelligence Artificial Intelligence is completely based on the concept that machines can work in better ways on behalf of a human. In the contemporary world, a lot of Indian NBFCs are harnessing the power of AI in their day-to-day operations.

Chief Technology Officer of SBFC India Pvt Ltd, Deepak Mudalgikar, says, “While being true to our tagline i.e. ‘loans made easy’, we focus to simplify our processes both for our employees and stakeholders by using analytics, AI, machine learning and various other tools.

Biometrics Biometric-based authentication is one of the best innovations of modern industry. Through this technology, an individual is identified by evaluating one or more of his unique biological traits like fingerprints, voice waves, or retina and iris patterns. These characteristics recognize individuals from an entire population according to their intrinsic physical or behavioral traits. It is the best solution for stakeholders by using analytics, AI, machine learning and various other tools.

These modalities have numerous benefits like non-repudiation, not transferable, not guessable and also provide a very high level of protection against fraud. The technology is implemented in diverse real-life applications and is being used in the financing industry also.

Blockchain Data says that 80 percent of the effort related to KYC is dedicated to information gathering and processing, and only 20 percent to assessing and monitoring that information for critical insights. It is a tiresome process and involves repetitive questioning and long processing times and all in all creates a frustrating experience. That is why the service providers are looking for a new and innovative solution to the identity problem that they get in the form of Blockchain.

Blockchain solution handles the entire process of KYC. It makes data available on a decentralized network and hence makes it accessible by third parties directly after permission is granted. The new KYC system offers better data security by making it sure that data access is only made after confirmation or permission is received from the relevant authority, removing all unauthorized accesses.

Chatbots & Robo-Advisors Presently, the use of Chatbots & Robo-Advisors is greatly increasing. They are being used in different industry verticals, and NBFC is not an exception. Most of the NBFCs are utilizing chatbots and robot-advisors for interactions with customers for self-on boarding of the customer, customer servicing and employee-related services.

The unique thing about chatbots and robot-advisors are that they hold vernacular capabilities, which make them perfect for rural and semi-urban India. Today, because these chatbots and robot-advisors, the whole process of taking different financial services by masses is streamline.

23

Cognitive Computing Cognitive Computing is a wide concept; it includes an application of techniques like machine learning, predictive analytics and speech recognition and more. Cognitive computing plays a key role in actualizing the process. Brian Krzanich, the CEO of Intel, says that “cognitive computing is based on the ability of machines to sense, reason, and act and adapts based on learned experience.�

Social Profiling Score KYC is used once to assess the credit-worthiness of an individual. Present-day, because of a culture of promoting a holistic view of a prospective customer and assessing his ability to service a loan, things have come down to the level that now besides LinkedIn and Facebook posts, even the orders history of food delivery application is being taken into account by many NBFCs players for evaluating the credit-worthiness of customers.

Apart for making use of the info provided by the borrower, in order to assess customers’ creditworthiness, the advanced technology is used to match the data with whatever is available in public domain, like on the Ministry of Corporate Affairs (MCA) and GST portal, then cross-verify this using the social media profiling of the borrower. This provides service providers with a complete picture of the customer.

Bottom Line In nutshell, after considering the futuristic technologies driving the growth of NBFCs and gaining further currency across the financial ecosystem of the country, the sector looks headed towards a brighter phase in the years to come.

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NBFC & Budget

Impact of Union Budget on Non-Banking Finance Companies NBFCs address to the different financial needs of bank excluded customers. They present innovative financial services to Micro, Small, and Medium Enterprises (MSMEs) according to their business necessities. NBFCs provide a fillip to transportation, job generation, wealth creation, bank credit in rural sections to assist financially weaker sections of the community. Some of the emergency services given by NBFCs include financial assistance and guidance in the matters pertaining to insurance.

Recently Nirmala Sitharaman announced Union Budget 2019-20. In this budget, she has given great focus on Non-banking financial companies. She said that the government will lend a helping hand to top-rated entities in order to alleviate the ongoing burden on India's non-banking finance companies.

NBFC & BUDGET The Economic Survey has released just a day before the Budget, this survey has shown that NBFCs faced severe liquidity crunch as mutual funds stopped refinancing the loans of NBFCs. The survey warned that if the impact of stress in the NBFC sector spills over to this year as well, it may lead to lower credit off take from NBFCs, which may depress an increase in consumption spending.

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“Non-banking financial companies play a significant role in the capital generation, and the government will provide a one-time partial credit guarantee to PSBs to obtain high-rated pooled assets of financially sound NBFCs,” she added.

Presently, NBFCs are efficiently driving the market in nurturing consumption demand and capital formation in the small and medium industrial segment. The goal of new implementations related to Non-banking Financial Corporation is to endorse these corporations to receive regular funding from banks and mutual funds without being unduly risk-averse. As per the provision, the government will grant a partial guarantee of 1 lack crore to state-run banks for acquiring consolidated high-rated pooled assets of financially-established Non-Banking Finance Companies. This will incorporate their first loss of up to 10 percent. The ultimate goal of this financial assistance is to enhance liquidity access for the sector.

Under the budget, Sitharaman also proposed permitting investments made by foreign institutional and portfolio investors in debt securities issued by Infrastructure Debt Fund-NBFC to be transferred or sold to any domestic investor within the specified lock-in period. Moreover many new rules and changes have been brought in this budget specifically for NBFCs; few of them are given below: •

The government has allowed interest on certain bad or doubtful debts to be taxed in the year in which the interest is actually received to handle important NBFCs systemically like banks.

•

Debenture Redemption Reserve (DRR), which is practiced to build funds in public issues and is applicable for only public sector banks will also make available for Non-banking Finance Corporations. This decision will allow all NBFCs, even those not registered as NBFCs-Factor, to directly participate on the TReDS platform.

•

This Budget reinforces the crucial role that NBFC and HFCs play in credit delivery. This capitalization advance for banks, credit guarantee for high rated asset pools and easing of the reserve elements in public issue of debentures will further permit the course of liquidity to grow NBFCs having strong balance sheets.

•

Now, foreign institutional investors and foreign portfolio investors got permission to invest in debt securities by the shadow banks. This will allow the NBFC sector to raise more funds and fight with the liquidity crunch.

•

The proposal to let FIIs and FPIs invest in debt securities issued by NBFC would provide the required boost of capital to a sector now starving of capital; an important prop to several sectors, particularly, real estate and automobile, which are reeling for lack of finance to buyers.

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Impact of Budget on RBI and NBFCs Apart from different modifications and innovations, the budget has also made changes in the regulatory body of NBFCs. Reserve Bank of India (RBI) is the regulating body for NBFCs, and few decisions are taken to strengthen its authority over the sector.

The amendments proposed to the RBI Act 1934 holds the powers relating to resolution of NBFCs. As per the amendments, RBI can draft schemes for amalgamation, reconstruction or splitting up of the viable and nonviable businesses of the NBFC to assure the continuance of critical activities. The regulator may also establish "bridge institutions" that is a temporary arrangement to facilitate the progression of NBFC's business.

With the new rule, RBI will get the power to remove a director of an NBFC, excluding those controlled by the Indian government. All NBFCs, mainly housing finance companies are facing cash crunch since the IL&FS debt crisis in September 2019. The crisis has badly impacted the business growth of these companies. It is expected that the supervision of RBI will bring better opportunities for housing finance companies.

Apart from numerous advantages, the new budget has also come up with some burden.

After this new rule and regulations, NBFCs that do the public placement of debt need to maintain a DRR and besides a special reserve as needed by the RBI, has also to be maintained.

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