ACKNOWLEDGEMENT

I acknowledge the invaluable assistance of all the faculty members of my college. I would
like to show my gratitude to Dr.Harshit Tripathi (Head, Department of Business and
Industrial Management) for allowing me to take this opportunity in doing this project.

I also thank CA Pankaj Shukla (Project guide) for being supportive at all the points of time. I
feel he is one such inspiration amidst the glory of this creation. My guide, whose meticulous
attention to detail drove me to finally learn the complexities of designing a research work.

I would also like to acknowledge and thank all my friends who participated in this research
by providing me with their valuable responses, which formed the basis of this work. I am
thankful to all those who, directly or indirectly, assisted me in bringing this project to
fruition.

I would like to express my gratitude to my parents for their active cooperation which was
great help during the course of my project.

GAURAV SHARMA
 TABLE OF CONTENTS

CHAPTER PARTICULARS PAGE NO.

NO.

Declaration
Acknowledgement

Executive summary 1
1 INTRODUCTION
1.1 Introduction to Non Banking Financial Companies 3
1.2 Requirement for registration of NBFC with RBI 5
1.3 Type of NBFC 6
1.4 The current status of NBFCs on India 9
1.5 Role of NBFC 12
1.6 Functions of NBFCS 14
1.7 Commercial bank v/s NBFC 15
1.8 Top NBFCS of India 16
1.9 Theoretical background 26

2 LITERATURE REVIEW 29

3 RESEARCH METHODOLOGY
3.1 Meaning of research and methodology 34
3.1.1 Meaning of research 34
3.2 Objectives of study 34
3.3 Research problem 34
3.3.1 Research design 35
3.3.2 Sampling design 35
3.3.3 Data collection 35
3.3.4 Limitations of study 36
4 DATA ANALYSIS 37

5 FINDINGS AND CONCLUSION

5.1 Findings 47
5.2 Conclusion 48
 Executive summary

Non- Banking Financial Companies are an important segment of the Indian Financial
system in extending credit to the unbanked segments of the society particularly to
micro, small and medium enterprises. They are classified into different categories based
on their status and principal activities. In this paper, an attempt has been made to
analyze the performance of the five different categories of NBFCs in India across 2017
to 2022. The performance is analyzed by examining key indicators like Liquidity ratio,
Profitability Ratio and Debt to Equity Ratio. The findings indicate that the selected
categories of NBFCs differ significantly in terms of Liquidity and Profitability ratios
from one another.
India is a developing country where large sections of the population are unbanked which
give rise to several forms of financial intermediaries including non - banking financial
companies. A Non- Banking Financial Company (NBFC) is a company registered under
the Companies Act 1956 engaged in the business of loans and advances acquisition of
stocks, equities, debt etc issued by government or any local authority or other
marketable securities like leasing, hire purchase, insurance business , chit business.
NBFC sector has evolved considerably in terms of size, operations, technological
sophistication, and entered into newer areas of financial services and products. It is
essential to analyze and measure the growth of NBFCs for better understanding about
the transformation of financial intermediaries in the context of Indian banking system.
Financial performance can be measured using solvency and profitability ratios and
applying statistical tools to analyze the results. NBFCs are playing a crucial role in
economic development of a country. They cater to needs of people in both rural and
urban areas through various schemes which helps in bridging the credit gaps. NBFCs do
enjoy flexibility in operations when compared to banks. Some of the top NBFCs in
India are Power Finance Corporation Limited, Mahindra & Mahindra Financial
Services Limited,
Muthoot Finance Ltd. Etc. This project ss is mainly focused on the studying the growth
of NBFCs and finding the reasons or factors behind their performance and non-
performance. The financial performance is analyzed through ratio analysis technique
and results are interpreted for 5-year period.

1
CHAPTER 1

INTRODUCTION

2
1.1 INTRODUCTION OF NON-BANKING FINANCIAL
COMPANIES (NBFCS)
Non-Banking Financial Companies are financial companies which performs like banks
but they are not actual bank. These types of financial companies have to be registered
under Companies act,1956. These financial companies engage in the business of
financial loans and advances, acquisition of securities/bonds/debentures which are
issued by Government or local authority or the marketable securities of a like nature,
leasing, hire- purchase, insurance business, chit business but does not it does not include
whose prime principal business is that of agricultural activity, industrial activity,
purchase or sale of any goods. A Non-Banking Financial Companies have head business
of accepting stores under any plan or course of action in one singular amount or in
portions by method for commitments or in some other way, is additionally a non-
banking budgetary organization.
NBFCs garnered the attention of the Reserve Bank of India („RBI‟) when several
depositors lost their money, during the failure of several banks in the late 1950s and
early 1960s. In order to prevent the large number of depositors, RBI initiated regulating
them by introducing Chapter IIIB in the Reserve Bank of India Act, 1934.In March
1996, there were around 41,000 NBFCs in India and they were not recognized as a
separate class. However, due to the failure of some of the institutions the regulatory
structure along with the reporting and supervision was constricted by RBI. In the late
90s, sweeping changes were brought to protect the interest of depositors and ensuring
the desired functioning of NBFCs.
The capital requirement was changed in the year 1999, NBFCs getting registered on or
after the issuance of notification dated April 21, 19991 were required to have the
minimum net owned funds of ` 200 lakhs in order to commence the business of an
NBFC. Due to snowballing trend in the sector and to ensure the growth of the sector in a
healthy and efficient manner various regulatory measures were taken for identifying the
systemically important companies and bringing them under the austere norms. The
NBFC-ND with asset size of ` 100 crores or more were considered to be systemically
important companies. During the FY 2011-12, two new categories of NBFCs were
introduced viz., IDF and MFI.

3
 DEFINITION ( Reserve Bank of India)
Definition for Non-Banking Financial Company, it carries functions like bank but it is
not actual bank. Reserve bank of India has defined NBFC as below. RBI has defined it
systematic way, it has explained each term in detailed i.e. what is financial institution?
What is non-banking?
An NBFC is a company registered under the Companies act, 1956 or Companies act,
2013 and is engaged in the Business of financial Institution.
Section 45I(f) of the Reserve Bank of India act, 1934 defines “Non-Banking Financial
Companies” as
(i) A financial Institution which is a company;
(ii) A non-banking financial institution which is company and which has its
principal business the receiving of deposits, under any scheme or
arrangement or in any order manner, or in lending in any manner;
(iii) Such other non-banking financial institution or class of such institution, as
the bank may, with the previous approval of the central government and by
notification in the Official gazette, specify; Section 45I(c) of the Reserve
Bank of India act, 1934 defines the term “Financial Institution” as
Financial institution means any non-banking institution which carries on as
it‟s business or part of its business any of the following activities, namely:
(i) The financing, whether by way of making loans or advances or otherwise,
of any activities other than its own;
(ii) The acquisition of shares, stocks, bonds, debentures or securities issued by
government or local authority or other marketable securities of a like nature;
(iii) Letting or delivering of any goods to a hirer under hire-purchase agreement
as defined in clause (c) of section 2 of the hire purchase act, 1972;
(iv) The carrying on of any class of business;
(v) Managing, conducting or supervising, as foreman, agent or in any other
capacity, of chits or kooris as defined as any law which is for the time being
in force in any state, or in any business, which is similar thereto;
(vi) Collecting, for any purpose or under any scheme or arrangement by
whatever name called, monies in lump sum or otherwise, by way of
subscription or by sale of units, or other instruments or other any manner and
awarding prizes or gifts, whether in cash or kind, or disbursing monies in
anyotherway,topersonsfrom

4
 whom monies are collected or to any other person, but does not include any

other institution, which carries on as its personal business:

● Agricultural operations; or
● Industrial activity; or
● The purchase or sale of any goods (other than securities) or the providing of any
services; or
● The purchase, construction or sale of any immovable property, so however, that
no other portion of income of the institution is derived from the financing of the
purchases, constructions or sale of immovable property by other persons.

1.2 REQUIREMENT FOR REGISTRATION WITH RBI

Section 45-IA of the RBI Act, 1934 states that-
No Non-Banking Financial company shall commence or carry on the business of a Non-
Banking Financial Institution without-
⮚ Obtaining Certificate of Registration; and
⮚ Having Net Owned Fund of Rs. 2 crores (Prior to the issuance of notification
dated 21st April, 1999 the requirement of having minimum Net owned fund was
revised from 25 lac to 2 crores)
However, as per revised regulatory framework if a NBFC having NOF less than Rs. 2
crores then such companies need to increase the NOF in the following manner
⮚ Rs. 1 crore before 1st April, 2016;
⮚ and Rs. 2 crores before 1st April, 2017.
An application for the registration needs to be submitted by the company in the
prescribed format along with the necessary documents for the RBIs consideration. RBI
has specified different indicative list of documentation/information to be submitted
along with for the application for NBFC-CIC (Core Investment Companies), NBFC-
Factors, NBFC-MFI (Micro Finance Company), and other NBFCs. However, in order to
avert dual registration, RBI has exempted certain class of companies from the
requirement of registration with the RBI.

5
1.3 TYPES OF NBFCS

Liability
There are two types in classification of NBFCs by Liability.
⮚ Deposit accepting NBFCs
⮚ Non-Deposit accepting NBFCs
All Non-Banking Financial Companies don‟t accept deposits. Only those NBFCs
which are holding a valid Certificate of Registration (COR) with authorization to
accept Public Deposits can accept/hold public deposit.
Section 45-I(bb) of the Reserve Bank of India Act, 1934 defines the term deposits
as- Stores (Deposits) incorporates and will be deemed always to have included any
receipt of cash by way of deposit or credit or in any other structure, however does
exclude –
(i) Amounts raised by the way share capital;
(ii) Amounts contributed as capital by partners of the firm;
(iii) Amounts received from scheduled bank or co-operative bank or any other
banking company as defined in clause (c) of section 5 of the banking
regulation act, 1949;
(iv) Any amount received from, - a State financial corporation, any financial
institution specified in or under section 6 a of IDBI act, 1964, or any other
institution that may be specified by bank in this behalf;

6
Money got in normal course of business, by method for – Security Deposits, Dealership
Deposits, sincere cash, and advance against request of merchandise, properties or
administrations.
(v) Any sum got from an individual or a firm or a relationship of a people not
being a body corporate, enlisted under any institution identifying with cash
loaning which is for now in power in any state;
Size
NBFCs are categorized into two different categories viz. Deposit accepting and non-
Deposit accepting. The non-depositing NBFCs further bifurcated into:
1. Systematically Important-
The term “Systematically important non-deposit taking non-banking financial
company” has been defined to means a Non-Banking Financial Company not
accepting/holding public deposits and having total assets of Rs. 500 crores and
above.
2. . Non-systematically Important-
The term “non-systematically important non-deposit taking non- banking
financial company” has been defined to means a Non-Banking Financial
Company not accepting/holding public deposits and having total assets less than
Rs. 500 crores.
Activity

● Underlyingoneormoreassetsassecurityforavailingcredit
ASSET
● Principalbusiness,Financingforphysicalassetslike
FINANCINGCOMP
INVESTMENT automobiles,tractors ,andgenerator setsetc
ANY
COMPANY ● E.g.MagmaFincorpltd,Edelweiss Assetsmanagement

i) Engaged in business of pooled capital of

investors infinancialsecurities.
ii) Itcanbecorporation,partnership,businesstrust,orL.L.
P
iii) E.G.TATAInvestmentcorporationltd.
7
LOANCOMPANY

1 Providefinancebymakingloans andadvances.
2 Offerdifferenttypesofloansasperindividual‟spreference.
3 Accept deposits at higher interest rate and further give
loansgive loans on higher interest to retailers, wholesalers,
andself-employed persons

1. Non-DeposittakingNBFC

INFRASTRUCTURE 2. Deploys75%ofitstotalassetsininfrastructural

FINANCECOMPAN
HOUSINGFINANCE loans.

Y
COMPANY 3. Minimum Net Owned fund Rs.300 crores, minimum
creditrating of „A‟ or equivalent, and CAR should be 15
%. E.g.L&T, IDFCLtd

3 Assetsize100croresandaccept publicdeposit.
CORE 4 Does not hold less than 90% of its total assets in the
INVESTMENTCOMP formofinvestmentinshares
ANY 5 Principalbusiness,acquisitionofsharesandsecurities
6 E.G.TATAcapitallimited

⮚ Non-deposittakingNBFCwithminimum net
ownedfundsof5 crores.
MICRO
FINANCEINSTIT ⮚ Loanstobeextendedwithout collateral.

UTIONS ⮚ Indebtednessshould notbeexceededRs.1,00,000

⮚ E.G.Unnati MicroFinanceprivatelimited

1. Principal business of financing of

acquisition orconstructionof houses.
2. Regulatedbynational housing financing
3. Netownedfundof Rs.10 crores
4. E.G.HDFCltd,
IndiaBullsHousingFinanceltd.
8
1.4 THE CURRENT STATUS OF NON- BANKING
FINANCIAL COMPANIES.

Prudential norms:
The Reserve Bank put in place in January 1998 a new regulatory framework involving
prescription of prudential norms for NBFCs which deposits are taking to ensure that
these NBFCs function on sound and healthy lines. Regulatory and supervisory attention
was focused on the „deposit taking NBFCs‟ (NBFCs – D) so as to enable the Reserve
Bank to discharge its responsibilities to protect the interests of the depositors. NBFCs -
D are subjected to certain bank –like prudential regulations on various aspects such as
income recognition, asset classification and provisioning; capital adequacy; prudential
exposure limits and accounting / disclosure requirements. However, the „non-deposit
taking NBFCs‟ (NBFCs – ND) are subject to minimal regulation.
The application of the prudential guidelines / limits is thus not uniform across the
banking and NBFC sectors and within the NBFC sector. There are distinct differences
in the application of the prudential guidelines / norms as discussed below:
i) Banks are subject to income recognition, asset classification and provisioning
norms; capital adequacy norms; single and group borrower limits; prudential limits on
capital market exposures; classification and valuation norms for the investment
portfolio; CRR / SLR requirements; accounting and disclosure norms and supervisory
reporting requirements.
ii) NBFCs – D are subject to similar norms as banks except CRR requirements and
prudential limits on capital market exposures. However, even where applicable, the
norms apply at a rigor lesser than those applicable to bank. Certain restrictions apply to the
investments by NBFCs – D in land and buildings and unquoted shares.
iii) Capital adequacy norms; CRR / SLR requirements; single and group borrower
limits; prudential limits on capital market exposures; and the restrictions on
investments in land and building and unquoted shares are not applicable to NBFCs –
ND.
iv) Unsecured borrowing by companies is regulated by the Rules made under the
Companies Act. Though NBFCs come under the purview of the Companies Act, they
are exempted from the above Rules since they come under RBI regulation under the
Reserve

9
Bank of India Act. While in the case of NBFCs – D, their borrowing capacity is limited
to a certain extent by the CRAR norm, there are no restrictions on the extent to which
NBFCs – ND may leverage, even though they are in the financial services sector.

Financial Linkages between Banks and NBFC:

Banks and NBFCs compete for some similar kinds of business on the asset side. NBFCs
offer products/services which include leasing and hire-purchase, corporate loans,
investment in non-convertible debentures, IPO funding, margin funding, small ticket
loans, venture capital, etc. However, NBFCs do not provide operating account facilities
like savings and current deposits, cash credits, overdrafts etc.
NBFCs avail of bank finance for their operations as advances or by way of banks‟
subscription to debentures and commercial paper issued by them.
Since both the banks and NBFCs are seen to be competing for increasingly similar types
of some business, especially on the assets side, and since their regulatory and cost-
incentive structures are not identical it is necessary to establish certain checks and
balances to ensure that the banks‟ depositors are not indirectly exposed to the risks of a
different cost-incentive structure. Hence, following restrictions have been placed on the
activities of NBFCs which banks may finance:
i) Bills discounted / rediscounted by NBFCs, except for rediscounting of bills
discounted by NBFCs arising from the sale of –
a) Commercial vehicles (including light commercial vehicles); and
b) Two-wheeler and three-wheeler vehicles, subject to certain conditions;
c) Investments of NBFCs both of current and long term nature, in any
company/entity by way of shares, debentures, etc. with certain exemptions;
ii) Unsecured loans/inter-corporate deposits by NBFCs to/in any company.

iii) All types of loans/advances by NBFCs to their subsidiaries, group companies/entities.

iv) Finance to NBFCs for further lending to individuals for subscribing to Initial
Public Offerings (IPOs).

10
v) Bridge loans of any nature, or interim finance against capital/debenture issues
and/or in the form of loans of a bridging nature pending raising of long-term funds
from the market by way of capital, deposits, etc. to all categories of Non-Banking
Financial Companies, i.e. equipment leasing and hire-purchase finance companies,
loan and investment companies, Residuary Non-Banking Companies (RNBCs).
Should not enter into lease agreements departmentally with equipment leasing companies
Structural Linkages between Banks and NBFCs:
Banks and NBFCs operating in the country are owned and established by entities in the
private sector (both domestic and foreign), and the public sector.
Some of the NBFCs are subsidiaries/ associates/ joint ventures of banks – including
foreign banks, which may or may not have a physical operational presence in the
country. There has been increasing interest in the recent past in setting up NBFCs in
general and by banks, in particular.
Investment by a bank in a financial services company should not exceed 10 per cent of
the bank‟s paid-up share capital and reserves and the investments in all such companies,
financial institutions, stock and other exchanges put together should not exceed 20 per
cent of the bank‟s paid-up share capital and reserves.
Banks in India are required to obtain the prior approval of the concerned regulatory
department of the Reserve Bank before being granted Certificate of Registration for
establishing an NBFC and for making a strategic investment in an NBFC in India.
However, foreign entities, including the head offices of foreign banks having branches
in India may, under the automatic route for FDI, commence the business of NBFI after
obtaining a Certificate of Registration from the Reserve Bank.
NBFCs can undertake activities that are not permitted to be undertaken by banks or
which the banks are permitted to undertake in a restricted manner, for example,
financing of acquisitions and mergers, capital market activities, etc. The differences in
the level of regulation of the banks and NBFCs, which are undertaking some similar
activities, gives rise to considerable scope for regulatory arbitrage. Hence, routing of
transactions through NBFCs would tantamount to undermining banking regulation.
This is partially addressed in the case of NBFCs that are a part of banking group on
account of prudential norms applicable for banking groups

11
1.5 ROLE OF NON- BANKING FINANCIAL COMPANIES.
1. Promoters Utilization of Savings:

Non- Banking Financial Companies play an important role in promoting the utilization
of savings among public. NBFC‟s are able to reach certain deposit segments such as
unorganized sector and small borrowers were commercial bank cannot reach. These
companies encourage savings and promote careful spending of money without much
wastage. They offer attractive schemes to suit needs of various sections of the society.
They also attract idle money by offering attractive rates of interest. Idle money means
the money which public keep aside, but which is not used. It is surplus money.
2. Provides easy, timely and unusual credit:

NBFC‟s provide easy and timely credit to those who need it. The formalities and
procedures in case of NBFC‟s are also very less. NBFC‟s also provides unusual credit
means the credit which is not usually provided by banks such as credit for marriage
expenses, religious functions, etc. The NBFC‟s are open to all. Every one whether rich
or poor can use them according to their needs.
3. Financial Supermarket:

NBFC‟s play an important role of a financial supermarket. NBFC‟s create a financial

supermarket for customers by offering a variety of services. Now, NBFC‟s are
providing a variety of services such as mutual funds, counseling, merchant banking, etc.
apart from their traditional services. Most of the NBFC‟s reduce their risks by
expanding their range of products and activities.

4. Investing funds in productive purposes:

NBFC‟s invest the small savings in productive purposes. Productive purposes mean
they invest the savings of people in businesses which have the ability to earn good
amount of returns. For example – In case of leasing companies lease equipment to
industrialists, the industrialists can carry on their production with less capital and the
leasing company can also

12
earn good amount of profit.
5. Provide Housing Finance:

NBFC‟s, mainly the Housing Finance companies provide housing finance on easy
term and conditions. They play an important role in fulfilling the basic human need of
housing finance. Housing Finance is generally needed by middle class and lower
middle-class people. Hence, NBFC‟s are blessing for them.
6. Provide Investment Advice:

NBFC‟s, mainly investment companies provide advice relating to wise investment of

funds as well as how to spread the risk by investing in different securities. They protect
the small investors by investing their funds in different securities. They provide
valuable services to investors by choosing the right kind of securities which will help
them in gaining maximum rate of returns. Hence, NBFC‟s plays an important role by
providing sound and wise investment advice.
7. Increase the Standard of living:

NBFC‟s play an important role in increasing the standard of living in India. People
with lesser means are not able to take the benefit of various goods which were once
considered as luxury but now necessity, such as consumer durables like Television,
Refrigerators, Air Conditioners, Kitchen equipment, etc. NBFC‟s increase the Standard
of living by providing consumer goods on easy installment basis. NBFC‟s also facilitate
the improvement in transport facilities through hire- purchase finance, etc. Improved
and increased transport facilities help in movement of goods from one place to another
and availability of goods increase the standard of living of the society.
8. Accept Deposits in Various Forms:

NBFC‟s accept deposits forms convenient to public. Generally, they receive deposits
from public by way of depositor a loaner in any form. In turn the NBFC‟s issue
debentures, units‟ certificates, savings certificates, units, etc. to the public.

13
 9. Promote Economic Growth:

NBFC‟s play a very important role in the economic growth of the country. They
increase the rate of growth of the financial market and provide a wide variety of
investors. They work on the principle of providing a good rate of return on saving, while
reducing the risk to the maximum possible extent. Hence, they help in the survival of
business in the economy by keeping the capital market active and busy. They also
encourage the growth of well- organized business enterprises by investing their funds in
efficient and financially sound business enterprises only. One major benefit of NBFC‟s
speculative business means investing in risky activities. The investing companies are
interested in price stability and hence NBFC‟s, have a good influence on the stock-
market. NBFC‟s play a very positive and active role in the development of our country.

1.6 FUNCTIONS OF NON- BANKING FINANCIAL COMPANIES:

1. Receiving benefits:

The primary function of NBFC is receive deposits from the public in various ways such
as issue of debentures, savings certificates, subscription, unit certification, etc. thus, the
deposits of NBFC are made up of money received from public by way of deposit or loan
or investment or any other form.
2. Lending money:

Another important function of NBFC is lending money to public. Non- banking

financial companies provide financial assistance through.
3. Hire purchase finance:

Hire purchase finance is given by NBFC to help small important operators,

professionals, and middle-income group people to buy the equipment on the basis on
Hire purchase. After the last installment of Hire purchase paid by the buyer, the
ownership of the equipment passes to the buyer.
4. Leasing Finance:

In leasing finance, the borrower of the capital equipment is allowed to use it, as a hire, against

14
the payment of a monthly rent. The borrower need not purchase the capital equipment
but he buys the right to use it.
5. Housing Finance:

NBFC‟s provide housing finance to the public, they finance for construction of houses,
development of plots, land, etc.
6. Other types of finance provided by NBFCs include:

Consumption finance, finance for religious ceremonies, marriages, social activities,

paying off old debts, etc. NBFCs provide easy and timely finance and generally those
customers which are not able to get finance by banks approach these companies.
7. Investment of surplus money:

NBFCs invest their surplus money in various profitable areas.

1.7 COMMERCIAL BANK VERSUS (V/S) NON-BANKING

FINANCIAL COMPANIES

While commercial banks and non-banking financial companies are both financial
intermediaries (middleman) receiving deposits from public and lending them.
Commercial bank is called as “Big brother” while the “NBFC” is called as the
“Small brother. But there are some important differences between both of them,
they are as follows:

Sr no. COMMERCIAL BANKS NBFC

1 Issue of cheques: In case of NBFC‟s there is no
In case of commercial banks, a facility to issue cheques against bank
cheque can be issued against deposits
bank deposits
2 Rate of interest: NBFC‟s offer higher rate Of interest
Commercial bank offer lesser on deposits and charge higher rate of
rate of interest on deposits and
charge less rate of interest on interest on loans as compared to

15
 loans as compared to NBFC‟s. Commercial banks.
3 NBFC‟s offer higher rate of NBFC‟s are not given such
interest on deposits and charge facilities.
higher rate of interest on loans
as compared to Commercial
banks.
4. Law which governs them: NBFC‟s are regulated by different
Commercial banks are regulated regulation such as SEBI, Companies
by Banking Regulation Act 1949 Act, National Housing Bank, Unit
and RBI. Fund Act and RBI.
5 Types of assets: NBFC‟s specialize in one types of
commercial banks hold a variety asset. For e.g.: Hire purchase
of assets in the form of loans, cash
companies specialize in consumer
credit, bill of exchange, overdraft
etc. loans while Housing Finance
Companies specialize in housing
finance only.

1.8 TOP NBFCS IN INDIA

1. Power finance corporation ltd.

Power Finance Corporation Ltd is a leading power sector public financial institution and
a non-banking financial company providing fund and non-fund based support for the
development of the Indian power sector. The company is engaged in power sector
financing and the integrated development of the power and associated sectors. They
provide large range of Financial Products and Services like Project Term Loan Lease
Financing Direct Discounting of Bills Short Term Loan and Consultancy Services etc
for various Power projects in Generation Transmission and Distribution sector as well
as for Renovation & Modernization of existing power projects.

16
 Revenue Rs. 33,362.90 crores

Operating Income Rs. 30045.7 crores

Total assets 361787.26 crores

Total equity 45,164.13

2. Rural Electrification Corporation

Rural Electrification Corporation Ltd is a Navratna Central Public Sector Enterprise
under the Ministry of Power. The company is engaged in the financing and promotion
of transmission distribution and generation projects throughout India. Their main
objective is to finance and promote rural electrification projects all over the country.
They provide financial assistance to State Electricity Boards State Government
Departments and Rural Electric Cooperatives for rural electrification projects sponsored
by them. The company provides loan assistance to SEBs/State Power Utilities for
investments in rural electrification schemes through its extensive network of 23 offices
across the country
Revenue ₹ 30007.50 crore
Operating income ₹ 26021.28 crore
Total assets ₹ 347030.08 crore
total equity ₹35396.43 crore
Net income ₹4972.27 crore

17
3. Mahindra & Mahindra Limited
Mahindra & Mahindra Limited is the flagship company of the Mahindra Group
which consists of diverse business interests across the globe and aggregate revenues of
around USD
19.4 billion. The company operates in nine segments: automotive segment comprises of
sales of automobiles spare parts and related services; farm equipment segment
comprises of sales of tractors spare parts and related services; information technology
(IT) services comprises of services rendered for IT and telecom; financial services
comprise of services relating to financing leasing and hire purchase of automobiles and
tractors; steel trading and processing comprises of trading and processing of steel;
infrastructure comprise of operating of commercial complexes project management and
development; hospitality segment comprises of sale of timeshare; Sys tech segment
comprises of automotive components and other related products and services and its
others segment comprise of logistics after-market two wheelers and investment.

18
 Revenue ₹11,996.46 crore
Operating income ₹ 1556.13 crore
Total assets ₹ 81792.58 crore
total equity ₹ 11969 crore

4. Muthoot Finance Limited

Muthoot Finance Limited is the largest gold financing company in India in terms of loan
portfolio. The company provides personal and business loans secured by gold jewellery
or Gold Loans primarily to individuals who possess gold jewellery but could not access
formal credit within a reasonable time or to whom credit may not be available at all to
meet unanticipated or other short-term liquidity requirements

Revenue ₹ 9,707 crore

Operating income ₹ 7,433 crore
Total assets ₹54,881 crore
total equity ₹ 11,414 crore
Net income ₹ 3168 crore

5. Larsen & Toubro

Larsen & Toubro is a major technology engineering construction manufacturing and
financial services conglomerate with global operations. The company is one of the
largest

19
and most respected companies in India‟s private sector. The company operates in three
segments Engineering & Construction Segment Electrical & Electronics
segment Machinery & Industrial Products and others
Revenue ₹147,813.26 crore
Operating income ₹13,430.95 crore
Total assets ₹308,140.13 crore
total equity ₹66,723.22 crore
Net income ₹9549.03 crore

6. Siemens financial services

Siemens Financial Services (SFS) is a Division of Siemens. The company‟s global
headquarters is in Munich, Germany. SFS offers international financing solution in the
business-to-business area. Financial Services serves Siemens as well as other
companies – primarily in the energy, industry, healthcare and infrastructure & cities
markets. The division finances infrastructure, equipment as well as working capital
investments, and acts as a manager of financial risks within Siemens AG. The network
of financing companies coordinated by Siemens Financial Services GmbH in Munich
comprises about 3,150 employees worldwide.

20
7. Reliance capital
Reliance Capital, a constituent of MSCI Global Small Cap Index, is a part of the
Reliance Group. It is amongst India‟s leading and most valuable financial services
companies in the private sector. Reliance Capital has interests in life, general and health
insurance; commercial & home finance; equities and commodities broking; wealth
management services; distribution of financial products; asset reconstruction;
proprietary investments and other activities in financial services. Reliance Nippon Life
Insurance and Reliance General Insurance are amongst the leading private sector
insurers in India. Reliance Securities is one of the India‟s leading retail broking houses
and distributors of financial products and services. Reliance Money and Reliance Home
Finance are one of the most rapidly expanding businesses in the lending space.
Revenue ₹1,075 crore

Total assets ₹64,782 crore

Total equity ₹-2,294crore

Operating income ₹2,741 crore

21
8. Ceejay Finance
Ceejay Finance Ltd was incorporated in 1993 under the name of Heritage Packaging
Limited in the state of Gujarat as a public limited company {vides Co.No.04-1990,
since then Ceejay Finance hasn‟t looked backed and is a leading non-banking Financial
Company (NBFC), formed by Ceejay Group with its headquarters situated in Nadiad,
Gujarat (India). Ceejay Finance Ltd is listed on Bombay Stock Exchange (BSE) under
the security code: 530789. The company is currently managing assets (AUM) of over
₹500 Crore and has served over 1.2 million clients nationally.
Ceejay Finance Ltd is registered as an Asset Finance Company – D NBFC with the
Reserve bank of India. Ceejay Finance is an integrated fiance company providing
financial services such as diverse vehicle loans, SME Business loans, Loan against
property, Personal Loan, Micro Finance Loan and Insurance services.

22
9. Industrial Finance Corporation of India (IFCI)
Industrial Finance Corporation of India (IFCI) is actually the first financial institute the
government established after independence. The main aim of the incorporation of IFCI
was to provide long-term finance to the manufacturing and industrial sector of the
country. Initially established in 1948, the Industrial Finance Corporation of India was
converted into a public company on 1 July 1993 and is now known as Industrial Finance
Corporation of India Ltd. The main aim of setting up this development bank was to
provide assistance to the industrial sector to meet their medium and long-term financial
needs.
The IDBI, scheduled banks, insurance sector, co-op banks are some of the major
stakeholders of the IFCI. The authorized capital of the IFCI is 250 crores and the
Central Government can increase this as and when they wish to do so.

23
10. Arman financial services ltd.

Arman Financial Services Limited (Arman) is an India-based non-banking finance

company. The Company provides two-wheeler three-wheeler financing inter-corporate
deposit (ICD) micro financing and personal financing. The Company operates through
two segments: JLG Microfinance and Asset-backed Microfinance (two-wheeler/three-
wheeler financing). Arman's Micro Finance operations have 14 branches operational all
over Gujarat in urban semi-urban and rural areas. Arman Financial Services Limited
was originally incorporated on November 26 1992 as an erstwhile Arman Lease &
Finance Ltd. The company is a public limited listed company.

1.9 THEORITICAL
FRAMEWORK Introduction to
ratio analysis
Ratio analysis is used to evaluate relationships among financial statement items. The
ratios are used to identify trends over time for one organization or to compare two or
more organizations
at one point in time. Ratio analysis focuses on three key aspects of business: liquidity,
profitability, and solvency. Ratio Analysis is an important tool for any business
organization.

Classification of ratio
1. Liquidity ratios: Liquidity ratios are the ratios that measure the ability of a company
to meet its short- term debt obligations. These ratios measure the ability of a company to
pay off its short-term liabilities when they fall due.
2. Solvency ratios: The solvency ratio is a key metric used to measure an enterprise‟s
ability to meet its debt obligations and is used often by prospective business lenders.
The solvency ratio indicates whether a company‟s cash flow is sufficient to meet its

24
liabilities. The lower a company‟s solvency ratio, the greater the probability that it will
default on its debt obligations
3. Activity ratios: An activity ratio is a type of financial metric that indicates how
efficiently a company is leveraging the assets on its balance sheet, to generate revenues
and cash. Commonly referred to as efficiency ratios, activity ratios help analysts gauge
how a company handles inventory management, which is key to its operational fluidity
and overall fiscal health.
4. Profitability ratios: Profitability ratios are a class of financial metrics that are used to
assess a business‟s ability to generate earnings relative to its revenue, operating costs,
balance sheet assets, and shareholder‟s ; equity over time, using data from a specific
point in time. Advantages of ratio analysis
● It helps to analyse and understand financial health and trend of a business, its
past performance, and makes it possible to forecast the future state of affairs of
the business.
● They diagnose the financial health by evaluating liquidity, solvency,
profitability etc. This helps the management to assess the financial requirements
and the capabilities of various business units. It serves as a media to link the
past with the present and the future.
● It serves as a useful tool in management control process, by making a
comparison between the performance of the business and the performance of
similar types of business.
● Ratio analysis plays a significant role in cost accounting, financial accounting,
budgetary control and auditing.
● It accelerates the institutionalization and specialization of financial
management accounting ratios summarize and systematize the accounting
figures in order to make them more understandable in a lucid form. They
highlight the inter-relationship which exists between various segments of the
business expressed by accounting statements.
Limitations of ratio analysis
● Usefulness of ratios depends on the abilities and intentions of the persons who
handle them. It will be affected considerably by the bias of such person

25
 ● Ratios are worked out on the basis of money-values only. They do not take into
account the real values of various items involved. Thus, the technique is not
realistic in its approach.
● Historical values (specially in balance sheet ratios) are considered in working
out the various ratios. Effects of changes in the price levels of various items are
ignored and to that extent the comparisons and evaluations of performance
through ratios become unrealistic and unreliable. Ratios are only as accurate as
the accounts on the basis of which these are established. Therefore, unless the
accounts are prepared accurately by applying correct values to assets and
liabilities, the statements prepared wherefrom would not be correct and the
relationship established on that basis would not be reliable
ANOVA TABLE
ANOVA, which stands for Analysis of Variance, is a statistical test used to analyze the
difference between the means of more than two groups.
A one-way ANOVA uses one independent variable, while a two-way ANOVA uses two
independent variables.

One-way ANOVA example

As a crop researcher, you want to test the effect of three different fertilizer mixtures on
crop yield. You can use a one-way ANOVA to find out if there is a difference in crop
yields between the three groups.
ANOVA tells you if the dependent variable changes according to the level of the
independent variable.
For example:
Your independent variable is social media use, and you assign groups to low, medium,
and high levels of social media use to find out if there is a difference in hours of sleep
per night. Your independent variable is brand of soda, and you collect data on Coke,
Pepsi, Sprite, and Fanta to find out if there is a difference in the price per 100ml.
Your independent variable is type of fertilizer, and you treat crop fields with mixtures 1,
2 and 3 to find out if there is a difference in crop yield.
The null hypothesis (H0) of ANOVA is that there is no difference among group means.

26
The alternate hypothesis (Ha) is that at least one group differs significantly from the
overall mean of the dependent
variable.
If you only want to compare two groups, use a t-test instead.

How does an ANOVA test work?

ANOVA determines whether the groups created by the levels of the independent
variable are statistically different by calculating whether the means of the treatment
levels are different from the overall mean of the dependent variable.
If any of the group means is significantly different from the overall mean, then the null
hypothesis is rejected.
ANOVA uses the F-test for statistical significance. This allows for comparison of
multiple means at once, because the error is calculated for the whole set of comparisons
rather than for each individual two-way comparison (which would happen with a t-test).
The F-test compares the variance in each group mean from the overall group variance. If
the variance within groups is smaller than the variance between groups, the F-test will
find a higher F-value, and therefore a higher likelihood that the difference observed is
real and not due to chance
When to use a one-way ANOVA
Use a one-way ANOVA when you have collected data about one categorical
independent variable and one quantitative dependent variable. The independent variable
should have at least three levels (i.e., at least three different groups or categories).
ANOVA tells you if the dependent variable changes according to the level of the
independent variable.

Assumptions of ANOVA
The assumptions of the ANOVA test are the same as the general assumptions for any
parametric test:
Independence of observations: the data were collected using statistically-valid methods,
and there are no hidden relationships among observations. If your data fail to meet this
assumption because you have a confounding variable that you need to control for
statistically,

27
use an ANOVA with blocking variables. Normally-distributed response variable: The
values of the dependent variable follow a normal distribution.
Homogeneity of variance: The variation within each group being compared is similar
for every group. If the variances are different among the groups, then ANOVA probably
isn‟t the right fit for the data.

One-way ANOVA summary

The ANOVA output provides an estimate of how much variation in the dependent
variable that can be explained by the independent variable.
The first column lists the independent variable along with the model residuals (aka the
model error).
The Df column displays the degrees of freedom for the independent variable (calculated
by taking the number of levels within the variable and subtracting 1), and the degrees of
freedom for the residuals (calculated by taking the total number of observations minus
1, then subtracting the number of levels in each of the independent variables).
The Sum Sq column displays the sum of squares (a.k.a. the total variation) between the
group means and the overall mean explained by that variable. The Mean Sq column is
the mean of the sum of squares, which is calculated by dividing the sum of squares by
the degrees of freedom.
The F-value column is the test statistic from the F test: the mean square of each
independent variable divided by the mean square of the residuals. The larger the F
value, the more likely it is that the variation associated with the independent variable is
real and not due to chance.

Source of Degress Sums of square Means of square F

variation of
freedom
Between H-1 =v1 S.S.C M.S.C=M1 F= m1/m2
the classes
Within classes N-h =v2 S.S.E M.S.E = M2
Total N-1

28
CHAPTER 2

LITERATURE AND
REVIEW

29
 REVIEW OF LITREATURE
There is universal agreement that a properly functioning financial system is required for
a thriving modern economy (Kroszner, 2010). In all advanced economies, for instance,
sophisticated financial systems efficiently deliver a broad range of financial services
and act as a critical pillar in contributing to macroeconomic stability and sustained
economic growth and prosperity (World Bank, 2003). Moreover, the well developed
financial markets facilitate mobilization of savings, by offering savers and investors
wider choice of instruments. With NBFCs coming up on the financial system, investors
could park their funds at more lucrative returns in comparison to the bank deposits.
Referring to NBFIs, Greenspan (1999) had stated: “enhance the resilience of the
financial system to economic shocks by providing it with an effective „spare tyre‟ in
times of need”. Moreover, while short term loans needed by the industry and agriculture
are offered by the banking system, the other forms of services needed by industry as
well as other segments of economy are offered by NBFCs and other similar financial
institutions, like factoring, venture finance and so on.
Hasriman Kaur A. and Dr. Bhawdeep Singh Tanghi (2013) analyzed that NBFCs
played an essential role in terms of macroeconomic prospective as well as strengthening
the structure of the Indian monetary system. Consolidation in the sector and better
regulatory structure has become more focused.
Dr. Amardeep (2013) analysed that “The role of NBFCs in creation of productive
national assets can hardly be undermined. This is more than evident from the fact that
most of the developed economies in the world have relied heavily on lease finance route
in their development process”.
Dr. Yogesh Maheshwari (2013) in his paper state that “Changing Monetary scenario
have opened up opportunities for NBFCs to expand their global presence through self-
expansion strategic alliance etc. The Monetary reforms have brought Indian Monetary
system closer to global standards”.
Sornaganesh and Maria Navis Soris17 (2013) B “A Fundamental Analysis of NBFCs
in India” in „Outreach‟. The study was made to analyze the performance of five NBFCs
in India. The annual reports of these companies are evaluated so as to ascertain
investments,loans

30
disbursed, growth, return, risk, etc. To sum up, the study is concluded that the NBFCs
are earning good margins on all the loans and their financial efficiency is good.
Jency (2017) tried to learn the performance of non-banking financial institutions. She
has found that the NBFC sector assumes a critical role in financial inclusion as it caters
to a wide range of financial activities particularly in areas where commercial banks have
limited penetration. Moreover, the profitability of NBFCs has risen significantly than
that of commercial banks.
Akanksha Goel in her article in „ELK Asia Pacific Journal‟ studied the growth
prospects of NBFCs in India.
Sunita yadav in her article in „International journal of recent scientific research‟ studied
the financial performance of selected NBFCs on parameters like Net profit ratio, Return
on Investment, Annual growth rate etc.
Ranjan kshetrimayum in his article in „A journal of Radix International educational
and research consortium‟ studied the evolution, growth and development of NBFCs in
India.
Shollapur M.R in his article in „The Indian Journal of Commerce‟ has revived concept
of NBFCs. As per him the abstract NBFCs constituted a significant part of financial
system and compliment the service provide by commercial bank in India. The efficiency
of financial services and flexibilities helped them build a large body of client including
small borrower and bigger corporate establishment. The pace of financial liberalization
has a intensified the competition. As a result, there has been a shift towards strategic
perspective marketing process of NBFCs. This perspective enable them to predict the
future impact of change and help to move out of week area and grab new opportunity
through continuous monitoring system.
R.M Srivastava & Divya Nigam in his book Management of Indian Financial
Institution background material for economic growth and financial institution, types of
financial institution, recent trend Indian financial market. He put enfaces on the fact that
the money market has passed through a phase of substantial adjustment and
advancement in recent year.
K.C Shekhar & Lakshmy Shekhar in his book has explain role of NBFCs in India
has shown rapid development especially in 1990 owing to their high degree of
orientation towards consumers and implication of section requirement. The role of
NBFCs as effective financial intermediaries arise has been well recognized as they have
inherentabilitiestotake

31
quicker decision, assume risk and customize their services provided by bank and market
the components on a conceptual basis.
E. N. Murty suggests the advantage and outlook of NBFCs. In remarkable surgeon
under stringent production like prudential limit and capital adequacy just like M&M
Finance, DBS Chula, Sundaram Finance Sri Ram Transport Finance etc. In outlook
NBFCs has been searching for avenue for future growth, if they get regulatory treatment
on for with the bank. So that large NBFC will be converting and making available credit
to credit.
L M Bhole in his book define the NBFCs perform a diversified range of function and
other various financial services to individual, corporate and institutional client. It also
play positive role in accessing certain depositor segment and clearing credit requirement
of borrowers. It also discussing the major financial market in India. Along with related
financial instrument and services i.e. call money, call loan, other short term interest rate
instrument and the recent development in money market.
Shashi K. Gupta, Nisha Gupta & Neeti Gupta in his book define money market is an
opportunity for balancing the short-term surplus fund of the investor with the short-term
requirement to borrowers. Another feature of money market is that they are liquid with
varying degree. It also defines NBFCs play an important role in financial intermediaries
because they can take quick decision making assume greater risks and design their
product to the need of customer.
Kantawala, (1997), in his study “Financial Performance of Non-Banking Finance
Companies in India”, examined the performance of non-banking financial companies
for the period from 1985-86 to 1994-95. Based on secondary data collected from
different RBI bulletins regarding financial and investment companies, the study
concluded that there was a significant difference in the profitability ratios, leverage
ratios, and liquidity ratios of various categories of NBFCs. When two categories were
compared, the selected ratios were not statistically different from each other in majority
of the cases. When all the companies were taken together, null hypothesis was accepted
for only three ratios, indicating thereby that there was no significant difference. From
this, it can be inferred that the ratios for all categories of NBFCs were generally
differentfromeachother.

32
CHAPTER 3

RESEARCH AND
METHDOLOGY

33
 RESEARCH AND METHODOLOGY
3.1 Meaning of research methodology
Research methodology is the specific procedures or techniques used to identify, select,
process, and analyze information about a topic. In a research paper, the methodology
section allows the reader to critically evaluate a study‟s overall validity and reliability.
3.1.1 Meaning of research:
Research is defined as the creation of new knowledge and/or the use of existing
knowledge in a new and creative way so as to generate new concepts, methodologies
and understandings. Research is an organized and systematic way of finding answers to
questions” Systematic because there is a definite set of procedures and steps which you
will follow. There are certain things in the research process which are always done in
order to get the most accurate results.
3.2 Objective of the study:
1. To analyze the short-term solvency of the selected NBFCS.
2. To appraise the long-term solvency of the selected NBFCS.
3. Financial performance of NBFCS in terms on profitability.
4. Financial performance of NBFCs in terms of return on net worth equity and
return on capital employed
5. To study whether the NBFCs are different or similar in terms of debt-to-equity
ratio, current ratio, return on net worth ratio, return on equity ratio. Net profit
ratio

3.3 Research problem

The first step while conducting research is careful definition of Research problem. To
ERR IS THE HUMAN is a proverb which indicates that no one is perfect in this world.
Every researcher has to face many problems which conducting any research that is why
problem statement is defined to know which type of problems a researcher has to face
while conducting any study. It is said that, problem well defined is problem half solved.
The problem statement here is:
“A STUDY ON FINANCIAL PERFORMANCE AND GROWTH OF NON-
BANKING FINANCIAL COMPANIES”

34
3.3.1 Research design
Research Design is the conceptual structure with in which research in conducted. It
constitutes the blueprint for the collection measurement and analysis of data. Research
Design includes and outline of what the researcher will do form writing the hypothesis
and it operational implication to the final and collection and analyzing the data. It is a
strategy specifying which approach will be used for gathering and analyzing the data.

Types of research design:

1. Exploratory Research Design: This research design is preferred when researcher
has a vague idea about the problem the researcher has to explore the subject.
2. Experimental Research Design: The research design is used to provide a strong basis
for the existence of casual relationship between two or more variables.
3. Descriptive Research Design: It seeks to determine the answers to who, what, where,
when and how questions. It is based on some previous understanding of the matter.
4. Diagnostic Research Design It determines the frequency with which something
occurs or its association with something else.
Research design used in this project - Research Design chosen for this study is
Descriptive Research Design. Descriptive study is based on some previous
understanding of the topic.

3.3.2 Sampling design

Sampling is necessary because it is almost impossible to examine the entire parent
population (i.e., the entire universe) various factors such as time available cost, purpose
of study etc. make it necessary for the researchers to choose a sample. It should neither
be too small nor too big. It should be manageable. The sample size of past 6 years is
taken for present study.

3.3.3 Data collection

Secondary information has been collected through various sources which include data
from RBI Publications, Money control Website, Journals and Reports on NBFCs. For
conducting the study, 10 companies of five different categories are chosen for which
data is available. The five different categories of NBFCs chosen are Asset Finance
Companies,Core

35
Investment Companies, Factors NBFCs, Infrastructure Finance Companies and
Microfinance Companies. In the course of the analysis in this study, the use of various
accounting and statistical techniques has been made. Ratio analysis, mean, standard
deviation and ANOVA have been applied. The variables selected for analyzing the
performance of NBFCs are Current ratio, Debt-Equity Ratio and Net profit Ratio.

3.3.4 Limitations of the study

● The study is restricted only for five years i.e., 2015, 2016, 2017, 2018, 2019and 2020.
● The study is completely based on secondary data and the accuracy of the
analysis depend on the data obtained.
● The study may not be extensive enough to cover all the ratios to be considered in
evaluating the financial soundness of the NBFCs.

36
CHAPTER 4

DATA ANALYSIS

37
 CURRENT RATIO
Current Ratio is a liquidity ratio that measures ability of the enterprise to pay its short-term
financial obligations i.e. liabilities. The Formula for calculating the ratio is

Current Ratio = Current Assets/Current Liabilities

The generally accepted standard of current ratio is 2:1 i.e. current assets should be twice
the current liabilities. Table provides the data related to current ratios calculated for the
sample NBFCs taken for the study. These ratios are calculated for 5 consecutive years
from 2015 to 2020.

COMPANIES 2017 2018 2019 2020 2021 2022

Armaan Financial Ltd 1.36 1.28 1.02 0.96 2.05 2.77
Mahindra & Mahindra 1.18 1.27 1.25 3.19 2.72 2.24
L&T finance Holdings 1.09 1.1 0.90 845.51 1679.92 37.70
Ltd

Reliance 1.22 0.85 1.01 31.63 28.62 7.72

IFCI 1.299 0.93 1.23 11.9 9.57 213.88
Siemens 1.54 1.85 1.99 1.95 2.12 2.20
REC 0.678 1.22 1.17 51.63 15.5 13.82
Power Finance 1.006 1.21 1.32 48.74 58.27 4.21
Muthoot Finance 1.91 1.76 1.56 20.95 33.14 1.78
Ceejay Finance Ltd 1.64 1.73 1.46 1.60 1.69 2.46
Source : money control

38
 Source of variation Sum of Degrees of Mean square F
Squares Freedom
Between Groups 1116664 9 124073.8 2.19

Within Groups 2265576 50 56639.39

Total 3382240 59

The current ratio of IFCI was highest in the year 2020 followed by L & T financial
holding in 2020. All the other companies have similar ratios. In 2019, L&T Finance
Holdings had the highest current ratio followed by power finance . The current ratio of
Power Finance has continuously increased with subsequent years. The current ratio of
REC decreased to 15.57 in 2019. The current ratio of Ceejay Financials limited was
similar in all five years and was close to the accepted standard ratio of 2:1.

ANOVA
Hypothesis: There is not any significant difference in current ratios of NBFCs under
study. Alternative Hypothesis: There is a significant difference in current ratios of
NBFCs under study.
The table value of F for degree of freedom 50 at 5 per cent level of significance is 212.
Since the calculated value of F (2.2) is less than the table value, the null hypothesis is
rejected and alternative hypothesis is accepted . It is concluded that there is significant
difference in the current ratio of NBFCs under study.

LONG TERM
SOLVENCY DEBT-
EQUITY RATIO
Debt to equity ratio is computed to assess long term financial soundness of the
enterprise. The ratio is computed as follows:

DebttoEquityRatio=Debt/Equity(Shareholder’sFunds)

39
 A high Debt to Equity Ratio8 means that the enterprise is depending more on
borrowings or debts as compared to shareholder‟s funds. In effect, lenders are at high
risks. On the other hand, low debt to Equity ratio means that the enterprise is depending
more on shareholder‟s funds than external equities. In effect, lenders are at a lower risk
and have high safety.

COMPANIES 2015 2016 2017 2018 2019 2020

Armaan Financial Ltd 1.14 0.90 1.18 1.94 3.07 1.41

Mahindra & Mahindra 3.47 3.56 4.20 4.17 4.84 5.23
L&T finance Holdings 0.15 0.15 0.24 0.06 0.15 0.44
Ltd

Reliance 1.31 1.31 1.25 2.13 2.19 5.14

IFCI 3.75 3.78 3.37 3.98 3.48 3.15

Siemens 0 0 0 0 0 0

REC 5.31 5.07 4.49 6.33 7.12 8.16

Power Finance 5.83 5.61 4.86 6.41 6.82 6.87

Muthoot Finance 2.85 2.43 2.61 2.71 2.74 3.21

Ceejay Finance Ltd 0.79 0.60 0.77 0.72 0.64 0.62

Source : money control

Source of variation Sum of Degrees of Mean square F

Squares Freedom
Between Groups 269.53 9 29.94 35.64

Within Groups 42.027 50 0.84

Total 311.557 59

40
Power Finance and REC do good business throughout all the six years. In case of
Mahindra & Mahindra, the debt equity ratios of all the five years do not vary widely i.e.
the annual debt equity ratios are around the mean only. In case of REC the growth rate
of equity exceeds that of debt and as a result the debt equity ratios of REC have shown
wide variations from the mean ratio.
We can see that the debt of Power Finance, REC and Mahindra & Mahindra is higher
than their equity. All the three companies are well established NBFCs and hence its debt
level is more than its equity. As growing NBFCs they are vibrant in terms of both debt
and equity and register continuous growth over the years. The debt to equity ratio was
lower for Ceejay Finance ltd, L&T Finance Holdings ltd, Armaan Finance ltd. Ceejay
Finance ltd and L&T Finance Holdings ltd maintain its equity almost at a constant level
throughout the period of study. As the debt is negligent in these 2 companies, their
solvency position is highly sound. In case of Reliance and Muthoot, the growth trend
both in debt and equity with a moderate debt equity ratio exhibit an acceptable solvency
position.

ANOVA
Hypothesis: There is not any significant difference in Debt Equity Ratio of NBFCs
under study.
Alternative Hypothesis: There is significant difference in Debt Equity Ratio of NBFCs
under study.
The table value of F for degree of freedom 50 at 5 per cent level of significance is 2.38.
Since the calculated value of F (35.64) is less than the table value, the null hypothesis is
rejected. It is concluded that the debt equity ratio do differ significantly for the NBFCs
under study.

PROFITABILITY RATIO
Net Profit Ratio
Net Profit Ratio establishes the relationship between Net Profit and Revenue from Operations
i.e. Net Sales. It shows the percentage of Net Profit earned on Revenue from
Operations. The ratio is computed as follows:

Net Profit Ratio = Net Profit after Tax /Revenue from Operations * 100

41
 If the Net Profit Ratio is higher the business will be better. This ratio helps in
determining the operations of the business.

COMPANIES 2015 2016 2017 2018 2019 2020

Armaan Financial 18.23% 15.66% 15.08% 11.74% 26.51% 27.17

Ltd
Mahindra & 15.02% 11.49% 6.48% 16.22% 17.85% 8.97%
Mahindra
L&T finance 90.02% 108.47% 89.58% 58.52% 55.39% 56.11%
Holdings Ltd

Reliance 19.17% 23.96% 21.41% -222.99% 6.79% -393.44

IFCI 16.04% 8.83% -16.73% 13.58% -20.57% -12.37
Siemens 20.8% 42.24% 13.92% 16.30% 17.67% 16.05%

REC 26% 23.80% 26.47% 19.68% 22.77% 16.40%

Power Finance 23.97% 22.25% 7.90% 16.88% 24.10% 16.95%

Muthoot Finance 15.54% 16.65% 20.54% 28.36% 28.67% 30.67%

Ceejay Finance 32.18% 30.56% 32.76% 33.93% 34.17% 27.85%

Ltd
Source : money control

Source of variation Sum of Degrees of Mean square F

Squares Freedom
Between Groups 34244.32 9 3804.924 3.00

Within Groups 50711.74 50 1267.793

Total 84956.06 59

42
In terms of Net Profit Ratio L&T Finance Holdings is performing good followed by
Ceejay Finance ltd. L&T Finance Holdings has the highest net profit ratio of 108.47%
in 2016. The net profit ratio of Reliance witnessed a negative growth rate in 2018.
Ceejay Finance ltd has maintained a stable growth rate in terms of net profit ratio for the
five years. REC witnessed various ups and down in terms of NPR ratio but managed a
good NPR in 2019 at 22.77%.
ANOVA
Hypothesis: There is not any significant difference in Net Profit Ratio of NBFCs
under study.
Alternative Hypothesis: There is significant difference in Net Profit Ratio of
NBFCs under study.
The table value of F for degree of freedom 50 at 5 per cent level of significance is
2.38. Since the calculated value of F (3) is more than the table value, the null
hypothesis is rejected .It is concluded that the net profit ratio not differ significantly
for the NBFCs under study.

RETURN ON CAPITAL EMPLOYED

Return on the capital employed ratio is one of the few profitability ratios that an
investor evaluates to understand the rate of returns and profitability of a company.
ROCE is a financial ratio that can be used to assess a company's profitability and
capital efficiency. ROCE helps understand how efficiently a company is using its
total capital to generate profits.

The Return on Capital Employed ratio consists of two components and their
calculations: Earnings before Interest and Tax (EBIT) and Capital Employed.

Return on Capital Employed = Earnings Before Interest and Taxes (EBIT) /

Total Capital Employed X 100

Investors calculate the ROCE to evaluate how well a company is using its capital
and financial strategies. A company's returns should always be higher than the
rate of

43
 borrowings or loans that they have taken to fund their assets. In case the ROCE is
lower, it means that the company is not operating healthily and cannot generate returns
for itself or its investor.

COMPANIES 2017 2018 2019 2020 2021 2022

Armaan Financial Ltd 6.64 6.66 22.39 22.27 23.06 23.48

Mahindra & Mahindra 17.78 2.76 1.38 12.80 14.79 14.83
L&T finance Holdings 5.32 7.28 5.46 4.95 5.03 4.38
Ltd
Reliance 11.92 12.82 6.79 -11.84 7.75 -18.65

IFCI 1.75 1.12 5.61 10.25 5.21 6.94

Siemens 21.51 42.24 13.92 16.30 17.67 10.51

REC 3.34 3.33 12.07 8.10 8.51 8.07

Power Finance 2.99 2.90 9.77 8.31 11.14 10.85

Muthoot Finance 5.15 6.73 36.90 16.28 28.70 30.69

Ceejay Finance Ltd 13.91 12.53 27.17 27.05 20.08 18.15

Source : money control

In terms of return on capital employed Armaan financial ltd and siemens is performing
good followed by Mahindra and Mahindra. The net profit ratio of Reliance witnessed a
negative growth rate in 2018. Ceejay Finance ltd has maintained a stable growth rate in
terms of return on capital employed ratio for the five years. REC witnessed various ups
and down in terms of returns on capital employed.
Source of variation Sum of Degrees of Mean square F
Squares Freedom
Between Groups 2878.21 9 319.80 4.720

Within Groups 3387.49 50 67.74

Total 6265.7

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 ANOVA
Hypothesis: There is not any significant difference in return on capital employed of
NBFCs under study.
Alternative Hypothesis: There is significant difference in return capital employed of
NBFCs under study.
The table value of F for degree of freedom 50 at 5 per cent level of significance is 2.38.
Since the calculated value of F (4.720) is more than the table value, the null hypothesis
is rejected .It is concluded that the differ significantly for the NBFCs under study.
RETURN ON NETWORTH EQUITY
Return on Net Worth is a ratio developed from the perspective of the investor and not
the company. By looking at this, the investor sees whether the entire net profit is coming
to him or how much return would he be getting. It explains the efficiency of the
shareholders‟ capital to generate profit.

Return on Net Worth (RONW) is a measure of the profitability of a company expressed

in percentage.

RONW = Net Income / Shareholders’ Equity

A rising RONW reflects that a company is increasing its ability to generate profit
without having as much capital. It also means how well a company‟s management is
using the shareholders‟ capital. In other words, the higher the RONW the better the
company prospectus. Falling RONW is generally a problem.

COMPANIES 2017 2018 2019 2020 2021 2022

Armaan Financial Ltd 8.09 6.98 6.54 7.97 23.36 15.10

Mahindra & Mahindra 14.676 11.04 6.17 11.18 14.27 7.97
L&T finance Holdings 7.37 9.51 6.04 3.4 3.41 3.4
Ltd
Reliance 6.01 7.35 3.05 -62.54 1.77 -161.97

45
IFCI 8.70 5.5 -8.06 9.25 -9.58 -7.11
Siemens 23.08 43.87 14.71 10.76 12.01 7.98

REC 21.16 19.66 18.74 13.68 16.80 13.92

Power Finance 18.49 17.69 5.83 11.87 16.06 12.52

Muthoot Finance 13.09 14.40 18.10 22.75 20.13 26.08

Ceejay Finance Ltd 13.97 12.59 13.56 14.11 11.06 10.07

Source : money control

In terms of Net Worth Equity Muthoot finance is performing good followed by REC
Finance ltd. The net profit ratio of Reliance witnessed a negative growth rate in 2018.
Ceejay Finance ltd has maintained a stable growth rate in terms of net profit ratio for the
five years. REC witnessed various ups and down in terms of net worth ratio.

Source of variation Sum of Degrees of Mean square F

Squares Freedom
Between Groups 13596.16 9 1510.68 3

Within Groups 25049.52 50 500.99

Total 38645.68 59

ANOVA
Hypothesis: There is not any significant difference in Net worth equity t Ratio of
NBFCs under study.
Alternative Hypothesis: There is significant difference in Net worth equity Ratio of
NBFCs under study.
The table value of F for degree of freedom 50 at 5 per cent level of significance is 2.38.
Since the calculated value of F (3) is more than the table value, the null hypothesis is
accepted. .It is concluded that the net profit ratio do differ significantly for the NBFCs
understudy.

46
CHAPTER 5

FINDINGS
AND
CONCLUSION

47
5.1 FINDINGS
⮚ From the analysis above it follows that current are high for the asset finance
companies and infrastructure finance companies. The debt-to-equity ratio was
lower for microfinance companies
⮚ Core Investment companies showing that the enterprise is depending
more on shareholder‟s funds and lenders are at a lower risk.
⮚ The Net Profit Ratio was high for infrastructure finance companies and
micro finance companies predicting good returns in these sectors.
⮚ The return on capital of micro finance companies and assets finance companies
higher. This shows that how efficiently a company is using its total capital to
generate profit
⮚ The return on net worth equity is higher for microfinance companies and asset
financing companies. This shows how well the company management is using
the shareholders capital
⮚ From the table it follows that for all the three ratios calculated, the value of F is
more than the table value of F at 5% level of significance. This implies that null
hypothesis is rejected and indicates that the majority of selected ratios for this
study differ significantly between various categories of NBFCs. Different
categories of NBFCs behave different

48
5.2 CONCLUSION
The analysis of solvency reveal a fact that the sample NBFCs do their business taking
high risk i.e. they hold very low percentage of total assets as their owned funds and
depend more on borrowed funds and holds more current assets with low percentage of
liquid assets with reference to current liabilities. Profit making is in direct proportion to
risk taking. Thus, these NBFCs take more risk to earn profits. However, the
performance of these NBFCs proves that they have sufficient solvency, as they manage
the risks and have cash generation capacity. However these NBFCs need to improve
their profitability ratios and cash management. NBFCs have to focus on their core
strengths while improving on weakness. Presently, the economic disruptions caused by
the coronavirus outbreak, MSME sector seems to be worst hit due to both businesses
coming to a standstill and reduced consumer spending. As MSMEs contribute to major
chunk of NBFCs loan portfolio, in case of a default, it will affect NBFCs ability to
repay the loans to other financial lenders.
However, Indian authorities and regulator have taken several measures to ease
borrower‟s financial burden. Reserve Bank of India introduced a three-month
moratorium on loan repayments for distressed bank and NBFC borrowers. A sizeable
Rs 3.74 trillion injection of liquidity into the system should help to improve liquidity
in local credit markets.

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