In this post, we’ll look at how to register a business in Kolkata. Company registration is a procedure through which all businesses are registered on the MCA’s website (Ministry of Corporate Affairs). The Company Registration in Kolkata is a simple procedure, but it requires numerous procedures to complete.

A Private Limited Company offers its stockholders legal protection and limited liability. A privaely held limited firm must have at least positions two working directors. A person can be both a director and a shareholder in a Private Limited Company. After receiving a Certificate of Incorporation, a Private Limited Company (PLC) can begin operations. Within 15 days following its application, a PLC can be implemented.

As a result, we will concentrate on the advantages and procedures of forming a Private Limited Company registrationin Kolkata in this post.

Advantages of forming a private firm company registration in Kolkata

1. A private limited company might have anything from two to fifty directors.
2. It is a legal autonomous body.
3. Directors have limited liability and are not directly responsible for the company’s operations.
4. Directors are only partially liable to creditors.
5. In the event of a default, the bank or creditors will sell the company’s assets rather than personal property.
6. The directors are eligible for tax benefits.
7. Suing or being sued in the name of a registered corporation is possible.
8. Companies that are registered have a higher chance of borrowing money.

Company Registration in Kolkata: Private Company Incorporation Checklist

• Directors: For private company registration in Kolkata, a minimum of two directors is required, with one of them being a resident director.
• The investment must be made in accordance with the business type, and there is no minimum capital investment necessary for a firm.
• Inventive business name: The name of the firm must not be identical or confusingly similar to that of another company.
• Registered address: Every business should have one.

Steps for Incorporation of the Company

The following are the stages of forming a business using the RUN form:

1. After that, create a login account and log in.
2. Enter the name you want to use and cross-reference it with the MCA database.
3. If an established business wants to reverse its name, a CIN will be requested through the RUN e- form.
4. The applicant must specify the name that he or she wishes to keep on file in case the firm’s name is changed or a new company is formed.
5. Then he or she must submit the prospective company’s objects as well as any additional documents in support of the suggested name.

Limited Name Validity

• For a new corporation, an authorised name is valid for 20 days from the date of approval.
• 60 days after the date of authorization for changing the name of an established corporation.

Steps for Private Company Registration in Kolkata

Step 1: Obtain DSC

Because the process is online, a digital signature is required for the incorporation of a private limited company. Members and executives must have a legitimate Class II or Class III DSC.

Step 2: Fill out an application for a DIN number.

A directors must have a DIN and must apply for one on MCA if he does not already have one. A DIN number can be used to become a director in many businesses.

Step 3: Submit an application for name approval

At the time of establishment, the company’s name, as well as SPICe (INC-32) must be submitted for approval. If the name is rejected, it can be resubmitted.

Step 4: e-MoA (INC-33) and e-AoA are the fourth and final steps (INC-34)

Previously, MoA and AoA had to be filed physically, but now they must be filed online on the MCA website. These papers must be digitally signed by the subscribers.

Step 5: PAN and TAN applications

After all of the paperwork have been completed, the applicant should consider applying for a PAN and TAN.

Step 6: Certificate of Incorporation 

MCA & RoC will analyse all of the documentation and issue a Certificate of Incorporation if they are pleased. The Certificate of Incorporation is a legal document that grants the firm legal standing.

7th Step: Open bank Accounts

The firm must create a bank account for any transactions in its name after receiving the certificate of incorporation.

In order to register a company in Kolkata, you’ll need the following documents

Documents required for company registration  in Kolkata:

1. For DSC 
2. DIN (Director Identification Number)
3. Incorporation of a Business

In the case of DSC,

1. Along with the DSC application form, the following papers must be forwarded:
2. The claimant’s photograph (to be stamped across with a blue pen)
3. The director’s address proof (s)
4. Id Proof (Pan Card) of the applicant Passport Aadhar card Driving licence Voter Id card Email Id and contact number (for each director)

DIN

Fill out the e-form DIR -3, which is available on the MCA website. Alongside Form DIR -3, attach the supporting information:

1. Id proof photo of the applicant (attested)
2. Proof of address (attested)
3. Make the payment as directed. The only way to pay is on the internet.
4. There will be a preliminary DIN created.
5. A preliminary DIN becomes an authorised DIN after verification.

• For a Firm’s Registration
• The Firm’s Title
• The firm’s assets
• Investors’ list
• The director’s Id proof is the company’s purpose (s)

1. Aadhar card and passport
2. Id cards for voters and driver’s licence
3. Director’s proof of residence (s)
4. Bank statement Telephone bill
5. The cost of electricity
6. Mobile phone bill (not old than two months)
7. INC-9 Director(s) Consent (form DIR-2) (Affidavit)

• Proof of the registered office’s address

1. Bills of Gas, 
2. Phone, and
3. Electricity

If the office is included in the lease, the lease agreement and a letter of authorization from the owner are required.

Holders of DINs declare themselves

A Private Limited Company Registration in Kolkata is an online operation that should be completed with caution, and once completed, the directors are entitled to all of the privileges of a Private Limited Company.

The post Private Limited Company Registration in Kolkata Via Online Method appeared first on MUDS.

Releases from the RBI Monetary Policy 2022 Meeting: The six-member Monetary Policy 2022 Committee (MPC), led by Reserve Bank of India (RBI) Governor Shaktikanta Das, maintained the repo rate at 4% and the reverse repo rate at 3.35 % intact. Here’s what the governor of India’s central bank said.

RBI Monetary Policy 2022: The Reserve Bank of India’s (RBI) Monetary Policy 2022 Committee (MPC) retained the repo rate at 4% for the 11th straight approach achieves a ‘affiliative posture,’ according to RBI Governor Shaktikanta Das on Friday.

The MPC decided unanimously to continue the accommodating approach, according to the central bank governor, and the reverse repo rate was also remained steady at 3.35 percent.

The Marginal Standing Facility (MSF) rates and the lending rate were likewise held steady at 4.25 percent.

On May 22, 2020, the RBI reduced its policy repo rate, or short-term lending rate, in an off-policy cycle to boost demand by decreasing interest rates to a historic low.

In a press conference following the Monetary Policy 2022 meeting, Das stated that the RBI will return the liquidity adjustment facility (LAF) corridor to 50 basis points (bps), as it was pre-Covid. The MSF rate and the bank rate remain at 4.25 percent.

“It also agreed to remain accommodating while concentrating on withdrawal of accommodation to ensure that inflation remains within the goal moving ahead, while encouraging expansion,” 

-he added on the central bank’s attitude.

” It will continue to be part of the RBI’s toolbox, and its use will be at the discretion of the RBI for objectives that are indicated from time to time. The FRRR, in conjunction with the SDF, will increase the flexibility of the RBI’s liquidity management framework.”

The RBI reduced its growth prediction for the current fiscal year to 7.2 percent from 7.8 percent previously, while increasing its inflation forecast to 5.7 percent from 4.5 percent.

He went on to say that, given the inordinate volatility in international oil prices as of early February, as well as the extreme uncertainty surrounding the evolving geopolitical tensions, any projection of growth and inflation is fraught with risk, and is largely dependent on future oil and commodity price developments.

Das addressed liquidity and financial market circumstances in his speech, stating that the RBI will continue to take a sophisticated and agile approach to liquidity risk management while preserving appropriate liquidity in the system.

“At the moment, liquidity management is distinguished by two procedures: variable rate reverse repo (VRRR) bids of varied maturities to swallow liquidity, and variable rate repo (VRR) auctions to fill temporary liquidity problems and offset anomalies.” “We will keep taking this strategy,” he stated.

ATM cash withdrawal without a card that is interoperable

In an effort to combat fraud, the Reserve Bank of India agreed on Friday to allow all banks to use card-less cash withdrawal through ATMs. Currently, card-less cash withdrawal via ATMs is a permissible form of transaction allowed by a few banks in the nation on an as-needed basis (for their customers at their own ATMs).

Economic experts and market analysts reacted as follows:

• The severe reduction in GDP forecasts for FY23 and significant increase in inflation expectations for FY23 might suggest some tightening measures in the future, which would be supported by the shift in posture to focus on withdrawal of accommodation. Current geopolitical developments, supply chain concerns, and commodity price increases are tying the RBI’s hands and pushing it to progressively turn hawkish, despite its desire to maintain its pro-growth perspective. The 10-year Gsec yield has increased to 7%, showing the street’s worry over the massive borrowing programme in the face of rising interest rates.”
• “Retaining the repo rate at 4% and the reverse repo rate at 3.35 percent, continuing with the accommodating posture on expected lines,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. Recognizing the new reality of increased petroleum prices caused by the war, the RBI cut the FY23 GDP growth rate prediction to 7.2 percent from 7.8 percent before and upped the FY23 CPI inflation projection to 5.7 percent from 4.5 percent previously. This is predicated on the premise that crude will be $100 per barrel. This suggests that if crude falls considerably, which is likely if the conflict ends soon, GDP and inflation will improve.The opposite might be true if the battle escalates and petroleum prices rise well beyond $100. The Governor correctly underscored India’s macroeconomic fundamentals, noting to an improvement in the external position aided by record exports, large foreign reserves of $608 billion, and banking sector development. The SDF (Standing Deposit Facility) is a new mechanism established by the central bank to absorb liquidity. 

“The recent RBI Monetary Policy 2022 did not include any surprises,” stated Nish Bhatt, Founder & CEO of Millwood Kane International, “it held rates constant for the 11th straight policy.” However, it has clearly outlined the road to policy unwinding. The emphasis will now be on withdrawing the accommodating policy stance in order to keep inflation under control. The RBI’s statement today plainly suggests the end of loose Monetary Policy 2022, which is reflected in the 10-year benchmark yield, which has reached a multi-year high. The unwinding of liquidity will cause some instability, and it is expected that the RBI would drop the growth rate prediction for FY23 to 7.2 percent, with the inflation target raised to 5.7 percent from 4.5 percent previously. The explicit goal of central banks throughout the world is to manage inflation, unwind lose money, and concentrate on gradual and steady development.“

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Sexual harassment law: The word “workplace” confers to the Sexual harassment at workplace of Women at Workplace (Regulation, Prevention, and Redressal) Posh Act of 2013, and specifically includes:

The post POSH Act: ALL ABOUT THE SEXUAL HARASSMNET LAW IN INDIA appeared first on MUDS.

Most of the entrepreneurs want to understand the role of NBFCs in India before getting NBFC registration. For knowledge, the NBFCs (Non-Banking Financial Companies) are the companies that provide loans to the ones in need and similar services to their customers. They basically deal with the business of loans and funds along with the business of financial services, namely acquisition of shares, stock, bonds, debentures. A notable fact about them is that they do not include any institution whose principal business is that of agriculture, industrial activity, purchase or sale of any goods (other than in securities) or providing any services and sale/purchase/construction of an immovable property.

They play an important role in promoting the inclusive growth of the economy and the country as a whole by providing many contributions of its own by catering and fulfilling the financial needs of the customers who don’t want to make themselves part of the banking schemes. They provide innovative financial services to Micro, Small, and Medium Enterprises (MSMEs) most suitable to their business requirements and play some critical parts in the development of the economy by generating wealth and employment, providing financial support to the rural and weaker sections of the economy and society who are in need for them.

In this era too, where currently we stand facing off against the Covid-19 which has wrecked-havoc in the functioning of the world, where India itself is no exception. All the economies are suffering due to this, and it’s no surprise that the market researchers foresaw this whole situation way before it even happened. The condition is so bad that it brought down economies in a few months! People are not able to earn, the companies are not able to function, the employees are not getting any work, and the whole economy is suffering in the grand scheme of things. In this grave and dire situation, the NBFCs are the ones who are rising to support and boost the economies in the right direction and allow the markets to stand in a better condition. This makes NBFC registration in India a profitable prospect.

Roles of NBFCs:

1) Generation of Employment: It generates employment in the economy by working jointly with the government in the public sectors and firms. Also, the NBFCs provide funds to the private sectors which in the end results to making their business more funds for expansion, meaning they create even more funds altogether.

2) Raises standards of living: It provides financial services to the lower background and weaker sections of the society by providing them with bank credits and raises funds from the public to make more suitable conditions for companies to provide employment. More employment will mean more income, meaning more purchasing power and high standards.

3) Mobilizes and gathers resources: They create a balance between the distribution of assets and intraregional income by turning savings into investing practices.

4) Long-Term Credit: Provides long term credit with interest rates which are suitable for the development of the economy and its sustainable growth. It works to raise the economy to an extensively high level.

And others like:

1. Aid in Employment Generation.
2. Help in the development of Financial Markets.
3. Helps in Attracting Foreign Grants.
4. Helps in Breaking Vicious Circle of Poverty by serving as government’s instrument.

The post Why NBFCs are a Critical Part of the Indian Economy? appeared first on MUDS.

What are Microfinance Companies?

Microfinance Company or Institution (MFI) operate at a smaller level compared to NBFCs. It serves the similar motive of NBFCs that is, providing lending services to the underprivileged and impoverished sections of the society that do not have an access to traditional banking facilities. MFI lends small funds to the poor people that vary from Rs. 1000 to 20000 for starting a business. There have been complaints of MFIs regarding irregularities in their functioning as they charge relatively higher interest rates than the NBFCs. Besides, it mainly indulges in giving loans in contravention to the directives issued to such MFI to newly formed groups within 15 days of formation.

How they Differ from NBFCs?

The state governments have taken some steps to convert MFIs into NBFCs to ensure better regulation by RBI. Also, MFIs wants to get NBFC status because they will get access to wide-scale funding from banks. 

Both NBFC and Microfinance Companies play an important role in rural areas. Where there is an absence of banks, the Non-banking financial institution can perform similar functions like a bank. Although, Non-Banking Financial company cannot issue checks drawn on itself it can facilitate term deposits and medium scale lending. On the other hand, MFI stands for Microfinance institutions which are established to operate at a smaller level than NBFC and provide small loans facilities to the underprivileged sections of the society. Unlike NBFCs, the MFIs are not regulated through any financial institution of the government.

Advantages of Opening an NBFC

• Ensures the smoother flow of credit for small debtors and so acts as an important tool of maintaining accuracy in the market. 
• Catering to a variety of clients in online/offline mode with a relatively smaller size of staff..
• Reduces load on other lenders and hence loan processing time is also reduced leading to an overall increase in efficiency of the lending process. 
• Reduces the risk of lending bad loans as the profile of a customer is analysed by NBFCs before considering them eligibility for the loan.

Getting NBFC License in India

The procedure to get the NBFC license is completed according to the master directions given by the Reserve Bank of India. The NBFC of this category should not have any client interface or a public fund. Let us understand the process of registration in the following section.

Eligibility Criteria for NBFC License and Registration

• The first step to be followed is the registration of the company according to the Companies Act, 2013.
• The company must have some fundamental infrastructure that can support the offering of such services. 
• The company must have an adequate capital structure to seamlessly offer account aggregator services. 
• The general image of the company’s administration should be free or unbiased of public intrigue.  
• A prerequisite amount of Rs. 2 crores are required to apply for getting the certificate of registration from RBI. Without getting the registration certificate the company won’t be allowed to operate as an NBFC. 
• The company should provide information related to its data innovation framework that can provide services of account aggregation. 

It is recommended that new entrepreneurs should reach out to firms specializing in the registration process. These firms have experts who can help the customers to get their NBFC license easily. Hiring an expert will help to compile all the necessary documents, filing the Application correctly, and getting all the verification and paperwork done on time. So, do not wait any more, just hire an expert from any reputed firm and get your NBFC license as soon as possible.

The post NBFC Vs Micro Financing Institution: Things to Know before Setting Up Finance Company appeared first on MUDS.

However, the cost of getting medical assistance for any fatal disease or accidental injuries remains high, especially in private hospitals. This has led the government to nudge new Non-Banking Financial Companies (NBFCs) on providing easy emergency loans to relatives of patients for costly treatments. This is also termed a medical loan which is available as emergency monetary help for families. Let’s understand Medical financing, how to set up a medical financing NBFC in India, and its future scope in the following sections.  

What is Medical Financing?

This is an emergency loan provided under the category of personal loan for use in health contingency or situations requiring urgent medical assistance for the operation, therapy, surgery, or other health issues. 

How It Is Profitable to Open New Medical Financing NBFC?

The Government of India is focussing on accelerating the development of the healthcare sector since the COVID-19 crisis has arrived in the country. The government is trying to make the facility of availing medical loans easy and hence, allowing many NBFCs to give emergency medical loans on reasonable interest rates.

The Indian Healthcare market is enormous and that is why the scope for forming a new NBFC specializing in giving medical loans is quite promising. Therefore, many new companies are looking to register themselves as NBFCs to establish their place in the market as leading medical loan providers and take advantage of the current situations where the country is looking to boost the healthcare sector.

The eligibility criteria to avail of a medical loan is stated as follows:

• The borrower should be above 18 years of age and can enter a legal contract with the NBFC under Indian Contract Act for grant of Loan.
• He/she should be an Indian citizen and residing in India.
• The borrower must possess a valid bank account, PAN number, and an Aadhar Card.

Documents Required for Medical Loan

• ID Proof (Could be Aadhar Card, Voter ID Card, Passport or Driving License)
• Copy of PAN Card
• Passport Size Photos 
• Address Proof (Bank Statement, Telephone bill, Mobile Bill, and Electricity Bill)
• Self Employed Person needs to submit the previous year bank statement and Income Tax Returns (ITR) for the previous two years
• Salaried Employees need to submit bank statements of the previous three months of the salary account or Form 16/ Salary Slips of the last three months.

MUDS Management Consultancy Firm helps new businesses in registering as a Medical Financing Company or a medical loan NBFC and gives complete guidance to new business starters on the procedure of starting a medical financing NBFC.

Read on to understand how to start a new Medical Financing Company in India and how MUDS Management Consulting can help you throughout the process of registration. 

Read Also: Pros and Cons of NBFC Business in India

Procedure to Start Medical Finance NBFC in India

Documents Required for Registration as a New NBFC:

• ID Proof (Could be Aadhar Card, Voter ID Card, Passport or Driving License)
• Copy of PAN Card
• Passport Size Photos 
• Address Proof (Bank Statement, Telephone bill, Mobile Bill, and Electricity Bill)
• Ownership Documents or Rent Agreement for office space
• Electricity bill
• Certified Copy of Certificate of Registration
• A copy of Fixed Deposit receipt and bankers’ certificate of lien indicating balances in support of Net Owned Funds.
• Bankers Report for Applicant Company/ group companies
• Certified copy of an extract of the main object clause in the MOA (Memorandum of Association) relating to the financial business.
• Certified Copy of the Board resolution
• No Objection Certificate from the owner for rented property
• CIBIL records of all shareholder (more than 10% share in Company) and directors
• Education & Experience proof of promotors
• Net worth certificate of directors and shareholders

Now, let’s understand the procedure of starting a new NBFC in a step-by-step manner.

1. Register Your NBFC Under the Companies Act, 2013. Start by NBFC Registration as a public or private company with the government.
2. Raise Authorized Paid-up Capital of Up to Two Crores: The company must raise an authorized and paid-up capital of about 2 crores to meet the required standards of registration.
3. Depositing the Sum in Bank and Getting Certificate: After raising this sum the company is required to open a fixed deposit account in a bank and deposit the money. After this, they must obtain a Certificate of no lien from the bank to move forward with the process of registration. 
4. Getting All the Certified Copies to Complete the Checklist of RBI Registration
5. Fill Online Application: Once you have all the documents ready for registration, fill the online application form for NBFC registration. After filling the form, the company will get an autogenerated Company Application Reference Number or CARN which will be used as a reference number in all further communication with RBI. 
6. Submit the Hard Copy of Application to RBI’s Regional Office: After filling the online application form and getting the CARN for your company, the physical copies of all the necessary and supporting documents must be compiled with the application form and should be submitted to the regional RBI Office to complete the process of registration.

How Muds Management Assists in Registration of New NBFCs?

Now, it is understood from the above sections that any new company trying to enter the business of medical financing must start by registering itself as an NBFC with the RBI. The process for the same is outlined in the above sections. However, this process could become cumbersome and time taking for founders of the new NBFCs, and therefore, taking assistance from MUDS management helps them in saving time in the NBFC registration process.

Already one of the best management consulting service providers, MUDS Management has worked with top NBFCs in India to streamline the process of their registration and other legal formalities. With the experience of assisting many clients in legal and regulatory services across different domains, you can rely on MUDS Management to get the best services for your business. You can reach out to MUDS Management Consulting for assistance on new NBFCs registration by contacting them on +91 9599653306 or by email at info@muds.co.in.

The post Why Opening a Medical Financing NBFC is a Profitable Idea? appeared first on MUDS.

The health crisis caused by the Covid-19 pandemic has brought the economy of the country to its knees as lockdown has brought all economic activities to a standstill. This has resulted in a fatal blow to most of the sectors but sounds like a death knell for the NBFCs as they were already facing a severe liquidity crunch after the Infrastructure Leasing & Financial Services Limited (IL&FS) crisis in 2019.

What are NBFCs?

In simple terms they are exactly what their name suggests: financial services that function somewhat similar to the banks but are not banks. In the past decade or so the NBFCs have gained huge popularity in India due to its capability of catering to certain sections of the society- primarily the economically weaker sections, the people who found the banks unaffordable and inaccessible.

Then there are the Micro, Small & Medium Enterprises (MSMEs) that rely mostly, if not solely, on NBFCs to meet their credit requirements. The NBFCs are the primary financiers to the MSMEs, on whose growth greatly depends on the progress of the Indian economy.

Definition of NBFC

A NBFC is a company that is registered under the Companies Act, 1956 or 2013 and provides a wide range of financial services like giving loans and advances, insurance, etc. These are governed and regulated by the Reserve Bank of India (RBI) within the framework of the RBI Act, 1934.

Categories of NBFC

In terms of the type of liabilities the NBFCs are categorized as:

(i) NBFCs accepting public deposit (NBFCs-D) and

(ii) NBFCs not accepting/holding public deposit (NBFCs-ND)

Thus, all Non-Banking Financial Companies are divided as either deposit taking or Non-deposit taking.

The non-deposit taking NBFCs have ‘ND’ suffixed to their name (NBFC-ND) and on the other hand, the Systemically Important Non-deposit taking NBFCs have NDSI suffixed to their name and are denoted as NBFC-NDSI. Systemically Important NBFCs are those NBFCs which have an asset size of Rs.100 Crores or more.

Additionally, NBFCs are required to be registered with the RBI and must have taken specific authorization to accept deposits from the public.

Different Types of NBFCs

1)Asset Finance Company (AFC)

2) Investment Company (IC)

3) Loan Companies (LC)

4) Infrastructure Finance Company (IFC)

5) Systemically Important Core Investment Company (CIC-ND-SI)

6) Infrastructure Debt Fund (IDF-NBFC)

7) Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI)

8) Non-Banking Financial Company – Factors (NBFC-Factors)

Read Also: NBFC Compliance Checklist

Importance of NBFCs in Indian Economy

As NBFCs cater to more diverse businesses and have penetrated the rural and remote areas of the country, they reach more companies and individuals than banks. Being less bound by regulations than the banks, NBFCs have taken lead in non traditional venues too. In the last decade or so the growth of NBFCs has contributed hugely in adding to India’s economic growth. Here are a few ways in which NBFCs has backed the country’s economic development:

1. It has helped in converting savings into investments, thus leading to mobilization of resources.
2. It aids to increase capital stock of a company resulting in capital formation.
3. It provides specialized and long-term credit.
4. NBFCs help in employment generation in a very big way.
5. It helps in fulfilling the dreams of socially deprived people and small business entities.
6. It attracts foreign direct investment.

Present Day Challenges For NBFC Sector

1.) IL&FS and NBFCs

2019 has not been a very good year for the NBFC sector as in late 2018 one of India’s leading infrastructure finance companies- Infrastructure Leasing & Finance Services (IL&FS), which was a core investment company, defaulted on payments to lenders in a big way.

The collapse of a big company like IL&FS, which was once rated AAA and was in the business for more than three decades, triggered a great panic in the market that especially led to a crisis in the NBFC sector.

This brought to light the shortfall of the Indian shadow banking industry’s dependency on short-term funding sources and when the “bubble” burst over in 2018, the entire NBFC sector was in a limbo.

As the IL&FS crisis erupted, it negatively impacted the sentiments of the banks and they became averse to lending to the NBFC sector, putting them in a tight spot. The biggest concern of the sector was that they (NBFCs) may run out of money, due to lack of liquidity and this eventually would lead to defaults.

Amidst the looming fear of imminent default, the credit rating agencies downgraded most of the NBFCs and this aggravated the woes of Non-Banking Financial Companies as raising money became an uphill task for them.

2.) NBFC Liquidity Crunch & The Government

An economic slowdown was already creating hardships for the NBFCs and it was further aggravated by the IL&FS default. The market lost confidence in the NBFC sector and thus, they faced acute liquidity squeeze manifested.

However, the government and the banking regulator were not unaware of the alarming situation and they keenly watched the situation.

Talking about this, Injeti Srinivas, the Corporate Affairs Secretary said in an interview in May 2019, “There is an imminent crisis in the non-banking financial companies (NBFC) sector. There is a credit squeeze, over-leveraging, excessive concentration, and massive mismatch between assets and liabilities, coupled with some misadventures by some very large entities, which is a perfect recipe for disaster.”

The IL&FS default was just the trigger after which the cracks in the system started showing up. The real issue is the system that the NBFCs follow is flawed as they take short-term loans of between 3-6 months duration, using commercial papers (CPs), but on the other hand, they lend to businesses like home loans, commercial purpose loans, and vehicle loans etc. as long-term loans. This brings about asset-liability mismatch which becomes a major problem in times of economic uncertainties.

Thus, when the economy is on the track this system does not create any glitch to the cycle of payment & repayment, but with any upheaval in the economy, Non-Banking Financial Companies find their sustenance at stake.

This is what happened after the IL&FS crisis came into the open, and as a result, neither the banks nor mutual fund companies or other investors have been keen to bet their money on NBFCs.

The Narendra Modi-led government took cognizance of the liquidity crisis of NBFC sector that may eventually lead to hampering the economy of the country in a major way and thus, asked RBI to figure out a way to ease the liquidity situation.

RBI in response took steps to embattle the situation effectively by:

1. pumping funds to improve the funding situation; these funds can be taken up by the banks to be lent to NBFCs.
2. announcing new guidelines on Liquidity Risk Management (LCR) in 2019.

Read Also: Top 5 NBFC Stocks in India

3.) Decoding LCR- Liquidity Coverage Ratio by RBI

RBI has introduced Liquidity Coverage Requirements (LCR) for the NBFCs vide its notification dated November 04, 2019.

The RBI has divided the NBFCs into 2 categories, for the applicability of LCR:

Category 1: (Deposit taking NBFCs)

Deposit taking NBFCs are those NBFCs which may accept deposits from the public. However, they are not empowered to repay these deposits on demand.

Category 2:(Non-Deposit taking NBFCs)

Non-Deposit taking NBFCs are those which cannot accept deposits from the public at large.

These Non-Deposit taking NBFCs are further divided into 2 categories as:

1. Category 2.1: These are those NBFCs whose asset size is more than 5,000 crores but less than 10,000 crores.
2. Category 2.2: These refer to those NBFCs whose asset size is more than 10,000 crores.

Now NBFCs are mandated by the RBI to maintain Liquidity Coverage Requirements and High Quality Liquid Asset (HQLA). This has been done by the RBI with the intention that:

• It will promote resilience in NBFCs.
• It will come handy at times of potential liquidity disruptions.
• It will help them to survive lasting for 30 days in any acute liquidity stress scenario.

The LCR RBI requirement of 100% High Quality Liquid Asset stock is to roll out in phases; the minimum HQLAs to be held being 50 per cent of the LCR, will be binding on NBFC registration from December 1, 2020. Liquidity Coverage Ratio will gradually have to be increased and reach up to the required level of 100 per cent by December 1, 2024.

The RBI requirement of 100% High Quality Liquid Asset stock is to roll out in phases; the minimum HQLAs to be held being 50 per cent of the LCR, will be binding on NBFCs from December 1, 2020. Liquidity Coverage Ratio will gradually have to be increased and reach up to the required level of 100 per cent by December 1, 2024.

4.) COVID-19 and NBFC Sector

By the end of 2019, the NBFC Sector was able to shrug the negative effects of the IL&FS crisis and was on the path to recovery, and 2020 was predicted to be a better year by all means. But this was not to happen as pandemic COVID-19 struck India in March, 2020 and this unique and unforeseen health crisis triggered an economic slowdown like never seen before.

Declared as an emergency, entire India was put under complete lockdown bringing the country to its knees and this has put the entire economy under distress but for the already beleaguered NBFC sector this was a fatal blow.

With the economic operations and consumption activities coming to a standstill for more than 60 days, the impact of this crisis across various classes of non-banking financial companies can be assessed by the exposure it has towards the various borrower segments. Sectors such as real estate and micro-finance, whose economic activities have been severely impacted, the NBFCs with loan exposures in the said sectors are the ones to be the worst hit in the wake of this global pandemic.

Another problem that aggravated the liquidity crisis in this sector was the announcement of the COVID-19 regulatory relief package by the Reserve Bank of India (RBI) on March 27, 2020.

The RBI Relief Package asked the lending institutions to grant a moratorium of three months on payment of all installments falling due between March 1, 2020 and May 31, 2020. This was further extended by another three months i.e., till August 31, 2020.

This posed a major problem primarily for the NBFCs as they utilize the cash inflows from the payments made by their borrowers to repay the liability owed towards their lenders.

The sector operates on very thin short-term liquidity and therefore, granting a moratorium to its borrowers on payment of loan installments came up as a serious trouble for the NBFCs. All these factors put together have once again led to a stark asset-liability mismatch in NBFCs.

So on the one hand the NBFCs are directed to offer the moratorium to its debtors, on the other they are not getting the same benefit from its lenders. Additionally, the NBFCs with high share of capital market borrowings are expected to make repayments on time as no moratorium has been announced for capital market borrowings (such as bonds and commercial paper).

Government’s COVID-19 Rescue Package

The countrywide lockdown imposed to check the spread of COVID-19 has continued for more than 60 days and has caused an economic turmoil so huge that it is said to be the worst since the 1930s.

The pandemic has had the same impact globally and to combat the economic losses the nations around the world have announced in what is come to be known as ‘Coronavirus Stimulus Packages’.

Prime Minister Narendra Modi leading from the front, on May 12, 2020 in a live telecast addressed to the nation pledged India’s economic rescue package of a total spending of Rs 20 lakh crore. This stimulus package to weather the fallout of the coronavirus pandemic is one of the largest that has been announced by other nations around the world.

Modi termed this package that is about 10 percent of India’s GDP in 2019-20 as ‘Atma-nirbhar Bharat Abhiyan’ or Self-reliant India Mission. The Finance Minister, Nirmala Sitharaman while announcing the details of the mammoth relief package reiterated the same sentiments and said that this economic package would spur growth and help to build a self-reliant India.

Explaining the details of the Rs 20 lakh crore economic package, Union Finance Minister Nirmala Sitharaman on May 14 announced a huge benefit for non-banking financial companies (NBFC), housing finance companies (HFC) and microfinance institutions (MFI).

Divided into 2 distinct schemes, the stimulus package for NBFCs is a whooping Rs 75,000 crores.

#1. Rs 30,000 Crore Special Liquidity Scheme for NBFCs/HFCs/MFIs

The FM said that the government was acutely conscious that NBFCs/HFCs/MFIs were finding it very difficult to raise money in debt markets and to deal with this problem the government has launched Rs 30,000 crore Special Liquidity Scheme.

• This scheme allows investment to be made in both primary and secondary market transactions in investment grade debt paper of NBFCs/HFCs/MFIs
• Additionally, this scheme will supplement RBI/Government measures to help ease  liquidity
• The scheme also lays down that the securities will be fully guaranteed by the Government of India

The FM expressed optimism and said that this step would provide the much needed liquidity support for NBFCs/HFC/MFIs and mutual funds and help to create confidence in the market.

#2. Rs 45,000 Crore Partial Credit Guarantee Scheme 2.0 for NBFCs

Union Finance Minister Nirmala Sitharaman stated that NBFCs, HFCs and MFIs which have low credit rating require liquidity to do fresh lending to MSMEs and individuals.

• Existing PCGS scheme to be extended to cover borrowings such as primary issuance of Bonds/ CPs (liability side of balance sheets) of such entities
• First 20% of loss will be borne by the Guarantor that is, the Government of India.
• AA paper and below including unrated paper eligible for investment (esp. relevant for many MFIs)

Thus, this scheme will result in infusing liquidity of Rs 45,000 crores and certainly help those NBFCs which are lower in the ladder of credit rating.

Read Also: Pros and Cons of NBFC Business in India

What Impact is Expected?

The Finance Minister’s announcement of this ₹75,000-crore package has come as a silver lining for the NBFC sector and will certainly help them to tide over the liquidity crunch being faced by the majority of them.

This move may see borrowing costs fall and liquidity increase even for those entities that are at the lower end of the rating curve.

The FM’s proposal of twin funds- a special fund of ₹30,000 crore + partial credit guarantee scheme worth ₹45,000 crore has helped to ease fears that some of these lenders would have to shut shop due to tight liquidity. The two schemes shall not only help these firms raise money, but also go beyond and lend to SMEs.

Giving a very positive response on this mve, Rashesh Shah, chairman of Edelweiss Group said, “Both the moves should help allay apprehensions, as they offer more flexibility to raise money. NBFCs can sell both portfolios and bonds under the latest version of the partial credit guarantee scheme, which also cuts down the lengthy approval process.”

Though the schemes have been lauded as a right step by the government yet there are few apprehensions and concerns on whether smaller firms will be able to benefit from the twin moves.

P Satish, executive director at Sa-Dhan, an industry association of MFIs, expressed his fears thus, “We welcome the announcement of Rs 30,000-crore liquidity support. The credit guarantee scheme will also give fillip to MFIs. But in both the schemes, we hope that smaller MFIs, which are below investment grade, will not be overlooked”.

Conclusion

In continuing with its intent to grant relief to NBFCs the government of India, the RBI has recently come out with the eligibility criteria for the special liquidity scheme and it includes RBI registered NBFCs, micro-finance institutions (MFIs) and HFCs under respective laws.

RBI states that the CRAR/CAR of NBFCs should not be below the regulatory minimum of 15 per cent as on March 31, 2019, and moreover, the net non-performing assets of these NBFCs should not exceed 6 per cent.

Another mandated criteria is that these NBFCs must have made net profit in at least one of the last two preceding financial years, that is, 2017-18 and 2018-19. Along with this they must not have been reported under SMA-1 or SMA-2 category by any bank for their borrowings during the last one year prior to August 01, 2018.

The RBI has shared information that to manage this operation the State Bank of India subsidiary ‘SBICAP’ has set up a special purpose vehicle (SPV) -SLS Trust which will purchase the short-term papers from eligible NBFCs/HFCs. It is specified that these entities shall utilize the proceeds from this scheme solely for the purpose of extinguishing existing liabilities.

However, this facility shall cease to exist and will not be available for any paper issued after September 30, 2020 and the SPV would not make any fresh purchases after this date and would recover all dues by December 31, 2020.

Recognizing this as an advantageous situation for the NBFCs, Sharad Mittal, CEO, Motilal Oswal Real Estate Fund says, “NBFCs have CP repayments of close to Rs. 65,000 crore between July and September of this year. These NBFCs could benefit considerably from this special liquidity window”.

Although these pro measures have somewhat eased the sicompltuation for the NBFC sector at large yet, there are few more demands by the sector to be able to override during this unprecedented time.

The Finance Industry Development Council (FIDC) which is a representative body of assets and loan financing NBFCs, has recently shot a letter to RBI Governor Shaktikanta Das in which it states, “We urge upon RBI to consider, as a one-time measure, to allow NBFCs to draw-down from their Reserves and adjust towards additional Expected Credit Losses (ECL) provision requirement, in excess of provision calculated as per normal Probability of Default (PD) and Loss Given Default (LGD)”.

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The pandemic, COVID-19, has brought about an unprecedented economic crisis worldwide. In India in an attempt to save lives, a lockdown has been initiated, and though it has helped in slowing the spread of Coronavirus and saved lives but has killed livelihoods.

This is a precarious situation as all economic activities, except for a few essential services, have come to a standstill. As the lockdown period keeps extending, caged people- from labourers to industrialists become restless and anxious about the future course of action.

Prime Minister Modi is acutely aware and sensitive to the economic hardships being faced by his countrymen and therefore, on 12 May he announced a Rs 20 lakh crore financial package to revive the Indian economy. In his address to the nation, Mr Modi stated, “This (package) is 10 per cent of India’s GDP and will play an important role in the ‘Atmanirbhar Bharat Abhiyan’.”

Throwing some light on the package, the Prime Minister said that the thrust of the economy in future will be self-reliance and also that the package shall have something for everyone.  

Finance Minister announces Rs 30k cr support for NBFCs, HFCs, MFIs

On 13 May, the Finance Minister Nirmala Sitharaman addressed a press meet to provide details of the first tranche of the government’s Rs 20 lakh crore stimulus package for the coronavirus-hit economy. 

She announced a Rs 30,000 crore Special Liquidity Scheme for the non-banking financial companies (NBFC), housing finance companies (HFC) and micro-finance institutions (MFI).

Amid coronavirus crisis, this special liquidity window will provide support to the cash-strapped NBFCs. Elaborating on the point the finance minister said, “We have been hearing that NBFCs were not able to get enough resources despite efforts from government and RBI, especially those which were particularly not highly rated.”

Under this scheme, the investment will be made in both primary and secondary markets in investment-grade debt papers of NBFCs, HFCs and MFIs.

Sitharaman further added that the scheme will supplement the Reserve Bank of India and government measures to increase liquidity by providing a guarantee to investment-grade securities.

Addressing a press briefing she went on to explain that the securities under the scheme will be fully guaranteed by the Central government and will thus, provide liquidity support for the sector and mutual funds and create confidence in the market.

In the last two Budgets also the government had announced a series of measures like partial credit guarantee scheme (PCGS). The earlier scheme had certain restrictions which the government has decided to do away with as they realize that NBFCs, HFCs and MFIs require liquidity.

Thus, a Rs 45,000 crore partial credit guarantee scheme 2.0 was also unveiled for NBFCs, HFCs and MFIs with low credit rating to help them extend loans to individuals and MSMEs.

“Existing PCGS scheme to be extended to cover borrowings such as primary issuance of Bonds/ CPs (liability side of balance sheets) of such entities and the First 20 per cent of loss will be borne by the Guarantor i.e., Government of India,” Sitharaman further announced.

Nimish Gupta FRICS – MD, South Asia, sees this as a positive step and he explains, “The credit guarantee scheme for NBFCs and HFCs will prove extremely helpful in building much-needed liquidity flow across the chain.”

Thus, a Rs 75,000 crore package consisting of a special liquidity scheme and partial credit guarantee for debt papers will provide additional liquidity boost to NBFCs, HFCs and MFIs.

Mr Rajosik Banerjee, partner and head, financial risk management, KPMG India, sums it all as, “Liquidity measures and partial credit guarantee scheme 2.0, amounting to a total of ₹75,000 crores, will infuse more money in the financial system and, thereby, benefit the NBFCs in a big way. This was a much-needed impetus needed to push the economy forward.” 

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The poster boy of the Indian start-up industry, Sachin Bansal, famously known as the Flipkart co-founder, has been hogging the limelight recently, as he seems to be on a shopping spree.

His latest investment on 25 September 2019, has found huge media coverage as he acquired a 94% stake in the NBFC, Chaitanya Rural Intermediation Development Services Pvt. Ltd (CRIDS), for a significant sum of $104 million (739 crores).

Bansal’s 5.5% stake sale in Flipkart in the much talked about deal with Walmart in 2018, has fetched him more than $1 billion and since then, he has been in the news for his various investments. 

He has invested in Piramal Enterprises, Altico Capital India Ltd, IndoStar Capital Finance Ltd, Ather Energy, Ola, and, now the NBFC- CRIDS!

CRIDS Background

Chaitanya Rural Intermediation Development Services Pvt. Ltd (CRIDS), is a Bengaluru-headquartered non-banking financial company (NBFC), at present operating in 5 states- Karnataka, Bihar, Jharkhand, Maharashtra, and Uttar Pradesh.

The billionaire technology entrepreneur with this acquisition has forayed into financial services as he himself stated in the note to the press, “This acquisition is our entry into financial services.”

With this acquisition, Sachin Bansal is once again ready to don the hat of a CEO and be at the helm of affairs but at the same time, he specified that no significant changes shall take place in the company.  

The IIT-Delhi graduate was all praise for Anand Rao and Samit Shetty, who co-founded Chaitanya in 2009, and made it quite clear that they would continue in their role as before.

He stated, “Samit and Anand have built a great company that provides much-needed financial access to people who don’t have access to other formal finance. I look forward to working closely with Samit and Anand and building further on the solid work they have done.”

General Impact of This Acquisition

In general, it sends a very strong message that the NBFC sector has a strong prospect of growth in India in the future. Bansal’s huge investment in this segment brings forth the fact that he has full faith in the NBFC growth story otherwise he would not have taken such a big step.

A tech-savvy, shrewd, and astute businessman that he is, Sachin Bansal wants to tap the market of lending services to its potential, which he feels has not been done to date.

Impact on CRIDS

In his interview with TOI, the new CEO said, “We believe, especially in the rural area, the level of under-penetration is much more.” Sachin plans to invest most of the amount in an expansion of CRIDS and wants to target low-income and middle-income groups. 

At present CRIDS has 195 branches, and a customer base of 350,000 with total revenue of Rs 110.5 crore, which is certainly going to increase with Sachin in the lead.

Samit Shetty, the co-founder of CRIDS, echoed this sentiment very aptly when he stated, “We are looking forward to benefiting from his insights and experience with technology, and how that can be leveraged for improving access to financial services, financial inclusion and making our business better, more sustainable and customer-centric.” 

A Futuristic Approach

The success of all business ventures lies in comprehending the future scope of it, and Sachin surely has proved himself to be a leader who possesses a clear understanding of what the forthcoming time needs. 

NBFCs have a pivotal role to play in promoting the inclusive financial growth of India. India has a largely unorganized sector, rural people, low-income class, and bank-excluded customers, and the NBFCs can cater to them and contribute greatly towards the economic growth of the nation.

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