NBFC or Non-Banking Financial Companies cater to the diverse financial needs of those falling outside the purview of banks. This is how the existing NBFC list in India has been crucial in promoting inclusive growth. Further, NBFCs are quite proactive in the field by coming up with new and innovative financial services. These suit the requirements of MSMEs (Micro, Small, and Medium Enterprises) much better. NBFC License is granted to the companies who provide funds to businesses involved in wealth creation, employment generation, transportation, bank credit in rural segments, and support financially weaker sections of the society. Non-financial services such as financial guidance and consultancy are also provided to the customers about insurance, etc. All these activities made them a very important part of the development of our economy.
NBFCs are financial mediators involved in the business of accepting deposits and delivering finance. They often take the lead in channelizing scarce financial resources to capital formation. They supplement the banking sector by meeting the ever-increasing financial needs of the business sector, by providing credit to the unorganized sector and small local borrowers.
However, they are not allowed to include services concerning agriculture activity, industrial activity, sale, purchase or construction of immovable property.
Using our carefully designed methodologies, we have ranked and are presenting the top 30 NBFC list to you.
This ranking will make you aware of the main features of this sector by which you can select the one right for you. Whether you want to make a deposit or need finances.
NBFC List of Top 30
| Rank | NBFC Name | Turnover (Rs. in crore) |
|---|---|---|
| 1. | Power Finance Corporation Ltd | 28842.00 |
| 2. | Rural Electrification Corporation Ltd | 25341.00 |
| 3. | Bajaj Finance Ltd | 17383.97 |
| 4. | Shriram Transport Finance Company Ltd | 15522.44 |
| 5. | Indian Railway Finance Corporation Ltd | 11020.23 |
| 6. | Mahindra & Mahindra Financial Services Ltd | 8722.91 |
| 7. | HDB Financial Services Ltd | 70619.90 |
| 8. | Muthoot Finance Ltd | 6878.21 |
| 9. | Cholamandalam Investment & Finance Company Ltd | 13983.94 |
| 10. | L&T Finance Ltd | 482.11 |
| 11. | Shriram City Union Finance Ltd | 5778.78 |
| 12. | Tata Capital Financial Services Ltd | 45553.70 |
| 13. | Aditya Birla Finance Ltd | 177.78 |
| 14. | India Infrastructure Finance Company Ltd | 38364.40 |
| 15. | Capital First Ltd | 36282.50 |
| 16. | Reliance Capital Ltd | 2312.00 |
| 17. | Kotak Mahindra Prime Ltd | 23943.21 |
| 18. | Manappuram Finance Ltd | 3418.20 |
| 19. | IFCI Ltd | 2157.23 |
| 20. | L&T Infrastructure Finance Company Ltd | 86987.86 |
| 21. | Sundaram Finance Ltd | 3397.61 |
| 22. | India Infoline Finance Ltd | 150.55 |
| 23. | Tata Motors Finance Ltd | 23934.64 |
| 24. | IL & FS Financial Services Ltd | 22943.00 |
| 25. | Magma Fincorp Ltd | 2231.15 |
| 26. | Hinduja Leyland Finance Ltd | 19543.60 |
| 27. | Indian Renewable Energy Development Agency Ltd | 17800.00 |
| 28. | SREI Infrastructure Finance Ltd | 1768.31 |
| 29. | Ujjivan Financial Services Ltd | 22.00 |
| 30. | Religare Finvest Ltd | 15726.28 |
Ranking Methodology
The ranking displays the ability of these financial institutions to make timely payments on the specific debt obligations over the life of the instrument. The method of credit ranking of debt instruments issued by NBFCs is quite comprehensive. Some of the factors considered in this analysis are described below:
Quantitative Factors For NBFC List
First of all, we reviewed the key measures of financial performance and stability in detail. We have evaluated the quantitative factors, not only in the absolute numbers and ratios, but their volatility and trends as well. This way, we tried to determine core measures of performance. We also compared a company’s performance on each of the below parameters with its peers. Detailed inter-company analysis was taken up to understand the relative strengths and weaknesses of the NBFC list in their present operating environment and their prospects.
1) Asset Quality
Asset Quality examination begins with reviewing the framework of the company’s credit risk management. The overall quality of the asset is assessed by evaluating class-wise exposures. For wholesale assets, large vulnerable exposures are examined critically because these can affect the capital position in times of stress. For retail loans (vehicle, housing, SME, etc.), the experiential trend in delinquencies exhibited for the company is examined for each retail asset-class and is also compared with the industry.
The company’s experience of loan losses and write-off/provisions are studied. The diversification of the portfolio and exposure in vulnerable sectors is evaluated to understand the level of weak assets.
In the case of high-ticket sized loans (such as corporate or real estate loans), the details of top exposures are examined. The overall ratio of these wholesale loans in the portfolio is examined. Moreover, the exposures are also viewed to assess the concentration and vulnerability to any of the large exposures causing trouble. Exposure to group entities is thoroughly reviewed to know the loss potential and stress test of such assets.
2) Capital Adequacy Ratio (CAR)
CAR measures the degree to which the company’s capital can absorb possible losses. A high CAR means the company is able to undertake additional business. As per RBI regulations, to receive NBFC registration, the company must maintain a minimum CAR. We have examined how much of a cushion has been maintained over regulatory CAR considering the asset-class mix of its lending portfolio along with the corresponding course in delinquencies and portfolio concentration. We have also checked the debt to equity ratio of the NBFC list as a leverage measure. Leverage of an NBFC is a function of its business mix, asset-class wise growth potential, delinquency trends, portfolio concentration, and more. While relatively higher leverage is acceptable for stable asset classes of housing finance, lower leverage may be justified for portfolios that are either more concentrated (for example, Corporate or builder loans) or the ones exhibiting a higher risk of delinquencies (such as Micro Finance loans, SME loans, etc.)
We have analyzed following a consolidated approach as well as at the standalone level as per regulatory requirements. Further, overall gearing and Net NPA/Net worth ratios have been scrutinized to determine whether the entity has an adequate level of capitalization at the consolidated level.
3) Resources
The resource base of the NBFC is examined relevant to cost and composition. The proportion of deposits/bonds/loans in the funding mix is reviewed. For ranking the best NBFC amongst the NBFC list in India, the ability to diversify funding sources is considered a key factor. Generally, the companies that have major funding from capital markets are considered having a good diversification of resources. Average, as well as the incremental cost of funds, is examined with respect to the current interest rates. We also checked the ability of the company to raise additional resources at competitive rates. The stability of sources of finance is also a significant element to indicate the ability of the NBFC in raising resources. The strategy for funding is examined with respect to its appropriateness with the assets class, maintaining buffer for raising capital in the form of securitization, tier II capital, etc.
4) Liquidity
Lack of liquidity can lead any company towards failure. On the other hand, strong liquidity can get even an otherwise weak company to remain adequately funded during adverse times. We have evaluated the internal and external sources of funds to meet the requirements of the company. The risk of liquidity is examined by reviewing the stated liquidity policy, collection efficiency, the assets liabilities maturity (ALM), deposit renewal rates (based on estimates) and the proportion of liquid assets to total assets. The maturity of liabilities is checked for consistency with asset maturity. The short term funding as proportionate to total funding is examined to know the behavioural nature of assets. Any negative mismatch without a good backup is considered risk. For NBFC list from large groups, they can have backup support from the group.
It has been assumed, while preparing this NBFC list that the commercial papers, short term loans shall not be taken forward. For unutilized bank lines, their availability is also assessed in a scenario of market changes.
5) Earning Quality
The composition of income of the company by segregating it into fee-based and fund based activities has been reviewed. Core earnings have been identified by deducting non-recurring income from total income. The business areas that are contributing to the core earnings have been assessed for risks, its earnings prospects, as well as for growth rate. Interest yields have been examined whether they are commensurate with the asset class.
Profitable operations are essential for all business entities to keep going. Earning on business assets and investments is reviewed with respect to the cost of funds. And the revenues earned by the NBFC is arrived at. The interest coverage ratio is also a good indicator of the buffer available over the interest being paid by the NBFC. Examining expense ratios tells us about operating efficiency. The level of interest rate, operating expenses, credit costs and profitability, and foreign exchange rate risks that the company is exposed to, affect the quality of its earnings and sustainability over the long term.
Finally, the overall profitability was assessed in relation to the return on total assets and return on shareholder’s investment.
Qualitative Factors For NBFC List
The most significant qualitative factors considered for the ranking process are:
1) Ownership
The pattern of ownership and track record of the promoters & group companies (if any) are reviewed. NBFC registration done for companies by strong promoters are more likely to stay stable in times of crisis. How important the NBFC is to the group, provide an indication of the support that it may get. Shared brand name and common management functions like treasury are also good indicators. So the allocated capital by the fund towards the sector and entity specifically is examined. Its other exposures within the same geography and sector, tenure and size of the fund, etc. have been assessed as well.
Most entities are generally owned by Private Equity funds. For those with fragmented ownership, funding support was closely examined to conclude whether this entity could be relied upon.
2) Management
The credentials of the CEO, composition of the board, and the organizational structure of the company have been considered. The company’s strategic objectives and initiatives with respect to its available resources, have been studied. Its ability to recognize opportunities and track record in managing slumps indicate managerial competence. Evaluation of the information systems used by the management and their adequacy was undertaken. We have focused on the degree of computerisation, usage of modern practices and systems, capabilities of senior management, personnel policies and extent of delegation of authorities. The strength and quality of the group has been considered while assessing the management strength for shared resources by group companies.
3) Risk Management
The management’s stance, the company’s policy on risk and risk management framework are examined. Credit risk management is evaluated by examining the appraisal, monitoring & recovery systems, exposure to interest rate & foreign currency risk, and prudential lending norms of the company. Interest rate risk arises by varying maturity of assets & liabilities and mismatch between the floating and fixed-rate assets and liabilities. Foreign currency risk occurs due to a variation in the currency denomination of assets and liabilities. We have analyzed the derivatives or other risk management products used in the past and their implications. The track record of compliance by the company with the provisions of RBI was also reviewed.
4) Size and Network
The capital base and market presence of the NBFC have a bearing on the company’s competitive position. In the highly competitive environment of today, the niche strategy of smaller companies against the scale advantages of larger players/banks has been carefully examined to understand the business model of each company and rank accordingly.
We have taken all quantitative and qualitative factors together to rank and bring to you this NBFC list. Because a relative weakness in one field of the company’s performance may get easily compensated for by strengths in another field.
Hope this article makes you aware of the complex world of NBFC and its ranking. If you want to know anything about NBFCs, please log-in to our website, NBFC License India. A leading online platform for NBFC License, to buy NBFC or sell NBFC. Our services include aid during mergers and collaborations.
For more information on the subject, you can call us at (+91) 8750008585.
You may also like:
NBFC Finance or Bank Loan: Comparison in Detail
Frequently Asked Questions
Q. What is NBFC?
As the name indicates, an NBFC or Non-Banking Financial Company is a company offering finances and other banking services without being a bank. It is a company established under the Companies Act, 2013 or 1956, and maybe involved in following kinds of businesses:
- Loans and Advances,
- Leasing,
- Hire-purchase,
- Insurance business,
- Chit business, and
- Acquisition of shares/stocks/debentures/securities/bonds.
Other than above-listed organizations, companies with principal business of receiving deposits (whether in instalments or lump sum) in any manner are also NBFCs.
However, NBFCs cannot be engaged in the below kinds of business:
- Agriculture activity,
- Industrial activity,
- Purchase or sale of any goods (excluding securities) or
- Rendering any services and sale/purchase/construction of immovable properties.
Q. What is the process of NBFC registration?
- The company aspiring to become an NBFC should apply for online NBFC registration to the RBI. A CARN number is generated to be used in all further communications.
- After that, the company has to submit the hard copies of the online application, and the supporting documents uploaded, to the concerned regional office of the RBI.
- After verifying, the regional office shall send the application to the head office of the RBI. There, a more thorough examination is conducted.
- If all legal conditions and RBI provisions are being met, the company will be registered as an NBFC. And the NBFC license, a Certificate of Registration (CoR), will be issued.
Q. Which NBFCs have to be registered with RBI?
Specific business activities, as declared under Section 45-1A of the RBI Act, 1934, makes it compulsory for the NBFCs to be registered with the RBI. Those NBFCs that come under other regulators and do not undertake these activities are not to be registered with RBI. To eliminate duality. Some of these are Venture Capital fund (SEBI), Chit funds (Chit Funds Act), Housing Finance (National Housing Bank), etc.
Q. Which companies can register as NBFCs?
The entity must meet below conditions to get registered as an NBFC:
- It should be registered u/s 3 of the Companies Act,
- Have a minimum net owned fund of Rs. 2 crores.
Q. What is meant by the Principal Business of an NBFC?
Financial activity as the principal business is when more than 50% of the total assets of the company are financial assets and more than 50% of the gross income of the company comes from financial assets. The company meeting this criteria, commonly known as 50-50 condition, will be registered as NBFC by RBI.
Q. What is the difference between banks & NBFCs?
NBFCs lend and make investments. Therefore, their activities seem similar to those of the banks. However, there are many differences between the two:
- NBFC cannot accept deposits that are repayable on demand,
- NBFCs cannot issue cheques drawn on itself and are not part of the payment and settlement system,
- Depositors of NBFCs cannot avail of the deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation (DICGC), unlike depositors of banks.