SREI India Financial and SWOT Analysis

SREI India m peerlesstary and wonk depth psychologyOBJECTIVE OF THE PROJECTTo develop and agreement of the Non- blasphemeing pecuniary debuts (NBFIs) and their furrow operations in India.To do a luxuriant explore on SREI Equipment pay Private redundant, its food foodstuff sh ar and the fig out outline.To good review SREIs doctrine estimate and de nonation effment swear out.To deduct the seek instruction process of the community.To gain a detailed experience of the parameters that affects miscellaneous casualtys.To touch on weightages and scores for designing and developing pretend sagaciousness vex establish on market forces for assessing SREIs Customers.METHODOLOGYIn methodicalness to execute the said objectives, put up be to go through the wide NBFs history, draw field of honors harvesting opportunities, present scenario. This exit be the ongoing process and will be done using internet, unfermenteds and books.To at a lower placestand the execution of SREI pertaining to acknowledgment insecurity management and appraisal process chaseed for funding vauntingly corpo grade ( fortune mental pictures much than Rs.5 crores). F authentic data, assurance appraisal memorandum prep bed by the smart set and the reference try policy of the comp either will be referred in this regard.Then comes the adept part of conducting Balance Sheet epitome, proportion Analysis and Cash Flow Analysis.To propose a statistical credit rate model, data nominate been collected from credit officers and the apprisalship managers in the innovation. monetary ratios were employ to measure the strength of the customer. Score model for assessing risk to convert responses to scores. Weighted fairish method applied to assign sequester richness to conf utilise parameters.LIMITATIONS OF THE STUDYThe study will still be counsel on the LARGE CORPORATES (risk exposure more than than Rs.5 crores) non the sell and SME empyreans of SREI. look at is on the basis of offshoot-hand selective information collected from employees/head of the partition of the c in every(prenominal)er-out that might be incorrect or biased.Duration of the internship imparts the air pressure of c everyplacet this vast spectrum in a limit period of 14 weeks.The truth of the Risk Assessing get depends on the accuracy of information provided by the customer.The risk rating model doesnt take into the consideration where in the smart set doesnt follow the rules norms strictly. The relationships with the customers be given more importance.INDUSTRY ANALYSIS structure of Indias pecuniary Services IndustryThe rbi, the cardinal banking and monetary authority of India, is the central restrictive and supervisory authority for the Indian monetary arranging. SEBI and IRDA regulate the bang-up markets and damages welkin, respectively. A variety of pecuniary intermediaries in the public and unavowed sectors take part in Indi as pecuniary sector, including the following commercialised banksNBFCsSpecialised pecuniary innovations a uniform(p) NABARD, EXIM Bank, SIDBI and TFCISecurities brokers enthronisation banksInsurance companiesMutual funds andVenture peachy.NON-BANKING FINANCIALCOMPANIESNon-banking fiscal companies (NBFCs) atomic number 18 debauched emerging as an important segment of Indian fiscal dodge. It is an coalesceed group of institutions ( early(a)(a) than mer roll in the haytile and co-operative banks) performing fiscal intermediation in a variety of carriages, like accepting deposits, qualification gives and senesces, leasing, engage get, etcetera They march on funds from the public, directly or indirectly, and lend them to ultimate spenders. They advance loans to the non-homogeneous wholesale and retail traders, sm each(prenominal)-scale industries and self-employed persons. Thus, they wipe out broadened and alter the roam of products and operate passinged by a pecuniary sector. Gradu each in ally, they are be know as complementary to the banking sector due to their customer-oriented work simplified procedures showy rates of give in on deposits flexibility and snipliness in coming together the credit necessarily of specified sectors etc.The functional and operations of NBFCs are regulated by the grant Bank of India (RBI) at heart the cloth of the Reserve Bank of India Act, 1934 (Chapter III B) and the directions issued by it under the Act. As per the RBI Act, a non-banking financial partnership is defined as- (i) a financial institution which is a caller-out (ii) a non-banking institution which is a connection and which has as its principal business the receiving of deposits, under either scheme or system of rules or in any other manner, or loaning in any manner (iii) such(prenominal) other non-banking institution or kinsperson of such institutions, as the bank may, with the foregoing approval of the name organiza tion and by notification in the Official Gazette, specify.NBFCs VsBANKING SECTOR IN INDIANon-Banking pay Companies (NBFCs) are an integral part of the countrys financial system complementing the serve of mercantile banks. The principal(prenominal) reason attributed to the ripening of NBFCs is the comprehensive regulation of thebanking system. Other factors take on high(prenominal) level of customer orientation, lesser pre/post sanction requirements andhigher rates of bear on on deposits macrocosm claimed by NBFCs.NBFCs keep traditionally been extending credit crosswise various parts of the country through their geographical carriage,with NBFCs being a supplier of credit to segments such as equipment leasing, hire purchase, and consumer finance. Theseare scene of actions which guarantee infusion of finance due to the alive demand-supply gap. NBFCs have been a more flexiblesource of funding and have been fitting to disburse funds to a gamut of leaf node, from the t opical anesthetic special K man to a varietyof corporate client. NBFCs are in any case able to vivify the pace of decision making to disburse funds, customise andtailor their products accord to the client needs and take on excess risks on their portfolio. NBFCs can be divided intodeposit taking NBFCs, i.e., which accept deposits from public and non-deposit taking NBFCs being those which do notaccept deposits from public.The activities carried out by NBFCs in India can be grouped as under The types of NBFCs registered with the RBI are- Equipment leasing caller-out is any financial institution whose principal business is that of leasing equipment or funding of such an practise. hire-purchase connectionis any financial intermediary whose principal business relates to hire purchase operations or finance of such performances. lend caller mode any financial institution whose principal business is that of providing finance, whether by making loans or advances or otherwise f or any activity other than its take in (excluding any equipment leasing or hire-purchase finance activity). Investment companion is any financial intermediary whose principal business is that of buying and merchandising of securities.Now, these NBFCs have been reclassified into troika categories- asset pay connection (AFC) Investment confederation (IC) and Loan club (LC).Under this compartmentalization, AFC is defined as a financial institution whose principal business is that of finance the physical pluss which support various blanket(a)-bodied/ economic activities in the country.GOVERNMENT ROLE IN PROMOTING home finance stand is expected to be a key area of fixth in a developing country like India. The presidential term has been activelypromoting the countrys pedestal through a sustained focus on area like power, roads, ports and urbantransportation. Private sector participation through public private partnerships as come up as privately funded projects isbeing e ncouraged in golf-club to enable quick scale up of g everyplacenments efforts and better management. As per PlanningCommissions estimates the investments in stand during the Tenth Plan aggregated to Rs. 4, 52,900 crores whichis expected to increase to Rs. 11, 25,000 crores in the eleventh Plan. The chart below describes the anticipated andestimated investments under the two plans respectively. communicate investiture IN INFRASTRUCTURE in the 11th FIVE course castCOMPANY PROFILEA started operation in 1989, Srei is a leaders radix foc employ private sector Non-Banking fiscal Company (NBFC) in India. It is currently the only institution in India offering holistic theme solutions funding, advisery services development.Milestones Achieved1989 Started operations and identified the root sector as its coreBusiness area.1992 Initial Public Offering with list on all major stock exchanges.1997 IFC, FMO DEG invested as strategical fair play partners Promoters spike.2002 Conc eived Quippo, Indias original equipment bank.2004 All India presence, currently 63 offices.2005 First Indian NBFC to be listed on the London Stock Exchange.2006 Geographical expansion into Russia integrity partners EBRD, DEG, FMO.2007 pin venture with BNP Paribas Lease Group, 100% marcher of BNPParibas.2008 Holistic Infrastructure Institution, financial backing, consultative services Development.Services Infrastructure Equipment Financing Leasing Infrastructure Project Financing, informatory services and development Insurance Broking Venture majuscule Capital market Sahaj e-village Quippo Equipment BankGROUP STRUCTUREAbout Srei Equipment pay Private throttleSrei BNP Paribas (Registered happen upon Srei Equipment finance Private Limited) is a 5050 colligation-venture amid Srei Infrastructure Finance Limited, Indias leading and only private sector Non-Banking Financial Institution in the stem space and BNP Paribas Leasing Solutions(BPLS), a solely have subsidiary of BNP Paribas, France.Srei BNP Paribas started its operation from January 01, 2008 with the infrastructure and face equipment financing and insurance businesses and has that plans to scratchish its business to new verticals.Industry leader in the infrastructure and social organisation equipment financing, Srei BNP Paribas is aptly benefitting from the Indian expertise and perceptivity of Srei and global leasing insight in assorted product classes of BNP Paribas.Srei BNP Paribas has deep insight on diverse equipment mapd in the infrastructure and building sector and acts a important advisor to its customers. It has tied up with all the leading equipment manufacturers. Over the years, Srei BNP Paribas has been innovating new merchandise programs bringing together the manufacturers and customers on a single platform, creating colossal pry and sharing this value with all the postal service holders. Paison Ki Nilami and Srei BNP Paribas coalition workweek are two such p rominent programs.Srei BNP Paribas has already started financing engine room Solutions (financing of IT equipment, software and services) and has effectively partnered with leading global IT vendors for financing their customers. It has also denudateed into financing of new Equipment classes Agriculture Equipment, Healthcare Equipment, Office Automation, and Equipment in breeding sector etc. With its disrobe into new equipment classes, Srei BNP Paribas has become probably the one and only Company to offer complete Equipment Solutions.With a customer subaltern of over 20,000, Srei BNP Paribas has grown from strength to strength enjoying a strong topic presence with a network of 86 offices across India.VISIONTo be the roughly inspiring global holistic infrastructure institution.MISSIONTo be an Indian multinational company providing innovative integrated infrastructure solutions. center valueCustomer PartnershipAt Srei, customer satisfaction is the bench mark for succeeder. Sr ei delights its customers through a comprehensive telescope of financial services that are personalized, fast, reliable, convenient, fictitious quotation driven, and yet cost effective.IntegrityBusiness fair play is a way of life at Srei. The company strongly stands by integrity in all its dealings and ensures strict adherence to the highest standards of business ethics. erotic love for excellencySreis passion for honor is instrumental in positioning the company as the about innovative infrastructure solution provider in India. treasure for PeopleSrei ac familiaritys the fact that its people are its most expensive additions and whence provides the best possible work environment and treats them like family segments. The company rewards excellence and first step.Stakeholder Value enhancementSrei is committed to earning the trust and confidence of all its stake holders. Its growth focus, the tycoon to constantly enlarge its product basketball hoop eon falsifyling risk an d reducing the cost of its services have resulted in enhanced value for its stakeholders.Professional EntrepreneurshipSreis in depth knowledge of infrastructure financing business in India, coupled with its spirit of entrepreneurship, and helps the company to batter the obstacles and complexities with professional expertise.MANUFACTURING PARTNERSMARKET SHARE OF SREI BNP PARIBASSource Company.MAJOR COMPETITORS1. MAGMA FINCORP curbMagma Fincorp Ltd (Magma) is a Kolkata ground asset financing company. The company is engaged in financingof commercial vehicles, cars, bend equipment, tractors and utility vehicles.The companys target customers are mostly first time users and small entrepreneurs.The Company provides construction equipment finance across retail and strategic customer segments. In the retail segment, it focuses on first-time buyers and small customers. The Company has complete contracts with large value vendors addressing multiple projects. It finances a range of constr uction equipment like excavators, backhoe loaders, compactors, compressors, cranes, tippers and drillers of prominent brands like JCB, Telcon, LT, Ingersoll-Rand, Caterpillar, ECEL, Escorts and Atlas Copco etc.Magma provides unguaranteed EMI-based loans to SMEs for working capital, business expansion and business maintenance. It has developed proprietary financial synopsis tools to make safe credit assessments. The share of this segment is increase in the total outlays (5% in FY10). Going forward the company intends to watch over the rest of these loans at 5% and would adopt a cautious progression term modify.In commercialized Vehicle Finance Segment, Magma provides loans on employ commercial vehicles and construction equipment. Magma refinanced popular models of Tata Motors and Ashok Leyland.Magma Fincorp predominantly was engaged in financing of construction equipment and passenger cars, utility vehicles and commercial vehicles (CVs). These business verticals accounted fo r 90% of the companys disbursements in FY10. tardily the company has ventured into high-yield segments, viz financing of used CVs, tractors and SME loans. Most of the loans disbursed are retail loans and have small ticket size except in the construction equipment segment. MFL has a concentrated focus on the under tapped semi urban and unpolished market to finance first time users, Small road send out operators, small contractors etc.2. TATA CAPITALThe Company was incorporated on shew 8, 1991 and actively commenced business operations since September, 2007. The Company is a wholly owned subsidiary of Tata Sons Limited, the apex holding company of the Tatas. Their fund based businesses defend Corporate Finance, Infrastructure Finance and Retail Finance give based businesses comprise investment banking, broking and distribution, wealth management, private equity, treasury advisory, services relating to travel, forex and infrastructure.With the abundant array of products and c ustomized service, the commercial finance business, helps small, medium and large corporates grow their business. The companys group of handpicked professionals offers in-depth expertise to help customers keep pace with the changing market place and offer them appropriate solutions to meet their ever-growing financial needs. The companys management structure enables them to leverage relationships across lines of our businesses. Their product knowledge and multi-channel delivery model enhances the ability to cross-sell the companys services. TATA Capital is in the advanced stages of setting up institutional broking, insurance broking and sylvan finance businesses which would supplement the aforementioned lines of business.TATA Capital believes that the following are the key strengths unite financial services platformDiversified and balanced mix of businesses experience management teamInnovative solutions modelRespected brandControls, processes and risk management systems andAccess to capital.3. LT FINANCE LIMITEDLT Finance Limited (LTF) is a subsidiary of Larsen and Toubro. It was incorporated as a Non-Banking Finance Company in November 1994. Through LTF, LT aims at making a strong foray in the ever-expanding financial services sector.LT Finance understands the intricacies of your business. We at LT Finance offer financing for your Construction Equipment in the form of term loans, working capital loan and run lease facilities. In 1996, LT Finance had made a foray in financing of commercial vehicles. LT Finance offers financing Commercial Vehicles of all makes and sizes. We also undertake funding of the body for the Commercial Vehicles. LT Finance has an commodious network from where you can easily avail financing for your Commercial Vehicle.Advantages of partnering with LT FinancePresence in more than 70 locationsFlexible re hire pickingCompetitive interest ratesFinance for used vehicles open express loan approval and disbursementA brief equivalence b etwixt SREI EQUIPMENT FINSNCE its CompetitorsREASON FOR THE JOINT VENTURE WITH BNP PARIBAS LEGAL SOLUTIONSMr.HemantKanoria, Vice death chair and Managing theater director of SREI, termed this joint venture as a very momentous measure in the Indian Financial Services Market. We are the largest impostor in the financing of infrastructure equipment and collaborating with BPLG will help in change magnitude our market share further and also expanding the product line into financing of agriculture, information technology, medical and other equipment.S banknoteing at the occasion Mr. Bertrand Gousset, member of the executive Committee of BPLG, in charge of Corporate Development, said, We are blissful to be associated with the SREI group, who are the leaders in the financing of infrastructure equipment and provide a wide range of equipment finance products to large strategic clients as well as to retail customers, with pan-India coverage. This joint venture is very world-shattering for us and we look forward to a long and prosperous connective with them.Mr. Sunil Kanoria said, This joint venture signifies the coming together of two companies with the same share values. both SREI and BPLG are convinced that they are well positioned to build on the already strong platform established by SREI and that this will enable in reduction in cost of funds resulting in higher profitability.Mr.Amoudru, chief executive officer of BNP Paribas India and Head of Territory, said The acquisition of a 50% stake in this joint-venture with SREI a highly recognised firm in equipment and infrastructure financing further evidences the willingness of the BNP Paribas Group to expand its presence in India in activities where it has a strong expertise. It represents another substantial capital commitment from the Group- the largest so far- in this country and testifies our confidence in the long term prospects of the Indian economy.SWOT ANALYSISLITERATURE REVIEWFLOW OF THE PROCESS AT SREI credit rating ideaCredit approximation is a process to ferret out the risks associated with the book of facts of the credit facility. It is generally carried by the financial institutions which are affect in providing financial funding to its customers.These financial institutions appraise the technical feasibility, economic viability and bankability including creditworthiness of the future borrower. Credit appraisal starts from the time a prospective borrower walks into the sort out and culminates in credit delivery and monitoring with the objective of ensuring and maintaining the choice of lending and managing credit risk within pleasurable limits.Credit appraisal involves analysis of liquid state position/ financial soundness of the company. Although, the analysis also covers discernment growth trends in revenues and earnings, and profit margins, more emphasis is required to be set on liquidity-both long term and short term.There are fundamentally two types of p roposals that are received by the companies for funds. The first types of proposals are financing against new and first hand assets to be purchased (EQUIK) and the other proposals are financing against pre owned assets (REQUIK).Asset finance is generally divided into ternary departments depending upon the risk exposure*Retail Aggregate risk exposure not especial(a) Rs.1 crore.SME (Small Medium Enterprises) Aggregate risk exposure between Rs.1 5 crores.strategic Aggregate exposure more than Rs.5 crores.*NOTE Risk exposure to a client is primed(p) by the summation of enlighten Finance enumerate for the approval(s) being considered, together with all existing exposures to the client all related concerns in aggregate and residual Net Finance Amounts under all previous valid approvals for the Client pending part or full disbursement.SOME IMPORTANT TERMINOLOGIESASSET FINANCEAsset Finance course includes secured business loan in which the borrower pledges as collateral an asset us ed in the conduct of its business. Asset finance also includes business in which a client takes an asset on lease for use in the conduct of his business for a defined period with or without near of onward sub lease the asset.ASSET COSTIn slip of paper of Equik, the invoice values of the Asset including all duties and taxes which are not refundable or adjustable under drawback or otherwise any scheme. Spares, consumables, accessories auxiliaries, consultancy fees, creation and hard-on charges, etc. shall not be considered as part of asset cost.In case of Requik, Asset cost will be dictated by the lowest of turn in Intrinsic Value of Asset as determined through a process by an expert O.K. by SREI.Actual purchase price to be paid by the consumer flowing Insured Declared Value.MARGINMargin centre the clients office on the Asset Cost payable upfront or any sum total deposited with us as Security Deposit in relation to the act before the disbursement or release of facility.AIR RInternal gait of sacrifice (IRR) by definition is the rate of return at which the Net Present Value of the stream of earningss (repayment of installments and interest by the customer vis--vis the actual disbursement made by the company) become equal to zero.FIRRFinancial IRR (FIRR) shall dream up the transaction IRR without compute any benefit available to Srei BNPP in call of formula MOU entered into by srei BNPP with concerned manufacturer. Management fees/ RTE/ Commitment Charges collected upfront, an extra credit period, subvention or other cash incentives extracted from the manufacturer over and above those available workings.YIELDYield room the rate of return to Srei-BNPP from the transaction, factoring all the benefits available to Srei-BNPP under recipe MOU and otherwise from the manufacturers/vendors.ETR (Excellent form Record)ETR performer peak waiting of not more than 30 eld and average crack of not more than 15 days for payment of dues in all existing and past accounts of the proposed customer.GTR (Good track Record)GTR means peak delay of not more than 45 days and average delay of not more than 30 days for payment of dues in all existing and past accounts of the proposed customer.PTR (Poor track Record)PTR means peak delay more than 45 days and average delay of more than 30 days for payment of dues in all existing and past accounts of the proposed customer.ANALYSIS OF recognise APPRAISAL MEMORANDUMCredit risk of each individual transaction is analyze and managed from the five different perspectivesCustomer credit worthinessAsset qualityAsset deploymentCollateral securityFacility type footing of the power/ managementThe identification of the borrower is done properly through test of his antecedents, experience, competence, integrity, initiative etc. This may be done by obtaining positioning reports from previous bankers. In case of corporate, the management structure, the background of the top management needs to be scrutiniz ed. KYC guidelines as framed by RBI are select by the company.Commercial AppraisalThe nature of the product, demand for the same, the existing and perceived competition in the segment, ability of the proponents to withstand the same, government policies regime the pains etc. need to be taken into consideration.technical foul AppraisalTechnical appraisal of the project needs to be carried out for industrial activity proposals beyond the cut off limits prescribed from time to time. much(prenominal) appraisal may be carried out in house by technical officers.Financial AppraisalApart from ascertaining the need based character of the limits pass along for, the financial health of the proponents, ability to absorb unanticipated financial cost need to be looked into which would include scrutiny of the cost of the project, means of financing, financial projections etc. important performance indicators like profitability ratios, debt equity ratio, operating profit margin etc. need to be within acceptable parameters for that industries/ activities.INTRODUCTION TO RISKThe interpretation of the word risk will determine the approach to risk management. The word risk is interpreted in three distinct senses namely risk as hazard, risk as chance and risk as uncertainty.Risk as hazard is the most unremarkably used kernel of risk and it means likely financial way outes arising from negative events such as control failures, bad publicity and personnel casualty of reputation. Risk management in this context would mean eliminating possibilities of losings from such negative events by putting in place equal control systems.Risk as an opportunity means, taking risks and earning adequate returns on them. This implies the tradeoff between risk and return. Here risk management, becomes risk optimization meaning maximizing the upside potential and minimizing the downside. Here capacity and ability to manage risk is used to increase shareholders value and achieve a free-e nterprise(a) advantage.Risk, as uncertainty is basically a statistical concept, which assumes a normal distribution for future outcomes. Here risk management means tapering the difference between the expected outcomes and actual results. Banks and other standardized financial institutions need to manage the risk inherent in the consummate portfolio as well as the risk in individual ascribe or transactions. The effective management of risk is a critical ingredient of a comprehensive approach to risk management and essential to the semipermanent success of any banking organization.In simple words, risk is the possibility of losings associated with descend in the credit quality of borrowers. In a financial institution, loss may stem from default due to inability or unwillingness of a customer to meet his commitments in relation to lending, trading, closure and other financial transactions. A default reduces the present value of the loan and thus the value of the banks business. Thus, it is imperative that these institutions have a robust risk management. toughie BUILDINGNeed for StudyA Risk judicial decision Model (RAM) is necessary to avoid the limitations associated with a simplistic and broad classification of applicants into a good or bad categoryThe comapny currently uses a judgemental risk assessing model.Grading System for Standardization of RiskThe grades (symbols, numbers, alphabets, and descriptive terms) used in the internal credit-risk scoring system represent, without any ambiguity, the default risks associated with an exposure. The grading system will enable comparisons of risks for purposes of analysis and top management decision-making. The grading system is therefore, be flexible and should accommodate the refinementSREI India Financial and SWOT AnalysisSREI India Financial and SWOT AnalysisOBJECTIVE OF THE PROJECTTo develop and understanding of the Non-Banking Financial Institutions (NBFIs) and their business operations in India.To do a detailed research on SREI Equipment Finance Private Limited, its market share and the SWOT analysis.To thoroughly review SREIs credit appraisal and credit management process.To understand the risk management process of the company.To gain a detailed knowledge of the parameters that affects various risks.To determine weightages and scores for designing and developing risk assessment model based on market forces for assessing SREIs Customers.METHODOLOGYIn order to achieve the said objectives, will be to go through the entire NBFs history, thrust areas growth opportunities, present scenario. This will be the ongoing process and will be done using internet, news and books.To understand the functioning of SREI pertaining to credit risk management and appraisal process followed for financing large corporates (risk exposures more than Rs.5 crores). Factual data, credit appraisal memorandum prepared by the company and the credit risk policy of the company will be referred in this regard.T hen comes the technical part of conducting Balance Sheet Analysis, Ratio Analysis and Cash Flow Analysis.To propose a statistical credit rating model, data have been collected from credit officers and the relationship managers in the institution. Financial ratios were used to measure the strength of the customer. Score model for assessing risk to convert responses to scores. Weighted average method applied to assign appropriate importance to various parameters.LIMITATIONS OF THE STUDYThe study will only be focusing on the LARGE CORPORATES (risk exposure more than Rs.5 crores) not the retail and SME sectors of SREI.Study is on the basis of first-hand information collected from employees/head of the division of the company that might be incorrect or biased.Duration of the internship imparts the pressure of covering this vast spectrum in a limit period of 14 weeks.The accuracy of the Risk Assessing Model depends on the accuracy of information provided by the customer.The risk rating mo del doesnt take into the consideration where in the company doesnt follow the rules norms strictly. The relationships with the customers are given more importance.INDUSTRY ANALYSISStructure of Indias Financial Services IndustryThe RBI, the central banking and monetary authority of India, is the central regulatory and supervisory authority for the Indian financial system. SEBI and IRDA regulate the capital markets and insurance sector, respectively. A variety offinancial intermediaries in the public and private sectors participate in Indias financial sector, including the followingCommercial banksNBFCsSpecialised financial institutions like NABARD, EXIM Bank, SIDBI and TFCISecurities brokersInvestment banksInsurance companiesMutual funds andVenture capital.NON-BANKING FINANCIALCOMPANIESNon-banking financial companies (NBFCs) are fast emerging as an important segment of Indian financial system. It is an heterogeneous group of institutions (other than commercial and co-operative banks ) performing financial intermediation in a variety of ways, like accepting deposits, making loans and advances, leasing, hire purchase, etc. They raise funds from the public, directly or indirectly, and lend them to ultimate spenders. They advance loans to the various wholesale and retail traders, small-scale industries and self-employed persons. Thus, they have broadened and diversified the range of products and services offered by a financial sector. Gradually, they are being recognized as complementary to the banking sector due to their customer-oriented services simplified procedures attractive rates of return on deposits flexibility and timeliness in meeting the credit needs of specified sectors etc.The working and operations of NBFCs are regulated by the Reserve Bank of India (RBI) within the framework of the Reserve Bank of India Act, 1934 (Chapter III B) and the directions issued by it under the Act. As per the RBI Act, a non-banking financial company is defined as- (i) a fi nancial institution which is a company (ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner (iii) such other non-banking institution or class of such institutions, as the bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify.NBFCs VsBANKING SECTOR IN INDIANon-Banking Finance Companies (NBFCs) are an integral part of the countrys financial system complementing theservices of commercial banks. The main reason attributed to the growth of NBFCs is the comprehensive regulation of thebanking system. Other factors include higher level of customer orientation, lesser pre/post sanction requirements andhigher rates of interest on deposits being offered by NBFCs.NBFCs have traditionally been extending credit across various parts of the country through their geographical presence,with NBFCs being a supplier of credit to segments such as equipment leasing, hire purchase, and consumer finance. Theseare areas which warrant infusion of financing due to the existing demand-supply gap. NBFCs have been a more flexiblesource of financing and have been able to disburse funds to a gamut of client, from the local common man to a varietyof corporate client. NBFCs are also able to accelerate the pace of decision making to disburse funds, customise andtailor their products according to the client needs and take on excess risks on their portfolio. NBFCs can be divided intodeposit taking NBFCs, i.e., which accept deposits from public and non-deposit taking NBFCs being those which do notaccept deposits from public.The activities carried out by NBFCs in India can be grouped as under The types of NBFCs registered with the RBI are- Equipment leasing Company is any financial institution whose principal business is that of leasing equipment or financing of such an activity. Hire-purchase Co mpanyis any financial intermediary whose principal business relates to hire purchase transactions or financing of such transactions. Loan Company means any financial institution whose principal business is that of providing finance, whether by making loans or advances or otherwise for any activity other than its own (excluding any equipment leasing or hire-purchase finance activity). Investment Company is any financial intermediary whose principal business is that of buying and selling of securities.Now, these NBFCs have been reclassified into three categories- Asset Finance Company (AFC) Investment Company (IC) and Loan Company (LC).Under this classification, AFC is defined as a financial institution whose principal business is that of financing the physical assets which support various productive/economic activities in the country.GOVERNMENT ROLE IN PROMOTING INFRASTRUCTURE FINANCEInfrastructure is expected to be a key area of growth in a developing country like India. The Governm ent has been activelypromoting the countrys infrastructure through a sustained focus on area like power, roads, ports and urbantransportation. Private sector participation through public private partnerships as well as privately funded projects isbeing encouraged in order to enable quick scale up of governments efforts and better management. As per PlanningCommissions estimates the investments in infrastructure during the Tenth Plan aggregated to Rs. 4, 52,900 crores whichis expected to increase to Rs. 11, 25,000 crores in the Eleventh Plan. The chart below describes the anticipated andestimated investments under the two plans respectively.PROJECTED INVESTMENT IN INFRASTRUCTURE in the 11th FIVE YEAR PLANCOMPANY PROFILEA started operation in 1989, Srei is a leading infrastructure focused private sector Non-Banking Financial Company (NBFC) in India. It is currently the only institution in India offering holistic infrastructure solutions financing, advisory services development.Milest ones Achieved1989 Started operations and identified the infrastructure sector as its coreBusiness area.1992 Initial Public Offering with listing on all major stock exchanges.1997 IFC, FMO DEG invested as strategic equity partners Promoters stake.2002 Conceived Quippo, Indias first equipment bank.2004 All India presence, currently 63 offices.2005 First Indian NBFC to be listed on the London Stock Exchange.2006 Geographical expansion into Russia equity partners EBRD, DEG, FMO.2007 Joint venture with BNP Paribas Lease Group, 100% subsidiary of BNPParibas.2008 Holistic Infrastructure Institution, financing, advisory services Development.Services Infrastructure Equipment Financing Leasing Infrastructure Project Financing, Advisory services and development Insurance Broking Venture Capital Capital market Sahaj e-village Quippo Equipment BankGROUP STRUCTUREAbout Srei Equipment Finance Private LimitedSrei BNP Paribas (Registered name Srei Equipment Finance Private Limited) is a 5050 joint-venture between Srei Infrastructure Finance Limited, Indias leading and only private sector Non-Banking Financial Institution in the infrastructure space and BNP Paribas Leasing Solutions(BPLS), a wholly owned subsidiary of BNP Paribas, France.Srei BNP Paribas started its operation from January 01, 2008 with the infrastructure and construction equipment financing and insurance businesses and has further plans to expand its business to new verticals.Industry leader in the infrastructure and construction equipment financing, Srei BNP Paribas is aptly benefitting from the Indian expertise and insight of Srei and global leasing insight in diverse product classes of BNP Paribas.Srei BNP Paribas has deep insight on diverse equipment used in the infrastructure and construction sector and acts a valuable advisor to its customers. It has tied up with all the leading equipment manufacturers. Over the years, Srei BNP Paribas has been innovating new marketing programs bringing togeth er the manufacturers and customers on a single platform, creating immense value and sharing this value with all the stake holders. Paison Ki Nilami and Srei BNP Paribas Partnership Week are two such prominent programs.Srei BNP Paribas has already started financing Technology Solutions (financing of IT equipment, software and services) and has effectively partnered with leading global IT vendors for financing their customers. It has also forayed into financing of new Equipment classes Agriculture Equipment, Healthcare Equipment, Office Automation, and Equipment in Education sector etc. With its foray into new equipment classes, Srei BNP Paribas has become probably the one and only Company to offer complete Equipment Solutions.With a customer base of over 20,000, Srei BNP Paribas has grown from strength to strength enjoying a strong national presence with a network of 86 offices across India.VISIONTo be the most inspiring global holistic infrastructure institution.MISSIONTo be an Indi an multinational company providing innovative integrated infrastructure solutions.CORE VALUESCustomer PartnershipAt Srei, customer satisfaction is the benchmark for success. Srei delights its customers through a comprehensive range of financial services that are personalized, fast, reliable, convenient, quality driven, and yet cost effective.IntegrityBusiness integrity is a way of life at Srei. The company strongly stands by integrity in all its dealings and ensures strict adherence to the highest standards of business ethics.Passion for ExcellenceSreis passion for excellence is instrumental in positioning the company as the most innovative infrastructure solution provider in India.Respect for PeopleSrei acknowledges the fact that its people are its most valuable assets and accordingly provides the best possible work environment and treats them like family members. The company rewards excellence and initiative.Stakeholder Value enhancementSrei is committed to earning the trust and confidence of all its stake holders. Its growth focus, the ability to constantly enlarge its product basket while controlling risk and reducing the cost of its services have resulted in enhanced value for its stakeholders.Professional EntrepreneurshipSreis in depth knowledge of infrastructure financing business in India, coupled with its spirit of entrepreneurship, and helps the company to overcome the obstacles and complexities with professional expertise.MANUFACTURING PARTNERSMARKET SHARE OF SREI BNP PARIBASSource Company.MAJOR COMPETITORS1. MAGMA FINCORP LIMITEDMagma Fincorp Ltd (Magma) is a Kolkata based asset financing company. The company is engaged in financingof commercial vehicles, cars, construction equipment, tractors and utility vehicles.The companys target customers are mostly first time users and small entrepreneurs.The Company provides construction equipment finance across retail and strategic customer segments. In the retail segment, it focuses on first-time buyers and small customers. The Company has established contracts with large value vendors addressing multiple projects. It finances a range of construction equipment like excavators, backhoe loaders, compactors, compressors, cranes, tippers and drillers of prominent brands like JCB, Telcon, LT, Ingersoll-Rand, Caterpillar, ECEL, Escorts and Atlas Copco etc.Magma provides unsecured EMI-based loans to SMEs for working capital, business expansion and business maintenance. It has developed proprietary financial analysis tools to make safe credit assessments. The share of this segment is increasing in the total disbursements (5% in FY10). Going forward the company intends to maintain the proportion of these loans at 5% and would adopt a cautious approach while lending.In Commercial Vehicle Finance Segment, Magma provides loans on used commercial vehicles and construction equipment. Magma refinanced popular models of Tata Motors and Ashok Leyland.Magma Fincorp predominantly was engaged in finan cing of construction equipment and passenger cars, utility vehicles and commercial vehicles (CVs). These business verticals accounted for 90% of the companys disbursements in FY10. Recently the company has ventured into high-yield segments, viz financing of used CVs, tractors and SME loans. Most of the loans disbursed are retail loans and have small ticket size except in the construction equipment segment. MFL has a concentrated focus on the under tapped semi urban and rural market to finance first time users, Small Road Transport operators, small contractors etc.2. TATA CAPITALThe Company was incorporated on March 8, 1991 and actively commenced business operations since September, 2007. The Company is a wholly owned subsidiary of Tata Sons Limited, the apex holding company of the Tatas. Their fund based businesses comprise Corporate Finance, Infrastructure Finance and Retail Finance fee based businesses comprise investment banking, broking and distribution, wealth management, priv ate equity, treasury advisory, services relating to travel, forex and infrastructure.With the wide array of products and customized service, the commercial finance business, helps small, medium and large corporates grow their business. The companys team of handpicked professionals offers in-depth expertise to help customers keep pace with the changing marketplace and offer them appropriate solutions to meet their ever-growing financial needs. The companys management structure enables them to leverage relationships across lines of our businesses. Their product knowledge and multi-channel delivery model enhances the ability to cross-sell the companys services. TATA Capital is in the advanced stages of setting up institutional broking, insurance broking and rural finance businesses which would supplement the aforementioned lines of business.TATA Capital believes that the following are the key strengthsUnified financial services platformDiversified and balanced mix of businessesExperien ced management teamInnovative solutions modelRespected brandControls, processes and risk management systems andAccess to capital.3. LT FINANCE LIMITEDLT Finance Limited (LTF) is a subsidiary of Larsen and Toubro. It was incorporated as a Non-Banking Finance Company in November 1994. Through LTF, LT aims at making a strong foray in the ever-expanding financial services sector.LT Finance understands the intricacies of your business. We at LT Finance offer financing for your Construction Equipment in the form of term loans, working capital loan and operating lease facilities. In 1996, LT Finance had made a foray in financing of commercial vehicles. LT Finance offers financing Commercial Vehicles of all makes and sizes. We also undertake funding of the body for the Commercial Vehicles. LT Finance has an extensive network from where you can easily avail financing for your Commercial Vehicle.Advantages of partnering with LT FinancePresence in more than 70 locationsFlexible repayment optio nCompetitive interest ratesFinance for used vehicles availableFaster loan approval and disbursementA brief Comparison between SREI EQUIPMENT FINSNCE its CompetitorsREASON FOR THE JOINT VENTURE WITH BNP PARIBAS LEGAL SOLUTIONSMr.HemantKanoria, Vice Chairman and Managing Director of SREI, termed this joint venture as a very significant step in the Indian Financial Services Market. We are the largest player in the financing of infrastructure equipment and collaborating with BPLG will help in increasing our market share further and also expanding the product line into financing of agriculture, information technology, medical and other equipment.Speaking at the occasion Mr. Bertrand Gousset, member of the Executive Committee of BPLG, in charge of Corporate Development, said, We are delighted to be associated with the SREI group, who are the leaders in the financing of infrastructure equipment and provide a wide range of equipment finance products to large strategic clients as well as to retail customers, with pan-India coverage. This joint venture is very significant for us and we look forward to a long and prosperous association with them.Mr. Sunil Kanoria said, This joint venture signifies the coming together of two companies with the same shared values. Both SREI and BPLG are convinced that they are well positioned to build on the already strong platform established by SREI and that this will enable in reduction in cost of funds resulting in higher profitability.Mr.Amoudru, CEO of BNP Paribas India and Head of Territory, said The acquisition of a 50% stake in this joint-venture with SREI a highly recognised firm in equipment and infrastructure financing further evidences the willingness of the BNP Paribas Group to expand its presence in India in activities where it has a strong expertise. It represents another substantial capital commitment from the Group- the largest so far- in this country and testifies our confidence in the long term prospects of the India n economy.SWOT ANALYSISLITERATURE REVIEWFLOW OF THE PROCESS AT SREICREDIT APPRAISALCredit Appraisal is a process to ascertain the risks associated with the extension of the credit facility. It is generally carried by the financial institutions which are involved in providing financial funding to its customers.These financial institutions appraise the technical feasibility, economic viability and bankability including creditworthiness of the prospective borrower. Credit appraisal starts from the time a prospective borrower walks into the branch and culminates in credit delivery and monitoring with the objective of ensuring and maintaining the quality of lending and managing credit risk within acceptable limits.Credit appraisal involves analysis of liquidity position/ financial soundness of the company. Although, the analysis also covers understanding growth trends in revenues and earnings, and profit margins, more emphasis is required to be placed on liquidity-both long term and shor t term.There are basically two types of proposals that are received by the companies for funds. The first types of proposals are financing against new and first hand assets to be purchased (EQUIK) and the other proposals are financing against pre owned assets (REQUIK).Asset finance is generally divided into three departments depending upon the risk exposure*Retail Aggregate risk exposure not exceeding Rs.1 crore.SME (Small Medium Enterprises) Aggregate risk exposure between Rs.1 5 crores.Strategic Aggregate exposure more than Rs.5 crores.*NOTE Risk exposure to a client is determined by the summation of Net Finance Amount for the approval(s) being considered, together with all existing exposures to the client all related concerns in aggregate and residual Net Finance Amounts under all previous valid approvals for the Client pending part or full disbursement.SOME IMPORTANT TERMINOLOGIESASSET FINANCEAsset Finance category includes secured business loan in which the borrower pledges as collateral an asset used in the conduct of its business. Asset finance also includes business in which a client takes an asset on lease for use in the conduct of his business for a defined period with or without right of onward sub lease the asset.ASSET COSTIn case of Equik, the invoice values of the Asset including all duties and taxes which are not refundable or adjustable under drawback or otherwise any scheme. Spares, consumables, accessories auxiliaries, consultancy fees, installation and erection charges, etc. shall not be considered as part of asset cost.In case of Requik, Asset cost will be determined by the lowest ofPresent Intrinsic Value of Asset as determined through a process by an expert approved by SREI.Actual purchase price to be paid by the consumerCurrent Insured Declared Value.MARGINMargin means the clients contribution on the Asset Cost payable upfront or any amount deposited with us as Security Deposit in relation to the transaction before the disbursement or release of facility.AIRRInternal Rate of Return (IRR) by definition is the rate of return at which the Net Present Value of the stream of payments (repayment of installments and interest by the customer vis--vis the actual disbursement made by the company) become equal to zero.FIRRFinancial IRR (FIRR) shall mean the transaction IRR without factoring any benefit available to Srei BNPP in terms of normal MOU entered into by srei BNPP with concerned manufacturer. Management fees/ RTE/ Commitment Charges collected upfront, an extra credit period, subvention or other cash incentives extracted from the manufacturer over and above those available workings.YIELDYield means the rate of return to Srei-BNPP from the transaction, factoring all the benefits available to Srei-BNPP under normal MOU and otherwise from the manufacturers/vendors.ETR (Excellent Track Record)ETR means peak delay of not more than 30 days and average delay of not more than 15 days for payment of dues in all existing and past accounts of the proposed customer.GTR (Good track Record)GTR means peak delay of not more than 45 days and average delay of not more than 30 days for payment of dues in all existing and past accounts of the proposed customer.PTR (Poor track Record)PTR means peak delay more than 45 days and average delay of more than 30 days for payment of dues in all existing and past accounts of the proposed customer.ANALYSIS OF CREDIT APPRAISAL MEMORANDUMCredit risk of each individual transaction is studied and managed from the five different perspectivesCustomer credit worthinessAsset qualityAsset deploymentCollateral securityFacility typeBackground of the proponent/ managementThe identification of the borrower is done properly through scrutiny of his antecedents, experience, competence, integrity, initiative etc. This may be done by obtaining status reports from previous bankers. In case of corporate, the management structure, the background of the top management needs to be scrutinize d. KYC guidelines as framed by RBI are adopted by the company.Commercial AppraisalThe nature of the product, demand for the same, the existing and perceived competition in the segment, ability of the proponents to withstand the same, government policies governing the industry etc. need to be taken into consideration.Technical AppraisalTechnical appraisal of the project needs to be carried out for industrial activity proposals beyond the cut off limits prescribed from time to time. Such appraisal may be carried out in house by technical officers.Financial AppraisalApart from ascertaining the need based character of the limits requested for, the financial health of the proponents, ability to absorb unanticipated financial costs need to be looked into which would include scrutiny of the cost of the project, means of financing, financial projections etc. important performance indicators like profitability ratios, debt equity ratio, operating profit margin etc. need to be within accep table parameters for that industries/ activities.INTRODUCTION TO RISKThe interpretation of the word risk will determine the approach to risk management. The word risk is interpreted in three distinct senses namely risk as hazard, risk as opportunity and risk as uncertainty.Risk as hazard is the most commonly used meaning of risk and it means likely financial losses arising from negative events such as control failures, bad publicity and loss of reputation. Risk management in this context would mean eliminating possibilities of losses from such negative events by putting in place adequate control systems.Risk as an opportunity means, taking risks and earning adequate returns on them. This implies the trade-off between risk and return. Here risk management, becomes risk optimization meaning maximizing the upside potential and minimizing the downside. Here capacity and ability to manage risk is used to increase shareholders value and achieve a competitive advantage.Risk, as uncertainty is basically a statistical concept, which assumes a normal distribution for future outcomes. Here risk management means narrowing the difference between the expected outcomes and actual results. Banks and other similar financial institutions need to manage the risk inherent in the entire portfolio as well as the risk in individual credits or transactions. The effective management of risk is a critical component of a comprehensive approach to risk management and essential to the long-term success of any banking organization.In simple words, risk is the possibility of losses associated with decrease in the credit quality of borrowers. In a financial institution, loss may stem from default due to inability or unwillingness of a customer to meet his commitments in relation to lending, trading, settlement and other financial transactions. A default reduces the present value of the loan and consequently the value of the banks business. Thus, it is imperative that these institutions have a robust risk management.MODEL BUILDINGNeed for StudyA Risk Assessment Model (RAM) is necessary to avoid the limitations associated with a simplistic and broad classification of applicants into a good or bad categoryThe comapny currently uses a judgemental risk assessing model.Grading System for Standardization of RiskThe grades (symbols, numbers, alphabets, and descriptive terms) used in the internal credit-risk grading system represent, without any ambiguity, the default risks associated with an exposure. The grading system will enable comparisons of risks for purposes of analysis and top management decision-making. The grading system is therefore, be flexible and should accommodate the refinement