NBFC FAQs

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 Different factors and questions that I came through when I researched on NBFC as a financial analyst.

1. What is systematically important NBFC is?

Observation- A CIC-ND-SI is a Non-Banking Financial Company

(i) with asset size of Rs 100 crore and above

(ii) carrying on the business of acquisition of shares and securities and which satisfies the following conditions as on the date of the last audited balance sheet :-

(iii) it holds not less than 90% of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies;

(iv) its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its net assets as mentioned in clause (iii) above;

(v) it does not trade in its investments in shares, bonds, debentures, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;

(vi) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.

(vii) it accepts public funds

2. What is Pre-Provision Operating Profit?

Observation- Since most banks typically have a large portfolio of loans outstanding to many different customers at any one time, it is logical that some will default. As such, it would be inaccurate for the bank to consider its entire operating profit as income that it will be able to keep. Due to this, banks typically report their operating income as a PPOP, to give investors insight into their operating profit, with the understanding that it could still incur bad debts, which would reduce its bottom line.

The amount PPOP obviously goes down after funds are earmarked to cover potential bad debt. However, this is not considered a cash outflow for the bank. The amount that a bank deducts is based on its loan default experience.




3. What is balance sheet debt?

Observation- Total debt is the sum of all long-term liabilities and is identified on the company's balance sheet.

4.Formula for Net worth.

Observation- To calculate your net worth, you subtract your total liabilities from your total assets. Total assets will include your investments, savings, cash deposits, and any equity that you have in a home, car, or other similar assets. Total liabilities would include any debt, such as student loans and credit card debt.

5. What is NCD?

Observation- Non-convertible debentures are fixed-income instruments for specific terms and interest rates. Big companies issue them to raise funds without giving any option of conversion to equity. The interest rates offered on NCD debentures are more or less fixed.

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