1

INTRODUCTION TO LOANS
WHAT IS A LOAN?
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of
financial assets over time, between the lender and the borrower.
The borrower initially does receive an amount of money from the lender, which they pay
back, usually but not always in regular installments, to the lender. This service is
generally provided at a cost, referred to as interest on the debt. A loan is of the annuity
type if the amount paid periodically (for paying off and interest together) is fixed.
A borrower may be subject to certain restrictions under the terms of the loan.
Acting as a provider of loans is one of the principal tasks for financial institutions. For
other institutions, issuing of debt contracts such as bonds is a typical source of funding.
Bank loans and credit are one way to increase the money supply.
Legally, a loan is a contractual promise of a debtor to repay a sum of money in exchange
for the promise of a creditor to give another sum of money.
2

FOREWORD
The Reserve Bank of India is entrusted with the responsibility of regulating and
supervising the Non-Banking Financial Companies by virtue of powers vested in Chapter
III B of the Reserve Bank of India Act, 1934. The regulatory and supervisory objective, is
to:
a) ensure healthy growth of the financial companies;
b) ensure that these companies function as a part of the financial system within the policy
framework, in such a manner that their existence and functioning do not lead to systemic
aberrations; and that
c) the quality of surveillance and supervision exercised by the Bank over the NBFCs is
sustained by keeping pace with the developments that take place in this sector of the
financial system.
It has been felt necessary to explain the rationale underlying the regulatory changes and
provide clarification on certain operational matters for the benefit of the NBFCs,
members of public, rating agencies, Chartered Accountants etc. To meet this need, the
clarifications in the form of questions and answers, is being brought out by the Reserve
Bank of India (Department of Non-Banking Supervision) with the hope that it will
provide better understanding of the regulatory framework.
The information given in the FAQ is of general nature for the benefit of depositors/public
and the clarifications given do not substitute the extant regulatory directions/instructions
issued by the Bank to the NBFCs.


3

NBFC & MFI in India
A Non Banking Financial Company (NBFC) is a company registered under the
Companies Act, 1956 of India, engaged in the business of loans and advances, acquisition
of shares, stock, bondsire-purchase, insurance business, or chit business: but does not
include any institution whose principal business is that includes agriculture or industrial
activity; or the sale, purchase or construction of immovable property
Difference between NBFCs & Banks
NBFCs perform functions similar to that of banks; however there are a few differences in
that an NBFC cannot accept demand deposits; an NBFC is not a part of the payment and
settlement system and as such, an NBFC cannot issue cheques drawn on itself; and
deposit insurance facility of the Deposit Insurance and Credit Guarantee Corporation is
not available for NBFC depositors, unlike banks.
MFI
Microfinance institutions, also known as MFIs, offer financial services to underprivileged
and impoverished communities.
MFIs go for NBFC licences
An Increasing number of microfinance institutions (MFIs) are seeking non-banking
finance company (NBFC) status from RBI to get wide access to funding, including bank
finance.
Exemptions granted to NBFCs engaged in microfinance activities
The Task Force on Supportive Policy and Regulatory Framework for Microfinance setup
by NABARD in 1999 provided various recommendations. Accordingly, it was decided to
exempt NBFCs which are engaged in micro financing activities, licensed under Section
25 of the Companies Act, 1956, and which do not accept public deposits, from the
purview of Sections 45-IA (registration), 45-IB (maintenance of liquid assets) and 45-IC
(transfer of profits to the Reserve Fund) of the RBI Act, 1934. 010

4

MFIs & SHG-Bank linkage programme
In a joint fact-finding study on microfinance conducted by the Reserve Bank of India and
a few major banks, the following observations were made:
Some of the microfinance institutions (MFIs) financed by banks or acting as their
intermediaries or partners appear to be focusing on relatively better banked areas,
including areas covered by the SHG-Bank linkage programme. Competing MFIs
were operating in the same area, and trying to reach out to the same set of poor,
resulting in multiple lending and overburdening of rural households.
Many MFIs supported by banks were not engaging themselves in capacity
building and empowerment of the groups to the desired extent. The MFIs were
disbursing loans to the newly formed groups within 1015 days of their
formation, in contrast to the practice
obtaining in the SHG Bank linkage programme, which takes about six to seven months
for group formation and nurturing. As a result, cohesiveness and a sense of purpose were
not being built up in the groups formed by these MFIs.
Banks, as principal financiers of MFIs, do not appear to be engaging them with
regard to their systems, practices and lending policies with a view to ensuring
better transparency and adherence to best practices. In many cases, no review of
MFI operations were undertaken after sanctioning the credit facility.

5

RBI relaxes norms for NBFCs
NBFCs registered with the Reserve Bank of India may take part in the insurance agency
business on a fee basis and without risk participation or the need to seek the bank's
approval.
In a notification issued, the RBI said such NBFCs should obtain permission from the
Insurance Regulatory and Development Authority and comply with IRDA regulations for
acting as a "composite corporate agent" with insurance companies.
MFIs of India
Forbes magazine named seven microfinance institutes in India in the list of the world's
top 50 microfinance institutions.
Bandhan, as well as two other Indian MFIsMicrocredit Foundation of India (ranked
13th) and Saadhana Microfin Society (15th) have been placed above Bangladesh-based
Grameen Bank (which along with its founder Mohammed Yunus, was awarded the Nobel
Prize). Besides Bandhan, the Microcredit Foundation of India and Saadhana Microfin
Society, other Indian entries include Grameen Koota (19th), Sharada's Women's
Association for Weaker Section (23rd), SKS Microfinance Private Ltd (44th) and
Asmitha Microfin Ltd (29th).
Criticisms
Recently, microfinance has come under fire in the state of Andhra Pradesh due to
allegations of MFIs using coercive recollection practices and charging usurious interest
rates. These charges resulted in the state government's passing of the Andhra Pradesh
Microfinance Ordinance on October 15, 2010. The Ordinance requires MFIs to register
with the state government and gives the state government the power, suo moto, to shut
down MFI activity. A number of NBFCs have been affected by the ordinance, including
sector heavyweight SKS Microfinance.

6

Company Overview
Hinduja Leyland Finance Ltd (HLF) was incorporated in the year 2008 and is registered
as a non-deposit taking NBFC with Reserve Bank of India. It is one of Indias leading
non-banking finance companies spread across 19 states pan-India. Through a vast
network of branches, it provides customized finance for the widest range of utility
vehicles, tractors, cars, two wheeler and other commercial vehicles, focusing on the semi-
urban and rural sector.
Hinduja Leyland finance is a conglomerate of "HINDUJA GROUP" which has global
presence in Automobiles, Energy & Chemicals, IT/ITES, Banking and Finance,
Media/Entertainment and Infrastructure.
HLF aims to enable people fulfill their ambition of owning their own vehicle. We think
of ourselves, not as a simple loan provider, but as a partner in your quest to fulfill your
biggest ambitions in life and in business. We offer an exhaustive suite of vehicle financial
solutions Commercial vehicle finance, Personal Vehicle finance, Construction
Equipment Finance, Rural finance loans etc. Whats unique with our business model is
that, we provide an easy-to-use loan calculator with which one can decide on the tenure,
interest rate and the loan amount that best suits you.
HLFs goal is to be a one stop shop in the space of vehicle and equipment finance
HLF is governed by following values:
Trust :
To maintain a workplace characterized by widespread belief in the integrity,
reliability, and ability of employees.
Customer Service :
To Consider and understand the needs of the customer to facilitate the
accomplishment of common goals.
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Competence :
To maintain a workplace characterized by employees who have the skills and
training to do their jobs.
Teamwork :
To encourage the use of teams to accomplish organizational goals and objectives.
Quality :
To promote an environment characterized by employees with a passion for
excellence.
Honesty :
To always maintain the highest standards of credibility, sincerity and
trustworthiness.
Respect :
To always treat people with the highest level of regard and dignity, recognizing
the value of each individual
Accountability :
To be responsible for and committed to, the timely delivery of quality services
and solutions as individuals and teams.

8

Operation
HLF is into commercial vehicle loan financing business. We offer a wide range of
products to suit the customer needs at affordable cost. HLF has 430 branches as on date
spread across 19 states in India.
HLF put in place a process which is evolved on the principle laid down here in, our
enterprise solution seeks to provide a comprehensive understanding of the business
process governing the financing of vehicles. Underlying theme or the objective of this
application is to enable even a new entrant to the business to understand business risks,
his role and the role of other participants in the process. Every activity underscores in its
process the role of the maker, checker and reviewer.
In order to minimize the time taken for review by three layers in every process, we have,
through technology, achieved reduced / minimum flow of documents physically. In many
of the processes the checkers role is embedded in the validation mode in the system so
that there is no physical verification is necessary for ensuring accuracy.
The following process is has been embedded in our business process to strengthen our
operations by minimizing risks :
De-duping
This is the exclusivity feature in HLF business activity. The purpose of this
feature is to track multiple loans to the same customer across products.
Credit Scoring
In our business process we have developed credit scoring module that would
match with our business needs. We decide customers loan eligible amount by
using this feature. We have configured the questions for credit scoring and the
score corresponding to those questions in a way that it can be changed based on
our operational requirements.
Integrated accounting
We have inbuilt accounting module to track all the accounting entries. We have
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used CGAP standards to build this module. Our accounting module is strongly
integrated with both operational and financial modules. This builds transparency
and accountability in the business-flow.
Reports
All the reports are generated real time so that in case of any discrepancy there can
be early rectification. We have an internal team who closely monitors the reports
on real-time and do necessary follow-ups from the field and this is one of the
ways we minimize risk in our business.

10

Strengths
The core strengths of our business are :
Wide network / huge customer base :
Our operations are spread across India. Currently we operate in 19 states with
more than 400 branches.
Low / Minimal documentation norms :
The KYC and other required documents are very minimal
Customized products :
We have customized our products based on customer needs
Fast Loan Processing :
The turn-around time is less than 48 hrs after receiving the application.
Flexible repayment modes :
We have given customers the flexibility to choose the mode of payment based on
their choice.
Excellent Relationship with dealers :
We hold excellent relationship with all the dealers and are preferred financers for
most of them.
Milestones
Within no time of starting operations Hinduja Leyland Finance has become a
leading player in vehicle loan financing segment across India. Presented below
are some of the significant milestones in the Companys journey towards
excellence and leadership.


11

Technology
HLF firmly believes that technology is one of the key enablers for scaling business. HLF
has developed a robust Enterprise Resource Planning (ERP) system internally to track the
data real-time. The integrated technology platform that HLF has adopted would enable all
the branches to send data online daily to a centralized server for consolidation and
analysis. This has been helping HLF increase its operational efficiency and employee
productivity, which in turn is assisting minimize risk. It also provides timely decision
support to the management and ensures strict monitoring controls. The key factors that
have influenced HLFs investment in technology are flexibility, scalability and
interfacing capabilities of the technical solution.
One of the unique features of HLFs ERP is the option of configuring various products in
the same system. We have developed our ERP in a way that it has an appetite to accept
n number of products. This way we minimize cost of development and also help in
strengthening our de-dupe function.


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Heavy vehicle
Our core business operation is Financing and refinancing all types of commercial
vehicles. Since inception we have been working towards supporting entrepreneurs realize
their dreams by financing vehicles. Our large geographical coverage is marked by a hub-
and-spoke approach through an array of regional, branch and pocket offices. One of our
key offering covers Heavy Commercial Vehicles. We are exclusively tied up with Ashok
Leyland heavy vehicle department and enjoy special offers.
Features & Benefits
Loans are also extended for both chassis and body fabrication.
We provide refinance on your existing vehicle or finance for the purchase of pre-
owned vehicles.
Documentation process is absolutely simple and hassle-free.
Presence in multiple locations lets you have quicker access to funds and
repayment
Repay with easy EMIs, cash or post-dated cheques
Maximum tenor of loan 48 months
Funding can go up to 100% based on the class of customers
To help you with your dream of owning a Medium Commercial Vehicle we provide
several customized financial options. From a range of MCVs, now purchase your own
through a quick and simple loan process. We also extend financial assistance for buying
second hand medium commercial vehicles. For all dealers we have a special trade
advance facility in place. The condition and market value of the vehicle are the key
factors in determining the credit approval and the quantum of finance.
Features & Benefits
Speedy delivery of the vehicle after the initial payment and the submission of all
necessary documents
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All documentation required will be discussed with you up-front
Maximum tenure will be 48 months
Quick finance against vehicles that are used
Loans are extended for both chassis and body fabrication.

14


Intermediate Vehicle
HLF is a prominent player in Intermediate commercial vehicle finance in each of the
states in which it operates. Our primary focus is on financing first-time buyers and first-
time users owning 0-5 vehicles.
Features & Benefits
Loans are also extended both on chassis and body fabrication.
We even provide refinance on your existing vehicle or finance for the purchase of
pre-owned vehicles.
Documentation process is absolutely simple and hassle-free.
Presence in multiple locations lets you have quicker access to funds and
repayment
Repay with easy EMIs, cash or post-dated cheques
Light
If you are looking at finance or loan options for the purchase of your light commercial
vehicle, you have come to right place. We offer hassle-free commercial vehicle loans
with the best terms for funding at the most attractive rates in India.
Features & Benefits
Flexibility of selecting a finance scheme that suits your needs.
Speedy delivery of the vehicle after the initial payment and the submission of all
necessary documents
Funding can go up to 100% based on the class of customers
All documentation required will be discussed with you up-front
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Maximum tenure will be 48 months
Quick finance with attractive packages against vehicles that are used

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Small
or any business to succeed, the availability of funds throughout its life cycle is of
paramount importance. We offer a wide range of services for funding of small
commercial vehicles. The limits are fixed keeping in view the customers need for funds
against the value of the security, margin available and credit worthiness of the borrower.
At first, the customer requirements are properly understood and documented. After this
the customer requirements are matched with company capability and services are offered
as per the requirements of the customer within the overall policy framework/procedural
guidelines. Credit worthiness of the customer is properly assessed and approval is
obtained from the appropriate authority
Features & Benefits
Speedy delivery of the vehicle after the initial payment and the submission of all
necessary documents
Funding can go up to 100% based on the class of customers
All documentation required will be discussed with you up-front
Quick finance against vehicles that are old
Maximum tenor of loan provided is for 48 months
Passenger vehicle
Transportation is a vital lifeline for business growth, and absolutely cannot be
compromised upon. Nobody understands this better than us, which is why we have
tailored the Commercial Vehicle Loans to make it easier than ever to own the ideal
Passenger carriers. We have created a unique range of products at competitive rates to
meet the ever growing commercial vehicle needs of India Inc.
Features & Benefits
Funding option available for contract carriages, stage carriages, staff buses,
school & college Buses.
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Maximum tenor of loan provided is for 48 months.
Flexible funding option based on customer prediction.
Three wheeler vehicle
With our customized financial options and quick process of sanctioning a loan, acquiring
your new three-wheeler will become easier than you ever expected. Now choose the one
that suits you the best.
Features & Benefits
Speed delivery of the vehicle after the initial payment and the submission of all
necessary documents
Maximum tenor of loan provided is 36 months
Maximum funding provided is 85% cost of the vehicle.
All documentation required will be discussed with you up-front

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Persona vehicle
Two vehicle
You dream for a vehicle and you own it immediately. With our customized two wheeler
finance product now every individual can own a vehicle of your choice. With quick
approvals, flexible payment options and easy repayment - we'll help you buy the bike you
desire.
Features & Benefits
Flexible repayment options, ranging from 12 to 36 months available even at the
point of purchase.
Repay through post-dated cheques, with easy EMIs or by cash collection.
Hassle free loans
Speedy loan approval
Available for almost all models at attractive interest rates
Car
Our Car Loans makes owning that car youve always wanted a speed-bump-free
experience. In today's fast paced world, a vehicle is but a necessity. Whether as a
comfortable and dependable means of transport or as a status symbol in society, we
believe you deserve ownership of a vehicle. The Car Loans from HLF are designed to
finance the car that suits your need and matches to your status & taste.
Features & Benefits
Covers the widest range of cars in India.
Loan repayment tenure ranging from 12 to 60 months.
Borrow up to 2 times your annual salary for salaries and self-employed
professionals
Speedy processing - within 48 hours.
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Repay with easy EMIs, cash or post-dated cheques
Attractive interest rates
Hassle-free documentation

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Constuction equipment
Whether you're looking to construct a bigger business or play your part in building the
nation, Our Construction Equipment Loans is there to partner you. We believe, after all,
that every person must have access to the means to not just live, but live big.
We also provide finance for the purchase of new equipment for road construction, mining
as well as infrastructure projects. We also extend financial assistance for buying second
hand construction equipment.
Features & Benefits
After the initial payment and the submission of all necessary documents, the
delivery order for the equipment is placed and the equipment is delivered to you
All the documentation required will be discussed with you up-front
Flexible funding option based on customer prediction.
The scheme generally varies based on the needs of the customers
The maximum tenure will be 48 months
Quick finance against vehicles that are up to 10 years old
Rural vehicle
f you are looking for finance to buy your tractor, you have come to the right place. We
offer hassle-free Tractor loan with the best terms for funding at the most attractive rates
in India.
Features & Benefits
Covers a wide range of tractors manufactured in India.
Covers customer segments, using tractors for agricultural as well as commercial
purposes
Avail finance up to 90 % on your favorite tractor
Flexible repayment options ranging from 12 - 48 months
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Speedy processing
Repay with easy PDC's or by way of cash collection
Attractive interest rates
Hassle Free documentation

22

Commercial Vehicles (CV)

The year 2012-2013 has been a challenging year for vehicle industry in general and
commercial vehicle segment in particular due to cumulative effect of slowdown in
economic growth, flagging buyer sentiment, high interest rates and rising fuel costs. The
slackened pace of infrastructure development coupled with the ban on mining
activities imposed by Supreme Court in some states also had an adverse impact on
demand for Commercial Vehicles during 2012-2013. Sales of Medium and Heavy
Commercial Vehicles (M/HCV) were the worst hit registering a steep fall of 23% as
against growth of 8% in 2011-2012 due to below average monsoon and continuing inertia
in manufacturing and infrastructure sectors. Sales of Light Commercial Vehicles (LCV),
however showed growth during the year, though at a lower rate of 14% in 2012-2013 as
compared to 23% in the previous year mainly on account of higher demand for intra-city
logistics.

23

Operating and Financial Performance
In line with the trends in Commercial Vehicle sector, loan disbursement of your
Company during the year ended 31st Mar 2013 was at `2100 crores, which is flat,
compared to the previous year. The gross receivables managed by your Company grew
by 30% and stood at ` 3280 Crores as at March 31, 2013 as compared to ` 2518 Crores as
at March 31, 2012. Your Company has made a net profit of ` 91.38 crores during the year
as compared to ` 83.70crores during the previous year 2011-2012. The Companys net
worth stood at ` 526.02 Crores as on March 31, 2013. Capital Adequacy Ratio was
at 15.95% as against the statutory requirement of 15%. Standard assets constituted
96.84% of the total assets and the net non-performing assets after provisioning stood at
2.76%. Your Company has made adequate provision for Non-Performing Assets as per
regulatory requirements, including a provision of `6.21 Crores towards provision for
standard assets as mandated by RBI.

24

Regulatory Environment
In December 2012, Reserve Bank of India had issued draft Guidelines on regulatory
framework of Non Banking Finance Companies for public comments. The broad thrust of
the draft guidelines is towards aligning the regulatory framework of NBFCs with that of
banks in respect of Asset Classification, Capital Adequacy, Corporate Governance and
Liquidity Management. Your Company has already started to gear its systems
and processes to ensure adherence to the draft Guidelines.

Resource Mobilisation
Term Loans and Bank Credit During the year, your Company availed term loans
of `1223 Crores and `90 Crores as cash credit from its Bankers. This has been the primary
source of funds for the business concluded during the year. Assignment of receivables
In August 2012, RBI had announced the revised Guidelines on Securitisation
transactions, with a view to develop an orderly and healthy securitisation market and
encourage greater alignment of the interests of the originators and investors. In the year
2012-2013, your Company raised resources amounting to ` 258 crores by direct
assignment of receivables in accordance with revised Guidelines.

Credit Rating
The term borrowings of your Company have been rated and CARE has assigned a rating
of A+ which indicates adequate safety.

Capital Infusion
Your Company is in the final stages of negotiations with a Private Equity (PE) Investor
with respect to further capital infusion into the Company and the transaction is expected
to be closed by Q1 of 2013-14. This capital infusion would further strengthen the capital
25

adequacy of your Company besides sending positive feedback in the market about your
Company.

This transaction would also involve conferring some special rights to the PE investor
necessitating changes to the Memorandum and Articles of Association. The revised draft
of Memorandum and Articles of Association incorporating the necessary changes is
enclosed with the Notice for Annual General Meeting for the approval of members by
Special Resolution.

Internal Audit
As part of the effort to evaluate the effectiveness of the internal control systems your
Companys internal audit function reviews all the control measures on a periodic basis
and recommends improvements, wherever appropriate. The Audit Committee regularly
reviews the audit findings as well as the adequacy and effectiveness of the internal
control measures.

Risk Management
Your Company, being in the business of financing of commercial vehicles, three
wheelers, two wheelers and equipment in the retail segment, has to manage various risks
including credit risk, liquidity risk, interest rate risk and operational risk. The Credit
Committee, the Risk ManagementCommittee and the Asset Liability Management
Committee review and monitor these risks at periodic intervals.

26

Outlook for the year
Inflation continues to be a major concern. The global environment is still uncertain and
though core inflation is easing, retail inflation remains high, offering little scope for
further monetary easing.

CV and passenger vehicle sales volumes are likely to remain flat in 2013-14. The
structural shift in the CV industry is leading to increasing demand for large tonnage and
low tonnage CVs and shrinking demand for medium tonnage vehicles. The trend is likely
to continue in the medium term. The use of LCVs for the intra-city movement of
consumer goods, rural/urban taxis and captive use has also supported high sales and
financing growth in LCV segment. Used M/HCV financing may be negatively impacted
since the limited bargaining power of owner drivers/small road transporters (main
buyers of used M/HCVs) to increase their freight rates in line with the diesel price
increases would constrain their ability to buy more vehicles.

Consequent to various measures of fiscal consolidation initiated by the Government,
there is a general expectation of falling inflation and gradual decline in interest rates.
While this could gradually improve business and consumer sentiments, the deregulation
of diesel prices in the absence of perfect correlation between diesel prices and freight
rates and continued slowdown in infrastructure projects is likely to impact the borrowers
earnings viability and hence may pose portfolio pressures for your Company. Asset
quality may, therefore, come under pressure, at the same time as credit growth in this
business line remains weak. Your Company has taken necessary steps to mitigate these
effects. Given the various uncertainties in the macroeconomic environment and the none
too optimistic outlook for the automobile industry, your Company will strive for growth
that is sustainable and profitable, while remaining strongly focused on the highest asset
quality.
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Your Company continues to be engaged in financing the Light Commercial Vehicles,
Small Commercial Vehicles, Tractors, Construction Equipment, Three Wheelers and
Two Wheelers apart from M & HCVs. With its presence in more than 601 locations
across the country including semi-urban and rural locations, the Company would be able
to capitalise on the growth in this segment.
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References
1. http://acronyms.thefreedictionary.com/NBFC
2. http://www.rediff.com/money/2007/jul/20nbfc.htm
3. http://acronyms.thefreedictionary.com/MFI
4. http://economictimes.indiatimes.com/News/News_By_Industry/Finance__Insuran
ce/Finance/MFIs_go_for_NBFC_licences_for_better_access_to_funds/articlesho
w/988065.cms
5. http://rbi.org.in/scripts/NotificationUser.aspx?Id=3651&Mode=0
6. http://rbi.org.in/scripts/NotificationUser.aspx?Id=3175&Mode=0
7. http://www.hindu.com/2004/02/12/stories/2004021203031600.htm
8. http://rbi.org.in/scripts/NotificationUser.aspx?Id=1481&Mode=0
9. http://www.forbes.com/2007/12/20/microfinance-philanthropy-credit-biz-
cz_ms_1220microfinance_table.html
10. http://timesofindia.indiatimes.com/business/international-business/india-in-
forbes-list-of-leading-microfinance-institutes/articleshow/2653281.cms
11. http://indiamicrofinance.com/andhra-mfi-suicide-972532.html
12. http://indiamicrofinance.com/download-andhra-microfinance-ordinance-
908172.html
13. http://in.reuters.com/article/idINIndia-52994520101118