CHENNAI, Jan 3: The Reserve Bank of India's move to rein in NBFCs living on public funds is likely to jolt the country's financial system and could result in an outflow of thousands of crores of rupees from the system by December '98 to comply with the latest guidelines or shore up their net owned funds.A sample of only 13 top companies (mostly with ratings higher than AA) considered by The Indian Express reveals a possible repayment of about Rs 1560 crore (see table). If such a thing happens there will be enormous drain in the financial sector and according to some experts, may have an impact on the economy as well.
Tata Finance leads the pack and has a surplus deposit (over and above what it can borrow as per the latest guidelines) to the extent of Rs 435.04 crore.
Next come the companies in the Shriram group viz Shriram Investments Ltd (SIL) and Shriram Transport Finance Company Ltd (STFC). In their cases it is difficult to ascetain the surplus deposits as both have not revealed any rating.
Even assuming the minimum mandatory rating of `A' (which many analysts are sceptical about considering the accounting practises followed by the company) the two companies have to repay Rs 202.98 crore and Rs 166.05 crore respectively. Unlike Tata Finance it does not have the backing of any industrial group and is likely to face tremendous pressure, analysts opined.
Lloyds Finance's public deposit base is higher by 178.41 crore while that of Ceat Finance is Rs 165.31 crore. Anagram Finance and Escorts Finance have to repay Rs 132.38 crore and Rs 125.44 crore respectively.
Comparitively Gujarat Leasing Finance Ltd (GLFL) has surplus deposits of only to the extent of Rs 66.67 crore while Investment Trust of India (ITI) and Ashok Leyland Finance (ALF) may have to pay back Rs 46.75 crore and Rs 41.40 crore respectively.
Companies like Sundaram Finance, First Leasing, Cholamandalam Finance are saved of any repayments as their net worth is comfortable.
Industry watchers say that only way finance companies
can escape repayment is by shoring up their net owned funds through equity issues or swapping the public deposits with other forms of borrowings such as ICDs or secured debentures. Here too it would not be easy as the company has to have assets to go for secured debentures and the cost of ICD funds is high.
This move by RBI will help those companies which followed prudent accounting policies and respected the norms issued by the regulatory authorities in the spirit of law, say experts. Companies which had a basket of mixed borrowings would be better placed than those that lived only on public deposits (money that comes without any questions asked) camouflaging their inability to raise funds from any other sources.
However, the new norm of computing non-performing assets (NPA) on overdue lease rentals and hire purchase instalments for non-banking finance companies announced by the Reserve Bank will help them to show better balance sheets for 1997-98.
According to the RBI circular, henceforth only "the
lease rental and hire purchase instalment, which has become overdue for a period of more than twelve months" will be considered as non-performing assets.
This is a reversal of last year's RBI directive which said that overdues of rentals and instalments by more than six months will be classified as NPAs.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
