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Journalism of Courage
MUMBAI, July 17: While commercial banks recorded a sharp rise in their bottom lines, finance companies took a heavy beating with their net profits plummeting by 30 per cent for the year 1996-97.
According to the Centre for Monitoring Indian Economy (CMIE), the fall net profits of 236 non-banking finance companies (NBFCs) is sharper than the 20 per cent decline in the net profit of 1,619 non-finance Indian companies in the private sector during 1996-97. However, 22 banks which announced their results for 1996-97 have reported nearly Rs 1,000 crore rise in their net profit after tax to Rs 3,303 crore for the year against Rs 2,316 crore for 1995-96.
“The growth in net profits of NBFCs had earlier plummeted from 64 per cent in 1993-94 and 61 per cent in 1994-95, to only five per cent in 1995-96. The net profit margin on total income of NBFCs was 11.6 per cent, this is nearly twice of the 5.9 per cent margin for the non-finance companies for 1996-97,” said a CMIE study. ITC Classic Finance reported a massive loss of Rs 285 crore.
The main income of 236 NBFCs has gone up from Rs 3,880.63 in 1995-96 to Rs 4,570.40 crore in 1996-97 and interest burden also spurted from Rs 1,691.10 crore to Rs 2121.37 crore. However, the net profit dropped to Rs 548.22 crore from Rs 783.14 crore in 1995-96. The growth in other income dropped by 32.96, resulting in fall in the net profit to extend of 29.84 per cent, CMIE said.
On June 18, RBI announced an increase in the percentage of liquid assets to be maintained by NBFCs. This is a reversal of the reduction in liquid assets requirement announced by RBI on May 2, and it seems to be a fall-out of the collapse of CRB Capital Markets. The increase in liquid assets requirement would have been implemented in two phases.
RBI has reportedly decided to closely monitor about a dozen of the bigger non-banking financial companies. These include Lloyds Finance, ITC Classic Finance, Peerless General Finance and Investment Company, Ceat Finance, HB Leasing & Portfolio, IFB Finance, Jenson & Nicholson Finance and JVG Finance. These companies would be tracked on a weekly basis to ensure that their operations follows the normative guideline and prescribed procedures.
In the meantime, the total income of banks increased by 15 per cent. Provision and contingencies were lower during 1996-97. The net profit margin on total income was 7.4 per cent, which is much lower than 11.6 per cent obtained in NBFCs. Bank of Baroda reported a net profit of Rs 277 crore against Rs 208 crore earned during 1995-96. The net profit of SBI increased by 60 per cent, from Rs 832 crore to Rs 1,329 crore.
