In its February rating, the Investment Information & Credit Rating Agency (ICRA) placed First Leasing Company of India in top position among financial services companies. The company, with all its triple A embellishments, has reason to be happy. But there is no corresponding investor flow.

Says the company spokesperson: ``Investor flow this year is 40 per cent less than the previous year.'' He adds that due to bad market conditions, investors like to keep their money in banks. Among non-banking finance companies, depositors are extremely choosy, he says.

But there have been happy developments inthe recent past that are good for both investors as well as strong players in the industry. Appreciating the same, in his credit policy commentary, Farouk Irani, managing director, First Leasing, said that the Reserve Bank of India (RBI) has done well in increasing the net-owned funds requirements of all new non-banks entering the industry to Rs 2 crore, from the earlier Rs 25 lakh. According to Irani, the new step will effectively introduce an entry barrier that will filter out those without long-term commitment or conviction.

Also talking about commitment was Anurag Bhatnagar, in-charge, accounts, Infrastructure Leasing & Financial Services Ltd. Going by the ICRA rating, Infrastructure Leasing is second on the list in terms of reliability. Also with a triple A in long- and medium-term investments, the company is a cut above the rest. Bhatnagar says that the number of investors has been down, but the three-year shake-out in the non-banking sector is getting over. He adds that the RBI, by making stricternorms for NBFCs, is sending a positive message to investors.

And now that banks are getting into new products, the latest being money market mutual funds, and also offering good services, how will NBFCs survive in a competitive market? Replies Bhatnagar: ``Logically speaking, even NBFCs must come out with novelties in their fixed deposit schemes.'' But so far, NBFCs have not come out with any concrete proposals to attract investors in any special way, he says.

The third in the rating list-Sundaram Finance Ltd--also rated with triple A's, is not taking any fresh deposits, claims the spokesperson. Modi Xerox Financial Services is another company in the top list that is not accepting retail deposits, says Naresh Gola, in-charge, accounts.pSBI Factors & Commercial Services Ltd, another top-notch financial services company, has financial institutions as its shareholders. The SBI Factors spokesperson says that the company cannot be classified along with other public limited companies. However, commenting on thefuture of NBFCs, he says any future will depend on the nature of the NBFC itself. For instance, there are NBFCs that offer a wide range of services, and there are also some that only opt for specialised services. Also significant is a company's parentage, capital base and the tag it carries, he says. It's often been seen that companies showing lack of confidence are the ones with a weak parentage, he adds.

An example of good parentage Escorts Finance, with A1 rating denoting the highest safety, is only into short-term deposits. Sunit Kumar, in-charge, fixed deposits, offers his views on the scenario surrounding NBFCs. He says though the number of investors has dropped by 30-40 per cent from last year, they have become more discerning now. That is, depositors have learnt to differentiate between the good and the bad companies.

On competition with banks, Kumar says that Escorts Finance has already launched some novel schemes to maintain the flow of investors. For instance, it has introduced medicalinsurance cover equivalent to the amount of deposit. Plus, from time to time, the company brings about innovations in terms of offering quality service to investors. And according to Kumar, the services offered by Escorts Finance are among the best in the industry. Speaking about the future of NBFCs, he says that badly managed NBFCs with a high liability will sink. Even companies that are managed mediumly well will find it difficult to collect the receivables to maintain liquidity, due to the continuing recession and instability.

In other words, a major shake-out is yet to happen. What has happened till now is only the tip of the iceberg.