Crisis of confidence

Investors now have become more wary about investing in financial services companies after their experiences with ITC Classic and now CRB Capital. A shakeout among NBFCs is overdue, acknowledge experts. An NBFC is as good as its clients. Money being the major raw material of an NBFC, its efficient management distinguishes the good from the ugly. Financial services companies have earned their revenues by deploying public funds in the form of deposits mobilised at an average cost of 18 per cent in leasing and hire purchase businesses where the interest earned is around 24 per cent. As long as the deposits keep filling the till there is no problem. The moment, deposits dry up, the cycle is broken and repayment of deposits becomes difficult as was proved in the ITC Classic case. The company survived on the sheer goodwill and backing of the ITC group. But the CRB group is paying a heavy price for its misplaced ambition of becoming the numero uno in the industry. The result is there out in the open. It has, according to a quick calculation liabilities exceeding Rs 500 crore on date on account of inter-corporate deposits, fixed deposits raised from the public, placement of funds towards the capital of CRB Bank, buyback commitments in IPOs and erosion in the value of real estate acquisitions.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.