MUMBAI, July 10: The NBFC shakeout is gathering momentum. Large- and medium-scale non-banking finance companies are increasingly resorting to retrenchment and wage-freeze to cut costs even as smaller companies are set to down shutters. "We are left with no choice but to ask people to go as business prospects are bleak," a senior executive of a Mumbai-based NBFC said.

Some of the bigger NBFCs are even planning to hive off their subsidiaries and sell real estate to generate funds. At least one Mumbai-based NBFC is in the lookout for a buyer for its asset management company.

Three senior executives of Lloyds Finance left in June in the wake of the CRB muddle, while at least 35 employees quit another middle-level NBFC, which is a part of a Mumbai-based textile group. The scene is believed to be no different in other NBFCs where employees are either given marching orders or leaving on their own. "A growing sense of insecurity has gripped the sector. A whole lot of senior- and middle-level executives are leaving the profession to set up consultancy services," the source said.

In a desperate bid to cut down costs, most of finance companies have decided to shift offices to from downtown Mumbai to the suburbs. Those who have already shifted their offices include 20th Century Finance, Apple Finance, Ceat Financial Services, Anagram Finance and Indian Seamless Financial Services. The new offices are located in Andheri, Bandra, Parel and Chembur.

"The trend has been accentuated by the CRB muddle. On the one hand, there is a run on deposits and on the other, asset growth has been stymied in the first quarter of the current fiscal. We are left with no choice but to shed workforce," another industry source said.

"There is virtually no growth in assets over the last few months. Ideally, on fee-based activities, an executive should be able to generate business woth 10 times his salary. However, that is not possible as there is no activity in the primary equity market," sources said. In the absence of fresh equity issues, the focus is only on private placement of debt issues-a business handled by only a handful of big NBFCs. Even there, the profit margin is shrinking as there is fierce undercutting of fees.

"There is no business of sale and leaseback and even pure leasing activities are on a downhill. The focus is only on car financing but the Rs 1,000-and-odd crore car financing business cannot sustain the entire industry," the CEO of one NBFC --which is heavily into the car financing business -- said.

Margins in the car financing business -- at 5-8 per cent-are the highest. However, a number of NBFCs have burnt their fingers in this high risk-high risks.

The major players in the car financing business are Kotak Mahindra, Anagram Finance, Lloyds Finance, Apple Finance and Countrywide.

"In car financing, defaults are increasing day by day. As a result, most of the finance companies are fast turning into second-hand car dealers," the CEO said. A couple of big car financing companies are believed to be on the lookout for space in Navi Mumbai to dump the used cars surrendered by their clients.

"Over one lakh people will be rendered jobless in the next few months once the Reserve Bank finalises its list of registered NBFCs," another industry source said. Although over 34,000 NBFCs have moved the central bank seeking registration, not all of them will get the RBI nod. "Thousands of unregistered NBFCs will be forced to down shuttes while another few thousands which have not sought registration will be choked to death," the source said.

According to RBI sources, those NBFCs which have net-woned funds below Rs 25 lakh will not be registered. "They are likely to be given three years' time to reach the stature. But those who have not sought registration will not be allowed to be in the business," RBI sources said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.