MUMBAI, July 13: Net profits of non-banking finance companies (NBFCs) in fiscal 1996-97 has increased by a mere five per cent when compared with a growth rate of 61 per cent and 64 per cent in fiscals 1995-96 and 1994-95 respectively.

A study of 236 NBFCs by the Centre for Monitoring Indian Economy (CMIE), revealed that net profits of these companies decreased by 30 per cent during 1996-97.

The run on deposits of non-banking finance companies following the Rs 1,200 crore fraud by CRB Capital Markets, are cited to be partly the cause of the poor performance in fiscal 1996-1997, industry sources said.

In tune with the depressed corporate performace, non-banking finance companies (NBFCs) too have performed marginally with mounting expenditures, interest and tax payments eating into profits, they said.

``With finance from banks not forthcoming, many of the NBFCs raised funds aggressively through public deposits at higher rates. With turnover not increasing, most of the companies have recorded unimpressive results,'' top executive at a finance company said.

``Poor profitability would take a further toll on the new deposits raised by finance companies,'' he said, adding, ``leading industry names, like the Kotak Mahindra Finance and ITC Classic, too have reported poor bottomlines''.

``In fact, the fall in profits of NBFCs was more when compared with corporates. Net proftis of corporates dipped 20 per cent as compared to NBFCs' 30,'' the CMIE said in its latest monthly review.

Total income for NBFCs under the study increased from Rs 4091.48 crore in 1995-96 to Rs 4712.13 crore in 1996-97, while the expenditures increased from Rs 724 crore to Rs 935 crore.

Interestingly, tax and interest payments registered massive increases during the last fiscal year. ``Direct taxes increased at Rs 157.01 crore from Rs 84.37 crore and interest payments rose Rs 1691.10 crore to Rs 2121.37 crore,'' the CMIE said.

To cut down expenses, top NBFCs were swapping high-cost rupee loans with low cost FCNR (B)-backed loans from banks which is expected to bring down the cost by at least 200 to 300 basis points, it said.

Poor profitability, new and stringent norms from regulators and bad propaganda are few of the hurdles the industry has to cope up with in the immediate future.

Meanwhile, the Ahmedabad Finance Companies Association, an organisation of non-banking financial companies (NBFCs) has accorded top priority to evolve a code of conduct for NBFCs and educate people on investment opportunities. The association will hold its annual general meeting this month-end. According to the association's chairman Piyush R Vyas, "It is time for introspection, consolidating the past gains, recovering the lost grounds and winning back the investors' confidence.''

"We have to aim high to stay long. NBFCs of Ahmedabad are no exception when it comes to scams which has shaken public confidence in such companies,'' he said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.