Chennai, Nov 22: The Shriram group has released a balance sheet without any consistent accounting policies, provisions for prudential norms, any estimates of non-performing assets, provisions for minimum alternate tax (MAT) and a word of explanation from the directors as to why net profits were only a quarter of what was projected in the public issue.

It is backed only by several strong qualifications from its own statutory auditor.

However, for the Shriram Group, it probably doesn't matter - they're too busy getting the deposits in. "Rs 700 crore deposit base. 5,50,000 depositors" the advertisement hoardings scream. But unlike other leading finance companies, there is no mention of any credit rating. The inference is obvious - they have either not bothered to get one or have not managed to get a rating decent enough to be publicised. This does not matter as its well-oiled marketing machine has its finger on its target audience-the middle class.

Emboldened by this perhaps, group company Shriram Investments Ltd has decided not to follow the prudential norms prescribed by the Reserve Bank of India (RBI) for the year ended June 30, 1997-although they had followed them the previous year! Of course, application of the prudential norms would have meant a negative bottomline. By axing the norms, the company has been able to recognise income pertaining to the previous years amounting to Rs 4.60 crore. It should be noted that this is not due to recovery of the dues but due to non-application of the norms.

Technically this should have been considered `below the line' in the profit and loss account as it does not pertain to 1996-97, but company has chosen to club it along with the 1996-97 income. This meant that the declared profit of Rs 5.68 crore was overstated by Rs 4.60 crore. The company has made an ad hoc provision of Rs 4 crore (as against Rs 6.81 crore made under the prudential norms for 1995-96) for bad advances based on `subjective assessment'. How it arrived at a lower figure is a mystery, specially when sundry debtors above six months had gone up by about 40 per cent compared to the previous year. In fact, the impact of not following the norms has not been ascertained (read given).

Surprisingly, they were complied with last year. This time around, the company, armed with anonymous `legal opinion' to the effect, argues that the RBI's guidelines to non-banking finance companies (NBFCs) on prudential norms based on the AC Shah working group's recommendation issued in June 1994 were mere `guidelines' and not mandatory! The RBI itself doesn't appear to think so. In a clarification issued on February 4, 1995, it has stated that "The bank will not be in a position to extend the applicability date beyond March 31, 1995. The finance companies have been given adequate time to implement the prudential norms....''. The wordings are very clear that the regulatory authority wants all NBFCs to comply with the prudential norms. But since it was only in the form of a guideline and as the NBFC rules were not amended, the company is said to have taken a legal opinion that the guidelines are not mandatory. A former senior official of RBI, when contacted by The Financial Express said the guidelines issued by the regulatory authority had the "force of law and had to be complied with".

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.