Stock prices of market leaders mirror loss of investor faith
Our Banking Bureau
January 2: The share prices of the top ten non-banking finance companies (NBFCs) are sliding on the bourses. Kotak Mahindra Finance, which witnessed a 52-week high of Rs 88, is being traded at Rs 28.The scrip's 52-week low is Rs 26. Similarly, Lloyds Finance is being traded at Rs 12 -- perilously close to its 52-week low of Rs 11. The scrip's 52-week high is Rs 54. According to a Centre for Monitoring Indian Economy (CMIE) study, in 1996-97, net profits in the NBFC sector dropped 25 per cent, despite a 22 per cent rise in income. The Crisil Finance Index, comprising 20 NBFCs, consistently underperformed the Crisil 500 Index for the past two financial years and the first half of the current fiscal. This has been attributed to the difficult business environment for the NBFC sector as well as the poor financial performance of non-banking finance firms. The NBFC sector is facing large-scale problems on the quality of assets. The industry's woes are compounded by the sluggish performance of the corporate
sector as a result of which non-banking finance firms, with substantial corporate exposures, continue to face recovery problems. On the auto finance front, though the asset quality of auto loans continues to be good, the lower resale value of premium cars compared with economy models, increased the inherent risks in this segment. Flat freight rates, due to the slowdown in economic activity, and the inability of transporters to pass on increased fuel costs increased the delinquency levels in truck financing. Increased competition in all segments of NBFCs' operations have put pressure on lending rates, resulting in a sharp decline. This, together with increased provisioning requirements due to higher delinquencies, will ensure that profitability of these companies during 1997-98 falls further. Currently, there has been a conscious slowdown of lending operations bynon-banking finance firms and disbursement levels have dropped over previous years.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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