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Trend reversal: NBFCs now back on profitability track (updated)

IT MAY just be the kind of news the stockmarkets have been waiting for. The declining trend in profitability of NBFCs witnessed in the past couple of years, seems to have reversed, according to a Crisil study on top 22 NBFCs accounting for 50 per cent of the industry size.

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These top asset-financing companies accounted for Rs 19,900 crore of the NBFC industry’s Rs 35,000-crore size. In spite of the average debt to equity ratio of these companies increasing to 4.1 as of FY ’00, compared to 3.8 in FY ’98-99, the profit after tax to average funds deployed increased to 1.5 per cent from 1.1 per cent over the same period.

The share of the MNCs in the total funds deployed by the 22 companies increased from 16 per cent in ’96 to 39 per cent in ’00. Of this share the MNCs financing only captive business of the parent or associates was six per cent in ‘00 while the balance 33 per cent was made up by non captive MNC companies.

The year ’99-00 also saw the MNC finance companies and select large Indian NBFCs ramping up operations, which allowed them to spread their fixed costs over a larger base. This resulted in higher profitability, said the study made available to The Economic Times.

In the process of accomplishing this growth MNC players, in particular, have seen their gearing increase very sharply.

This is because while the initial growth was funded by capital infusion from the parents, in the latter stage it was largely debt funded, said the study. While the gearing of MNC non captives increased from 2.09 in 95-96 to 7.24 in 99-00, that of MNC captives too grew from 2.46 in 96-97 to 4.58 in 99-00.

On the other hand, large stand-alone, Indian non-captive NBFCs, have seen a lowering of their debt to equity levels over the last five years from 3.6 in ’95-96 to 2.5 in ’99-00. This is because of the conscious decision to grow at a very slow space and is some cases cut down on asset size due to recovery problems, said Crisil. Captive Indian NBFCs on the other hand initially increased their business with the support of their parents by way of funding, access to the dealer network and the manufacturers attempt to improve their marketshares.

The funding profile of the 22 NBFCs too has witnessed a shift away from fixed deposits and bank funding to debentures and commercial paper. This is because tradable securities like debentures are more popular with mutual funds for instance which have emerged as an important source of finance for NBFCs. Bank funding of these NBFCs declined from 20 per cent in ’95-96 to 11 per cent in ’99-00. Similarly deposits as a percentage of total funds raised too declined to 13 per cent from 22 per cent over the same period.

NBFCs found bank funding and fixed deposits too in some cases expensive rendering them uncompetitive. On the other hand short term funds like commercial paper are much more cost effective. Funding by way of non convertible debentures and commercial papers as a percentage of total funds raised has therefore increased from seven per cent in ’95-96 to 28 per cent in ’99-00.

Hai, this is sri ram, I one of the General Assignment Reporter, at timesnowindia.com, We mainly cover timely news, educational and entertainment, sections. - Chief editor, politico-social activist, software engineer at Accenture India.

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Dearer trend prevails in tea auction in COIMBATORE

EUROPEAN Union proposals on trade in farm products presented to the World Trade Organisation has met resistance from Pakistan and India.

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EUROPEAN Union proposals on trade in farm products presented to the World Trade Organisation has met resistance from Pakistan and India.

However, the proposals from the 15-strong EU on Monday got a less hostile hearing than usual from the cairns group of agricultural exporters, according to an EU official.

Reforms in the farm sector are a major element in the WTO’s mission to open up national markets to free trade. The talks are aimed at agreeing common rules for liberalising markets.

“Our impression is that the Gairns Group, in spite of plenty of reserves … has several parts of our proposals they endorse, they see it as a constructive attempt,” the official said.

“Most critical remarks came from Pakistan, and, to a lesser extent, from India … reflecting their feeling that they want to make progress in the discussion on implementation before they are prepared to contemplate serious negotiations on agriculture,” the official added.

The EU proposals covered five issues: Market access, competition in export matters, domestic support, non-commercial concerns, and different treatment for developing countries. Resistance from Pakistan and India stemmed from their desire to see measures implemented from the previous Uruguay round of trade talks, which lasted from 1987 to 1994, the official said. – AFP

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Know your rights before I-T swoop @ MUMBAI full report

FROM now on, all income-tax raids will begin only after providing to the person being searched, an “information pamphlet”, listing the rights of the person in such situations.

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FROM now on, all income-tax raids will begin only after providing to the person being searched, an “information pamphlet”, listing the rights of the person in such situations.

This step has been taken by I-T authorities to ward off the allegations of harassment that often crop up after the raids. The fact that the assessee may not be aware of his rights in such situations is another reason for certain officers to misbehave.

The rights of the searched party include the presence of two respectable witnesses from the locality, personal search of all members of the search party before the start of search and after the conclusion of search, to have a copy of panchnama (list of the items at site) together with all the annexes, to call a medical practitioner, if unwell, permission for children to go to school after examination of their bags, to inspect the seal placed on various articles and have meals at normal time.

The assessee also has the right to inspect the books of account seized and make copies of extracts from these books in the presence of an authorised officer, or to make an application objecting to the approval given by the income-tax commissioner for retention of the book of accounts.

The assessee also has the right to receive a copy of any statement recorded before it is used against him, in any proceedings — including prosecution proceedings

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Urea production capacity sufficient till 2020 – KOLKATA

INDIA does not need new investment for urea production for the next three years, Union minister of state for chemicals and fertilisers Satyabrata Mukherjee said on Saturday.

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INDIA does not need new investment for urea production for the next three years, Union minister of state for chemicals and fertilisers Satyabrata Mukherjee said on Saturday. “The government is at present not encouraging setting up of new capacities for production of urea in the country till the year 2003-2004 other than those fertilizer projects in public and co-operative sector for which in principle approval has already been accorded,” Mukherjee said.

This was on account of near self-sufficiency achieved in the production of urea and also on the basis of an assessment of the demand-supply scenario till the year 2003-2004, he said.

The minister, who was speaking on “Prospects of Chemicals and Fertilizers Industry in West Bengal” said the future prospects of the industry in the state would have to be viewed in the context of the emerging policy scenario, availability of feedstock and the scope for new projects in the context of the macro demand-supply scenario.

The state has not even a single urea producing unit and even those started had never commenced commercial production, he said while referring to Haldia unit of Hindustan Fertiliser Corporation which was set up in 1979 but never went into commercial production and was closed down in 1986. The other unit of HFC in Durgapur was also lying closed since 1997.

Mukherjee said the state, with its vast reservoir of knowledge base, excellent port and a large market in hinterland was ideally placed for new investments in pharmaceutical industry. – PTI

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