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M. Ramesh

Apart from Ashok Leyland Finance and Cholamandalam Investment and Finance, Bajaj Auto Finance has also benefited from the success of the two-wheeler industry. So, is two-wheeler financing the ladder to the top? Not quite, say others in the sector . "Wait until the bad debts start kicking in," sniggers the competition.

CHENNAI, Feb. 14

AS the dust of the CRB Capital debacle settles on the non-banking finance company (NBFC) segment, one trend is becoming clear — that the survivors are finding the going good in their own niche areas.

However, their game strategies differ, as do their risk perceptions. While some NBFCs have lately taken to two-wheelers, a few others refuse to believe that industrial financing is a closed door for the NBFC segment. Again, while some are hurrying to develop skills in non-fund businesses, others would rather wait it out until the economy revives.

But they all seem to prove that this sector cannot be written off.

For example, Ashok Leyland Finance reported a 65 per cent rise in net profit during the April-December period of this year as compared to the same period last year. The performance has been due mainly to its venture into two-wheeler financing. The company began financing two-wheeler purchases in September 2000. Till December that year, its two-wheeler portfolio amounted to Rs 15 crore. Compare this with the current year's figures: During April-December 2001, ALF's 2W portfolio stood at Rs 286 crore!

According to the Managing Director, ALF, Mr S. Nagarajan, the spreads in the business range between 5 and 8 per cent.

"Yes, the spreads are very good in this business," says Mr M. Anandan, Managing Director, Cholamandalam Investment and Finance Company (Cifco). Though the company began 2W financing only last September, its portfolio stands at over Rs 70 crore or about 10 per cent of disbursements so far this year.

Apart from ALF and Cholamandalam, Bajaj Auto Finance has also benefitted from the success of the 2W industry (see table).

So, is 2W financing the ladder to the top? Not quite, say others in the sector . "Wait until the bad debts start kicking in," sniggers the competition. Unlike truck or machinery financing, the motorcycle against which money has been lent can become hard to trace. Also, if the person takes up residence in a different city, the temptation not to pay is high, they say.

The Managing Director, India Cements Capital, Mr V. A. George, observed thus: "Suppose you have given a loan for 36 months. The borrower pays his dues for 33 months and then defaults. Bang go your profits."

Mr Anandan disagrees. He feels that 99 per cent (figuratively) of defaults happen in the first six months. "Monitor the loan for the first six months closely, and you'll know if the person is a fraud or not," says he.

Both sides point out that time alone will vindicate their differing stands!

But, there is a third view as well. The Managing Director, Investment Trust of India, Mr P. S. Balasubramanian, believes that while 2W financing is safe, managing thousands of small ticket loans is a major administrative undertaking. His company has given up this business.

The NBFCs, in fact, hold differing views in all areas of business. Take, for instance, lending against securities.

Sundaram Finance says the business has its associated risk — "We know this well as we have burnt our fingers in the area."

Cholamandalam's Mr Anandan agrees that there is risk but adds that it can be avoided. His company's strategy is to lend only to promoters, perhaps for "creeping acquisition" purposes. Loans against shares constitute 15 per cent of Cholamandalam's asset size of Rs 1,100 crore. "We have not lost a single rupee in this business," says Mr Anandan.

There are differing views on financing equipment purchase as well. Sundaram Finance says it is exiting this business. "We have not done a single deal this year," says Mr Anandan of Cholamandalam.

But Mr George at India Cements Capital feels that there is no merit in discarding this segment. "Go to the Ambattur industrial estate and see for yourself," he says, "so many companies that are suppliers to Ford, Hyundai and so on, are doing very well. What is wrong in financing them?"

ALF has also chosen to keep away from equipment financing.

At the heart of Sundaram Finance's strategy for growth is increasing volumes, "because the margins are very small". In contrast, Investment Trust of India, perhaps in recognition of its smaller size, prefers not to do any further business until the market improves. The company, which has reduced its deposits to Rs 22 crore from Rs 123 crore in four years, keeps money in liquid securities in excess of SLR requirements and focusses on recovery of past loans. "My recoveries are 120 per cent of my current demand," says Mr Balasubramanian. This implies that write-backs of written-off loans are happening. ITI has reported a net loss, but a cash profit for the April-December period.

Companies like Kotak Mahindra Finance (KMF), with its broad-based nature of operations, is viewed as well placed in the industry. KMF, for example, is into the whole gamut of businesses, ranging from automobile and equipment financing, to asset reconstruction, product distribution and advisory services. Evidently, other companies are trying to emulate this trend. Cholamandalam and India Cements Capital are expanding their range of operations. India Cements Capital is already into forex trading, travel, broking and advisory services and is getting into insurance distribution.

That is the NBFC sector today. Differing views, varied strategies, but secure in their niches.

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