LGF: Back in the fray

Raghuvir Srinivasan

THERE are few safe fixed-deposit investment options at present.

While most of the better companies are not accepting FDs now, those doing so are either not safe or offer unremunerative rates.

In this milieu, select companies offer safety, though at a marginal discount to the prevailing deposit rates. One such is the Chennai-based Lakshmi General Finance Ltd (LGF), an associate of Sundaram Finance Ltd of the TVS group. LGF recently realigned its deposit rates marginally lower.

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LGF opened its deposit window in July after almost a year. According to the company, in the last three months, there has been a net accretion of Rs 20 crore to its deposit base, showing the confidence of the depositors. One reason for such high inflows could also be that its associate, Sundaram Finance (SFL), was till recently not accepting public deposits (except renewals). Therefore, some of the funds, heading towards SFL, may have found its way to LGF, which is perceived to be in the same genre as SFL.

From October 1, LGF will be dropping its rates by 50 basis points at the higher end of the maturity spectrum. Deposits for 36 months -- fixed and cumulative -- will, henceforth, offer 11.50 per cent compared to 12 per cent hitherto. For lower maturities also, the yield will fall marginally, as the company has shifted the interest computation for cumulative deposits to quarterly rests from monthly rests earlier. Also, fixed deposits of 36 months maturity alone will be eligible for monthly interest payments.

For depositors, the marginally lower interest rates is acceptable, considering the overall safety of a deposit in LGF and its good depositor services. It may be better for depositors to settle for the 24-month deposit. This would give them the option of reviewing the investment in the medium-term, even as it fetches decent returns.

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LGF is an unlisted non-banking finance company into the business of financing purchase of commercial vehicles. It also leases machinery, equipment and vehicles. The leasing business has acquired lower priority over the years as seen by the decreasing lease payments by the company. Managed conservatively, LGF has one of the better recovery rates in the industry.

The company has grown steadily over the years. While total disbursements grew 13.61 per cent on a compounded annual basis over the last five years, hire-purchase payments alone grew 12.82 per cent in the same period. The stock-on-hire, as of March 31, 2000, was Rs 312.98 crore.

The commercial vehicles industry has been in the doldrums in the last six months, recording negative growth. In this environment, vehicle financiers have had a tough time not just in finding safe avenues for deployment of funds but also in recovering the dues from the borrowers. According to the company, given the overall market conditions. disbursements in the first half of this fiscal have grown a healthy 15 per cent.