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Model Financial Corporation Ltd.

BSE: 530877 Sector: Financials
NSE: N.A. ISIN Code: INE166B01019
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Model Financial Corporation Ltd. (MODELFINANCIAL) - Chairman Speech

Company chairman speech

1996 MODEL FINANCIAL CORPORATION LIMITED CHAIRMAN SPEECH It gives me great pleasure to invite you all to this 9th Annual General Meeting. The Directors' Report and the Audited Accounts have already been circulated to you and with your permission, I shall take them as read : PERFORMANCE : As you might have observed, the Financial results of the Company were encouraging during the year 1995-96. Inspite of the continued cash crunch the Company was able to achieve satisfactory results during the year. The Hire Purchase business has gone upto Rs.1047.44 lakhs which accounts for a growth of 24% during this year over that of the last year. The Lease transactions registered a business of Rs. 553.09 lakhs which amounts to an increase of 153% this year over that of the previous year. The accretion of Fixed Deposits came to Rs. 354.56 lakhs this year and the total deposits stood at Rs. S59.26 lakhs at the close of the Financial year 1995-96. The overall performance of he Company has resulted in a net-profit of Rs. 110.11 lakhs, which accounts for 62% increase over that of the previous year. Keeping in view, the dividend policy followed by the Company during the past five years, I am glad to say, that your Directors have recommended to pay a dividend of 20% this year. NEW INDUSTRIAL POLICY : The Country for the first time in 1996 witnessed a significant change in the political direction of the nation. In the last parliamentary elections the people did not give the mandate to a single party. Consequently, a coalition Government consisting of 13 political parties forming into a United Front came to power. After the new Government took Office, the question which was uppermost in the mints of the people was as to whether the reforms process launched by the previous Congress Government in 1991 would continue. To our great relief, the new Government have come up with the Common Minimum Program (CMP) which has declared that the liberalised economic policies would continue. It is now clear that the new Industrial policy would remain unchanged for the overall growth and development of the Nation. This has laid to rest all doubt and surmises. MACRO ECONOMIC SCENARIO : According to the prime indicators of economic growth, the performance during 1995 can be considered to be remarkable The growth in GDP has gone upto, 7% as against the earlier estimate of 6.%. The Industrial growth surged to 12% Inflation was oscillating between manageable levels of 4 and 5%. The growth of exports has records, 20.8% and the Foreign Exchange reserves stood at over $17.7 billion at the end of 1995-96. The fiscal deficit was reduced to 5% of GDP which is targeted to be reduced to 4% in the coming year. These achievements have been the highest since the beginning of the reform process. BUDGET FOR 1996-97 : Sri P Chitambaram, the Finance Minister deserves congratulations for having presented a balanced budget for the year 1996-97. The budget can be said to be a soft one, the prevailing political situation being what it is ! However, he has shown serious concern for the development of Infrastructure, Agriculture, Small Scale Sector and for poverty alleviation. So far as Industry is concerned the surcharge has been reduced to 7.5% from earlier 15% which is assured to be totally abolished in the next year. The zero tax companies are now brought again it to the tax net and a Minimum Alternate, Tax (MAT) at 3.0% of the Book profits is proposed to be levied. The consequences of this have to be watched. The budget has shown certain marginal concessions to the lower rung of the salaried classes. The main burden of the budget is to mop up resources for the Infastructure, Agriculture, and Poverty eradication program for which enormous funds have to be secured. A target of $ 10.00 billion per year has been aimed at, through Foreign Institutional Investors (FIIs And Foreign Direct Investment (FDI). An Infrastructure Development Finance Company (IDFC) is proposed to be setup exclusively for the development of Infrastructure Sector. The proposal to enable the Companies to issue Non-voting rights to an extent of 25% of the Issued Capital is a step in the right direction. Mutual Funds and Venture Capital are also now being given voting rights with a view to making the Managements accountable to both domestic and Foreign funds. The agenda for year 1996-97 aims at sustaining and improving upon the growth rate of 7% to 7.5% of GDP and Industrial growth of 12.5%. The inflation is to be kept under control at a level between 6 and 7%. We have to wait and see till February, 1997 as to how far these will be achieved. NEW REGULATIONS OF NBFCs : In the last Annual General Meeting I touched upon the applicability of prudential norms to NBFCs, according to which, the hank finance was curtailed to 3 times from earlier 4 times. The SLR (Statutory Liquidity Ratio) was increased to 15% from 10%. The capital adequacy ratio was to be maintained at 8% instead of at 6% with effect from 31.03.1995. But the Company maintained the Capital Adequacy ratio at 17.34% as at 31.03.1996. For the first time in 1995-96, the NBFCs were asked to make a provision for Non-performing assets (i.e., providing for doubtful or substandard assets). While that being the scenario in which the IBFCs were functioning, the new regulations introduced in July, 1996 by RBI would provide some solace. The NBFCs which are registered with RBI and which are complying with the prudential norms and credit rating are now at liberty to fix their own interest rates. Now the NBFCs which satifiy the new RBI parameters can officially declare the interest rates at a reasonable level without resorting to undesirable practices. Further, the reduction in SLR to 12.5% against the earlier 15% would now provide some elbow room to the extent of 2.59 for increased deployment of funds. But any indiscriminate increase in the deposit without any relation to the capital adequacy requirement cannot be resorted to as any excess mobilisation would involve corresponding increase in the lending portfolio of the Company thus diluting the capital/asset ratio of the Company. Therefore, the NBFcs should very carefully weight the pros and cons while increasing their deposit limits. LIMIT FOR TDS : It is unfortunate that the Government have not raised the TDS limit beyond Rs. 2,500/- for NBFCs, although this was fixed as far back as in 1987. In the case of Banking Companies and co-operative societies, the limit was fixed at Rs. 10,000/- in the 1994-95 budget. Even in the present budget the exemption limit was put at Rs. 10.000/- in the case of Housing finance Companies. If the same limit of Rs. 10.000/- is extended to the NBFC also, it would be highly conducive for growth of deposit particularly in the context of freeing their interest rates. TREND IN 1996-97 : Your Company so far has been meeting the capital expenditure requirements of its customers. In view of the increasing demand for short term money, your company plans to take up bill discounting and other short term finance in a big way to meet the needs of the customers for their working capital requirements. This new line of activity will be mainly funded out of deposits mobilised by the company. The net accretion of deposits so far during the year is Rs. 3.5 crore, thanks to the confidence reposed in your company by the investing public. Your company has already transacted hire- purchase and lease business of over Rs. 4.5 crore so far during the current year and also provided over Rs. 2 crores short term/bill finance to its customers. As your company has complied with all the requirements of RBI - such as registration with it, adhering to prudential norms, obtaining credit rating - the liberalised norms would apply to your company providing ample scope for resource mobilisation. This would certainly improve the overall performance of the company in future. FUTURE OUTLOOK : Never before customer service assumed greater importance in the financial services sector as it is in the present context. Your company's management firmly believes in and has for its goal providing service to the customer's satisfaction. To help it serve the customer base well, your company has plans to widen its network of branches to cover new areas in the cities like Hyderabad, Banagalore and Visakapatnam. The infrastructure facilities at branches will help the company provide better service to the customers. Your company will pursue its objective of providing finance to small and mid-sized companies, thus, contributing to the growth of industry in the country. Your company with its drive for excellence will pursue business plans that will allow it to continue its growth in the years to come. Your company, which enjoys the patronage of about 6000 shareholders and 6500 depositors and the active support of 9 leading commercial banks, is quite confident of greeting tomorrow's challenges which poise and confidence. ACKNOWLEDGMENTS : On behalf of the Board and on my own behalf, I thank the Deposits, Bankers, Business Associates, Shareholders and our valued Customers, for their unstinted co-operation and support and I look forward to have them in abundance in the years to come. I am also thankful to my colleagues on the Board for their valuable guidance and advice. I would like to place on record my deep sense of appreciation for the dedicated services rendered by all the employees at various levels. A. Krishna Murty Chairman