Registered ones also decline.

In a sign that consolidation in non-banking finance companies (NBFCs) is still on, the number registered with the Reserve Bank of India (RBI) declined from 12,968 in June 2007 to 12,809 a year later.

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Though public deposits declined in 2007-08 over the previous year, partly due to the fall in the number of reporting NBFCs, total assets increased significantly by Rs 23,019 crore (32 per cent), while net owned funds increased by Rs 3,974 crore (48 per cent) over the same period.

Although deposits declined, outstanding borrowings by NBFCs increased in 2007-08 over the previous year, with banks and financial institutions being major source of funds.

However, the number of NBFCs with less than the minimum regulatory capital to risk-weighted assets ratio (CRAR) of 12 per cent increased to 44 in March 2008 from 20 a year earlier. In March 2008, 276 of 320 NBFCs had a CRAR of 12 per cent or more, as against 354 out of 374 NBFCs in March 2007.

Life was tough for NBFCs in 2008-09, especially in the October-December period, as they found it very difficult to get funds after the global financial crisis intensified with the collapse of Lehman Brothers.

NBFCs providing unsecured personal loans and consumer finance were also hit by non-performing loans, as the credit environment deteriorated.

To ease their liquidity problems, RBI allowed banks a relaxation of 1.5 per cent on the statutory liquidity ratio (SLR) requirements exclusively to meet the funding needs of NBFCs and mutual funds. Further, NBFCs were permitted to issue perpetual debt instruments (PDIs) in Indian rupees to augment their capital.

As a result of these measures, combined with the low-interest regime put in place by RBI, liquidity constraints have since reduced and NBFCs have been able to bring the cost of funds back on track.

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