Rising default rate coupled with high cost of funds have dealt a severe blow to non-banking financial companies (NBFCs) in the northern region as almost 50 per cent of them operating as asset finance companies have shut operations in the last three years.
NBFCs, which are considered as the backbone of the commercial vehicle finance segment in Punjab, Haryana, Himachal Pradesh and Chandigarh, have strongly pitched for covering them under the Securitisation Act 2002 and Debt Recovery Tribunal, like banks, in a bid to expedite recovery process.
“Fifty per cent of the asset finance companies in this region had been forced to close shops in the last three years or so due to rising delinquencies and unsupportive attitude of the government in timely realisation of outstanding loans from defaulters,” Punjab and Haryana Finance Companies Association (PHFCA) secretary general Alok Sondhi said.
According to PHFCA, the default rate in NBFCs has risen five times to 15 per cent in past 3-4 years. “The strength of NBFCs in this region is now down to 200 from 450 three years ago,” said a PHFCA official.
PHFCA is a registered body of small and tiny asset finance companies that have a small capital or net owned funds of Rs 25 lakh per company.
PHFCA blamed the poor recovery mechanism for surging default cases. “Even now simple cheque dishonour cases under Section 138 of the Negotiable Instruments Act take several years to book defaulters," he said.
