Prudential To Pull Out Of Fin Services

Rs 4 crore being returned to depositors every month after CRB fiasco

Stockbroker and wannabe industrialist Vinod Baid's Prudential Capital Markets Ltd (PCML), which reported a 52.82 per cent drop in net profit for March 1996-97, is in trouble.

Of its Rs 80-crore deposit base, over Rs 12 crore has been withdrawn in the last two months, and Prudential is pulling out the financial services sector, altogether. However, it has decided to pay off all the depositors in 24 months before closing shop.

PCML chairman Baid told Business Standard that his beleaguered finance company was paying out an average amount of Rs 4 crore of depositors' money every month after the collapse of the CRB group. The amount paid out by PCML includes matu-red and premature deposits.

 

Baid said PCML will red-eem the deposits as and when it is able to recover the amounts from their investments. He said PCML has plans to sell of its non-performing assets (NPA) and other assets, if needed, to service the depositors. Baid put the NPA at nearly Rs 25 crore and said all efforts would be made to recover the dues.

"I don't anticipate any delay in repayments to depositors whose fixed deposits mature. We will pay back all our depositors' money within a maximum time of 24 months. We have already stopped taking deposits from July 1 and we have taken a policy decision to totally move out of the business of taking deposits and lending out funds.

The existing depositors will be paid when their deposits mature and we will cease to function as an NBFC after we pay off our depositors."

"The entire NBFC sector is in trouble today. ITC Classic has ITC to step into repay depositors if needed, but who will step in to pay our depositors? We have to look after our own depositors and get out of a business which is not profitable any more.

Our first interest is to honour the commitments made to our depositors and we will do so over time," Baid said. The Prudential Group will move out entirely from the financial services sector in the next four years, he added. Baid held a meeting with nine zonal heads of PCML on July 8 to discuss future strategy. He said restructuring will be done to cut costs and staff strength in the branch offices will be reduced. The 80 branch offices of PCML will be restructured and some branches may be merged eventually, he said.

One of the factors contributing to the decision to move out of the NBFC sector was the steep drop in collection of deposits after the CRB imbroglio.

Baid said that after May, PCML had recorded more than 60 per cent drop in deposit collection. This was a direct impact of the CRB collapse, said Baid.

He added that the depositors were suffering from a crisis of confidence in the NBFC sector. He said more cases like CRB would adversely affect the existing NBFCs and it is better to move out of the sector than deal with such periodic shocks.

The legal system of the country was also responsible for the poor state of the NBFC sector, as the investments made by NBFCs cannot be recovered due to a lax legal framework, he said.

Company sources, however, attributed the funds mismatch for PCMLs worries.

It was borrowing for a one-year period and lending out for three years, they said. The mismatch was being handled adequately till April, as deposit collection was proceeding at a good pace.

However, as deposits dropped sharply to 40 per cent, PCML was faced with a funds crunch.

The PCML scrip fell sharply from Rs 20.50 on March 4 to Rs 14 on May 17 to Rs 5.95 on July 1 on the Bombay Stock Exchange.

The scrip is quoted below par at Rs 5.30 in the Calcutta bourse on July 9.

Baid said PCMLs investments to the tune of Rs 50 crore were in group companies of Prudential. PCML will contribute nearly Rs 100 crore to the combined net worth of the Prudential Group after the merger, he said. It will write off all bad debts in 1997-98 and clean up the balance sheet before all the group companies are merged to form a single corporate entity, Prudential Industries Ltd with a net worth of about Rs 250 crore, he said.