1996 20TH CENTURY FINANCE CORPORATION LIMITED CHAIRMAN SPEECH Dear Friends I am quite happy to meet with all of you again and welcome you to the 17th Annual General Meeting of your company. The Directors' Report and Annual Accounts along with Auditors' Report have been with you for quite some time and I will take them as read. As you are all aware fiscal 1996 witnessed a period during which there were clear indications of a down trend in the rates of growth in the various sectors of the economy. This trend was coupled with high cost of funds right through the year and imposition of MAT. At the same time, the market was also subject to pressure on rates due to competition. Despite such pressures your company has turned in a performance with increase in gross disbursements, gross income and gross profits, while the net profit was necessarily affected. I have already set forth my views on some of the critical issues relating to the economy as well as the NBFCs in the Chairman's statement which is a part of the Annual Report itself. I would now like to review some of the developments since then. The year 1996 was a turbulent one for NBFCs. The pressure was not only on resource raising. The industry has witnessed growing pressure on realisation of dues and a consequent increase in NPAs. The need for a credible and adequate credit information system has been felt by the NBFCs. This prompts me to believe that the time has come for all the constituents of the financial sector i.e. Regulatory Authorities, Banks and Institutions. Rating Agencies and NBFCs to come together and tackle this issue as a common problem. The availability of regular market intelligence in a structured form would significantly improve the decision making ability in any lending process. As an immediate measure, I also see the need for all banks and institutions to work together in tackling the problem of defaults by corporates, more particularly those defaulting wilfully. All of you are familiar with the recent developments relating to an NBFC. In this context I would like to state that operational freedom involves a greater degree of self discipline to be exercised by the NBFCs. If not, the freedom provided by the regulators will necessarily be curtailed. In this context the measures that have been initiated in respect of on-site and off-site surveillance, strict enforcement of various norms and guidelines prescribed by RBI are welcome. However it is my submission that the entry norms should be more strict both in terms of minimum networth requirements as well as the period for which the company ought to have carried on business activities. In other words RBI should re-look at increasing the minimum networth requirements as well as the period for which the company should have been in business before permitting such companies to accept deposits from the public. The existing companies who do not comply with these norms should be given a time frame in which the deposits that they have taken from the public should be repaid. It is necessary that the enforcement should be monitored by the authorities both at the State and the Central level by the relevant agencies. An example would be the legislation enacted by the Tamil Nadu government in this matter. An equal if not more cause for concern is the acceptance of deposits by companies under the guise of offering commodity based investment products. The shares offered of teak farm, mango farm or strawberry farm is an example of such investment products which are attracting investors who get carried away by high pressure selling. While it could be argued that the investors deserve the reward or punishment that they would get as a result of their decision to invest in such products, the regulators could bring them under the purview of a specified regulator based on a broader definition of deposits or investment products. It is my submission that in a market where changes are being introduced and major transformation is being effected both on the regulators and the regulated, aberrations are bound to occur. The system's ability to handle such aberrations in a controlled manner and limit the damage caused by such aberrations to the system as a whole will in reality be an indication of the maturity of the market. It should be the objective of all NBFCs to work towards a situation where we are able to minimise such aberrations and at the same time put in place early warning systems. In the context of such developments your management has come to the conclusion that the growth per se should not be an objective. Against the above, managed growth should be the operative slogan which implies a number of things including accepting voluntary restraints on the quantum of business done and constraints on growth of revenues and profits. In the current year our focus would be to improve the quality of our assets on a consistent basis, reduce our growth rate in disbursements, and work on asset disposals, thus leading to a shrinking of the balance sheet size and enhancing our liquidity. Such an approach, I am confident, will enable your company to weather the present market conditions. Before I conclude, I would like to caution you that the worst is not over and our approach to conducting the business in the current year will be very cautious. Thank you. Devendra Ahuja Chairman & Managing Director 4th June, 1997.