20TH CENTURY FINANCE CORPORATION LIMITED
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
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
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
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
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.
Chairman & Managing Director
4th June, 1997.