MODEL FINANCIAL CORPORATION LIMITED
It gives me great pleasure to invite you all to this 9th Annual General
Meeting. The Directors' Report and the Audited Accounts have already been
circulated to you and with your permission, I shall take them as read :
As you might have observed, the Financial results of the Company were
encouraging during the year 1995-96. Inspite of the continued cash crunch
the Company was able to achieve satisfactory results during the year. The
Hire Purchase business has gone upto Rs.1047.44 lakhs which accounts for a
growth of 24% during this year over that of the last year. The Lease
transactions registered a business of Rs. 553.09 lakhs which amounts to an
increase of 153% this year over that of the previous year. The accretion of
Fixed Deposits came to Rs. 354.56 lakhs this year and the total deposits
stood at Rs. S59.26 lakhs at the close of the Financial year 1995-96. The
overall performance of he Company has resulted in a net-profit of Rs.
110.11 lakhs, which accounts for 62% increase over that of the previous
year. Keeping in view, the dividend policy followed by the Company during
the past five years, I am glad to say, that your Directors have recommended
to pay a dividend of 20% this year.
NEW INDUSTRIAL POLICY :
The Country for the first time in 1996 witnessed a significant change in
the political direction of the nation. In the last parliamentary elections
the people did not give the mandate to a single party. Consequently, a
coalition Government consisting of 13 political parties forming into a
United Front came to power. After the new Government took Office, the
question which was uppermost in the mints of the people was as to whether
the reforms process launched by the previous Congress Government in 1991
would continue. To our great relief, the new Government have come up with
the Common Minimum Program (CMP) which has declared that the liberalised
economic policies would continue. It is now clear that the new Industrial
policy would remain unchanged for the overall growth and development of the
Nation. This has laid to rest all doubt and surmises.
MACRO ECONOMIC SCENARIO :
According to the prime indicators of economic growth, the performance
during 1995 can be considered to be remarkable The growth in GDP has gone
upto, 7% as against the earlier estimate of 6.%. The Industrial growth
surged to 12% Inflation was oscillating between manageable levels of 4 and
5%. The growth of exports has records, 20.8% and the Foreign Exchange
reserves stood at over $17.7 billion at the end of 1995-96. The fiscal
deficit was reduced to 5% of GDP which is targeted to be reduced to 4% in
the coming year. These achievements have been the highest since the
beginning of the reform process.
BUDGET FOR 1996-97 :
Sri P Chitambaram, the Finance Minister deserves congratulations for having
presented a balanced budget for the year 1996-97. The budget can be said to
be a soft one, the prevailing political situation being what it is !
However, he has shown serious concern for the development of
Infrastructure, Agriculture, Small Scale Sector and for poverty
alleviation. So far as Industry is concerned the surcharge has been reduced
to 7.5% from earlier 15% which is assured to be totally abolished in the
next year. The zero tax companies are now brought again it to the tax net
and a Minimum Alternate, Tax (MAT) at 3.0% of the Book profits is proposed
to be levied. The consequences of this have to be watched. The budget has
shown certain marginal concessions to the lower rung of the salaried
The main burden of the budget is to mop up resources for the Infastructure,
Agriculture, and Poverty eradication program for which enormous funds have
to be secured. A target of $ 10.00 billion per year has been aimed at,
through Foreign Institutional Investors (FIIs And Foreign Direct Investment
(FDI). An Infrastructure Development Finance Company (IDFC) is proposed to
be setup exclusively for the development of Infrastructure Sector. The
proposal to enable the Companies to issue Non-voting rights to an extent of
25% of the Issued Capital is a step in the right direction. Mutual Funds
and Venture Capital are also now being given voting rights with a view to
making the Managements accountable to both domestic and Foreign funds.
The agenda for year 1996-97 aims at sustaining and improving upon the
growth rate of 7% to 7.5% of GDP and Industrial growth of 12.5%. The
inflation is to be kept under control at a level between 6 and 7%. We have
to wait and see till February, 1997 as to how far these will be achieved.
NEW REGULATIONS OF NBFCs :
In the last Annual General Meeting I touched upon the applicability of
prudential norms to NBFCs, according to which, the hank finance was
curtailed to 3 times from earlier 4 times. The SLR (Statutory Liquidity
Ratio) was increased to 15% from 10%. The capital adequacy ratio was to be
maintained at 8% instead of at 6% with effect from 31.03.1995. But the
Company maintained the Capital Adequacy ratio at 17.34% as at 31.03.1996.
For the first time in 1995-96, the NBFCs were asked to make a provision for
Non-performing assets (i.e., providing for doubtful or substandard assets).
While that being the scenario in which the IBFCs were functioning, the new
regulations introduced in July, 1996 by RBI would provide some solace.
The NBFCs which are registered with RBI and which are complying with the
prudential norms and credit rating are now at liberty to fix their own
interest rates. Now the NBFCs which satifiy the new RBI parameters can
officially declare the interest rates at a reasonable level without
resorting to undesirable practices. Further, the reduction in SLR to 12.5%
against the earlier 15% would now provide some elbow room to the extent of
2.59 for increased deployment of funds. But any indiscriminate increase in
the deposit without any relation to the capital adequacy requirement cannot
be resorted to as any excess mobilisation would involve corresponding
increase in the lending portfolio of the Company thus diluting the
capital/asset ratio of the Company. Therefore, the NBFcs should very
carefully weight the pros and cons while increasing their deposit limits.
LIMIT FOR TDS :
It is unfortunate that the Government have not raised the TDS limit beyond
Rs. 2,500/- for NBFCs, although this was fixed as far back as in 1987. In
the case of Banking Companies and co-operative societies, the limit was
fixed at Rs. 10,000/- in the 1994-95 budget. Even in the present budget the
exemption limit was put at Rs. 10.000/- in the case of Housing finance
Companies. If the same limit of Rs. 10.000/- is extended to the NBFC also,
it would be highly conducive for growth of deposit particularly in the
context of freeing their interest rates.
TREND IN 1996-97 :
Your Company so far has been meeting the capital expenditure requirements
of its customers. In view of the increasing demand for short term money,
your company plans to take up bill discounting and other short term finance
in a big way to meet the needs of the customers for their working capital
requirements. This new line of activity will be mainly funded out of
deposits mobilised by the company. The net accretion of deposits so far
during the year is Rs. 3.5 crore, thanks to the confidence reposed in your
company by the investing public. Your company has already transacted hire-
purchase and lease business of over Rs. 4.5 crore so far during the current
year and also provided over Rs. 2 crores short term/bill finance to its
customers. As your company has complied with all the requirements of RBI -
such as registration with it, adhering to prudential norms, obtaining
credit rating - the liberalised norms would apply to your company providing
ample scope for resource mobilisation. This would certainly improve the
overall performance of the company in future.
FUTURE OUTLOOK :
Never before customer service assumed greater importance in the financial
services sector as it is in the present context. Your company's management
firmly believes in and has for its goal providing service to the customer's
satisfaction. To help it serve the customer base well, your company has
plans to widen its network of branches to cover new areas in the cities
like Hyderabad, Banagalore and Visakapatnam.
The infrastructure facilities at branches will help the company provide
better service to the customers.
Your company will pursue its objective of providing finance to small and
mid-sized companies, thus, contributing to the growth of industry in the
country. Your company with its drive for excellence will pursue business
plans that will allow it to continue its growth in the years to come.
Your company, which enjoys the patronage of about 6000 shareholders and
6500 depositors and the active support of 9 leading commercial banks, is
quite confident of greeting tomorrow's challenges which poise and
On behalf of the Board and on my own behalf, I thank the Deposits, Bankers,
Business Associates, Shareholders and our valued Customers, for their
unstinted co-operation and support and I look forward to have them in
abundance in the years to come.
I am also thankful to my colleagues on the Board for their valuable
guidance and advice. I would like to place on record my deep sense of
appreciation for the dedicated services rendered by all the employees at
A. Krishna Murty