PAL CREDIT & CAPITAL LIMITED CHAIRMAN'S STATEMENT Presently, the Country is passing through severe political and economic turmoil and one does not know what it will lead to. The mid-term poll has failed to give a decisive mandate to a single party resulting into perpetuating of uncertainty. The ruling coalition government led by the Bharatiya Janata Party is passing from one crisis to another. In this process, they are unable to prioritise the various problems faced by the country. The nuclear explosions followed by the economic sanctions by USA and Japan have raised doubts in the mind of the world community with regard to the long term prospects of the country, leading to its downgrading by the international rating agencies. Fortunately, the Finance Bill, 1998 which has just been passed by the Lok Sabha has not reversed the process of liberalisation. Nevertheless, it has created apprehensions about the ballooning of the fiscal deficit and the resultant severe inflation. Industrial production continues to stagnate and the fear of recession arising out of lack of demand is looming large. In such a scenario, the finance sector is bound to face serious problems in terms of lack of credit growth and increased level of Non-Performing Assets (NPAs). As far as Non-Banking Financial Companies (NBFC) sector is concerned, it is passing through its worst times. As a fall-out to the CRB imbroglio, the investors' confidence in this sector has been seriously eroded leading to large scale withdrawals of deposits and diversion of the same to the banking sector. The banks and the financial institutions are also in the process of reducing their exposure to this sector. The new regulatory framework introduced by RBI in January 1998 has dealt a severe blow to deposit mobilisation efforts of this sector. Linkage of deposit acceptance limit to credit rating and steep reduction there to has resulted into a large outflow of funds from this sector. All these measures have completely dried up the financial resources available to the NBFC sector. On the other hand the business prospects, especially that of hire purchase/leasing companies, have been seriously affected due to the severe competition offered by foreign banks and financial institutions. The mid-size hire purchase/leasing companies have to face competition from large size NBFCs also and they are being gradually eased out from the business. Large scale defaults by the corporate sector and by the truck operators are leading to high level of NPAs. Stricter norms prescribed by RBI for income recognition and provisioning against NPAs are also taking a heavy toll on the profitability. In a nut shell, NBFC sector is passing through a situation where its fund base is recording, the business opportunities are reducing and its NPAa are mounting. Chances of an early revival are rather slim, looking at the demand recession faced by the industry in general and by the automobile sector in particular. No wonder then, that several finance companies have chosen to merge with financial institutions or they are gradually losing their identity through alliances being struck with foreign auto manufacturers. In view of the adverse circumstances enumerated above, the entire NBFC sector has been downgraded by the rating agencies, which has further eroded the confidence of the investing public. The negative results achieved by the Company are to be viewed in light of the highly unfavourable circumstances detailed above. You would have