NBFCs: Best and worst of 2010 - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

NBFCs: Best and worst of 2010

Dec 27, 2010

Non-banking finance companies (NBFCs) have come a long way since their inception. They were initially coined as development financial institutions. But after the most illustrious of them e.g. ICICI and IDBI became banks, the others cultivated an advantage in certain niche segments. These included financing of power, infrastructure, automobiles etc.

Now, with a week left for the year 2010 to end, we thought it would be interesting to recap the best and worst of the year for the industry. The year had a lot of interesting moments to choose from, both good and bad.

Some of these included the introduction of a new, highly publicised sector to the stock markets, with the IPO of SKS Microfinance. The regulatory fallout of the entire industry followed subsequently. The loan-for-bribe scandal. Introduction of a new infrastructure financing status to certain NBFCs. The RBI discussion paper which spoke of some NBFCs getting a banking license. This helped fire up the stocks of companies speculated to receive this precious license. The RBI raised key interest rates six times in the year, in an effort to rein in inflation. But judging by the current situation, this effort seems in vain.

As you can see there were a lot of points to choose from. But, we decided to shortlist what we felt were the most defining moments for 2010.

Topping the best list

We believe that the RBI's decision to confer the new status of Infrastructure Financing Company on certain NBFCs could be a game changer going ahead. With this move, the RBI was able to address the issue of insufficient infrastructure funding in our country. These companies, including IDFC, PFC, REC, L&T Finance etc have been given certain privileges which include raising money through tax-free retail bonds, and through cheap overseas borrowings. Banks can also lend to these financers a lot more easily with the reduction in the risks that they bear for such lending.

These companies can also increase their lending exposure to a single borrower or to a group. We feel that these moves will help increase investments into infrastructure in India. After all, to grow at 8-9% ports, power plant, roads, bridges etc are all necessary vehicles. This was one of the best moments for 2010, but what we believe is that the benefits of this new status will be reaped over a long period in the future.

Scamming its way ahead

The recent housing loan scam created headlines and let to a mini-market crash with a number of stocks hitting the lower circuit. The loan-for-bribe scam was definitely a wakeup call for corporate India. It sent shockwaves throughout the industry. Especially since this scandal came close on the heels of the 2G spectrum scam. This scam involved officials at certain NBFCs such as Money Matters and LIC Housing Finance and various PSU banks taking bribes in order to give out housing loans. 21 companies were probed for links to the scandal by the CBI. 8 officials were arrested, sending the stocks of their companies southwards. The government was also brought to an almost standstill. The real estate index crashed, and has since been trading at lower levels. Mid and small cap stocks were also taken to the cleaners. The total loss that the scam created was approximately to the tune of Rs 10 bn.

Even though LIC Housing stated that the loans under CBI contention only comprised 0.6% of its balance sheet, its stock still fell by around 30%. This scam had lessons for all of us. It shows the paramount importance of a good, ethical management for a business. Without that, no matter how relevant a particular sector is to the overall economy, investors shun it.

Well, that was a recap on the best and worst for NBFCs in 2010. We sincerely hope that 2011 has more good than bad in store for the sector. And we hope that most of the companies and regulators have learned from their mistakes, and will adopt better practices.

Equitymaster requests your view! Post a comment on "NBFCs: Best and worst of 2010". Click here!


More Views on News

GEOJIT FINANCIAL SERVICES 2019-20 Annual Report Analysis (Annual Result Update)

Sep 3, 2020 | Updated on Sep 3, 2020

Here's an analysis of the annual report of GEOJIT FINANCIAL SERVICES for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of GEOJIT FINANCIAL SERVICES. Also includes updates on the valuation of GEOJIT FINANCIAL SERVICES.

MOTILAL OSWAL Announces Quarterly Results (1QFY21); Net Profit Up 24.8% (Quarterly Result Update)

Aug 24, 2020 | Updated on Aug 24, 2020

For the quarter ended June 2020, MOTILAL OSWAL has posted a net profit of Rs 2 bn (up 24.8% YoY). Sales on the other hand came in at Rs 7 bn (up 19.1% YoY). Read on for a complete analysis of MOTILAL OSWAL's quarterly results.

HDFC Announces Quarterly Results (3QFY20); Net Profit Up 296.1% (Quarterly Result Update)

Jan 28, 2020 | Updated on Jan 28, 2020

For the quarter ended December 2019, HDFC has posted a net profit of Rs 84 bn (up 296.1% YoY). Sales on the other hand came in at Rs 203 bn (up 92.2% YoY). Read on for a complete analysis of HDFC's quarterly results.

CAMS IPO: Should You Apply? (IPO)

Sep 18, 2020

Does the company having 70% market share of the mutual fund registrar business have sound prospects?

PRIME SECURITIES 2017-18 Annual Report Analysis (Annual Result Update)

May 8, 2019 | Updated on May 8, 2019

Here's an analysis of the annual report of PRIME SECURITIES for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of PRIME SECURITIES. Also includes updates on the valuation of PRIME SECURITIES.

More Views on News

Most Popular

Investing in Share Market

Looking for investing in share market A few things you must know about share market and different ways of investing in the s...

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms