Net profit of non-banking finance companies (NBFCs) in percentage terms has grown at a higher rate between 2005-06 and 2009-10, compared to an increase in total income during the same period.
The net profit of 171 NBFCs witnessed a compound annual growth rate (CAGR) of 19.8%, while the average total income of these NBFCs increased by 17.7% in the same period. In actual value terms, the net profit of 171 NBFCs rose by 105.8% from Rs 7,796 crore in 2005-06 to Rs 16,043 crore in 2009-10. During the above period, the highest growth of 45.3% in net profit was seen in the year 2007-08.
On the other hand, the total income of these NBFCs steadily increased by 91.8% from Rs 36,781 crore to Rs 70,540 crore in the same period. Here highest growth of 25.9% in total income was seen in the year ’06-07.
The NBFCs as a whole account for 9.1% of the assets of the total financial system. In the wake of the global financial crisis and its fallout, the RBI undertook measures to preserve financial stability and arrest the moderation in the growth momentum.
The RBI has issued several new guidelines time to time. Some of these include know your customer guidelines-anti-money laundering standards, guidelines on classification, monitoring and reporting of frauds and guidelines on securitisation of standard assets.
Among the 171 NBFCs, the significant CAGR in net profit was seen in the case of Shriram Transport Finance, L & T Finance and Magma Fincorp.
The net profit of Shriram Transport Finance increased 516.4% (CAGR 57.6%) from Rs 141 crore in 2005-06 to Rs 873 crore in 2009-10.
Similarly, net profit of Magma Fincorp surged 229.5% (CAGR: 34.7%) from Rs 20 crore in 2005-06 to Rs 66 crore in 2009-10.
According to the directors report, this was driven by higher business volumes, increased loan assets, improved operating efficiency and asset quality. On the other hand lower CAGR in net profit was witnessed in the case of Tata Investment Corporation, Sundaram Finance and Can Fin Homes. The net profit CAGR of Sundaram Finance was only 7.4% during the last five years. In actual value terms, the net profit of Sundaram Finance increased from Rs 170 crore in ’05-06 to Rs 226 crore in ’09-10.
Similarly, in the case of total income, significant CAGR was registered in the case of L&T Finance, Shri City Union and Reliance Capital. The total income of L&T Finance increased by 537.6% (CAGR: 58.9%) to Rs 965 crore in 2009-10 from the level of Rs 151 crore in 2005-06.
The top five NBFCs in terms of total income during 2009-10 are HDFC, PFC, REC, Shriram Transport Finance and IDFC.
But in the year 2005-06, the top five NBFCs in terms of total income were HDFC, PFC, HUDCO, REC and LIC Housing Finance. The NBFCs, namely HDFC, PFC and REC, are common in both the years under study. The CAGR of total income for HDFC, PFC and REC stood at 27.59%, 26.44% and 31.47% respectively during last five years.
On the other hand the CAGR of net profit of HDFC, PFC and REC were 22.45%, 24.83% and 33.11% respectively during the above period.