But why don't investors learn from others' experiences? What is it that draws them to NBFCs? Sher Singh, banking and consumer analyst, Consult Opportune (India's first consumer banking advisory service), explains why investors are still opting for NBFCs.

Says Singh, ``The lure of earning returns, which are significantly higher than what banks offer, is one of the reasons.'' Seen against the backdrop of dismal stock market performance over the past few years, it becomes quite clear why people still invest in NBFCs, he says. Lack of sufficient investmentalternatives is also why investors are drawn to NBFCs, says Singh.Giving a consumer point of view, Singh says that through NBFC investments, people seek returns to hedge against inflation. Plus, it is seen as a way to earn income to finance the growing consumerist urge. And more than anything else, high returns promised by some NBFCs seem to fulfill investors' desire to make a fast buck.

In such a scenario, sound guidelines may help investors in opting for the reliable NBFCs. Sher Singh offers guidelines which have been formulated by Consult Opportune. The things to look for while investing in NBFCs, according to Consult Opportune, are:

a) Deposits of NBFCs must have an adequate rating by one of the credit rating agencies in India

b) Preferably invest in deposits of only the top 10-15 NBFCs in India

c) Review half-yearly factors such as credentials, market standing, professionalism of management and promoters track record of such NBFCs

d) Take a close and critical look at the financing activities ofsuch NBFCs to decipher their long run viability

e) Beware of glossy and misleading advertisements

f) Avoid any NBFC offering unusually high interest rates which seem `significantly higher' than prevalent rates offered by banks on similar maturity periods

g) Must prefer an NBFC with a nationwide network and more oriented towards retail/ consumer finance activities due to significantly lower default rates Apart from these dos and don'ts, the Reserve Bank of India also offers a good data bank of the NBFCs which may be trusted. Particularly, its website at www.rbi.org.in has a list of over 500 NBFCs all over India which are authorised by the RBI to accept public deposits. Similarly, the site also gives out the names of hundreds of NBFCs which have been denied registration. Also, there's substantial information on RBI rules and notifications in the subject. Overall, a valuable source of information and assessment regarding investment in NBFCs. Such an information base could sometimes prompt investors to evenlook for alternatives.

Talking about alternatives, Sher Singh says that private sector banks rapidly expanding their branch network in urban centres of India, may emerge as preferred alternatives to those NBFCs which are not among the top 20 in India. He adds that high quality service being offered by new private sector banks; beefing up of service and product levels by public sector banks; and expansion of networks and product lines of the top NBFCs should offer investors other alternatives.

On the future of NBFCs, Singh says: ``We foresee a bright future for the top 20 NBFCs in India.'' But it's not going to be a cakewalk. Says Singh: ``Considering that in the future consumer-led growth rather than institutional-led growth would be the trend, top NBFCs which focus on retail lending predominantly can substantially leverage their networks to offer similar lending products offered by banks.'' The focus has to be on marketing and service initiatives, he adds. And the mantra for success: Offer cut-throatcompetition to banks.