Government securities seem to be a big draw for non-banking finance companies (NBFCs). In 2009-10, NBFCs? investments in government securities increased 41.7% to Rs 1,889 crore?the highest among investments made by them during the period. Equity investments came second in the choice of investments by NBFCs, a study of investment pattern of 174 NBFCs during 2009-10 and 2008-09 shows.
Total investments by NBFCs under study increased 22.2% to Rs 37,923 crore during 2009-10, from Rs 31,036 crore in the previous year. Of this, government securities accounted for Rs 1,889 crore (5%), debentures & bonds Rs 4,688 crore (12.4%), company shares Rs 16,780 crore (44.2%) and units Rs 4,565 crore (12%).
In 2008-09, NBFCs invested Rs 1,333 crore (4.3%) in government securities, Rs 4,647 crore (15%) in debentures & bonds, Rs 12,226 crore (39.4%) in company shares and Rs 8,415 crore (27.1%) in units. Except company shares & government securities, all the other portfolios showed a decline in their share during 2009-10, compared to the level in 2008-09.
Although the investments increased in absolute terms, if the investments are seen as part of their assets, the NBFCs invested more or less same as previous year in terms of investment-to-assets ratio, which marginally decreased from 9% in 2008-09 to 8.99% in 2009-10. Twenty-four of the 174 NBFCs recorded more than 100% growth in investments over the previous year. Mention may be made of Shriram Transport, Manap General Finance, GIC Housing Finance, GRUH Finance, Mukesh Babu Finance and Wall Street Finance.
Among the NBFCs under study, 57 recorded decline in investment during 2009-10. Significant among them are Rural Electrification Corporation, Chola Investment, Tourism Finance Corporation, Magma Fincorp, United Credit and Apple Finance.
Only one firm ?- HDFC– recorded an increase of more than Rs 480 crore in investments in government securities. On the other hand, IFCI, Chola Investment, Manappuram General Finance, Sakthi Finance and Wall Street Finance discharged significantly their government securities during the current year.
Three NBFCs ? IFCI, Dewan Housing and Motor & General Finance ? recorded an increase of more than Rs 2 crore in investments in debentures & bonds. On the other hand, HDFC, Reliance Capital, REC, AK Capital Services and Can Fin Homes discharged significantly their debentures & bonds during the current year.
Seven NBFCs ? HDFC, Reliance Capital, IFCI, Sigrun Holdings, SREI Infra Fin, Sundaram Finance and Prime Securities ? recorded an increase of more than Rs 30-crore investments in company shares. In terms of investments in company shares, 48 NBFCs disinvested a part of their shares investments during the year. Significant among them are Oscar Investment, Chola Investment and Power Finance Corporation.
One interesting thing is that out of 174 NBFCs, 108 have not made any investment in mutual fund units during 2009-10 and 2008-09. HDFC, Reliance Capital, IFCI, REC, Sundaram Finance and Chola Investment disinvested part of their MF units during the study period.
The top five NBFCs in terms of investments in 2009-10 were HDFC, Reliance Capital, IFCI, Shriram Transport and LIC Housing Finance .The investment-asset ratios of these companies ranged between 3.6% and 58.4% during 2009-10.