The past year has really been a
testing time for the Non-Banking Financial Companies (NBFCs) operating in India. They
were seriously plagued by inadequate liquidity in the money market, mainly
in the later part of 2008. The cost of interest
climbed due to money market turmoil and a widespread crisis of
confidence stemming from the collapse of US investment bank Lehman
Brothers. The economy was also slowing down, leading to a decline in the aggregate
demand. As demand plummeted, so did the need for financing as well as the
demand for products of NBFCs. These developments, coupled with
plunging stock markets and crashing NBFC stock prices, had made the life
of NBFCs tougher. Even many NBFCs had opted to put the brakes on their
expansion plans. However, despite all these impediments, NBFCs in India,
as a whole, performed exceedingly well during the crisis time—the total
asset size for these quasi banks has grown from approximately Rs 25,000 cr
in 2007 to approximately Rs 3,25,000 cr at present, and this trend seems set
to continue. Players in secured lending business have done well, as the risk
of Non-Performing Assets (NPAs) is much less in this segment.
Other NBFCs engaged in power and auto financing, with a few exceptions,
have also performed well last year. This modest performance of the NBFCs
even during the time of crisis underscores the fact that the NBFC sector has
become more mature and it is now more resilient to external shocks.
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