Banks of late have been restoring credit lines to non-banking finance companies (NBFCs) which have shown a willingness to settle outstanding dues.
By going in for mutually acceptable settlement in case of NBFCs, which have run aground due to adverse economic conditions faced by their debtors, the banks can not only recover a part of their principal outstanding and bring down their non-performing assets but also extend fresh advances in deserving cases, according to finance experts.
A case in point being that of a Bangalore-based NBFC, which is close to settling its Rs 40 crore loan (principal amount) outstanding from its creditor banks by paying Rs 12 crore as an one-time settlement. The said company is also believed to be renewing its credit lines from the same banks. A few other NBFCs have also drawn up scheme of arrangement towards settlement of their dues to their creditors.
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However, legal cases are being pursued against NBFCs which have indulged in diversion of funds, the sources said.
Given that non-food credit offtake, which is a barometer of the trade and industry's credit appetite, from scheduled commercial banks in the current financial year thus far has been lower at Rs 25,484 crore compared to Rs 38,360 crore in the corresponding period in 2000-01, the NBFCs could play a pivotal role in reversing the trend, the experts averred.
Majority of the NBFCs, given their simplified sanction procedures, customer-focus, attractive returns on deposits and flexibility in meeting credit needs of specified sectors such as equipment leasing and hire purchase, are now focusing on semi-urban and rural areas. This is because competition is cut-throat in cities where banks have access to cheap funds especially in the consumer durables finance, car finance and housing finance business segments.
"Though NBFCs face stiff competition from banks in cities as far as consumer durables financing is concerned, they (NBFCs) have semi-urban and rural areas to capitalise on. Moreover, margins in cities for NBFCs is around 3 per cent compared to about 6 per cent in the semi-urban/ rural areas," Mahesh Thakkar, executive director, Association of Leasing & Financial Services Firms said.
The finance firms are re-orienting their businesses by concentrating on rural/farm community for financing agricultural inputs, including purchasing tractors, commercial vehicle financing as also financing their consumer durable requirements.