RBI panel proposals for NBFCs will structurally strengthen the sector, says Crisil

The ratings agency has welcomed the new recommendations as they better guard firms against potential risks, though additional provisioning could have a short-term impact on profitability 

Ratings agency Crisil has said that the recommendations of the RBI-appointed Working Group on non-banking finance companies (NBFCs), if accepted and implemented, will structurally strengthen the sector in the long term.
The higher risk weights placed on sensitive sectors, the increase in minimum Tier-1 capital, and stipulated liquidity requirements will better cushion NBFCs against potential asset-side and liquidity risks, Crisil says in an appreciation of the Working Group's proposals. They also provide greater clarity on the regulatory framework for these companies which should help enhance stakeholders' confidence.

However, the increased provisioning would have a short-term impact on profitability which, Crisil estimates, could result in a decline in the average return on assets by 25-30 basis points.

"The change in asset classification norms for NBFCs will result in significant increase in the reported gross non-performing asset (NPA) ratios," says Pawan Agrawal, director, Crisil Ratings. "The gross NPA ratio for the sector which was around 2.8% as of March 2011, would become 4.8% as per the revised classification norms. While it does not reflect any change in the inherent asset quality of NBFCs, they will focus increasingly on containing delinquencies in the up-to-90-days bucket."

The introduction of minimum liquidity requirement will enable the NBFC sector to match the standards stipulated for banks and protect NBFCs against any liquidity crisis. But Crisil does not foresee any major impact of this recommendation, as NBFCs have largely been maintaining positive mismatches in the short-term buckets of up to 30 days.

Suman Chowdhury, head of Crisil Ratings, "Capital market and commercial real estate financing entities will be more affected by the recommendations. Crisil estimates that the requirement for higher risk weights will reduce capital adequacy ratios by 2.5% to 3%. However, capitalisation will not be a challenge, as most of these NBFCs have healthy ratios."

The margin finance business, with an estimated portfolio of Rs35 billion as on 31 March 2011 may become less attractive to customers, given that NBFCs will now need to nearly double the margin they collect from customers. Capital market NBFCs have been diversifying into non-capital market businesses and the new recommendations could see a further acceleration of such efforts.


Toyota Kirloskar Motor registers 84% growth in sales

The Innova recorded sales of 4,305 units. The Corolla Altis and Fortuner recorded sales of 913 units and 897 units respectively

Toyota Kirloskar Motor (TKM) registered sales of 11,693 units in August 2011 as compared to 6,361 units in August 2010. The company's sales grew by 84 % when compared to the corresponding period last year.

Sandeep Singh, deputy managing director, marketing, TKM said, "We have registered a growth of 84% in August sales. The growth is primarily led by our flagship model  Innova and our latest offering Etios and Etios Liva. Last month we sold 2,710 and 2,824 units of the Etios and Etios Liva respectively. We thank our customers for their encouraging response to the Etios and Etios Liva. We are now looking forward to the festival season. Toyota wishes all its customers a happy festive season."  

The Innova recorded sales of 4305 units. The Corolla Altis and Fortuner recorded sales of 913 units and 897 units respectively.


Jubilant FoodWorks starts online sale of Domino’s pizza

The food chain expects 6% of overall sales to be generated via social media and other Internet platforms this fiscal 

Jubilant FoodWorks, which sells the Domino's brand of pizza in India, said it plans to tap the Internet and social media to boost its sales and expects around 6% of its overall sales from this platform this fiscal.

The company, which on Thursday announced the national launch of its online ordering system, said at present its online sales contributes around 4% to its total sales. It expects a double-digit figure in the next few years.

"In India, around 35-50 million people are using the internet. That is the kind of potential market that we see... So launching the online ordering system is an extension to reach out to consumers," Domino's Pizza India vice president (marketing) Harneet Singh Rajpal said.

The company had introduced the online ordering system last year as a pilot project in Bengaluru. At present, online sales contribute around 4% to its total business. Last fiscal, the firm had a turnover of Rs678 crore.

"E-commerce is a growing business. In India, the penetration of the Internet is very low. However, in developed countries around 20%-30% of sales are done online. Though it is difficult to say when we can achieve such a figure in India, we expect a huge double (digit) growth in the (next) few years," he said.

Under the online system, customers can order pizzas via cash on delivery or credit card, debit card, net banking or mobile cash card. This platform is integrated with social media like Facebook and portals like Yahoo.

Jubilant FoodWorks closed at Rs1,000.50 per share (5.95 % up from the previous close of Rs 944.35); the Sensex ended 144.71 points up at 16,821. 46, from the previous close of 16,676.75.


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