NBFCs heading to close branches
By Neelima Shankar
Sep 29, 2008
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Non banking financial companies (NBFC) with foreign parentageare tightening their pursue strings as the delinquency rate has taken its toll in the country's consumer finance companies. NBFCs are moving towards shutting down their branch networks. Major players like GE Money Financial Services and Prime Financial have cut down their branch network by a substantial number.

Non-bank financial companies (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. Operations are, regardless of this, still exercised under bank regulations.

GE Money has reduced its branch network by more than 50% by closing 186 branches in 120 cities. The company has reduced its network to about 80 and has further plans to reduce this number to 50 over the next few months.

Iqbal Singh, President and CEO, GE Money said, "In India, the entire industry is facing challenging conditions, thanks to rising delinquencies due to higher interest rates."

He added: "In the immediate term, we are focusing on reducing operating expenditures and improving operating efficiencies as well as building a more focused business in terms of product offerings and consolidating in cities where we have a competitive advantage and scale. GE Money is committed to a growth model in the long term in India."

The NBFC segment is primarily facing this problem because of the interest rate hikes along with crackdown on collections. Most companies are now finding their way at the top end of the market along with increasing the fee-based revenues.

GE Money is planning to shut down their branches in small towns and cities and to this their CEO said, "We are currently reviewing our operations in tier 3 and select tier 2 cities. Their contribution to our overall business volume is limited and the impact of pruning the same would be minimal. The focus is to build scale in the current products in cities where we have a competitive advantage. We are also evaluating investments in alternative service channels such as the internet so as to ensure that the customers will not be materially affected."

The officials feel the new structure to be a success as the firm's net profit as on March 31, 2008 was Rs 9.4 crore even though the market conditions were not smooth. This figure was noted around Rs 10 crore in the last fiscal.

Standard Chartered Bank-promoted NBFC, Prime Financial has also come down to barely 6 branches from as many as 50. Over the past few months, the NBFC has also stopped booking new loans and the existing branches are used for servicing only the old loans. In fact, StanChart is re-evaluating its options relating to this business but the NBFC's wholesale banking business will continues.

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