Financial Performance Analysis of

The SUNDARAM FINANCE LTD.

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CHAPTER 1
INTRODUCTION

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INTRODUCTION

The financial statement provides the basic data for financial performance analysis. The financial statements
provide a summarized view of the financial position and operations of a firm. Financial analysis (also referred to as
financial statement analysis or accounting analysis) refers to an assessment of the viability, stability and
profitability of a business. The analyst first identifies the information relevant to the decision under consideration
from the total information contained in the financial statements. Therefore, much can be learnt about a firm from a
careful examination of its financial statements as invaluable documents and performance reports.
The analysis of financial statements is an important aid to financial analysis. They provide information on
how the firm has performed in the past and what is its current financial position. Financial analysis is the process
of identifying the financial strengths and weakness of the firm from the available accounting data and financial
statements. The analysis is done by establishing relationship between the different items of financial statements.
The focus of financial analysis is on key figures in the financial statements and the significant relationship
that exists between them. The analysis of financial statements is a process of evaluating relationship between
component parts of financial statements to obtain a better understanding of the firms position and performance.
The first task of financial analyst is to select the information relevant to the decision under consideration
from the total information contained in the financial statement. The second step involved in financ ial analysis is to
arrange the information in a way to highlight significant relationships. The final step is interpretation and drawing
of inferences and conclusions. In brief, financial analysis is the process of selection, relation, and evaluation.

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1.1

INDUSTRIAL PROFILE

1.1.1 NON-BANKING FINANCIAL COMPANIES (NBFCS)

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 regulation.
According to Reserve Bank Amendment of Act 1997, A Non-Banding Financial Company (NBFCs) means,

A financial institution which is a company

A non-banking institution which is a company which has its principal business receiving of deposits under
any scheme of arrangement or in any other manner or lending in any manner

The non-banking financial sector in India has tremendous growth in recent years. NBFCs attracted a large
number of small investors since the rate of return on deposits with them was relatively high. NBFCs are quite
flexible sectors like equipment leasing, hire-purchase, housing finance, consumer finance and so on, where gaps
between the demand and supply of funds have been high. The growth in number of NBFCs was facilitated by the
case of entry, limited fixed assets and absence of any need to hold inventories.

1.1.2

CURRENT SCENARIO OF NBFCS

The base of todays feebleness of Non-Banking Finance Companies can perhaps be traced back to

early nineties. The buoyant capital market, in the first flush liberalization welcomed every issue with huge
premiums and massive over subscription. This was the signal for several unscrupulous promoters to set up high
profile finance companies and raise money from both the capital markets and through public deposits.
The Reserve Bank of India for its past, progressively relaxed its regulatory hold over the industry and
made it possible for the companies with little financial strength and even fewer scrupulous to raise large amounts
of money from an unsuspecting public. Hardly anyone knew or questioned how these moneys were deployed.
Soon afterward, the stock market scam broke claiming its first victim from the non-banking finance companies

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sector. With the capital market in disarray, it was no longer possible for continue of fund flow, from investors
who had burnt their fingers in the stock markets. It was thus convenient fresh deposits. In July1996, the RBI,
perhaps the most sweeping changes in the non-banking finance companies regulation, virtually pulled out all the
stock, enabling companies to raise deposits with minimum number and more significantly, removed the ceiling on
interest rate.
At the point, when the government was faced with grim situation and responding to the plea of the
industry, the government set up a special task force headed by Mr. C.M. Vasudev to recommend the steps for the
orderly growth of finance companies while keeping investor protection as its key priority. The committee in its
final report recognized the important role played by these companies and warned against the tendencies to tar all
the companies with the same brush. The silent recommendations of the Vasudev committee were

Review of minimum capital requirement of Rs. 25lakhs for registration purposes

Higher capital adequacy ratio for non-banking finance companies seeking public deposits without credit
rating

Preview of prudential norms with ceiling for exposure to real estate and capital markets

Differential ceiling on public deposit acceptance for companies with and without credit ratings

A separate instrument to regulate and supervise non-banking finance companies.

1.1.3

ADVANTAGE OF NBFCs

1. Lower transaction costs

2. Higher rate of interest on deposits compared to banks
3. Quick financial decision caking
4. Customer orientation
5. Prompt provision of services
1.1.4

RBI GUIDELINES FOR NBFCs

The nineties witnessed a dramatic increase in the number of NBFCs and it was thought necessary to

have a regulatory framework for NBFCs. RBI came out with set of guidelines for NBFCs specifically aimed at
protecting the depositors.

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To encourage the NBFCs that is running on sound business principals, on July 24th 1996, NBFCs were divided
into two classes,

1.1.5

i.

Equipment leasing and hire purchase (finance company)

ii.

Loan and investment companies

CATEGORIES OF NBFCs
i.

Loan Companies

ii.

Investment Companies

iii.

Hire Purchase Companies

iv.

Equipment Leasing Companies

v.

Mutual Benefits Finance Companies

vi.

Housing Finance Companies

Equipment leasing company Any company, which is a financial institution, carrying on its principal business.
The activities of leasing of equipment of the financing of such activity.
1. Hire purchase finance company A company, which is a financial institution, carrying on its principal
business, hire purchase transaction.
2. Investment Company A company, which deals with acquisition of securities.
3. Loan Company A company, which is a financial institution and carries on its principal business of
providing finance by any activities other than its own.
4. Mutual benefit finance company A company, which is a financial institution. This is notified by the
central government under section 620 (a) of The Companies Act 1956.

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1.2

COMPANY PROFILE
Sundaram Finance Limited was incorporated in 1954 and has grown into one of the most trusted

financial services group in India and a part of TV Sundaram Iyengar and Sons group of companies, one of Indias
largest industrial conglomerates and diversified industrial conglomerate with principal base in Chennai and
Madurai. Almost all the companies in the group are privately held. The company was started with a paid- up
capital of Rs.2Lakhs and later went public in 1972.
1.2.1 FOUNDER OF THE COMPANY
The Company was founded by Sri. T. S. Santhanam. He has a rich experience in the automobile and
road transport sector for nearly six decades. He was the founder, Director and First managing director of
Sundaram Finance Limited and has served on various committees constituted by the Central Government and
Reserve Bank of India on various aspects relating to growth and development of the Road Transport and NonBanking Financial Companies.
The company has been rated as MAA by the ICRA signifying the highest number of deposits. The
Company mobilizes its funds from driver sources at competitive rates thus achieving a reduction in overall cost of
funds. The company gets its funds from the main sources namely,

Deposits

Bank/Industrial Finance

Debentures

Commercial Papers

1.2.2

THE MAIN ACTIVITIES OF SUNDARAM FINANCE LIMITED

Deposits
Hire Purchasing
Leasing

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1.2.3 FIVE PILLARS OF SUNDARAM FINANCE LIMITED

1. Faith
2. Depositors confidence
3. Institutional trust
4. Investor safety
5. Employee loyalty

1.2.4

CORPORATE PHILOSOPHY OF THE COMPANY

Truth and fairness guide the management of finance

Customer satisfaction through excellent service and reliability

Prudence and conservation in finance operations

Truth, honesty and efficiency in all dealings

Professional management with high standards of integrity

Full compliance with law and regulations.

1.2.5 OBJECTIVES OF THE COMPANY

Sundaram Finance was initiated with the sole objective of fina ncing commercial vehicles and passenger
cars. Within a span of 55 years they have spread their wings to every exposable area in the Non-banking finance
sector. Sundaram Finance Where Truth, Fairness and Transparency guide the management of finance.
1.2.6 VALUES
A set of values have governed their growth over the years. Among them are transparent in their business
practices, dedicated customer service fair, efficient and safe financial policies.
1.2.7

STRENGTH

Support of the group companies.

Involvement of the directors on major policy matters.

High employee morale..

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