SFL Case

Indian Institute of Management Bangalore
Sundaram Finance Ltd.
By
Prof. Rishikesha T. Krishnan

Corporate Strategy & Policy Area
This case has been written by Prof. Rishikesha T. Krishnan with assistance from Dwarakaprasad
Chakravarty, PGP, Class of 1999 based on publicly available information, with financial assistance from the
Centre for Development of Cases and Teaching Aids, IIM Bangalore.
Sundaram Finance Ltd. Case written by Prof. Rishikesha T. Krishnan, IIM Bangalore
©2001 Indian Institute of Management Bangalore
Sundaram Finance Ltd.
Despite being the largest non-banking finance company (NBFC) in India (in terms of
asset base), Sundaram Finance Ltd. (SFL) was slow to take any new initiatives in the
“liberalised” economic environment of India in the early 1990s. While recent entrants to
the financial services industry had made visible and aggressive forays into a variety of
fund-based and non fund-based activities, SFL continued to stick to its conventional hire-
purchase business and concentrated mainly on truck finance. By 1995, SFL had made a
small beginning in the securities business and as a merchant banker through newly
created subsidiaries. In 1996, some analysts were concerned about the reported move of
SFL to start a mutual fund as the net asset value of most mutual funds was below par.
They were worried that entry into the mutual fund business could dilute the image of
reliability and safety, which SFL had built up over the preceding 42 years. Other analysts
believed that this could be the first major move towards transformation of SFL from a
strong niche player to a financial powerhouse.
Non Banking Finance Companies (NBFC’s)
The Indian financial sector has two broad segments – organised and unorganised. The
organised segment includes commercial banks, development finance institutions,
insurance companies, non-banking finance companies and mutual funds.
Non-formal sources of finance existed in India before commercial banks emerged. The
moneylender, the chit fund, and mutual credit societies were part of the financial scene
2
long before the modern banks. Most entrepreneurs found it easier to raise funds from
non-banks rather than from banks. For instance, the rise of India’s film industry would
have been impossible but for non-bank finance.1 From a mere Rs. 3,161 crores∗ in 1984,
aggregate NBFC deposits stood at somewhere between Rs. 10,000 and 15,000 crores by
1994. There were over 40,000 NBFC’s in India in 1994.
Except for issuing chequebooks and handling small cash transactions, NBFC’s perform
similar functions as banks. NBFC’s have progressively been subject to reserve
requirements on almost the same lines as banks. The Reserve Bank of India has been
authorised to determine the policy and issue directives from time to time to the NBFC’s
regarding income recognition, accounting standards, asset classification, provision for
non-performing assets and capital adequacy.
NBFC’s mobilise funds from depositors just as commercial banks do. As the risk
associated with NBFC deposits is greater than with bank deposits, depositors receive
higher rates of return on their funds. NBFC’s disperse these funds through:
Hire Purchase: These are schemes for financing the acquisition of commercial and
private vehicles (generally trucks and cars), as well as plant and machinery. The loans are
secured by the purchased asset.
Loan Schemes: These schemes finance industrial projects and real estate acquisitions.
∗
one crore=ten million
3
Investment Schemes: The funds mobilised are used to purchase corporate and
government securities and other money market instruments.
Equipment Leasing: These schemes finance leases of industrial equipment (plant and
machinery)
Nidhis and Chit Funds: Here, the mobilised funds are loaned or distributed among the
depositors themselves in a variety of ways.
Exhibit 1 shows the Category-wise distribution of NBFC schemes with net owned funds
over Rs. 5 million (as of September 30, 1995)
The TVS Group
SFL was promoted by T.S. Santhanam, the son of T.V. Sundaram Iyengar, one of the
early industrialists of south India. From Iyengar’s early ventures in the field of road and
bus transport and a dealership for General Motors in the early twentieth century emerged
the TVS group as a diversified business family with interests in a whole range of
automobile and transport-related businesses. While SFL itself was founded by Santhanam
in 1954, the major growth of the group took place in the 1960s.
In the 1960s, the TVS group set up a string of automobile parts manufacturing units,
largely with foreign collaboration. Among the companies that were promoted were
Lucas-TVS (auto-electric systems), Brakes India (brakes), Sundaram Clayton (brake-
4
linings), Sundaram Fasteners (fasteners), Wheels India (wheels) and Sundaram Abex
(brake linings). These companies were founded by Santhanam and his three brothers, T.S.
Krishna, T.S. Rajam and T.S. Srinivasan. Santhanam is credited with having arranged
the finances for these new ventures.
By the early 1990s, the companies of the TVS group were being run largely by the third
generation of the TVS family. Management control of these companies had been divided
among the different branches of the family though ownership remained diffused as most
of the companies had been promoted by the group holding company, TVS & Sons Ltd.
However, SFL was promoted by Santhanam and his associates, and his branch of the
family was in total control of the company.
As of 1992, the TVS group companies had a combined sales turnover of approximately
Rs. 2,000 crores, making them one of the largest industrial groups in India. However,
their growth had not kept pace with some of the other industrial families who were their
contemporaries or with new entrants like the Ambanis of Reliance or the Ruias of the
Essar group. The TVS group’s image was one of solidity and conservatism with a
reputation for quality.
SFL - the beginnings
T.S. Santhanam had worked in the family business since 1930. He was responsible for
the successful creation and operation of the country’s “most successful insurance
5
company,” the Madras Motor and General Insurance Company (MMGIC) which was
subsequently nationalised by the government of India.
To help small transport operators who were being exploited by moneylenders, he set up
SFL as a subsidiary of MMGIC in 1954. In the early days, bank finance was not available
for hire purchase and it was only in 1956 after the amendment of the State Bank of India
Act that companies like SFL could have access to bank funds against receivables. Even
then, SFL was one of the few companies to have access to this facility.
SFL started on a small capital base of Rs.0.02 crores and by end-1955 had stock-on hire∗
of Rs.0.57 crores. SFL earned a profit of Rs.0.01 crores in that year and declared a
maiden dividend of 5%. At the end of a decade, in 1965, SFL had reserves of Rs.0.31
crores, stock-on-hire of Rs.5.58 crores and deposits on hand were Rs. 1.73 crores. For a
summary of SFL’s financial performance over the years since inception, see Exhibit 2.
∗
Stock -on-hire is calculated as agreement value of the assets financed through hire purchase less the
payments received
6
SFL - 1970s and beyond
SFL had its one and only public issue of capital in 1972 in the form of an offer of sale by
the promoters of 100,000 shares (representing 10% of the equity) at a price of Rs. 13.50
per share. This enabled the public listing of the company and SFL became the first NBFC
listed on the Madras Stock Exchange.
SFL continued to grow slowly but steadily during the 1970s. The industrial climate was
weak following the socialist policies of the then government of India. The transportation
sector went through a particularly stressful time in the wake of the nationalisation of bus
routes in 1970. There were persistent rumours that the road transport industry would also
be nationalised and these had a negative impact on the demand for trucks and hence the
demand for truck finance. During this phase, stresses also appeared within the TVS
family and the first steps to divide managerial control amongst different members of the
family were initiated.
In spite of these problems, by 1975, reserves had risen to Rs.1.08 crores, stock-on-hire to
Rs.21.40 crores and deposits to 11.76 crores. SFL entered the 1980s with reserves of
Rs.2.26 crores and stock-on-hire of Rs.47.14 crores. Deposits had risen to Rs.26.28
crores and net profit for the year was 0.91 crores in 1980.
SFL’s growth was much faster and smoother during the 1980s and 1990s during which
India managed to break out of the “Hindu rate of growth” and achieve higher levels of
economic development. Reflecting this, by 1995-96, SFL’s reserves had swelled to
7
Rs.204.31 crores, stock-on-hire to Rs.1209.64 crores and deposits to Rs.550.44 crores.
Net profit for the year was Rs. 64.92 crores.
Diversification into Leasing
Till the early 1980s, SFL’s principal business was truck finance. The opening up of the
leasing business provided a new opportunity for growth and SFL decided to enter the
leasing business in 1981. To focus more specifically on the leasing business, SFL created
a subsidiary company, India Equipment Leasing Ltd. in 1983 with equity participation
from the International Finance Corporation, an associate of the World Bank.
SFL subsequently entered the leasing business on its own as well. By 1995 about one-
fourth of the company’s receivables were on account of plant and equipment leasing and
the remaining three-fourths in Hire Purchase receivables. While some industry sources
believed that SFL was a player in the leasing business only for the tax shelter that leasing
offered, this was denied by SFL’s top management: -
“We don’t believe in tax shelters”
– T.S. Santhanam, Founder and Chairman, SFL.
“Leasing is a profit centre for us. It is a different source of operational funding for the
industry. How can we ignore it?”
- G.K. Raman, Managing Director, SFL.
SFL’s Equity Base & Dividend Policy
8
From a small equity base of Rs.200,000 in 1954, SFL’s equity base had risen to Rs.24
crores in 1996. It is believed to be the only NBFC never to have diluted its equity through
public or rights issues. SFL has rewarded its investors with continued dividends and
bonuses. Bonus issues account for 96.7% of its capital. An investor who bought SFL’s
share in 1972 for Rs.13.50 earned a return of 840% over the next 24 years. SFL has
maintained a fairly consistent and conservative policy regarding dividends. Dividend
payout increased five-fold between 1987-88 and 1994-95 while profit after tax increased
more than ten times during the same period.
A snapshot of SFL’s operations
As of 1996, truck financing contributes about 73% to SFL’s disbursements, automobile
financing takes up 14% and leasing the remaining 13%. These activities are funded
through internal accruals, bank borrowings and from the market by way of fixed deposits.
Fixed deposits from individual investors constitute around 50% of SFL’s borrowings.
The total cost of funds works out to around 20% including about 3% towards overheads
and the cost of procuring funds. Typically, truck financing costs 26-28% per annum.
Therefore, SFL enjoys a spread of 6-8%. See Exhibits 3 and 4 for SFL’s balance sheet
and income statement for the financial years 1995 and 1996.
Credit Rating
9
SFL’s fixed deposit programme enjoyed a credit-rating of FAAA from credit rating
agency CRISIL (April, 1996), indicating the highest degree of safety regarding timely
payment of interest and principal. CRISIL attributed this rating inter alia to
(i) A strong and committed management team.
(ii) Highly efficient operating systems, including credit appraisal and credit
monitoring.
(iii) A low likelihood of a tenor mismatch between the sources and deployment of
funds – due to high renewal rate of fixed deposits.
(iv) Strong financial flexibility arising from its investments in shares and debentures
of corporates, its bill discounting∗ portfolio and real estate owned by the
company.
(v) Conservative accounting policies.
Top Ranked NBFC
According to a study conducted by a research agency in 1996, SFL emerged as the top
NBFC. This ranking was based on the hybrid average weighted score methodology which
was believed to be a rigorous means of determining the aggregate financial, operational
and market strength of an NBFC. The top 10 companies in descending order of ranking
as per this study were Sundaram Finance, Reliance Capital, Kotak Mahindra, Tata
∗
Firms in need of working capital may approach banks and NBFC’s with bills of receivables. The bank or
NBFC may then provide a discounted amount, which is equivalent to the present value o f the receivable
(depending on the risk involved). This process is known as bill discounting
10
Finance, Lloyds Finance, CRB Capital Markets, SRF Finance, Cholamandalam
Investment and Finance, Anagram Finance and Ashok Leyland Finance.
Reasons for the success of SFL2
Sharp focus, commitment to values of fairness, honesty and integrity, and very high
levels of customer service are some of the reasons for SFL’s success. See Box below for
SFL’s corporate objectives and corporate philosophy.
OBJECTIVES
• To channelise household savings

• To assist small road transport operators
• To provide lease finance to industries (from 1981)
CORPORATE PHILOSOPHY
• Truth and fairness guide the management of finance.

• Customer satisfaction through excellent service and reliability.
• Prudence and conservatism in financing operations.
• Truth honesty and efficiency in all dealings.
• Professional management with highest standards of integrity.
• Full compliance with all laws and regulations.
Source: http://www.sundaramfinance.com
Enabling the growth of SFL has been the loyal support of a growing base of small
depositors. While most of the depositors were originally from the south Indian state of
Tamil Nadu where the company was founded, by 1996, the depositor base had become
more diversified. While offering interest rates only slightly above the rates offered by
public sector banks, SFL has managed to build a strong and loyal customer base.
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This has been possible due to the image of trust and integrity enjoyed by the TVS group
to which SFL belongs, but also due to the efforts by the company to build customer
support. Its customer-friendliness is legendary. Some years ago when the staff at the State
Bank of India where many of its depositors bank, was preparing to go on strike, the
company predated and despatched interest warrants about a fortnight ahead of their due
date to prevent any inconvenience to its depositors. In another often-quoted instance,
many years ago when a middle-aged widow complained that she would have to bear
costly legal expenses to be able to withdraw her late husband’s deposit with the company,
the management decided to not only foot her bill but to henceforth provide all legal
documentation and help for transfer of an account of a late depositor to his or her heirs.
The company is also known to automatically offer the option of renewing existing
deposits at higher interest rates when sudden and sharp increases in deposit rates take
place.
“Everyone has discovered how important customer satisfaction is in recent years. We
started on the basis that customers are our friends. We are not moneylenders. We stand
by (our customers) during good times and bad times; and they will stand by us when we
need them.”
- T.S. Santhanam, Founder and Chairman SFL3
Helping the company provide good customer service was the culture of the company. The
company’s top management believed that shareholders would be benefited only if other
12
stakeholders of the company are benefited at the same time. The TVS group, and SFL in
particular, were known to be model employers and this was reflected in the low turnover
of employees from the company.
SFL has to take very few steps to actively market its deposit schemes. In fact, for many
years, SFL was the only NBFC to refuse to pay “brokerage” which was actually a
euphemism for an upfront commission for deposit mobilisation. One estimate suggests
that as many as 90% of deposits in SFL are unsolicited and get automatically renewed.
The renewal rate exceeds 80% even for short one-year deposits. The average size of
deposits is Rs.10,000 and the number of depositors exceeds 420,000. Even in times of
recession and falling interest rates, SFL has had little difficulty in raising deposits. This is
reflected in the net accretion of deposits exceeding Rs.100 crores per annum in recent
years.
Equally important to SFL’s success is its choice of targets for its lending activities. While
its original choice of small truck operators was driven by the fact that these operators
were being exploited by moneylenders and did not have other sources of finance, over the
years SFL has found that this is an ideal group to lend to. Unlike big fleet operators who
often enjoy political patronage and are difficult to control, small operators who own one
or two vehicles each have proved to be reliable in meeting their debt obligations. The key
is to evaluate the operator’s creditworthiness effectively. The company has managed to
hone its expertise in this area over the many years of its operation and keeps a close tab
on about 38,000 individual loan accounts of an average size of Rs.2,40,000 which
13
support a vehicle population of over 40,000. SFL has managed to maintain a high loan
recovery rate of 97.97%. As of March 31, 1995, overdues amounted to only 1.2% of
stock-on-hire, the lowest in the industry and non-performing assets were a reasonable
0.7% of all business assets.
To avoid bad debts, SFL takes special steps to know its customers. The backbone of this
is its “personalised intelligence network.” It has a network of 80 branches (1995), a
lending operations staff of 500 people and a field collection staff of about 250. The
original branch network covering the southern states of India was expanded into strategic
locations in the north and west from around 1985. Reflecting this expansion, the number
of branches grew from 36 in 1985 to 65 in 1990, and to 80 in 1995.
Each client is contacted, on the average, once in ten days and a personal relationship is
established with company staff. There is one field staff for every 300-400 clients. Many
of the company’s branch managers are important social figures and opinion leaders in
their communities. Their local standing enables them to continuously monitor the
financial status of each borrower - his ability as well as willingness to pay. This network
is key to ensuring effective credit rating of thousands of small, dispersed and unorganised
truck operators, many of whom do not even maintain proper books of account. This
ultimately leads to timely recoveries, early warning and control of problem accounts and
consistently high asset quality over long periods of time.
14
“This is a specialised field. We know our customers personally. Our credit appraisals are
based sometimes on knowing two or three generations of a customer’s family and not on
ratings and bank guarantees”
- G.K. Raman, Managing Director, SFL. 4
The average tenure of deposits and renewals is two years which matches the average hire
purchase lending period of 2.5 years quite well thus avoiding a serious mismatch between
deposits and receivables.
Competition
In seeking deposits from the investing public, SFL competed with a whole range of
alternate instruments offered by the government, banks, financial institutions, mutual
funds, and other NBFC's apart from unincorporated finance companies, mutual benefit
funds and local financiers in the unorganised sector. Exhibit 5 depicts distribution of
household savings among various financial instruments.
15
Government securities, banks and financial institutions:
While the interest rates offered by government securities were much lower, they offered
the safety of the sovereign guarantee. Government securities were however considered to
be highly illiquid. Deposit schemes of banks (most of which were wholly owned by the
government of India) and government owned or controlled financial institutions offered
higher interest rates than government securities. While public sector banks had limited
retailing strength, in the 1990s the financial institutions were getting more aggressive in
the retail market with a network of agents and sub-agents and extensive advertising in the
print media and television. Household bank deposits were estimated at Rs. 35,284 crores
as of 1995-96.
Other NBFC’s:
In 1996, there were an estimated 40,000 NBFC's in India, though only 4,000 of these
were believed to be active. These NBFC's had been created in two waves – the first one
of leasing companies in the early 1980s, and the second one prompted by the ease in
accessing the equity markets in the early 1990s. The NBFC’s depended on equity capital,
finance from banks and deposits from investors to fund their activities, which included
bill discounting, leasing, hire-purchase and merchant and investment banking. Raising
money from banks was difficult because the banks felt that the NBFC’s were
competitors, there were RBI curbs on bank lending to NBFC’s and, in many cases, the
banks felt it imprudent to lend to NBFC’s. Several large and aggressive NBFC’s
16
competed with SFL in the fixed deposit market. A profile of two leading NBFC’s –
Kotak Mahindra Finance Ltd. and Cholamandalam Investment and Finance Company
Ltd. is given below. Exhibit 6 compares SFL’s financial performance with these two
NBFC’s on the basis of some of the parameters used by CRISIL for credit rating.
Kotak Mahindra Finance Ltd (KMFL).:
Fixed Deposit Programme Rating FAAA (CRISIL)
KMF was formed in 1985 through a partnership between a young management graduate,
Uday Kotak, and the Mahindra group with a capital of Rs. 3 million. Its initial strategy
was “to capitalise on the imperfections of the Indian capital market” and to enter
relatively under-regulated areas like bill discounting. KMFL later diversified into leasing
and lease syndication of big-ticket leases. KMFL entered consumer finance through the
automobile finance market around 1990. In 1994-95, KMFL had a gross income of Rs.
246 crores and a net profit of Rs. 64 crores. By mid-1995, KMFL had announced its
decision to hive off its three major businesses – investment banking, consumer finance
and asset finance – as separate companies, to enter into joint ventures wherever
necessary, and to enter new areas like insurance, information services and mutual funds.
Cholamandalam Investment and Finance Company Ltd.:
Fixed Deposit Programme Rating FAAA (CRISIL)
Cholamandalam was promoted in 1978 by the Madras based Murugappa Group. The
Murugappa Group had a successful track record of managing medium sized companies in
diverse fields, and a conservative management style. Cholamandalam commenced
17
leasing of plant and machinery in 1979 and subsequently ventured into hire purchase
financing of plant and machinery in 1982, and bills discounting in 1987. The company
grew fast between 1992 and 1995, with funds deployed registering a compounded annual
growth rate of 49% to reach Rs. 330 crores by June 1995. Cholamandalam’s main line of
business was hire purchase financing with the accent shifting to financing cars, LCV’s
and HCV’s. However, plant and machinery continued to enjoy a sizeable chunk of the
asset portfolio. Cholamandalam also does bill discounting with the average deployment
of funds at about Rs. 40 crores.
The Unorganised (& unregulated) sector:
This sector is vast and no accurate estimates exist of its size. It principally consists of
proprietorship or partnership firms which offer interest rates as much as 10 per cent more
than the NBFC’s. They are unregulated and play on the greed of investors. Their avenues
for lending are limited and many of these firms collapse after some time leaving investors
in the lurch. They nevertheless continue to attract interest among depositors and use
hoardings to announce their products and on-the-spot incentives to attract investors.
Mutual funds:
Mutual Funds (MF’s) are financial intermediaries which pool the savings of numerous
individuals and invest the money raised in a diversified portfolio of securities, including
equity, bonds, debentures and other instruments, thus spreading and reducing risk.
Individual investors receive units/shares of the MF for the amount they invest. Small
18
investors are unable to buy blue chip shares, which trade at high prices. However, if these
investors purchase units/shares (at say Rs. 10 per unit) of an MF which acquires these
blue chip shares, they have an indirect equity stake in the blue chip firms. Also the small
investor rarely has the time or the knowledge to analyse the prospects of corporates,
unlike dedicated and qualified analysts at MF’s. Hence MF’s seem to be an easy and safe
route for the small investor to enter the stock market.
Mutual Funds differ from banks and banking companies in that banks provide transaction
services i.e. monetary liabilities which facilitate the exchange of goods and services by
transforming short term liabilities (deposits) into long term assets (loans). The MF’s do
not have fixed liabilities to pay, as interest or dividend on the holdings of the investors is
not guaranteed until expressly committed as such. They simply manage portfolios whose
values may increase or decrease and dividend is paid only if a surplus of income is made.
These funds have different schemes with growth, income or balanced funds as their
objectives. Exhibit 7 provides a description of several Mutual Fund Schemes.
The Mutual Funds Diversification Decision
Unlike many other NBFC’s, SFL did not move aggressively into new areas immediately
after the historic announcement of economic policy changes by the Indian government in
1991 and the gradual unfreezing of the financial services sector in the following year.
Instead it opted to move slowly, testing the waters with gradual investments.
19
Sundaram Finance Services Ltd. was formed in 1991 to undertake merchant banking and
advisory services apart from other NBFC activities like bill discounting, leasing and hire
purchase. While the initial focus was on the former, by 1996 the latter had begun to
dominate. The company earned a gross income of Rs. 11.77 crores in 1995-96 and a
Profit after tax of Rs. 2.32 crores. The gross income consisted largely of income on bills
purchased (Rs. 7.55 crores) and lease income (Rs. 2.79 crores) while management and
other services contributed just Rs. 0.38 crores to the gross income figure.
Another subsidiary, Sundaram Finance Securities Ltd., was established in 1994-95 to
undertake stockbroking activities. In 1995-96, this company had a marginal profit against
an operational income of Rs. 0.18 crores.
In the light of these slow moves, analysts were surprised by the 1995 announcement that
SFL planned to set up a mutual fund.
Growth of Mutual Funds in India over the previous 10 years
The Indian Mutual Funds Industry recorded a tremendous growth in size with cumulative
resources mobilised rising from Rs. 4,564 crores in 1986 to over Rs. 81,000 crores in
1996.
The Indian mutual fund industry began with the formation of Unit Trust of India (UTI) in
1963. The first mutual fund was Unit Scheme '64, which is still the biggest scheme. The
UTI introduced several schemes aimed at different sections of people. The public sector
20
monolith operated under monopoly conditions and in an over regulated economy till the
mid-eighties. In 1987, the commercial banks and the insurance companies were also
permitted to launch schemes. Their schemes were received with enthusiasm and more
than Rs.6,000 crores were raised in 1988-89. The mutual funds launched by subsidiaries
of nationalised banks sold their schemes like any other traditional banking deposit.
Assured returns were offered in some schemes and this might have created a perception
that mutual funds are as safe as nationalised bank deposits. The boom continued into the
nineties with the liberalisation evoking positive response from the investors and acting as
an additional catalyst for growth. In 1991-92 mutual funds mobilised a record Rs.14,000
crores.
The industry experienced its first setback after the stock market crash of 1992. The
annual gross mobilisations of the Mutual Funds fell to Rs.9,500 crores during the year. At
that point the market was further liberalised as foreign institutional investors were
permitted portfolio investments. The financial markets once again picked up. In addition,
the period also witnessed a tremendous growth in the primary markets with annual
mobilisations from equity issues crossing Rs.36,000 crores in 1994-95 (as against
Rs.18,100 crores raised in 1992-93). The resource mobilisations by Mutual Funds also
continued to remain high with annual gross mobilisation averaging Rs.14,000 crores per
annum during the period 1993-95. This phase also saw the entry of several private sector
mutual funds. However the crash in the financial markets in October 1994 and the
continued prevalence of bearish conditions hit mutual funds. During 1995-96, Mutual
Funds resource mobilisations (at around Rs.5,900 crores) were at a six year low.
21
In spite of their evolution in developed economies as low-risk, medium return
investments, in India most mutual fund schemes are still seen as either substitutes for
equity or as substitutes for riskless fixed deposit bonds with regular interest payments. To
quote Mr. Basudeb Sen, General Manager (UTI), “A Mutual Fund is not a substitute for
equity. The investor needs to understand that he/she is taking an average risk, and
consequently, the returns are average”. Mr. Pratip Kar, Executive Director, SEBI
cautions “Mutual Funds are not free from risk. Afterall, the money is invested in the
stockmarket”.5
While in the US, as of 1995, there were over 7,000 Mutual Funds (equivalent to schemes
in India) with an aggregate corpus of over US $ 2300 Billion, India had just about 200
schemes with an aggregate corpus of Rs. 75,000 crores (approx. US $ 20 Billion). Exhibit
8 depicts the number and type of Mutual Fund Schemes in India as of October, 1994.
Policy on Private Mutual Fund Formation, Expenses and

Remuneration
To spread the equity cult and provide greater stability and depth to the Indian capital
market, the government of India permitted the formation of mutual funds by the private
sector as part of its economic liberalisation package. While the mutual fund itself was to
be set up as a Trust under the Indian Trusts Act, the management of the fund is in the
hands of a separate Asset Management Company (AMC) in which the sponsors of the
fund have a minimum stake of 40%. The AMC has to be set up with a mandatory share
22
capital of Rs. 5 crores. Joint stock companies with a five-year track record of profits were
allowed to sponsor mutual funds.
Mutual funds incur both pre-operational and recurring expenses. The former includes the
cost of the issue, advertisements, stationery charges, brokerage, commission to agents,
stamp duty and other marketing and administrative expenses. These are corpus linked.
The SEBI has issued a ceiling of 6% on these expenses. Therefore, if a MF gathers Rs.
100 crore from depositors through an issue, it is entitled to spend Rs. 6 crores on pre-
operational expenses. Often, the funds of the investors are depleted by the amount of such
expenses even prior to the issue.
SEBI permits recurring (annual) expenses which are calculated as a percentage of the
weekly net average assets. These expenses have a ceiling of 3%. These could include
AMC fund managers' remuneration (which is restricted to 1%), custodial fees and
registrar and share transfer agent fees.
The Mutual Fund Industry in 1996
The initial response to the policy initiative deregulating the formation of mutual funds
was very positive with almost a hundred applications received within a year. Among
these were leading Indian industrial groups like the Tatas, Reliance, Essar and financial
companies like KMFL and DSP Financial Consultants. The early interest in mutual funds
coincided with the bull run on the Bombay Stock Exchange that continued until the
Securities Scam of 1994.
23
Mutual funds were becoming increasingly popular among middle class Indian investors
in the early 1990s. Some of the trends noted in a study conducted in 19936 are presented
in Exhibits 9, 10, 11 and 12. The study found that over 57% of the investors preferred
monthly income schemes. It also revealed that over 97 per cent of Mutual Fund investors
are individuals while less than 1 per cent comprise corporate and trust investors.
However, the corporates and trusts invested over 26 percent of the total funds, while the
contribution of individuals was a little over 70 per cent.
By 1995, however, the Indian mutual fund industry hit a bad patch. The Chief Investment
Officer of Alliance Capital, one of the leading players, told a business magazine in
January 1996 that “the only good thing about 1995 is that it is finally over.”7 This was an
interesting denouement for an industry, which started with bright expectations.
In the first half of 1995-96,
• 23 schemes of the private mutual funds posted a net loss of Rs. 276 crores on a unit
capital of Rs. 2,840 crores;
• Only seven of the 23 reported profits;
• At least six new funds delayed the launch of their schemes;
• The UTI, the largest fund with 83% of the investible funds in the industry, had a net
outflow of Rs. 347 crores during the year;
24
• Most funds had to cut their targets (e.g. Tata Mutual Fund from Rs. 500 crores to Rs.
100 crores), and the total funds collected by the private mutual funds was Rs. 600
crores against Rs. 900 crores in the previous year.
Investor confidence in mutual funds had declined because of the steady decline in the Net
Asset Value (NAV∗ ) of the existing funds. While in 1994 investors tended to compare
returns on mutual funds to the easy pickings available through investments in Initial
Public Offers of stock, in 1995 it was the turn of debt to outperform mutual funds. About
47% of all household savings in India were in fixed deposits against 7.6% in mutual
funds in 1994-95. Exhibits 13 and 14 show the cumulative resources raised by both
public and private sector mutual funds in India as of March, 1996.
In spite of the problems it faced, many industry leaders were positive about the future:-
“The sheer experience (bad) of direct investment will eventually turn people to Mutual
Funds since risk diversification becomes a pre-requisite” – K.N. Vaidyanathan, Country
Manager, Morgan Stanley Asset management India Pvt. Ltd.
∗
NAV is the parameter used to rate the performance of MF’s on a daily basis. In simplistic terms, it is
calculated as the total worth of all the investments of a MF divided by the number of outstanding
units/shares. NAV is equivalent to the market price of an open ended MF unit/share.
Actual calculations involve adding to the total market value of a MF’s assets the following: (i) Receivables,
(ii) Accrued income, (iii) Other assets; and deducting the following: (i) Accrued expenses, (ii) Payables,
(iii) Other net liabilities. The net figure obtained is divided by the number of outstanding units/shares to
give NAV.
25
“Often investors compare units with those available in the primary market and expect a
high listing price. They don’t realise that it is a low risk, long term instrument that offers
steady returns” – Vivek Reddy, CEO, ITI Pioneer.
“Mutual Funds are only for those who have the patience to wait for three to five years” –
M.M. Khurana, General Manager, SBI Mutual Fund.
“With the capital markets getting more sophisticated and better regulated, and with large
household savings still in traditional bank deposits, mutual funds have a huge potential.
Once portfolio disclosure becomes transparent and NAV’s are declared daily, investor
confidence will re-emerge.” – Sanjay Jha – Vice President, Alliance Capital.
The Decision
Analysts wondered why SFL was interested in starting a mutual fund in such adverse
market conditions. In contrast, the Board of Directors of SFL, referring to the growth in
sales of commercial vehicles of 24% during the year, looked forward to “registering a
reasonable growth in hire purchase and leasing business by adopting suitable funding and
business strategies”.8 In the long term, the demand for road transportation of goods in
India was poised to grow substantially with a higher degree of industrialisation, growing
urbanisation and higher standards of living. By 2000 AD, truck sales were expected to
double to over 3,50,000 vehicles a year from about 1,70,000 in the year 1994-95.
26
Of greater concern was the impact selling mutual fund units to investors would have on
the company’s existing investor base. Would SFL’s small investors be able to understand
the difference between a fixed deposit and an investment in SFL’s mutual fund? In the
event of a continuing downturn and an NAV below par, would SFL’s reputation with
investors be affected? What benefit would SFL get from the mutual fund as its earnings
would be limited to its share in the profits of the Asset Management Company? These
were some of the questions troubling the analysts as SFL seemed on the verge of
announcing the launch of its new mutual fund.
27
EXHIBITS
Exhibit 1: Category-wise number of NBFC schemes with net owned funds over Rs. 5
million (as of September 30, 1995). Source: “Non-Banking Finance Companies”,
Banking Finance, July 1997.
Scheme Category Number

Hire Purchase 169
Loan 300
Investment 597
Equipment Leasing 71
Nidhis and Chit Funds 8
Others 4
Total 1147
Exhibit 2: Summary of SFL’s financial performance over the years since inception.
Source: Company Annual Report 1995-96, p.11). All figures in Rs. Crores.
YEAR PAID-UP RESERVES DEPOSITS STOCK-ON LEASE PBDT PROFIT DIVIDEND

CAPITAL HIRE RECEIVABLES AFTER %
TAXES
1955 0.07 - 0.20 0.57 - 0.01 0.01 5.00

1965 0.60 0.31 1.73 5.58 - 0.39 0.14 14.00
1975 1.00 1.08 11.76 21.40 - 1.16 0.4 16.00
1980 2.00 2.26 26.28 47.14 - 2.48 0.91 20.00
1985 3.00 7.84 86.49 118.62 32.13 8.53 2.74 20.00
1986 6.00 6.59 104.10 135.47 49.19 10.35 2.67 16.00
Jan-Mar'87 6.00 8.00 108.39 143.94 63.98 3.1 1.15 4.00
1987-88 6.00 15.08 127.93 153.42 75.08 15.56 4.68 20.00
1988-89 6.00 19.83 144.16 200.02 80.38 19.17 6.56 30.00
1989-90 6.00 27.23 167.64 278.47 85.06 25.13 9.2 30.00
1990-91 12.00 30.24 201.02 380.87 102.34 34.69 12.01 25.00
1991-92 12.00 53.40 226.03 435.11 128.63 49.56 26.91 30.00
1992-93 12.00 79.02 262.83 554.27 169.12 62.51 29.83 35.00
1993-94 12.00 115.34 351.69 714.85 239.84 85.16 41.71 45.00
1994-95 12.00 159.79 431.03 920.59 295.57 103.21 50.47 50.00
1995-96 24.00 204.31 550.44 1209.64 427.41 127.50 64.92 35.00
28
Exhibit 3: SFL Balance Sheet for the years 1995 and 1996 (as of March 31). All figures
in Rs. Crores (Source: Company Annual Report 1995-96, p. 12)
March 31, 1996 March 31, 1995

SOURCES F FUNDS
1. Shareholders’ Funds
(a) Capital 24.00 12.00
(b) Reserves & Surplus 204.31 159.79
228.31 171.79
2. Loan Funds
(a) Secured Loans 542.02 486.95
(b) Unsecured Loans 596.66 439.18
1,138.68 926.13
TOTAL 1,366.99 1,097.92
APPLICATION OF FUNDS
1. Fixed Assets
(a) Gross Block 469.83 333.40
(b) Less Depreciation (209.49) (163.01)
260.34 170.39
(c) Add: Lease adjustment account 66.79 52.61
(d.) Net Block 327.13 223.00
2. Investments 110.69 97.15
3. Current Assets, Loans & Advances
(a) Current Assets 1,255.35 987.62
(b) Loans & Advances 145.36 143.74
[A] 1,400.71 1,131.36
LESS:
Current Liabilities and Provisions
(a) Current Liabilities 460.23 339.79
(b) Provisions 11.31 13.80
[B] 471.54 353.59
4. Net Current Assets (A-B) 929.18 830.38
TOTAL 1,366.99 1,097.92
29
Exhibit 4: Profit and Loss Account for the years ending March 31, 1995 and 1996. All
figures in Rs. Crores. (Source: Company Annual Report, 1995-96, p. 13).
31/3/96 31/3/95
Income
Income from Financing Operations 310.82 232.88
Other Income 22.47 17.60
(A) 333.29 250.48
Expenditure
Financial Expenses 176.97 122.08
Establishment Charges 9.16 7.18
Administrative and Other Expenses 19.66 18.01
(B) 205.79 147.27
Profit before Depreciation and Tax (A-B) 127.50 103.21

Less: Depreciation 56.76 45.23
Profit before tax and lease equalization account 70.74 57.98

Add/(Less): Lease equalisation account 14.18 16.07
Profit before tax 84.92 74.05

Less: Provision for taxation 20.00 23.60
Profit after tax 64.92 50.45

Add: Investment Allowance Reserve withdrawn - 0.02
Add: Balance brought forward from previous year 2.25 2.78
Amount Available for Appropriation 67.17 53.25
Appropriations
Dividend 8.40 6.00
General Reserve 57.00 45.00
Surplus – Balance carried to Balance Sheet 1.77 2.25
30
Exhibit 5: Instrument-wise annual distribution of Household Assets in crores of rupees.

(Figures in brackets indicate percentage of total). Source: RBI, Currency and Finance
1995-96 (Vol. 11).
1980-81 1990-91 1992-93 1993-94 1994-95 1995-96

1 Gross Savings 12,117 59,967 80,453 1,09,562 1,39,778 1,24,793
2 Currency 1,625 6,251 6,562 13,367 15,916 16,375
(13.4) (10.6) (8.2) (12.2) (11.4) (13.1)
3 Bank Deposits 5,550 18,777 29,550 36,378 56,164 35,284
(45.8) (31.8) (36.7) (33.2) (40.2) (28.2)
4 Non-bank 378 1,286 6,035 11,654 11,743 17,079
Deposits (3.1) (2.2) (7.5) (10.6) (8.4) (13.7)
5 Life Insurance 915 5,599 7,114 9,548 11,344 13,481
Funds (7.6) (9.5) (8.8) (8.7) (8.1) (10.8)
6 Provident and 2,122 11,155 14,817 18,248 20,619 25,438
Pension Funds (17.5) (18.9) (18.4) (16.7) (14.8) (20.4)
7 Claims on Govt. 712 7,942 3,949 6,784 13,222 10,873
(5.9) (13.5) (4.9) (6.2) (9.5) (8.7)
8 Shares and 412 4,972 8,212 10,067 8,461 5,880
Debentures (3.4) (8.4) (10.2) (9.2) (6.1) (4.7)
9 UTI Units 31 3,348 5,612 4,705 3,908 262
(0.3) (5.8) (7.0) (4.3) (2.8) (0.2)
10 Trade Debt 373 -453 -1,398 -1,190 -1,600 300
(3.1) (-0.8) (-1.7) (-1.1) (-1.1) (0.2)
31
Exhibit 6: Comparison of three top ranking NBFC’s for the financial year 1994-95. All
figures in Rs. Crores. (Source: CRISIL Rating Scan, April 1996, p. 50 for SFL and July
1996 p. 40 for KMFL and p. 62 for Cholamandalam).
Company SFL KMFL Cholamandalam

3/95 3/94 3/95 3/94 6/95 6/94
Equity Share Capital 12.00 12.00 36.73 18.31 16.82 8.50
Networth 171.79 127.34 249.00 188.04 105.84 31.79
Net Stock on Hire 675.54 510.94 481.42 166.70 94.76 68.89
Gross Leased Assets 316.80 250.78 347.01 230.38 112.19 70.02
Net Leased Assets 212.88 173.24 268.78 171.46 74.72 42.79
Hire Purchase Income 150.46 119.07 52.39 17.02 25.26 16.08
Lease Income 68.76 56.00 74.76 48.06 25.25 17.70
PBT (Reported) 57.98 47.65 68.20 47.29 17.94 9.72
PAT (Reported) 34.38 26.65 64.20 42.29 16.19 8.52
Dividend/PAT (%) (Reported) 17.5 20.30 6.10 7.40 28.10 34.90
Dividend Rate (%) 50.00 45.00 18.00 18.00 40.00 35.00
Expenses/Assets Deployed (%) 1.90 1.80 2.80 - 1.80 2.40
Total Debt/Networth (Times) 5.40 5.20 3.90 2.20 1.90 4.50
Exhibit 7: Mutual Fund Schemes. Source: “Mastering Mutual Funds’, C.M. Kulshreshta.
Published by Vision Books Pvt. Ltd., 1994.
Schemes floated by various Mutual Funds are essentially of two types, namely Open
Ended and Close Ended. From the point of view of investment objectives, these may be
further divided into Income, Growth, Balanced (Income + Growth) or Tax Saving
Schemes.
Open Ended Schemes:

These are available for subscription all the year round excluding the period of book-
closure. They may or may not have a specified redemption period. For instance, UTI’s
Unit 64 Scheme has no prescribed time limit when it would be redeemed. The sale and
repurchase prices are fixed by the mutual fund concerned from time to time. Repurchases
are generally allowed at specified rates.
Close Ended Schemes:

These are open for subscription only during a specified period. Generally, the redemption
is also specifies, and this means that they terminate on certain specific dates when the
investors can redeem their units. The duration of the scheme may vary – normally it is 5-
7 years. Repurchase during the intervening period may or may not be allowed. UTI’s
Monthly Income Scheme is an example of a Close Ended Scheme.
Income Schemes:
These provide returns in the form of dividends. The returns may be cumulative or non-
cumulative on a monthly, quarterly, half-yearly or yearly basis. Since Mutual funds carry
market risks, they are prohibited from declaring any guaranteed rate of return. (UTI’s
32
Monthly Income Scheme is an exception). In view of the regular and steady flow of
returns required by investors, the corpus is invested predominantly in fixed income
securities, like debentures, bonds, government securities, while a relatively lower
percentage is invested in equity shares.
Growth Schemes:
These are usually close ended. The aim of such schemes is to provide capital appreciation
to their investors and accordingly, a substantial part of the corpus is invested in equities
and convertible debentures. Such schemes are usually listed on the major stock
exchanges and the capital appreciation is reflected in their market quotations. They may
or may not declare dividends. However, the declaration of annual dividends signals to
investors that the scheme is healthy. UTI’s Mastershare 86 is an example of a growth
scheme.
Income + Growth Schemes or “Balanced Schemes”:

The aim of such schemes is to provide both steady income as well as capital appreciation.
Therefore, the investment is divided almost equally between debt and equity. For
instance, the Centurion Prudence Fund 93 was an income + growth (balanced) scheme
floated by 20th Century Mutual Fund with the declared objective of providing stable and
periodic returns, and maximizing the total returns (dividend + capital gain) to investors
had the following composition:
Equity: 30%
Equity related instruments: 15%
Debt instruments: 50%
Money market instruments 5%
Equity Linked Savings Schemes (ELSS) or Tax Savings Schemes:

These are essentially close-ended growth schemes floated by almost all the public sector
mutual funds in the last quarter of each financial year. They provide tax rebates to the
extent of 20-25% upto a ceiling of Rs. 10,000. Their duration is generally 10 years, but
repurchases are allowed after a specified period – usually 3 years.
33
Exhibit 8: Mutual Fund Industry in 1994. Source: “Mutual Funds – Future Shock”,
Business India October 24-November 6, 1994, p. 54.
(Size of assets Rs. 70,000 crores)
Number of Players 14
Number of Schemes 142
Close Ended schemes 130
Open Ended schemes 12
Growth schemes 38
Tax saving schemes 37
Income schemes 28
Balance schemes 34
Others 4
Exhibit 9: Source – “Mutual Funds and Asset Preference”, L.C. Gupta. Published by
Society for Capital Market Research and Development, 1993.
UTI Units: Ownership incidence

among household investors by
income class
Per cent of households
80 75.1
70.5
owning the asset
70
56.5
60
50 45
40.4
40 31 1990-91
27.6
30 1992-93
17.9
20
10
0
Upto 2501- 5001- Over
2500 5000 10,000 10,000
Income Class (Rs. per month)
34
Society for Capital Market Research and Development, 1993
New Mutual Funds: Ownership

incidence among household investors
by income class
Per cent of households
70 65.7
owning the asset
60
50 45.1
40
29.5 30.4 1990-91
30
20.7 1992-93
20 15.1
10.3
10 5.4
0
Upto 2501- 5001- Over
2500 5000 10,000 10,000
Income Class (Rs. per month)
Society for Capital Market Research and Development, 1993
Per cent of each age class of

household investors holding UTI and
New MF assets (1993)
80 73.6
Percentage of Holders
70
59.1 59.7 60.8
60
50 40.4 42.9 43.4 40.7 41.6
38.2 UTI Units
40 34 29.6 New MF's
30
20
10
0
Upto 26- 31- 41- 51- Over
25 30 40 50 60 60
Age-Group in years
35
Exhibit 12: Occupational Classification of Mutual Fund Investors

in India (1993). Source –“ Mutual Funds in India – Marketing
Strategies and Investment Practice”, H. Sadhak. Published by
Response Books, 1997. (Note: This data is limited by the
exclusion of “pure” growth schemes. However, tax saving
schemes may be taken as a proxy for growth schemes as they
have no investment restrictions and invest about 80% of funds
in equity related instruments.)
Occupation TYPE OF SCHEME

Income Income+Growth Tax-Saving Overall
No. Amt. No. Amt. No. Amt. No. Amt.
(%) (%) (%) (%) (%) (%) (%) (%)
Professionals 4.24 4.06 6.03 6.03 6.49 6.90 5.18 4.81
Service 20.17 14.11 25.37 18.45 51.5 45.04 32.43 21.63
Business 17.14 14.72 19.41 18.23 22.87 27.99 19.44 18.01
Agriculture 2.62 2.47 3.56 4.37 0.30 0.35 1.77 2.04
Housewives 22.43 20.71 21.18 20.66 3.15 3.56 14.98 16.64
Other 33.4 43.93 24.45 32.26 15.69 16.16 16.20 31.87
36
Exhibit 13: Cumulative Resources raised by various Indian Mutual Funds in crores of
rupees as of 1996. Source: Securities & Exchange Board of India, Annual Report 1995-
96.
No. Mutual Fund Income Growth Income & Tax Venture Total
Schemes Schemes Growth Saving Capital
Schemes Schemes Schemes
1 UTI 25,970 8,625 29,622 3,063 212 67,492
2 Canbank 353 1701 709 2,764
3 SBI 458 1,528 200 577 2,763
4 LIC 754 338 195 222 1510
5 GIC 54 504 721 102 1381
6 Morgan Stanley 982 982
7 BOI 110 576 37 722
8 Indbank 93 228 252 66 638
9 PNB 64 202 156 422
10 Kothari Pioneer 93 105 130 328
11 Taurus 304 304
12 ICICI 249 249
13 CRB 229 48 229
14 Birla 56 162 218
15 IDBI 150 60 210
16 JM 46 98 1 193
17 20th Century 36 133 1 170
18 Apple 108 108
19 Tata 93 12 105
20 Reliance 74 74
21 Alliance 71 2 73
22 Shriram 20 21 41
23 BOB 41 41
24 Jardine Fleming 5 5
Total 27,640 14,919 33,046 5,209 212 81,027
37
Exhibit 14: Growth of Cumulative Resources mobilized by Indian Mutual Funds in crores
of Rupees. (Source: Securities & Exchange Board of India: Mutual Funds 2000 Report
and Annual Report 1995-96).
Year UTI Other Public Private Sector Total

Sector MF’s MF’s
1986-87 4,564 4,564
1987-88 6,739 6,739
1988-89 11,835 1,621 13,456
1989-90 17,651 1,460 19,111
1990-91 21,376 1,684 23,060
1991-92 31,806 5,675 37,480
1992-93 38,977 8,011 46,988
1993-94 51,978 8,407 916 61,301
1994-95 61,500 10,550 3,000 75,050
1995-96 67,492 10,451 3,083 81,026
38
References
1
From S. Venkitaramanan “Non-bank Finance” Banking Finance June 1997, pp. 33-34.
2
This section draws on an article titled “Case Study: Sundaram Finance” in FT India
Business Intelligence, Issue No. 40, July 12, 1995, published at London.
3
“Changing with the times” Business India December 16-29, 1996, p. 92
4
“Changing with the times” Business India December 16-29, 1996, p. 92
5
Business India October 24-November 6, 1994, p. 57
6
L.C. Gupta Mutual Funds and Asset Preference New Delhi: Society for Capital Market
Research and Development, 1993.
7
“Mutual Mistrust” Business India January 1-14, 1996, pp. 70-71.
8
From Directors’ Report in 1995-96 Annual Report
39

SFL Case

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Indian Institute of Management Bangalore

Sundaram Finance Ltd.

Prof. Rishikesha T. Krishnan

Sundaram Finance Ltd.

strong niche player to a financial powerhouse.

Non Banking Finance Companies (NBFC’s)

organised segment includes commercial banks, development finance institutions,

insurance companies, non-banking finance companies and mutual funds.

1994. There were over 40,000 NBFC’s in India in 1994.

similar functions as banks. NBFC’s have progressively been subject to reserve

regarding income recognition, accounting standards, asset classification, provision for

non-performing assets and capital adequacy.

secured by the purchased asset.

government securities and other money market instruments.

depositors themselves in a variety of ways.

over Rs. 5 million (as of September 30, 1995)

The TVS Group

Lucas-TVS (auto-electric systems), Brakes India (brakes), Sundaram Clayton (brake-

the finances for these new ventures.

family was in total control of the company.

reputation for quality.

SFL - the beginnings

subsequently nationalised by the government of India.

SFL - 1970s and beyond

listed on the Madras Stock Exchange.

family were initiated.

economic development. Reflecting this, by 1995-96, SFL’s reserves had swelled to

Rs.204.31 crores, stock-on-hire to Rs.1209.64 crores and deposits to Rs.550.44 crores.

Net profit for the year was Rs. 64.92 crores.

Diversification into Leasing

from the International Finance Corporation, an associate of the World Bank.

offered, this was denied by SFL’s top management: -

“We don’t believe in tax shelters”

– T.S. Santhanam, Founder and Chairman, SFL.

industry. How can we ignore it?”

- G.K. Raman, Managing Director, SFL.

SFL’s Equity Base & Dividend Policy

maintained a fairly consistent and conservative policy regarding dividends. Dividend

more than ten times during the same period.

A snapshot of SFL’s operations

As of 1996, truck financing contributes about 73% to SFL’s disbursements, automobile

(i) A strong and committed management team.

funds – due to high renewal rate of fixed deposits.

(v) Conservative accounting policies.

Top Ranked NBFC

was believed to be a rigorous means of determining the aggregate financial, operational

Finance, Lloyds Finance, CRB Capital Markets, SRF Finance, Cholamandalam

Investment and Finance, Anagram Finance and Ashok Leyland Finance.

Reasons for the success of SFL2

SFL’s corporate objectives and corporate philosophy.

• To channelise household savings

• Truth and fairness guide the management of finance.

date to prevent any inconvenience to its depositors. In another often-quoted instance,

“Everyone has discovered how important customer satisfaction is in recent years. We

- T.S. Santhanam, Founder and Chairman SFL3

of employees from the company.

is to evaluate the operator’s creditworthiness effectively. The company has managed to

on about 38,000 individual loan accounts of an average size of Rs.2,40,000 which

0.7% of all business assets.

is its “personalised intelligence network.” It has a network of 80 branches (1995), a

of branches grew from 36 in 1985 to 65 in 1990, and to 80 in 1995.

consistently high asset quality over long periods of time.