Banks to stop at par facility

The move by banks will hit investors and companies alike. “Investors are likely to be issued fresh interest warrants through other channels. If the NBFCs are going for banks with less number of branches, they will find it difficult to service the investors in rural areas and remote townships,” banking sourcessaid.

The "at par" facility was given to finance companies to make interest payment in advance to the investors which could be encashed at bank counters as the company used to pay money in advance for the same. After the CRB scam in which SBI has lost heavily (Rs 66 crore) due to misuse of the facility, many banks have been reluctant to entertain the facility.

In the absence of at par facility, the interest warrants and deposit repayment warrants will have to be sent by the investors for collection through their bankers. This would not only delay receipts of the proceeds of the investments by the investors, but they will also be required to bear the collection charges of the banks.

When the instrument is required to be sent for collection by the investor’s bank through another bank the collection charges of both banks will have to borne by the investor. “The consequences will be reduction of the return on deposits to investors, deposits schemes of NBFCs becoming less attractive and affecting theirdeposits mobilisation programme, besides considerable hardships to the investors,” said an official of Association of Leasing & Financial Services Companies.

It said `at par’ facility is a pre-funded facility and the banks run no risks whatsoever. On the other hand, the banks enjoy interst-free funds maintained in the current account by NBFCs to meet the payments of warrants issued by them to investors.

The association has urged the RBI to once again the advise the commercial banks that they should take a very helpful attitude in the matter and that there should be no hesitation on their part to extend at par facility to NBFCs with such normal safeguards as may be considered prudent by them.

It may be recalled that in view of the persistent representations about difficulties being faced by investors, the RBI has advised the banks in September 1997 that they could extend at par facility to corporate clients at their discretion based on their risk perception and judgement of the standing of the concernedcorporates.

“In spite of the advice to the banks by the RBI, they continue to take a rigid attitude,” said an NBFC official.