MoF, RBI differ on NBFC auditors

The ministry is of the view that monitoring of all NBFCs should be done by the apex bank itself and not by private auditors. On the other hand, the RBI, which has received applications for registration from 37,000 NBFCs, insists on handing over the task of monitoring smaller NBFCs to private agencies.

"It would be hazardous to delegate the task of monitoring and supervision of companies having net worth of Rs 1 crore or less to private auditors. The proposal has perhaps been mooted because of the RBI’s anxiety not to add to its overheads. This would however be an instance of being penny wise and pound foolish, for what the RBI would save would need to be counterpoised against the major potential risk to members of the public," the letter states.

While Talwar spoke in favour of a self-regulatory mechanism among the finance companies, Damodaran said the question of self-regulation will arise only after the credibility of a company is established in the eyes of the investor. He said that with fewer companies actually being registered, the RBI should do the monitoring itself.

"I hope that you would be able to persuade the authorities of the Reserve Bank of India to reconsider their decision," Mitra wrote to Chidambaram.Senior officials in the RBI said the government’s stand is rather surprising as it has been passive about the issue for so long. It may be recalled that even in the case of registration of finance companies, the ministry has been advocating handing over the job to private agencies.