NBFCs blame RBI for defaults

CALCUTTA, Sept 28: Non-banking finance companies (NBFCs) have recently devised a novel method to escape liabilities. Many small NBFCs and s...

CALCUTTA, Sept 28: Non-banking finance companies (NBFCs) have recently devised a novel method to escape liabilities. Many small NBFCs and some large ones are telling investors — whose deposits have matured — that since the Reserve Bank of India (RBI) has asked them to stop accepting fresh deposits the companies cannot return their money.

However, the RBI is yet to get wind of this mess. "We have not heard anything about it," said a senior official of the central bank. When asked if any action against such companies is forthcoming, he said that they would have to wait and see "how the situation develops".

According to industry sources, many NBFCs who have taken deposits from the public and corporates are finding it difficult to make repayments due to a heavy rush of withdrawals. The normal practice is to clear short-term deposits from fresh mobilisations. In good times the finance companies encounter no difficulty since a lot of short-term deposits are rolled over and fresh deposits more than cover the withdrawals.

In the strictest sense, this practice may not be ethical, but it does not violate any law. As long as the investors get their money back with the accrued interest, the authorities are not bothered about the source of the funds.

The NBFCs are blaming RBI to keep investors at bay. The sources said that in some cases only the principal amount no payment is made and depositors requested to roll over their funds.Depositors of some of the smaller NBFCs have been told verbally by the companies that they were unable to honour their repayment requests owing to "prohibitionary orders" from the RBI. Some larger and well-known NBFCs are also using this ploy to stem the outflow of funds. Even corporates who have parked their funds in short-maturity deposit schemes of these finance outfits are being turned away in the same manner.

A leading NBFC in the city which has been facing an unprecedented run on its deposits has virtually cornered into adopting this tactic in order to have a breathing space, the sources said.

Sources in the central bank said that there is little the RBI can do. Since the CRB Capital Markets fiasco, NBFCs have been shying away from accepting deposits from the public. Finances from banks, which were never fluid even in the best of times, have become more difficult to procure. With the primary equity market still acting treacherous, NBFCs are exploring the bond market but even this has not taken off as envisaged.