MUMBAI, AUG 16: Non-Banking finance companies (NBFCs) and plantation companies have once again started flexing their muscle. After lying low for almost a year - thanks to the CRB scam - and short-changing thousands of investors, they are looking for a smart comeback.Even as investors are still counting their losses in many such companies, they have started lobbying for relaxing the stringent guidelines imposed by the regulators after a series of scams in the financial services sector. Some plantation companies have started launching new schemes in spite of the tough stance of regulator SEBI regarding mandatory credit rating and auditing of the account books.Emboldened by the Reserve Bank of India's new fiat that NBFCs which do not collect public deposits need not submit periodical returns to the RBI, NBFCs are lobbying hard to get out of the compulsory rating for deposit mobilisation. ``The entire system of rating the medium and small NBFCs needs a re-look. We also need to discuss about the policy ofexempting small cap companies from rating requirements. For companies upto Rs 5 crore networth, no rating is required. These companies as well as companies with below investment grade rating should be allowed to accept public deposit upto 2 times their networth,'' the Association of Leasing & Financial Services Companies (ALFS) has already demanded.The mandatory credit rating was introduced last year after thousands of investors lost their deposits in dubious NBFCs like JVG Finance, Prudential Capital, CRB Capital Market and Helios Finance. ``If the RBI scraps the mandatory credit rating system, how will the investors judge the performance of a company. This will lead to more scams in the future,'' said a banker.The RBI is also planning to remove the ceiling on bank credit to NBFCs following intense lobbying from several quarters. It may be recalled that many finance companies had misused credit extended to them by banks in the pre-CRB era. Yet another RBI plan is to allow NBFCs form self-regulatoryorganisations (SROs). ``The RBI idea seems to entrust these SROs with some of the regulatory functions,'' banking sources said.The non-performing assets (NPAs) accumulated by the NBFCs outclass commercial banks and financial institutions. Many of the high profile NBFCs carry huge NPAs (like Anagram Finance and ITC Classic which opted for merger) mostly because of the money stuck in stalled or sick companies. One NBFC recently offered to transfer the operating business to the private bank promoted by the former due to the high incidence of NPAs. Although over 40,000 NBFCs were operating earlier, more than half of them have closed down their business in the mega shake-out in 1997-98.On the other hand, plantation companies are also intensifying their activity despite getting poor rating Grade V indicating inadequate safety regarding repayment of principal and interest. Despite the poor track-record, at least six plantation firms had launched new schemes in the last two months. ``Our inspection of someplantation firms revealed that many of them are floating new schemes to repay maturing deposits. There were cases of fund diversion also,'' said a senior SEBI official.SEBI has already warned investors against putting money in 21 plantation companies which got poor rating. In spite of SEBI's warning, many of the plantation firms are underplaying the poor rating received by them and gullible investors are once again lured by their fancy promises. SEBI inspection has also revealed that many plantation firms are collecting money in the form of fixed deposits. This has led to confusion among the regulators as plantation companies are currently governed by SEBI but deposit mobilisation comes under the RBI's jurisdiction. Strangely, the renewed offensive from NBFCs and plantation companies follows the intense criticism that the government and the RBI took in the parliament late last month. According to one estimate, as much as Rs 15,000 crore of investors money is stuck in shady finance companies and another Rs2,500 crore in plantation firms floated by fly-by-night operators. The need of the hour is to tighten the regulations and not to dilute them in less than one year.Till recently, the regulatory authorities like the RBI and SEBI were discussing various means to strengthen the investor protection and tightening the norms regulating NBFCs, plantation companies, resort and time sharing projects etc due to the pressure exerted by investor groups. As part of this move, SEBI and RBI started taking some measures including compulsory rating of plantation companies and NBFCs. SEBI has also been devising means to regulate the credit rating agencies. ``Now it seems that things are going back to square one. Both the Association of Leasing and Financial Services Companies and the Plantation lobby have declared an open war against the rating agencies and the new initiatives to control fly-by-night operators'' added an aggrieved investor. A ruling party MLA was also aggressively campaigning against these dubiouscompanies.Meanwhile, investors who have lost heavily in NBFCs, plantation companies and resort projects are waiting for the legal procedures to be completed to get back at least part of their deposits with these companies. Fixed depositors of companies like CRB, Prudential Capital, JVG Finance, Asia-Pacific Investment etc are still not sure whether they will get back even a fraction of their deposits. There is no ray hope for them as the government which made a number of statements about protecting the small investors by setting up investor protection fund etc is also maintaining a studied silence.
