Panel to correct NBFC lapses soon

Sinha said the task force would be headed by banking secretary C M Vasudev and have representatives from RBI and other connected organisations. It will be given six weeks8217; time to submit its report,he said. Sinha proposed to involve state governments too as NBFCs have mushroomed even in small towns.In this connection, he said he would convene a meeting of state finance ministers in September-end to work out modalities. Noting under the present legislation the complaint procedure was 8220;dilatory8221;, Sinha said the task force would work out modalities for confisticating and attaching property of defrauding NBFCs so as to secure depositors8217; interest.

As defrauding amounted to cheating and breach of trust, the minister said the task force would go into the aspect of RBI moving criminal court whenever there were complaints about NBFCs. RBI would be empowered to file on its own criminal cases against such NBFCs.

Justifying the need to reform the sector, he said NBFCs had an important role as these could mobilise much-needed resources for the economy. At the same time, unless small investors felt secure, the purpose of a NBFC would get defeated, he said.

Earlier, calling attention to the failure of thegovernment to check NBFCs, CPI member Gurudas Das Gupta demanded that a separate agency be set up to regulate them and the state governments be involved in the process.

In his statement, Sinha, however, said it was wrong to quot;tar all NBFCs with the same brushquot; just because there were some instances of failure. Saying the role of NBFCs was significant in the Indian financial system, Sinha said their reform had to be gradual as imposition of very stringent norms with immediate effect would cause hardship to even to relatively healthier and well-intentioned components of the sector.

8220;We cannot afford to throw out the baby with the bath water. The instances of failure of NBFCs should not lead us to tar them all with the same brush,8221; he said.

But Das Gupta maintained that the regulatory law was weak and the monetary system fragile resulting in crores of rupees being defrauded by NBFCs. He said total deposits with NBFCs were around Rs 75,000 crore, of which Rs 24,000 crore were from the common man. Of this,at least Rs 15,000 crore have allegedly been defrauded by NBFCs.

He accused corporates of setting up their own NBFCs to launder funds and regretted that only ten per cent of the complaints from depositors had been looked into as the government did not have the necessary machinery to handle them.

Das Gupta said he was against entrusting the task of regulation to the Reserve Bank of India RBI as it was increasingly turning into a quot;white elephantquot;, with too many unmanageable functions.

Sinha said government would, however, endeavour to work towards a healthy NBFC sector with adequate disclosure norms and strict stipulations so that prospective depositors could take informed decisions while considering the option of placing deposits with NBFCs.

BJP member K R Malkani blamed the finance ministry and RBI for remaining 8220;so inactive8221; .