RBI beefs up supervisory system

The Calcutta head office of DFC has got around 40 staff to deal with 40,000 odd unregistered NBFCs. The DFC cell at the World Trade Centre in Mumbai has got only 15-20 staff and the staff strength in Madras and Delhi offices and 14 branch offices in various state capitals is not different.

8220;Officers are sometimes sent to Bankers Training College, Mumbai and Reserve Bank Staff College, Madras for training, but many of the officers lack the sufficient expertise to inspect the operations of finance companies which used to employ expert MBAs and Chartered Accountants,8221; sources said.

The number of finance companies multiplied by several fold whereas the staff strength of the central bank was shrinking, thanks to an austerity drive in the RBI as part of the reform process. 8220;The RBI, like public sector banks, has also been affected by the general austerity measures adopted in the financial sector for new recruitments especially at the lower level,8221; RBI sources said.

With the recent decision to make RBI registration mandatory for all the 40,000 odd NBFCs, the RBI regulatory mechanism is not strong enough to service such a huge number of NBFCs. RBI sources added that this situation occured due to poor planning and management. 8220;When the RBI allowed the free operation of thousands of finance companies through various policy announcements, they did not forsee the need to regulate them. They always tried to project a rosy picture about the role of finance companies,8221; sources said.

While the number of finance companies based in and around Mumbai has increased by several fold, the RBI8217;s Department of Financial Companies central office is in Calcutta with only a cell in Mumbai. For years, the Calcutta head office of DFC has been obsessed with the RBI case against Peerless Finance and the department was taken aback by the sudden explosion of the CRB scam. The prohibition of some small finance companies was also being done by these offices periodically, leaving a free hand to the big NBFCs like CRB Caps.

Sources added that these offices do not have sufficient number of staff with sufficient expertise in the operation of finance companies. 8220;Even the annual cycle of inspection of various public sector banks could not be properly done due to lack of staff and other infrastructure facilities and political interference,8221; said a DoS source.

The RBI has been focussing on developing more and more off-site inspection of 800 odd registered NBFCs mainly relying upon the clean chit of auditors and credit rating agencies without bothering to regulate them. The four credit rating agencies 8212; CRISIL, CARE, ICRA and Duph and Phelps 8212; were allowed to operate freely without any regulation or supervision over their activities.