At the receiving end.Rangarajan ENS ECONOMIC BUREAUMUMBAI/NEW DELHI, June 24: The Reserve Bank of India's supervisory role over non-banking financial institutions (NBFCs) as well as banks came in for a critical appraisal at a meeting of the Parliament's Standing Committee on Finance in New Delhi on Tuesday.RBI Governor C Rangarajan and senior officials of the Finance Ministry were at pains to explain to the committee the extent of supervision that the RBI could maintain over the NBFCs in view of their mushrooming growth over the past few years.All the leading RBI officials who were dealing with the CRB case including the RBI Deputy Governor S P Talwar, who has been heading the Department of Supervision (DoS), former Chief General Manager, the Department of Banking Operations and Development (DBOD) and current RBI Executive Director V Rangarajan and the RBI Governor C Rangarajan were summoned by the Parliamentary Standing Committee on Finance to Delhi.The committee members, according to sources, specifically questioned the quality of supervision that the RBI was able to maintain over the NBFCs. The reference was clearly to the CRB Cap's scam which resulted in defrauding lakhs of small investors.Although the discussion took place in the backdrop of the CRB Cap scam, the debate skirted the Bhansali fiasco with an understanding that the scam would be discussed in detail separately.According to Finance Ministry sources, the crux of Rangarajan's explanation was that RBI was in no position to keep vigil on each and every action of a NBFC or a bank. More so when there was a mushrooming growth of such organisations. The silver lining now, however, was that the unchecked growth of such NBFCs would henceforth be halted as a result of stricter control norms, it was reportedly stated.The committee members were mostly credited with the view that the CRB Caps scam and the Bank of Rajasthan fraud were the result of lack of proper supervision on the part of the RBI. It is learnt several MPs refused to take the explanation that mushroom growth of NBFCs was responsible for the CRB Cap muddle. They sought to put the blame on RBI even for the unchecked growth of NBFCs.The past few weeks, it may be recalled, had witnessed a build-up against the RBI on the issue of CRB Cap scam. The last meeting of the standing committee came down heavily upon the RBI and indeed, refused to discuss the details in the absence of Governor Rangarajan. A number of committee members had then taken strong exception to Rangarajan's absence and had demanded that the RBI governor present himself at the next meeting. Rangarajan's deputy S P Talwar deputised for the Governor at the last meeting.Meanwhile, it is learnt that an internal enquiry of the Finance Ministry had come to the conclusion that systemic failure within the RBI, the nodal regulatory authority of the NBFCs, led to the CRB Cap imbroglio.At the pink of their health, NBFCs numbered a massive 45,000. Out of these less than 1000 were registered with the RBI at the time the CRB Cap fiasco came to light. The mushrooming of finance companies started after the RBI started liberalising norms regulating the NBFCs on the basis of the recommendations made by A C Shah Committee Report.According to the Shah Committee reforms, NBFCs are assigned a central role in the financial sector by the RBI as viable medium to effectively mobilise public saving.
