RBI plans stricter norms soon for Sahara, Peerless

At stake are public deposits of Rs 13,000 crore collected by residuary non-banking companies (RNBCs). Of the five companies operating in this category, two — Peerless General Finance and Sahara India Financial Corp — account for some Rs 10,000 crore, or 80 per cent, of the deposits.

The RBI has been looking at this category of companies for a while now. There is no limit on the amount of public deposits they can garner. And there is no cap on the returns they can offer.

With deposits shooting up, the RBI feels the need for more regulation. When contacted, an RBI spokesperson said, ‘‘Detailed guidelines will be announced soon. The RBI will have to safeguard the interest of investors. Unlike bank deposits, there’s no insurance cover in this case.’’

The management team of Peerless and Sahara were not available for comment. However, RBI officials and an examination of the credit policy showed that the following changes are in the pipeline.

• Operations will become more transparent. As of now, no information is available about the lending activities of RNBCs and the measures they take to mobilise depsosits

• Some of these companies offer high commissions to agents. The norms wil ensure that these rates are tenable

• The identity of depositors will become clearer are these companies will be made to follow ‘know your customer’ rules

• Customer service norms will be put in place for field agents so that matters such as unclaimed deposits are appropriately addressed

Then there is the issue of discretionary investments made by these companies. Earlier, they were required to invest 80 per cent of their deposits in prescribed categories — government securities and bonds — while the remaining 20 per cent could be invested at their discretion.

In June, the RBI asked these companies to reduce their discretionary investment to just 10 per cent of their deposits by April 2005 and to completely dispense with it from April 2006.

Subsequently, however, there has been a slight loosening as investments in certificates of deposit of financial institutions that have a minimum rating of AA+ are taken as eligible securities. While the companies want more elbow room, the RBI has to balance this with investor interests.

Meanwhile, an RBI source said that an internal group within the central bank had even mooted putting a cap on deposit mobilisation by RNBCs.

One suggestion doing the rounds is to restrict fund raising by RNBCs to four times their net-owned funds. The companies will resist this for an obvious reason. Their net-owned funds total just Rs 111 crore, which means such a requirement will limit them to raising only Rs 444 crore. In contrast, their deposit level is a hefty Rs 13,000 crore.