RBI to mandate NBFC registration with SRO

CALCUTTA, Oct 21: Registration of non-banking finance companies(NBFCs) with the proposed self- regulatory organisation (SRO) and the Rese...

CALCUTTA, Oct 21: Registration of non-banking finance companies(NBFCs) with the proposed self- regulatory organisation (SRO) and the Reserve Bank of India will become mandatory once the norms for SROs are finalised by the respective industry associations, according to Mahesh Thakkar, executive director of the Association of Leasing & Financial Services Companies.

"The SRO is expected to commence functioning earliest by April next year. It is likely that RBI will recognise one or at best two SROs which will function as its extended arm," he said.

The SRO committee will have representatives from the Association of Leasing & Financial Services Companies, Federation of Hire Purchase Associations, Equipment Leasing Association of India and Hire Purchase & Lease Association.Thakkar said the whole process of screening and registering members and establishing rules of governance should take at least two to three years. He said he expected that around 600 companies will be left to manage at the end of the wholeexercise.

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Addressing the 33rd annual general meeting of the HPLA, Thakkar said the Vasudev committee set up by the RBI had finalised the code of conduct and rules for governing NBFCs. Comments from members and the public would be invited before giving it final shape, he added.

Among other things, the committee has proposed creation of a full-fledged credit bureau to maintain a list of defaulting members, and setting up a lease registry to check repetitive financing of assets, Thakkar revealed.Besides, there would be an ombudsman responsible for speedy redressal of investor grievances and having powers to penalise errant companies.

To provide insurance cover for depositors, the AL&FS has already approached Jardine and AIG of the USA for reinsurance. With reinsurance back-up, domestic insurance companies would have no hesitation in providing cover to depositors as they would only have to share the premium income with practically no risk.

Thakkar pointed out that, on a conservative basis, the insurancecompanies would earn about Rs 200 crore annually on the Rs 18,000-crore deposit base of NBFCs. "This will also increase our competitiveness vis-a-vis banks as we offer depositors higher interest on deposits," he added.

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Ravi Todi, chairman of the HPLA, called for a debt recovery machinery for NBFCs on the lines of debt recovery tribunals for banks and financial institutions. "If the applicable regulation of NBFCs has to be more strict than that for banks, why can’t the same machinery be given to NBFCs?," he asked.

"The issue is so serious for the entire financial sector that this should be given more urgency than any other agenda with the finance ministry," he added.

West Bengal chief minister Jyoti Basu lamented that banks were by and large ignoring the needs of small and medium entrepreneurs. He said bank lending to the small-scale sector was less than 20 per cent of their total advances. He commended the performance of co-operative banks which were instrumental in giving the SSI sector funds forgrowth.

Basu assured the NBFCs that the government would play a positive role in promoting their growth and welcomed them to participate in the state’s budgetary exercise which had just begun.

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KK Chowdhury, chief general manager of the RBI, denied that the regulator had any bias against NBFCs. He said that prudential norms for leasing/hire purchase companies were less stringent than those for other NBFCs.

He maintained that those companies which were accepting public deposits would continue to be covered by both onsite and offsite surveillance by RBI.