Shriram lashes out at RBI

CHENNAI, May 16: Faced with a possible run on its Rs 700 crore deposit base following Thursday's warning to investors regarding three Shrira...

CHENNAI, May 16: Faced with a possible run on its Rs 700 crore deposit base following Thursday8217;s warning to investors regarding three Shriram Group finance companies issued by the Reserve Bank of India RBI, the Shriram management attempted to control the damage by lashing out at the RBI for rushing to the press without giving a chance to respond.

The RBI had cautioned investors that investing in fixed deposits of Shriram Investments Ltd, Shriram Transport Finance Company Ltd and Shriram City Union Finance Ltd would be at their own risk, as none of the companies had been rated by a credit rating agency, a mandatory requirement for raising deposits under its new set of regulations governing non-banking finance companies issued in January this year.

At a press conference, group chairman R Thyagarajan clarified that the intention of the advertisement in an English daily the immediate provocation for RBI8217;s action was not to canvas for deposits but 8220;straight-forward compliance of the RBI norms.8221;

Headded that the legal and secretarial department of the company felt that such an advertisement was necessary as the company was renewing deposits, something which non-rated NBFCs had also been allowed to do under the revised order. He questioned the manner in which the regulator had acted by issuing such a statement without 8220;letting us know that such an action was being contemplated8221;, adding, 8220;we came to know only from the press.8221;

However, on sustained questioning, he admitted that some of the branches 8220;might have accepted fresh deposits8221; after the cut-off date specified by RBI. Thyagarajan attempted to justify the group8217;s overt violation of RBI guidelines by passing the buck to the RBI itself. 8220;We had written to RBI seeking permission to do so and the RBI had not responded,8221; he said.

The group appears to be placing its bets on a clause in the January 8217;98 notification, which allows the regulator to exempt any NBFC in case of hardship or for any other just and sufficient reasons8217; from all or anyof the provisions. Thyagarajan admitted that the RBI had not given any ad interim permission to continue, but said that there was no specific denial of permission8217;, since there was no response at all.

RBI8217;s inexplicable slumber for close to six months on the issue may work to the group8217;s advantage. Even now, if it weren8217;t for the advertisement which RBI has construed to be an attempt to canvass fresh deposits had not been sent to it by the group itself, it may never have woken up.

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Belated or not, a worried Thyagarajan admitted that the RBI8217;s action would damage the organisation, but claimed that it 8220;could be handled.8221; The recent NBFC guidelines and the actions of RBI has put the clock back8217; and has prevented the Shriram group from focussing on its core business, he complained.

The group so far has mobilised secured debentures to the extent of Rs 74 crore and has repaid fixed deposits to the extent of Rs 41 crore. 8220;This is very much in line with the RBI norm of repaying one-third of the surplusdeposits over a period of three years beginning January 1, 1998,8221; he stated. The debentures carry a one per cent higher coupon than the FDs and are backed largely by receivables from truck financing.

He also said that the company proposes to get its secured debenture programme rated. But replied in negative about any possibilityof rating its fixed deposit programme. He added that companies in the group were 8220;not satisfied8221; with the FD ratings given by the rating agencies as the methodology adopted by them 8220;did not take into account the inherent strength of Shriram group8217;s asset portfolio.8221;