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NBFC task force moots RBI control, rejects deposit insurance plan

In an attempt to refine the regulatory framework, the task force of the non-banking finance companies has suggested making unauthorised deposit collection a cognisible offence by any unincorporated financial intermediaries and ban advertisements by such organisations.

The task force in its report submitted to Finance Minister Yashwant Sinha today has recommended an entire gamut of policy measures relating to NBFCs has also suggested setting up of a separate instrumentality for regulation and supervision of NBFCs under the aegis of the Reserve Bank of India.

It has, however, rejected a demand of the investors to introduce a deposit insurance scheme for depositors in the NBFCs by saying that it would not be judicious to do so because of the moral hazard issues, likelihood of asset stripping and the likely negative impact on the growth of a healthy NBFC sector. It should have representation of experts and other professionals and help the overall supervisory policies of the Reserve Bank of India.

The task force set up by Sinha has noted that the regulatory regime in some respects is overrestrictive and has constrained the growth of well performing healthy NBFCs.

The existing legislative and regulatory framework required improvement because of the rising number of defaulting NBFCs and the need for efficient and quick system of redressal of grievances of individual depositors.

The task force, set up under the chairmanship of special secretary banking division C M Vasudev, says that the state governments should expeditiously consider enacting legislation on the lines of the legislation by Tamil Nadu on unincorporated financial intermediaries.

Deposit taking by unregistred NBFCs or whose applications for certificate of registration has been rejected or cancelled or prohibited from accepting deposits is to be made a cognisible offence.

State governments are to set up special investigation wings for enforcing these provisions. It also stressed the need for reviewing the particulars given in advertisements. Dues from the group companies, the business ventures in which the directors are interested and the amount of exposure including non-fund based facilities provided to such entities should also be included in the advertisement.

The procedure for liquidation of NBFCs should be substantially on line with those available for banks, so that these proceedings can quickly be brought to completion and the claims of various depositors and other creditors are settled early.

It calls for review of protection norms by the RBI, taking into account the international norms and the norms applicable to commercial banks and also the general economic climate in the country.

These measures are essential to prevent deployment of public deposits in high risk and speculative avenues.

Other members of the task force are S P Talwar, deputy governor of the RBI, Samir Biswas, director in the Department of Company Affairs, A P Agarwal, additional legal advisor of ministry of law and justice, Rajendra Singh, principal secretary (expenditure) Maharashtra government and A K Dubey, secretary, (expenditure), Kerala government. M Damodaran, joint secretary in the ministry of finance is the member-secretary.

UNI