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Govt open to insurance cover for investors

The government has an open mind on introducing insurance cover for deposits held by the non-banking financing companies in light of the number of scams in which they have been involved, Finance Minister P Chidambaram told the Rajya Sabha on Tuesday.

He assured the house that he would initiate discussions with senior opposition leaders before taking a decision in the matter.

Chidambaram was replying to questions regarding the large-scale duping of investors by the CRB Mutual Fund.

He said the catch in providing the insurance cover was that good non-banking finance companies will also have to contribute to the premia to the advantage of bad ones.

The minister said the government is also willing to hike the threshold limit for RBI inspection for non-banking finance companies from the present Rs 2.5 million to Rs 5 million.

Chidambaram said both the Central Bureau of Investigation and the official liquidator had traced a large number of assets held by CRB Mutual Fund in Bombay, Hyderabad, Bangalore and Madras.

It was possible that investors might get back a part of the funds they had invested in the firm.

The finance minister said there was no law to regulate the functions of non-banking finance companies and the first law was enacted through an ordinance earlier this year.

He expressed confidence that the regulatory authorities were now better equipped to deal with such offences.

The Reserve Bank of India had issued prohibitory orders regarding the non-banking finance company operations of the CRB Capital Market in April this year after the scam surfaced. By this order, the company cannot accept deposits or alienate its assets without prior permission of the RBI.

The RBI has also filed a winding-up petition in May this year in the Delhi high court which, in turn, appointed a provisional liquidator. The high court has also issued orders freezing the accounts of the CRB group of companies.

He said the recent failure of CRB Capital Markets Ltd is the only example of a major fraud by a major non-banking financial company.

As per the information available with the RBI, the exposure of various institutions in CRB Capital Markets is around Rs 1.52 billion. Further, the company has issued over 130,000 fixed deposits receipts amounting to Rs 1.86 billion.

The Delhi high court has appointed the official liquidator as provisional liquidator to take stock of the assets of the company with a view to arranging the realisation of the assets and settling the claims of creditors in due course.

Keeping in view the twin needs of providing adequate protection to depositors and maintaining the stability of the financial system, Parliament, in January 1997, enacted amendments to the RBI Act 1934 for regulating non-banking finance companies.

These measures would facilitate continued liquidity and solvency of non-banking finance companies and are expected to go a long way in enabling the them to meet the liabilities of depositors as and when they accrue.

UNI