RBI norms curb NBFC numbers

Firms find Reserve Bank's registration guidelines too difficult to comply with

There has been a steep fall in the number of non-banking financial companies (NBFCs) accepting deposits in Gujarat over the past one year after the Reserve Bank of India issued guidelines making it compulsory for all NBFCs to be registered under it, RBI Gujarat Regional director Vani Sharma said.

It appears that this fall is mainly because many NBFCs could not comply with the guidelines that the RBI has introduced, said Sharma. The new guidelines are aimed at protecting the interests of depositors, said Sharma.

Many depositors were in trouble after several co-operative banks closed down in the state.

After the Reserve Bank completed registration of NBFCs in January last year, the number of operating NBFCs has come down substantially.

In Gujarat, there are 408 finance companies registered with the RBI, of which only 17 are classified under the 'A' category, authorised to accept deposits. Nation-wide, there are around 14,000 registered NBFCs, of which deposit-accepting companies are around 710.

"The RBI has introduced a number of measures to enhance regulatory and supervisory standards of NBFCs, especially in order to bring them at par with commercial banks in select operations over a period of time," said Sharma.

Regulatory measures adopted by the RBI include aligning interest rates in this sector with the rates prevalent in the rest of the economy, tightening prudential norms, standardising operating procedures and harmonising supervisory directions with the requirements of the amended Companies Act in respect of registration, reporting requirements and constitution of audit committees.

The RBI has introduced a system of asset liability management for greater transparency and has initiated a system of balance sheet disclosures, effective from March, last year.

Recently, the apex bank has issued instructions to NBFCs on acceptance of deposits, including NRI deposits, infrastructure financing, risk weight for exposure to public financial institutions, which includes 'Know your customer' guidelines.

The business of asset reconstruction has recently emerged as a greenfield within the NBFC sector following passage of the Securitisation Act, and the RBI has issued guidelines to securitisation companies and reconstruction companies.

An external advisory committee has been constituted for scrutiny of applications of these companies and advise RBI on their registration. Two such companies have already been registered.

The apex bank has also initiated a web project for creating an environment wherein all deposit-taking NBFCs would be able to submit their regulatory returns in electronic form.

The RBI has already advised two of the NBFCs in Gujarat to operationalise the use of the system and has been encouraging other NBFCs to join the project, Sharma said.

"Protection of depositors' interest together with enhanced awareness among depositors continue to be our priority in regulation and supervision of NBFCs and we have initiated several measures for the benefit of depositors, specially given the large number and varying size of NBFCs," said Sharma.

The measures include upgrading legal recourse for protection of depositors, extensive publicity campaign through print and electronic media to educate depositors and enhancing effectiveness of supervision by conducting training programmes for personnel and executives of NBFCs.

The RBI has developed a sound market intelligence mechanism in association with the Gujarat Finance Companies Association, chartered accountants, stock exchange, the registrar of companies and the anti-economic offences cell of the state government.