NBFCs told to fully cover public deposits

The Reserve Bank of India (RBI) today directed non-banking finance companies (NBFC's) to ensure that at all times there is full cover available for public deposits accepted by them.

The NBFC's would have to calculate the cover by assessing the value of all debentures (secured and unsecured) and outside liabilities other than the aggregate liabilities to depositors deducted from the total assets.

The assets should be evaluated at their book value or realisable market value whichever is lower for this purpose said the RBI in a notification.

In case the asset cover calculated falls short of the liability on account of public deposits the regulator has asked NBFCs to inform the regional office of the central bank.

Thereafter the central bank will take a case to case approach in deciding whether or not the specific NBFC have to pare the additional deposits compared to its full cover said banking sources.

The decision will depend on how long or short term is the gap between the maturity of the deposits and the maturity of the full cover he added.

The regulator has also directed all NBFCs accepting/holding public deposits to create a floating charge on the statutory liquid assets invested in terms of Section 45-IB of the RBI Act, 1934, in favour of their depositors. Such charge should be duly registered in accordance with the requirements of the Companies Act, 1956, said the central bank.

The RBI as at the end of June 2004 a total of 38,050 applications were received for grant of certificate of registration. Of these the regulator has approved 13,671 applications, including 584 companies authorised to accept public deposits. The number of deposit taking NBFCs has declined from 996 in 1997 to 577 by September 2004.

The deposits of NBFCs declined from Rs 6,500 crore to Rs 3,700 crore in 2003-04(12.7 per cent of the total liabilities).