The Reserve Bank of India (RBI) has for the first time asked the deposit mobilising non-banking finance companies (NBFCs) to furnish details of suits filed by them against their corporate defaulters.
The move is in line with the central bank's objective of bringing in more transparency in the functioning of NBFCs, especially with respect to the defaults that are taking place in the system. Currently, only banks are furnishing such details which are made public by the RBI every year.
NBFCs, which are going through difficult times, seldom resort to legal proceedings in order to recover the funds lent by them. However, the ramifications of such defaults are cascading as the NBFCs are unable to repay their retail and other depositors. Such investors are usually persuaded to roll over their money for another term.
An RBI source said, "It is after all the investors' money which is locked up, and they have a right to know where their money is being lent." This is also expected to make the NBFCs more diligent while selecting their clients, the source added.
The RBI source said a further step in this direction would be to ask the NBFCs to furnish details of regular defaulters. "But, this would mean divulging the client confidentiality, and we cannot ask them to do that," said the source.
Industry sources said while such information might not impact banks much, it could have an adverse impact on the NBFCs because corporates might stop borrowing from them.
While the finance sector has become regulated to a considerable extent, there are still some gray areas and NBFCs tend to be more secretive about their clients unlike banks.
The RBI source said the list of accounts will be made public as soon as the central bank receives the necessary data from the NBFCs.
