Reddy asks NBFCs to give up public deposit activities

Reserve Bank of India (RBI) governor Y V Reddy today called upon the non banking finance companies (NBFCs) to voluntarily move out of public deposit activities.

This is significant against the backdrop of the central bank recently directing NBFCs to provide full liquid cover for the entire deposit base.

Reddy met the Finance Industry Development Council (FIDC), a representative body of the NBFCs, last week to chart out a three-year roadmap for the industry.

The NBFC representatives urged the RBI to rationalise the regulations, deposit insurance and rating of NBFCs, an RBI release said.

"In case an NBFC voluntarily chose to get out of public deposits, the Reserve Bank would help the NBFC in its effort and also impart training and technological support to the entity," said Reddy.

He urged them to adopt technological changes including on-line reporting.

The representatives from the NBFC sector, however, urged the RBI to reconsider the directive asking NBFCs to provide full cover on deposits as this would impact their earnings, said an official present at the meeting.

NBFCs have to deploy more than 80 per cent of their investments in government securities. The representatives asked some relaxation on this limit as this would create a mismatch in the cost earning ratio of NBFCs as they usually offer high rate of interest (10 to 15 per cent) while the government securities earn low returns.

They have also asked the central bank to treat NBFCs on a par with housing finance companies in matters such as access to financing facility from institutions such as Sidbi or Nabard.

In addition, they have urged RBI to extend the provisions of Debt Recovery Tribunal Act and the Sarfaesi to NBFCs to protect their assets.