The Reserve Bank of India has asked NBFCs and their associations to work out a code of conduct for themselves and evolve self-regulatory measures. It has also asked these associations to set up customer grievances cells and educate the depositors about the risk elements involved.
This was stated by RBI deputy governor S P Talwar while speaking to Business Standard yesterday. He said the associations, rating agencies, the media and the regulator should play active roles to ensure smooth running of these companies.
Talwar emphasised the need to evolve benchmark norms to prevent CRB-like debacles. In a meeting with rating agencies in March this year, I had requested them to devise some standard norms for rating. We will also have to sit with the auditors and work out some standard norms for them. To supervise this large segment, we will need external support and auditors will have to demonstrate their responsibility to the investors, said Talwar.
Clarifying the role of RBI in the CRB affair, Talwar said the impression that the central banks in-principle approval had instilled greater confidence in the public was not borne out by numbers. We gave in-principle approval in July 1996. The public deposits and total deposits of CRB Caps were almost at the same level between June and October 1996, he said.
Further, when CRB applied to RBI for permission to set up a bank in April 1994, it was a category-I merchant banker and was not registered as a finance company with RBI. It was therefore imperative that the apex bank refer the application to the Securities & Exchange Board of India, under whose purview the company falls. In addition, we had also sought reports from CRBs bankers. All the five or six banks gave a satisfactory report on the companys accounts. In-principle approval was given to CRB Caps to set up a bank in July 1996 only after receiving reports from their bankers and Sebi, said the deputy governor.
The RBI (amendment) Act has given powers to the central bank to regulate the NBFCs. It has also empowered it to prescribe prudential norms on the asset side, ask the companies auditors to furnish information, even appoint special auditors, levy penalties for non-repayment of principal and/or interest and wind up a company.
Yet, getting these powers does not mean that RBI can punish and ask for wind-up of companies at will. Well-established legal practices do require compliance with procedures which necessarily are in the form of giving an opportunity to the guilty to either correct himself or explain, said Talwar.
INTERVIEW with Talwar on Page 8