NBFCs raised surrogate deposits: RBI official

Coming down heavily on non-banking finance companies (NBFCs), a Reserve Bank of India (RBI) official on Wednesday said these were raising surrogate deposits under the garb of non-convertible debentures (NCDs).

"NBFCs were raising surrogate deposits under the garb of NCDs. That was the reason for RBI to come out with the norms for private placement of NCDs," said the official, who asked not to be named.

Speaking on the sidelines of a seminar here, the official said a couple of RBI officials had gone incognito to one of the branches of an NBFC and was alarmed by the practices followed by the companies. The central bank recently came out with the guidelines for private placement of NCDs of NBFCs, which had barred them from raising money through the route from more than 49 investors. RBI also said the minimum amount of investment in such NCDs would be Rs 25 lakh.

The official also said RBI was concerned at the unprecedented growth of gold loan NBFCs. "There is huge amount of concentration risk and whenever this is so, there is also strain on capital (and) therefore, there was a need to come out with regulatory responses. What we are looking at now is standardisation of the value of gold acceptance and standardisation in the value of gold auction."

"We are going to come out very shortly with further regulation on (gold) NBFCs. What we are also going to do is to ensure that all violations are suitably addressed, not softly addressed," said the official.

RBI had set up a committee under the chairmanship of K U B Rao, an advisor of the central bank, to look into the sector and its impact on gold loan companies. The committee has given its report. The regulator is yet to come out with final norms based on the Rao committee report. It has, however, capped the loan to value ratio for these companies at 60 per cent of the value of the pledged metal.

RBI was clear there should be no dual regulations on microfinance institutions and the central bank should be the sole regulator, the official said.

The central bank will put an interest rate cap on MFIs again as the government is not very comfortable with the no-interest-rate-cap situation. RBI has already communicated its views to the government in this regard.
CRACKING DOWN
What RBI says:

• Strict action against companies accepting deposits when they are not authorised to do so
• NBFCs were raising surrogate deposits under the garb of NCDs
• Final norms for gold loan companies based on KUB Rao committee report soon
• The central bank is not in favour of MFIs accepting deposits
• Interest rate cap on MFIs will be applied again
• Compliance issues with Andhra MFIs
• No regulatory forbearance on second restructuring for MFIs