Govts acting against firms accepting deposits without RBI nod

RBI has identified several financial companies accepting deposits from public without authorisation from it and state governments are in the process of taking action against them, RBI Deputy Governor R Gandhi said today.
"...It has come to the notice of the bank that there are financial companies that have been accepting deposits from the public without any authorisation from the bank," said in his 110th Foundation Day address of state-based City Union Bank here.
"These have been identified and respective state governments are in the process of taking suitable action under the State Protection of the Interest of Depositors' Act", he said.

Noting that debentures and bank finances are two main sources of funds for Non-Banking Finance Companies, he said RBI in the past observed an unhealthy and a sudden spurt in debentures issuance under the private placement route.
"On-site inspections of (NBFC) companies also showed that the debentures were accepted by the companies and were being issued to walk in customers. As NBFCs were accepting wholesale funds, RBI took action to prevent retail participation by stipulating minimum subscription amount and preventing NBFCs from lending against the security of their own debentures.
"This while curbing the undesirable practices has constrained the resource raising ability of NBFCs. The Bank is in the process of aligning largely with the Debenture Regulations with that of Companies Act, 2013," he said.

On some challenges faced by RBI, he said the menace of 'unincorporated' bodies and 'fly-by-night' operators accepting deposits needed to be addressed and they were strengthening the market intelligence efforts and inter-regulatory coordination mechanism.

Gandhi said state-Level coordination committees have been strengthened with Chief Secretaries presiding over them. The frequency of such meetings had also been increased.
He said RBI was looking into the interest evinced by some states to act as regulator for the financial sector.
Gandhi said as of March 2014,there were 12,029 NBFCs in India. "Of this number, total deposit taking NBFCs are 241 and non-deposit taking NBFCs with a size of above Rs 100 crore is 465."

He said the total asset size of reporting NBFCs had grown phenomenally in the last few years, from Rs 5.62 lakh crore as of March 2009 to Rs 14.41 lakh crore as of March 2014.
"Last year total assets of NBFC sector grew by 13.36 per cent while assets of the banking sector increased by 5.36 per cent," he said.