50 Nbfcs To Cough Up Deposits

Some 50 non-banking finance companies (NBFCs) in Maharashtra and Goa are to begin paying back depositors under the guidance of the Reserve Bank of India (RBI), a central bank official said. They will register as non-deposit accepting firms.

We are asking weaker companies accepting public deposits to repay their depositors and register with the RBI as non-deposit accepting firms, the official said.

These companies are being asked to concentrate on their core activities, he said.

There are 358 financial firms in Maharashtra and Goa that accept public deposits, of which 50 have approached the RBI for the honourable exit option, he said.

The official said the RBI believed these firms were in danger of defaulting on their commitments within the next few years if not immediately.

The move is part of a drive to streamline and strengthen the sector.

The RBI had drawn lessons from a currency crisis that led to the collapse of financial firms in some south-east Asian countries and damaged their economies.

After examining their balance-sheets, the RBI is recommending areas of operations in which the affected companies could prosper.

This is likely to be various fee based activities, the official said.

The RBI in the last few months has asked several non-banking finance companies to cease business by refusing them fresh registration.

If these companies do not take the exit option, we will have to refuse them registration as well which will harm their image, he said.

In a forum on Tuesday, RBI deputy governor, S P Talwar warned NBFCs to learn from the disaster that befell south-east Asian nations in which a currency crisis hit the financial sector.

Perhaps we have to draw a lesson from the experience of these Asian tigers, Talwar told a gathering of senior industry officials.

He said there were reports that some Indian NBFCs had borrowed heavily and lent imprudently to corporates with a lack of proper credit appraisal.

The domestic non-banking financial services sectors image suffered following the collapse of CRB Capital Markets in May 1997. Fund flow to the sector has slowed, resulting in a liquidity crunch.

The RBI in January implemented a comprehensive package for regulation for NBFCs to try to improve the health of the sector over several years.

Under the new framework, the RBI will focus on companies accepting public deposits to protect depositors interests. (Reuters)