Lease Assn Flays Apex Bank Move To Club Nbfcs

Members of Hire Purchase and Lease Association (HPLA) said in a press conference held in Calcutta yesterday that the clubbing of all categories of non-banking financial institutions (NBFCs) under one head, from companies which engage in lease and hire purchase activities to merchant bankers and investment companies was harmful to the countrys economy.

Members of HPLA said that business has sharply dropped after the CRB fiasco to just 10 per cent of earlier levels. This is mainly because of a general scare in the public mind of all NBFCs. And this is where the crucial question of classification comes in.

As lease and hire purchase companies are also NBFCs by definition, the drop in public confidence has hit them hard, whereas the members of HPLA claim that their area of activity is far removed from the majority of NBFCs who do deposit taking and investment.

Ravi Todi, president of HPLA, said that companies whose main activities are hire purchase and leasing, invest their funds in productive assets and they have a definite pattern of recovery of their investments. So these companies are distinct from the numerous investment companies which are either part of large business groups and hardly take public deposits, or those which take public deposits and invest in shares of various companies. Sunil Kanoria, past president of HPLA and Director Srei International Finance Ltd, said that almost all the major nationalised banks as well as many of the private banks in the country have completely stopped sanctioning credit to NBFCs, which includes hire purchase and leasing companies. This drying up of bank credit coupled with a sharp drop in fresh deposit after the CRB scandal, has almost paralysed the lease and hire purchase sector. Business has dwindled and companies have to be content by merely deploying the funds that come from recovery of past loans. Members of HPLA have made continuous representations to the finance ministry and the Reserve Bank of India to categorise the lease and hire purchase companies separately from NBFCs.

HPLA is in favour of a policy that would completely bar NBFCs from accessing company deposits. The lease and hire purchase companies should instead be financed by substantial support from banks and financial institutions on easy credit terms. Also the debt market would be one of the routes to finance lease and hire purchase companies.

HPLA members said that most investment companies tap public deposits and invest in various company shares. This is exactly the function of a mutual fund. So there is no reason why there should be a different category for NBFCs which are basically investment companies.