Vasudev Panel Suggestions Contradict Rbi Norms
The Vasudev Committee recommendation on non-bank finance companies (NBFCs) contradicts the prudential norms laid down by the Reserve Bank of India.
The committee has recommended that NBFCs should invest 25 per cent of their deposits in marketable securities besides hiking the liquid assets ratio from 15 to 25 per cent.
According to the NBFC policy announced in January, equipment leasing and hire- purchase companies should have at least 60 per cent of their assets and derive not less than 60 per cent of their income from the two activities. This new classification norm will come into effect on March 31, 1999.
Going by the RBI definition, an equipment leasing and hire-purchase company will not be able to block 50 per cent of its assets in government and other marketable securities as it is in violation of RBI norms.
The panel has also recommended that investment in unquoted shares should be restricted. On the other hand, it has encouraged investment in marketable securities which could include shares of unlisted public sector units.
There is again an ambiguity on this count, S Ravikumar, chairman and managing director of Alpic Finance Ltd, pointed out. "If the RBI is trying to give a positive message, it should come out loud and clear. The recommendations have delinked credit rating and deposit rating and this is positive, but there is a lot of fine print," he said.
"The Association of Leasing and Financial Services Companies (AL&FS) is also planning to make a representation that the recommendation on NBFCs' holding in securities be withdrawn as it is not tenable for fund-based finance companies," said Mahesh Thakkar, executive director of AL&FS.
The company will be left with only half the resources mobilised by it to lend for its core business, he said. "Investments in government securities are low yielding assets and the remaining 50 per cent will have to compensate for the whole kitty, besides taking care of provisioning requirements," said R Shankar Raman, senior vice president of L&T Finance Ltd.
On the recommendation to hike the capital to risk assets ratio stipulation from 12 to 15 per cent, he said, "Smaller NBFCs which operate at the grassroots may be forced to close.