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Many ind directors have quit MFIs fearing persecution: Parekh

Press Trust of India  |  Mumbai 

HDFC Chairman Deepak Parekh has decried Andhra Pradesh government for "hastily" passing a legislation regulating micro lenders, stating many independent directors of MFIs have quit in its aftermath.

The passing of the Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act on December 15 has led to "consternation" among independent directors and many of them have resigned fearing arrest, Parekh said in a public lecture on governance at the Indian Merchants' Chamber (IMC) here.

"...The hastily recently-passed AP act of micro finance has led to consternation among independent directors of certain microfinance agencies and many of them have resigned during the last week under fear of being arrested," he said.

The AP Government moved in with a law to regulate MFIs following allegations of suicide by some borrowers in the coastal state due to pressure from collection agents of MFIs.

The legislation has led to wide scepticism among banks, which lend to microfinance institutions and a majority of them have stopped fresh loans to MFIs since an ordinance for the act was made public two months ago.

MFIN, an umbrella body of MFIs, had said repayments from borrowers in AP--the biggest MFI market in the country-- have stopped and feared a wipe-out of the once sunrise sector.

The Reserve Bank stepped-in yesterday, asking banks to continue funding MFIs in a bid to contain the problem within AP.

Parekh said there should be some distinction between the liabilities of independent directors and executive directors and highlighted the fact that 340 independent directors had resigned from companies after the Satyam scandal, fearing "persecution".

As a solution, Parekh said, "I believe India Inc and the government need to work towards rebuilding a sense of mutual trust."

Parekh's comments come within a fortnight of him expressing reservations on the functioning of administrative machineries following the 2G scam.

In his speech, Parekh reiterated the stance, saying India Inc has got a feeling of "mistrust" these days and CEOs are fearful of who "could be the next target".

"Where does one draw a line between privacy and right to information?" he asked.

The veteran financial sector expert also asked for more co-ordination in the functioning of the government departments.

"Right now ministries function in silos, with little co-ordination. There has to be an equilibrium between infrastructure development and environmental considerations."

In his speech, Parekh also quipped that looking at the burgeoning cases of corruption, India may soon need to start a Supreme Court exclusively for handling corruption cases.

Among other issues, he demanded the installation of chief executives for cities and the need for the government to "extricate itself" from running businesses.

First Published: Thu, December 23 2010. 18:39 IST