Presidential assent awaited for state legislation on NBFCs

The Gujarat government has proposed a legislation to stop duping of small depositors by non-banking finance companies (NBFCs).

The proposal was passed by the legislature in the last Budget session and has been send to the president of India for his approval.

The President's approval is awaited to make the legislation an Act.

"The legislation will be operational against all those non-banking finance companies that operate in Gujarat, and empower the police to search for offenders in other states as well. It will provide a legal framework to the state to act against defaulting non-banking finance companies," said K C Kapoor, principal secretary, home department, the government of Gujarat.

In Gujarat there are 408 finance companies registered with the RBI of which only 17 are classified under the A category which are authorised to accept deposits. This is compared to around 14,000 registered NBFCs in the country of which deposit accepting companies are around 710.

"The RBI has been laying greater stress on the formation of self regulatory organisations (SROs) for non-banking finance companies. Guidelines for NBFCs and continued compliance of RBI regulations by all non-banking finance companies apart from protection of interest of depositors.

"Protection of depositors' interest together with enhanced awareness among depositors continue to be our priority and we have initiated several measures for the benefit of depositors, especially given the large number and varying size of NBFCs," said Vani Sharma, regional director, Gujarat, RBI.

The measures include upgrading legal recourse for protection of depositors, extensive publicity campaign through print and electronic media to educate the depositors, enhancing effectiveness of supervision by conducting training programmes for personnel and executives of non-banking finance companies.

The RBI has developed a sound market intelligence mechanism in association with the Gujarat Finance Companies Association (GFCA), chartered accountants, stock exchanges, the Registrar of Companies and the Anti-Economic Offence Cell of the state government, besides their usual on-site and off-site supervision.