Alfs To Formulate Standard Code Of Practices For Nbfcs

The Association of Leasing and Financial Services Companies (ALFS) is in the process of formulating a standard code of practices for non-banking finance companies (NBFCs). These norms will list out the best practices followed by the leading NBFCs in the country.

These norms, once accepted by the NBFCs, will introduce a standardisation of operations, procedures and practices of NBFCs across the board.

As per the code, the NBFCs will be instructed to follow prudent business practices and decisions.

Thus, there is likely to be greater transparency in operations. Also, there will be better asset quality and lower problems of recovery.

 

Moreover, the code should temper the instinct to seek quick short-term gains at high costs later. This code gains added relevance following the CRB Capital Markets fiasco.

The CRB case reveals how reckless practices followed by the NBFC for quick gains landed it in a debt trap and led to its eventual liquidation.

A committee comprising top officials from the ALFS and the industry is to be formed to study the working of leading NBFCs. The study is to be completed by July.

The study will also outline the regulatory framework including norms stated by the Reserve Bank of India (RBI), as well as other authorities like the income tax department and sales tax department. This manual will be updated on a regular basis.

In addition to the code of standardisation, the ALFS is also formulating a systems manual which will explain to the NBFCs the flow of information required and the systems to be installed from the time of receipt of a business proposal to the recovery, rather than disbursal.

The two documents may be combined into one. Once prepared, they will be presented before the RBI.

These norms, once accepted by the NBFCs, will introduce a standardisation of operations, procedures and practices of NBFCs across the board.