Attitudinal Problems

Thats nonsense, says the head of a foreign bank. They produce specialised, customised, financial services that your nationalised banks couldnt even begin to dream of producing. The point, he explains, is to treat money like lubricating oil. You have to take it where it is needed, not sit back and wait. Needs differ, he says, and have to be catered to by the market, not by some bureaucrat who wont even know that there is a need for a particular financial product.

The game, says Vikram Narayan, CEO, Apple Industries, is to spot opportunities and ensure that youve got the spread right. For that you need to assess risks correctly. NBFCs, he says, do it better than banks.

 

The key lies in flexibility, which the big banks lack. Their procedures are slow and cumbersome. Managers lack the necessary operational autonomy and there is no incentive to perform.

This doesnt mean that NBFCs make fewer mistakes, says the CEO of a large Indian NBFC, they just learn more quickly and take remedial measures faster.

So what should the official policy towards NBFCs be? The best thing, says a former government economist, would be to remove them from RBIs micro-regulation. Most others, however, disagree arguing that the Indian financial market is still too weak and undeveloped.

But as the recent policy changes indicate (see page 3), official attitude towards NBFCs is changing and should soon be reflected in policy. But dont hold your breath. It could happen quickly or take years.