Less Anxiety

The risk associated with deposit scheme of NBFCs can be evaluated by the rating assigned to it by credit rating agency. Moreover, the RBI has made it mandatory for all NBFCs to renew their ratings once in a year.

The rating agency with their test models and methodology, which is based on the prudent accounting standards of income recognitions and bad/doubtful debt and investment policies, will evaluate the extent of risk associated that company and accordingly upgrade/downgrade the rating. In other words, rating reflects the affairs of the company.

Hence, the risk involved in an debt instrument can be calculated by going through the rating assigned to it. It can be seen that deposit scheme with high rating will offer low yield as compare to the one with low rating.

 

The only job which is to be done by the regulatory authority is to make the small investor literate about the significance of the credit rating assigned with the debt instrument.

As far as the question of assurance to the depositors is concerned, most of the companies are giving post dated interest cum principal warrants, which assume greater relevance in the context of recent notification by the RBI according to which, for whatsoever reason if any, dishonor of interest warrant/cheque issued by a company will debar that company for accepting any fresh deposits from the public with immediate effect.

Hence, the depositors have been safeguarded by various measures taken by the RBI. Also, the activities of the NBFCs is monitored by the RBI through periodical returns filed to it.

The recent relaxation in the limits of accepting deposits and fixation of interest rates to the companies having received specific certificate from the RBI shows, that the risk associated with these companies will tell the story of transparency carried by those companies in their affairs.