Nbfc Deposits Should Be Insured

The Federation of Indian Chambers of Commerce and Industry yesterday called for insurance protection for deposits mobilised by non-banking financing companies (nbfcs).

The cost of insurance will reduce the return these companies can offer even while attracting investors who could tap the nbfcs indiscriminately knowing their deposits will be safe, Ficci said in a background paper on `restructuring of nbfcs to meet global challenges.

This way no matter what happens to the firm, the investors deposits would be protected, the chamber said. Ficci also expressed concern over the high cost of funds for nbfcs saying that banks were charging these companies 4 per cent over the prime lending rate.

 

In fact some banks are charging up to 6 per cent on the pretext that the spread stipulated by rbi above PLR is not applicable to nbfcs, the paper said. Since nbfcs raise loans from the banks to lend further to their clients and the rate of interest charged is directly related to the cost of funds to them, they suffer on account of a retrospective hike in cost of funds by the banks, the paper said.

This was due to the fact that these finance companies cannot raise their rate of return from retrospect date, it said.