Nbfcs To Challenge Rbi Ordinance

Non-banking finance companies propose to challenge in court provisions of the recent Reserve Bank of India amendment ordinance 1997.

Speaking to reporters here yesterday, Tarachand Dugar, secretary general of Federation of Hire Purchase Associations said while none of them had opposed the imposition of sinking fund and other regulations, the point of contention was the Reserve Banks banning of unincorporated bodies from accepting deposits.

He said the ordinance does not distinguish between genuine finance companies and `fly-by-night operators.

The association had alerted the finance ministry and the Reserve Banks department of supervision way back in 1995, of certain firms offering phenomenal rates of return without having secured a rating from any of the rating agencies though, neither of them had reacted then.

 

He said imposing a minimum Rs 50 lakh net owned funds limit was unacceptable. Instead, he said what would have been better was imposition of capital adequacy norms on the same lines as has been introduced for registered companies.

Besides, the amendment to section 45s of the Act was also bound to create a severe crisis in the industrial sectors. This particular section, he said, prohibits unincorporated bodies from accepting deposits. These unincorporated bodies have been far more efficient vehicles for credit delivery and most of their assets consist of truck finance.

Instead, the only way to check `fly by night operators was to ban advertisements by unincorporated bodies for soliciting deposits, he said. Another clause which has irked the federation is Section 45 MC. This clause specifies Reserve Bank can file a winding up petition within five days , if an non-banking finance company is unable to repay its depositors within five working days at any of its offices. This clause, Dugar says, will put unnecessary pressure on the non-banking finance companies and said even nationalised banks were not faced with such a stipulation.

Instead, the associations would prefer the withdrawal of deposits should be made from the office where it is made and not at any office as specified in the Act. Alternatively they may be given a 30 day time limit to meet the same, he suggested.