Nidhis Seek Relaxation In Deposit-Raising Norms

Recently, representatives of the industry and the chamber of nidhis met both the executive director of the RBI, J V Prabhu, and its Governor, C Rangarajan.

"We have tried to impress upon the RBI that nidhis, as a rule, follow a more conservative lending policy unlike the unincorporated bodies," said a industry spokesperson.

Calling the 1:20 ratio 'impractical', A C Veeraraghavan, honorary secretary of the chamber of nidhis, said a relaxation of this norm was the single-point agenda of the representatives of nidhis when they met the RBI top brass.

Typically, nidhis have a small capital base (anything between Rs 1 lakh and Rs 2 lakh) and will find it extremely difficult to stay in the business with this new rule as they will hit the prescribed ceiling 'very quickly', it is said. The ratio of net-owned funds to deposits of nidhis varies anywhere between 30 and 100 at present.

 

For deposits, nidhis have been offering returns between 20 and 21 per cent which is on par with that offered by other non-banking finance companies (NBFCs) after taking into account the various incentives and brokerage that the latter offer to attract deposits.

When deposits mature and customers do not opt for renewal of the same, nidhis face a major mismatch between assets and liabilities. For, money collected as deposits is deployed in long-term loans which will be recovered in 8 to 10 years.

But with no fresh inflow of deposits into the system because of interest rate restrictions slapped by the RBI, the entire system will collapse Veeraraghavan said. So crippling is the new prudential norm for the industry that the delegation did not even raise the issue of the ban on advertisement that RBI has imposed on nidhis. "We are not against regulations and in fact welcome them," Veeraraghavan said.

Just a couple of days back, the union finance minister P Chidambaram had said that a random survey of financial intermediaries had come out with 'startling revelations' which included investments in shares and securities, real estate, redeemable preference shares, etc. They have also opened many branches and offer safe deposit lockers -- all of which are not permitted under the existing rules.

The finance ministry along with the RBI is now working on a new set of regulations that will cover all manner of financial intermediaries - NBFCs, nidhis and benefit funds as also unincorporated firms.

This will form part of the financial sector reforms that 'is on top of my agenda' the minister said. He was participating in the golden jubilee celebrations of the Investment Trust of India, an NBFC that is part of the H C Kothari group.