Rbi Group To Examine Need For Nbfc Watchdog

The setting up of the group follows suggestions of the Supreme Court in a judgement on January 4, 1996. In its judgement on a special leave petition filed by the RBI against the Calcutta high court judgement in the Peerless case, the court had made two suggestions:

the government may consider whether it would be advisable to create a separate authority to supervise and enforce the provisions regulating the functions of NBFCs and residuary non-banking companies (RNBCs); and

examine whether the exisiting provisions need to be strengthened to provide more protection to the depositors; for instance, the UK's Banking Act, 1987, contains a provision for a deposit protection scheme. It may be considered whether such a provision should be introduced in India.

 

The terms of reference of the working group are:

to review the role of RNBCs and other financial companies (including chit funds) in tapping deposits from the public;

to review their operational impact on the monetary and credit policies;

to review their status regarding safety and liquidity of their assets, and security to the depositors, and their track record in adhering to regulatory discipline;

to review the efficacy of the supervision and control exercised by the RBI and to examine whether instead of RBI, there is a need for any other authority to regulate their acitivties;

to examine the feasibility of introducing a deposit insurance scheme for the depositors of all NBFCs on the lines of the UK Banking Act, 1987.

K S Shere, principal legal adviser, RBI, is the chairperson of the working group. The other members are: Sudhir Bhargava, director, banking division, finance ministry; Ajoy Sinha, additional legalger, DOS; and T Banyopadhyay, additional chief general mananger.