Warning The Buyer

The RBI gave the in-principle clearance, the step before actually issuing a licence, for the bank early last year on the basis of reports from the Securities and Exchange Board of India (Sebi) and the companys bankers. It still remains a category one merchant bank. CRB Capital sought registration as a non-banking financial company only late last year, and that was when its internal state of affairs started to unravel. It was told in December not to go ahead with plans to start a bank, and last month came the ban on taking fresh deposits and the cancellation of the in-principle clearance. The trade holds that the presence of RBI inspectors in any big way invariably sends ripples through the market about the standing of a firm, but if the RBI is to supervise the bigger players it cannot do so only on the basis of off-site investigations.

 

There is no case for supervision of the riskier parts of the financial sector. If people wish to lend money at exorbitant rates of interest then they should do so only at their own risk. Banning such risk-taking solves nothing and only helps to drive it underground. In these matters, the principle of caveat emptor (let the buyer beware) applies and those seeking to do business should go in with their eyes and ears fully open. The only point that needs examining is whether this warning to the buyer is suitably clear. Were some depositors walking in and out of the companys respectable premises under the notion that big is safe? It should be possible to tell potential depositors the actual status of an NBFC whether it is registered or whether it meets the rating and prudential norms defined for them. A public awareness campaign on what to look for before doing business with an NBFC may be desirable. The RBI has given time till July for existing NBFCs to apply for registration and they can carry on with their

business till registration is refused. Perhaps every NBFC should carry a prominent sign indicating We are/are not registered with the RBI.