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From the Press

FIDC to take up deposits issue with Reserve Bank

S Bridget Leena / Chennai / Business Standard / October 29, 2004

The Finance Industry Development Council (FIDC) - the self regulatory organisation for registered non banking finance companies (NBFCs) - expects to take up the issue of phasing out of NBFCs from accepting public deposits, with Reserve Bank of India (RBI).

Mahesh Thakkar, director general, FIDC, told Business Standard, "Moving towards international best practices by phasing out public deposits is a welcome move, provided RBI allows banks to refinance NBFCs at lower lending interest rates and the companies are treated on par with banks in terms to taxation, access to debt recovery tribunal and Securitisation Act."

"We will have a detailed discussion with the central bank on this issue next month. The banks have expanded their lending portfolios to car financing in a big way, we have similar set of borrowers. Unless we are able to mobilise funds from banks at cheaper rate, it does not make much sense for customers to borrow from us." he added.

The number of deposit taking NBFCs has also reduced to 577 in 2004 from 996 in 1997. The deposits of NBFCs declined from Rs 6,500 crore in 2000-01 to Rs 3,400 crore in 2003-04.

When asked about this trend, Thakkar said that the option of accepting deposits from the public should not be completely shut. As rated NBFCs can borrow over four times of their net owned fund while unrated ones can borrow only up to 1.5 per cent or Rs 10 crore which lesser.

The options for raising funds available to NBFCs are capital markets, debentures, bank credit, public deposits and external commercial borrowing (ECBs).

Of this, the last avenue has already been shut, with ECBs being allowed only for infrastructure funding. Mobilising funds from capital market too would prove to be expensive, Thakkar said.

The average cost of funds of NBFCs is around eight per cent during the current financial year. He pointed out that RBI has reported that there have been no defaulting NBFCs since 1998.

The monetary and credit policy announced by RBI two days ago stated that the regulator will direct the NBFCs to phase out accepting public deposits and shall review regulations on banks lending to NBFCs. This step of the central bank is a prelude to making the Indian financial system move towards global standards.

T T Srinivasaraghavan, managing director, Sundaram Finance Ltd, which is also a member of FIDC, said NBFCs will want to follow international practices in all spheres, given a level playing field and not just follow a single framework alone.

There are about 300 companies which have become members of the FIDC out of 613 A category finance companies.

The deposits mobilised by these 613 finance companies is estimated at around Rs 4,500 crore. Sahara, which is residuary NBFC, is also member of FIDC and would alone have about Rs 5,000 crore deposits, sources said.

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