The Hindu Business Line : Working group moots RBI divesting stakes in DFIs

SHOULD the Reserve Bank of India continue to hold majority stake in NABARD and National Housing Bank (NHB)? No, says the report of the Working Group on Development Finance Institutions (DFIs), which was released here on Saturday.

In a significant proposal, the Working Group, set up by the RBI, has suggested that the apex bank divest its ownership stakes in NABARD and NHB. However, it added that the RBI may ensure that the standard of regulations or supervision exercised by NABARD, NHB and Small Industries Dvelopment Bank of India (SIDBI) over the institutions falling under their respective domains are broadly at par with those maintained by the RBI.

Also, a major restructuring of the operations of DFIs appears to be on the cards, if the report of the Working Group is any indication. The report has made it clear that only those DFIs which the Union Government decides to support for the time being may continue as DFIs, while the rest should convert themselves into either a bank or an NBFC. Further, it has recommended that no relaxations be granted to the DFIs that convert into banks unless "mandated by a statute in respect of requirements such as minimum capital, income recognition, asset classification and provisioning, capital adequacy and maintenance of CRR and SLR."

According to the report, in future no DFI should be established without government support. Also, DFIs constituted as companies and performing developmental roles should be classified as `Development Financial Companies' (DFCs) and subjected to uniform regulation.

On the State Financial Corporations (SFCs), the working group has suggested that a definite time frame be fixed to phase out these corporations, while the special status conferred on securities issued by public financial institutions be removed.

Another recommendation of the Working Group envisages that the RBI fix suitable caps for Residuary Non- Banking Companies' (RNBCs) exposures to capital market, real estate, unlisted but rated securities and units of equity oriented mutual funds.

For mobilisation of public deposits by RNBCs, a cap in terms of net owned funds (NOF) may be fixed by the central bank, the Working Group feels.

To avoid any hardship to the existing RNBCs, the cap on public deposits may be fixed at a level of 16 times of NOF, as an initial measure along with a direction that the outfits will ultimately have to conform to the norms for raising public deposits for NBFCs in general, i.e., 4 times or 1.5 times of NOF as applicable. The time of such transition should not be more than five years.

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