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Thursday, Oct 07, 2004

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RBI asks `problem' cos not to repay deposits before term

Our Bureau

Mumbai , Oct. 6

FOR the purpose of permission to prepay accepted public deposits, the Reserve Bank of India has decided to segregate companies that accept such deposits into `problem' and normally run companies.

Expressing concern over non-banking entities offering premature repayment to depositors, the apex bank has prohibited `problem companies' from prematurely repaying deposits.

"Certain companies have offered to the depositors the right to premature repayment. Such repayments may vitiate the ALM discipline of companies. In case of a company whose assets may be insufficient to meet all its outside liabilities, such repayments may result in preferential treatment to those depositors who exit early," said the apex bank in a circular issued to all non-banking financial companies, miscellaneous non-banking companies and residuary non-banking companies. The circular said that the provisions need a review for the purpose of safeguarding the ALM discipline among the companies and to restrict preferential prepayment.

Further, the provisions relating to repayment of deposits and the applicable interest rate in the event of unforeseen death of a depositor also need a review.

The existing contracts granting the right for premature withdrawal on the depositor would remain unchanged, according to the RBI circular.

Finance companies should not make prepayment where the depositor of a problem company does not have such right or where the problem company has reserved the right to agree to the depositor's request for prepayment.

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