The Hindu Business Line : Phasing out public deposits: A body blow to most NBFCs

THE Reserve Bank of India's move to ask non-banking financial companies to voluntarily phase out their acceptance of public deposits is now a ticking time bomb for about 750 small companies.

Larger NBFCs are in a slightly better shape, given their relatively lower dependence on fixed deposits as a source of funds. They had begun to bring down their dependence on this form, systematically after the regulatory strike in 1998.

Mr T.T. Srinivasaraghavan, Managing Director, Sundaram Finance, a leading NBFC, said that the RBI statement was broad in its sweep and laid the direction for the future. Under the current guidelines, NBFCs are allowed to borrow up to 4 times the net owned funds. He said he did not see any immediate impact on the funding profile of his company. The company's public deposits were at Rs 650 crore and this accounted for only about 22 per cent of the capital employed in the business.

Mr M. Anandan, Managing Director, Cholamandalam Investment and Finance Company, said only about 10 per cent of his company's needs were met by public deposits. Since the cost of public deposits was high, NBFCs had begun to de-emphasise this form of resource raising. However, he termed as positive the RBI move to allow banks to refinance NBFCs for used vehicles. About 20 per cent of the lendings by top NBFCs were for used/second-hand vehicles.

Mr N. Sampath Kumar, Executive Director, Ashok Leyland Finance, (which has since merged with IndusInd Bank), said that since deposits were credit-rated, the RBI's move was a surprise. The central bank had earlier asked companies to raise resources from the market and this was a policy reversal. He said that a certain amount of unsecured funds (such as public deposits) had to be raised, in order to create assets or even provide the margin for refinance.

NBFC industry leaders said that until the RBI came up with an alternative funding mechanism (something on the lines of refinance available for housing finance companies from the National Housing Bank), it would be inappropriate to just ask NBFCs to wind down public deposits.

At the end of March 2003, aggregate public deposits of 870 reporting NBFCs was about Rs 5,034 crore. This has come down from Rs 13,572 crore at the end of March 1998, which belonged to 1,420 companies.

Our Kolkata Bureau reports: THE roadmap for RNBCs (Residuary Non-Banking Companies) should encourage the companies involved to invest more prudently, said Mr D.N. Ghosh, Chairman of Peerless General Finance & Investment Co. "We have been talking to RBI on some of these issues", Mr Ghosh observed, adding that the apex bank has sought to make investment operations easier for RNBCs.

More Stories on : Credit Policy | NBFCs | Fixed Deposits

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