The Hindu Business Line : Questions over RBI directive on banks' ownership of NBFCs

The fact that the RBI contemplates a situation of not just access to public deposits but indirect access to public funds through such devices as debentures and commercial paper should make banks wonder if the days of an NBFC route to expanding one's footprint in India are numbered.

Chennai/Mumbai , Nov. 4

The Reserve Bank of India on Friday has proposed that banks' ownership of a non-banking finance company (NBFC) accessing public funds be restricted to 10 per cent of the latter's capital.

But a question mark hangs over the exact profile of companies that the RBI has in mind in the context of application of an ownership ceiling. Would the ceiling apply to NBFCs that do not accept deposits from the public but otherwise source public funds albeit, indirectly?

The RBI has referred to a class of NBFCs with the hyphen `D' suggesting on the face of it, that it has in mind only those outfits that mobilise deposits from the public. But it is by no means certain that the draft circular from the RBI has only such outfits in its scope.

It has spoken of `NBFCs-D' as those that access `public funds' either directly or indirectly through deposits, CPs, debentures, and bank finance. The emphasis is clearly on `public funds' and not deposits as such. For added effect, it has also spoken of both direct and indirect access to such public funds.

But banks can also take comfort from the fact such a restrictive interpretation would also fall foul of the official definition of public deposits in the RBI Regulations on the same for NBFCs.

These, initially issued in 1998 and amended from time to time since then clearly exempted commercial paper, besides inter corporate deposits from the definition of public deposits.

The question then would be whether a circular can impose a definition of a `Deposit Taking NBFC' that is at variance with regulations that were formally notified earlier.

Officials at Citibank and Standard Chartered Bank that have wholly-owned subsidiaries and which do not accept deposits said that their banks were still studying the guidelines. However, Singapore-based DBS Bank, which has a 37.48 per cent stake in Cholamandalam DBS Finance is said to be in the process of converting the deposit-taking NBFC into a non-deposit outfit.

The guidelines

Mr Krishnan Sitaraman, Head-Financial Sector Ratings, Crisil, said there were hardly any Crisil-rated deposit-taking NBFCs, in which banks have a significant stake. "The guidelines are just to ensure that banks, in the future, do not pick up a significant stake in NBFCs-D as there may be duplication of roles," he said.

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