The Hindu Business Line : RBI moves to prevent hoarding of foodgrains

The check
NBFCs asked to confirm that funds have not been diverted for procurement of foodgrains
It is feared some corporates use non-deposit taking NBFCs as a vehicle to enable them to stock up on commodities

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Mumbai Feb. 23 Concerned by the rising prices of essential commodities, the Reserve Bank of India has started measures to prevent misuse of funds for hoarding of foodgrains.

On Friday, the RBI asked a section of big non-banking finance companies (NBFCs) to furnish details of their exposure to large borrowers (corporates and other entities) for procurement of foodgrains.

In a notification issued to non-deposit taking NBFCs with an asset size of Rs 100 crore and above, the RBI said: "Concerns have been expressed that some of the corporates may be hoarding foodgrains, which could have the benefit of resources from the NBFC finance.

"NBFCs with an asset size of Rs 100 crore and above are, therefore, advised to undertake a quick scrutiny of their financial exposures to large borrowers for procurement of foodgrains."

These NBFCs have also been asked to confirm that funds have not been diverted for procurement of foodgrains with a view to hoarding. They have been directed to submit a comprehensive report to RBI on their exposure to large borrowers by March 10, 2007.

There are several non-deposit taking NBFCs with an asset size of Rs 100 crore and above, which are floated by corporates as well as Indian and foreign banks. It is feared that some corporates use these NBFCs as a vehicle to enable them to stock up on commodities.

Deposit-taking NBFCs are directly under the supervision of RBI. In the case of non-deposit taking NBFCs, the RBI recently issued guidelines, which would come into effect from April.

According to an analyst with a rating agency, since a significant part of inflation is due to rise in prices of essential food items, the RBI wants to ensure that credit is given to relevant channels and funds are not used for speculation. But, he pointed out, it is unlikely that big NBFCs are involved in funding corporates for hoarding foodgrains.

Prices of essential items, particularly of food items, have been rising. Despite the impending harvest of Rabi crops (wheat, pulses, oilseeds), the prospect of easing the market rates appear bleak, said an analyst.

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