The Hindu Business Line : Only banks may be permitted to accept public deposits

Mumbai, April 1 7 The Reserve Bank of India may restrict non-banking finance companies (NBFCs) from collecting public deposits and allow only commercial banks to accept such deposits.

Considering that the number of deposit-taking NBFCs and the amount of deposits with them are coming down, it is time to think of allowing only banks to accept public deposits, said the Reserve Bank of India’s Deputy Governor, Mr V. Leeladhar.

Speaking to presspersons on the sidelines of a banking seminar organised by the IMC, Mr Leeladhar said this is not something that can happen immediately and there will be a transition period.

Talking about the consolidation in the NBFC sector, Mr Leeladhar said the number of deposit-taking NBFCs (NBFCs-D) has come down from 710 as at the end of June 2003 to 376 as at the end of March 2008. The amount of public deposits held by them also declined from Rs 5,035 crore as of March 2003 to Rs 2,043 crore as of March 2007.

The number of Residuary Non-Banking Companies (RNBCs) has also decreased from five as on March 31, 2003 to three as of December 2006. Of these, two companies accounted for virtually the entire deposits as the deposits of the third company, at less than Rs 1 crore, were insignificant.

However, in contrast to the trend of deposits of the NBFCs, the Aggregate Deposit Liability (ALD) of the RNBCs has been showing a rapid growth. The deposit liability of RNBCs increased from Rs 15,065 crore as on March 31, 2003 to Rs 22,622 crore as on March 31, 2007, showing an increase of 33.9 per cent.

“However, in view of the changes in the operating environment of the RNBCs, their business model has now become non-viable and there is a need for them to explore a new business model,” Mr Leeladhar said.

The Deputy Governor also said that consolidation has taken place among Urban Co-operative Banks through mergers and acquisitions and the number of regional rural banks has also reduced by half. The existing ones are in a much better position financially and systemically.

About consolidation among public sector banks, Mr Leeladhar said that it will have to be initiated by the banks’ boards. “All mergers between PSU banks need to be based on profitability and business consideration,” he said.

He said that the RBI will play a supportive role in banking consolidation with a view to strengthening the financial system.

Mr Mahesh Thakkar, Director-General, Finance Industry Development Council, said that while the number of deposit-taking NBFCs is going down, a move like this will not happen in the near future. “Perhaps the reason behind the deputy governor’s statement is the fact that worldwide only banks are allowed to collect public deposits. But nothing is expected in the near future,” he said.

FIDC is a self-regulatory organisation formed by non-banking financial companies which are registered with the RBI and authorised to accept public deposits.

Regarding the issue of corporates going to court against banks after suffering losses in currency derivative transactions, Mr Leeladhar said, “We do not think there will be any systemic risk. These are contractual agreements between corporates and banks.”

About the extent of losses suffered by banks on account of such transactions, Mr Leeladhar said that it will be clear only after the annual inspection of banks by the RBI, which will start in May.

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