Reserve Bank may restrict NBFCs from accepting public deposits

Reserve Bank may restrict NBFCs from accepting public deposits
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First Published: Thu, Apr 17 2008. 11 30 PM IST

Fresh look: RBI’s V. Leeladhar.
Fresh look: RBI’s V. Leeladhar.
Updated: Thu, Apr 17 2008. 11 30 PM IST
Mumbai: The Reserve Bank of India (RBI) might restrict non-banking financial companies (NBFCs) from accepting public deposits, said a senior central banker on Thursday.
“The number of deposit-taking NBFCs is coming down sharply. The amount of deposits they are taking is also coming down sharply. So, perhaps the time has come where we can now think of only allowing banks to acquire public deposits,” RBI deputy governor V. Leeladhar told reporters on the sidelines of a banking conference organized by trade body Indian Merchants’ Chamber.
Fresh look: RBI’s V. Leeladhar.
“The policy will not ask you to immediately stop (taking deposits). There will be a transition period…. I am only saying that a time has come for taking a fresh look (on the matter),” Leeladhar said.
The number of deposit-taking NBFCs has come down to 376 in March from 710 in June 2003. Public deposits held by these companies have come down to Rs2,043 crore in March 2007 from Rs5,035 crore in March 2003, he said.
RBI has given an option to NBFCs to voluntarily move out of accepting public deposits if they found the regulatory costs outweighed their benefits.
“In case an NBFC voluntarily chooses to get out of public deposits, the Reserve Bank would, in fact, help the NBFC in its efforts, including imparting training and technology support,” Leeladhar said.
NBFCs operate almost like banks, except for running a checking account, or accounts, where money can be easily withdrawn by writing checks, or using a debit card. Although the capital adequacy norm for NBFCs is 10%, compared with 9% for a regular bank, they do not have any statutory liquidity ratio (SLR)—the amount of money banks are required to invest in government bonds— and cash reserve ratio (CRR)— the amount of money banks are required to keep with RBI—requirements. For banks, the SLR and CRR requirements are 25% and 7.5%, respectively.
Leeladhar also said that RBI has a “supporter’s role” in consolidation of domestic banks. However, “any systematic merger between public sector banks will have to be based on business considerations, profitability angle and how strong the final entity will be both financially and its viability”, he said. The decisions on any such consolidation, according to him, will be driven by the concerned bank’s board.
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First Published: Thu, Apr 17 2008. 11 30 PM IST