Monday, Sep 20, 2004
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By Our Special Correspondent
CHENNAI, SEPT. 19 . The long-awaited meeting between representatives of the Residuary Non-Banking Companies (RNBCs) and the Reserve Bank of India took place on September 17. The RBI team was led by its Governor, Y.V. Reddy, while the RNBCs were represented by Subrata Roy, Managing Director, Sahara Indian Financial Corporation, S. K. Roy, Managing Director of Peerless General Finance and Investment Company, among others.
New initiatives
The meeting was held in the context of new regulatory initiatives that the RBI is contemplating for the RNBC sector. These include restriction on their discretionary investments, additional investment for government securities and increase risk weight on their exposure to public financial institutions. The RNBCs urged that with their widespread network they are reaching out areas and people who are not covered by the financial system in mobilising resources for the economy. Besides, they provide employment on a large scale. The new RBI proposals will make their functioning difficult, they said and urged the RBI to have a re-look at the new guidelines. Mr. Reddy, while noting the role the RNBCs have played, pointed out certain unique features: their large size of deposits which has systemic implications; high concentration ratio with two RNBCs accounting for almost all of the deposits and very high growth rates in public deposits in the RNBC sector relative to the financial system as a whole. The RBI assured that the various operational suggestions made in the meeting in regard to the smoothening the transition process will be considered on merits and any modification will thereafter be issued if necessary. In regard to RNBCs, there is a need to improve transparency especially the connected lending relationship, corporate governance standards including professionalisation of the Boards.
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