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Residuary Non-Banking Companies (RNBCs), a
special type of Non-Banking Financial
Companies (NBFCs), are treated as a perplexing breed in the
Indian financial system. While the monetary authority
had approved them the liberty to accept public deposits in
the form of daily deposits, recurring deposits and
fixed deposits devoid of any limit, the financial markets
have been reasonably scratchy with their survival as the
markets are oblivious of their financial status. As per the
RBI regulations for the RNBCs, these companies are
allowed to access borrowing from banks, Financial
Institutions (FIs) and corporates but they have only tapped
public deposits and have achieved stupendous results in
this area. However, this unbridled growth raised
numerous concerns for the RBI which felt these companies were
not moving in line with the directions meant for them.
Hence, the regulator barred these RNBCs from collecting
public deposits and withdrew their discretionary
investment powers. The RNBCs are not free in matters relating
to their investment pattern, like the NBFCs. They are
required to invest only in the directed line of investments.
Earlier, the discretionary investment of RNBCs was allowed
upto 20% of the total investment portfolio. However, due
to the unscrupulous expansion in deposit accretion in
the RNBCs, the RBI, apprehending unfavorable
circumstances for the depositors in the future, has denied the RNBCs any discretionary investments. In fact, the purpose
of withdrawing the discretionary investment powers of the RNBCs was to channelize their investment in
approved securities to avoid any undesirable consequences. But owing to their performance in financial markets
and the need for mobilizing surplus income from the small potential savers of the rural India, an intuitive
study will definitely suggest to the RBI to give a second thought to the issue. Accordingly, this article tries to focus
on assessing RBI's step in this regard.
There are three RNBCs in India out of which one is a miniature setup and the remaining two are
large setups. So any talk of RNBCs in India refers to only these two giants; Sahara India Financial
Corporation Ltd., Lucknow and Peerless General Finance & Investment Company Ltd., Kolkata.
According to the RBI guidelines, these RNBCs are required to invest 100% of their deposits in
approved securities which comprise of government bonds and fixed deposits with banks and mutual funds.
Besides removing the discretionary investment powers and the banning them from raising public deposits, the
RBI has also asked the two RNBCs to put forward alternative business plans.
Peerless has already streamlined its alternative courses of action. It has,
however, asked for some more time for wrapping up the business of RNBC and finalizing a
suitable new business model. And Sahara has
made representations to the RBI for relaxation of
its norms. However, RBI is keen on `putting a fence' around these two RNBCs to
assure depositors of their principal, if not interest. |
