De-registration of small NBFCs will hurt financial inclusion: Finmin

Jan 21 2013, 01:50 IST
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SummaryComing to the aid of around 9,000 non-banking finance companies with asset size below Rs 25 crore — facing de-registration and even closure following the proposed RBI norms — the finance ministry has opined that the central bank should retain them under its regulatory ambit.

Coming to the aid of around 9,000 non-banking finance companies (NBFC) with asset size below Rs 25 crore — facing de-registration and even closure following the proposed RBI norms — the finance ministry has opined that the central bank should retain them under its regulatory ambit.

The ministry is also of the view that if the RBI, in its final guidelines, directs these small NBFCs to de-register till they attain the threshold of R25 crore asset size, the regulator should also issue appropriate notifications, allowing these small NBFCs to continue their existing business, such as auto financing, official sources told FE.

The ministry is also against deregulation or de-recognition of NBFCs as it will not only curtail the operations of the NBFCs, but also harm the financial inclusion programme. “If they (the RBI) have limitations regarding supervising the total 12,300-odd NBFCs (of which around 9,000 are with an asset size of less than R25 crore), they may exempt these small NBFCs from registration. However, the RBI should direct them to submit elaborate reports regularly and conduct random checks of their operations,” an official said.

Simultaneously, the RBI should work on a stronger supervisory mechanism for the sector and put in place an elaborate system for capturing and analysing data from all the NBFCs, the sources said. The RBI should also look at bringing out size-wise uniform accounting norms and financials reporting rules for different categories of NBFCs, they added.

The ministry is holding a meeting on Monday — on the issues arising out of the RBI’s new draft norms — with top industry representatives and the Finance Industry Development Council, which is a self-regulatory organisation formed by NBFCs registered with the RBI. The move to de-register small NBFCs will be one of the main points of discussion. Following the report submitted by the Usha Thorat-led working group, the RBI on December 12 had issued draft norms.

FIDC has already sent their representation on the draft guidelines to the RBI earlier this month.

“This (de-registration of NBFCs) shall take us back to the pre-1997 era of unregulated entities engaged in financial activities, which could once again encourage mushrooming growth of such high-risk entities. It is perhaps a one-of-its-kind scenario where the smaller players want to be registered and regulated, but the regulator wants them to be outside the ambit of regulation," said Raman Aggarwal, director (member managing committee), FIDC.

He said small NBFCs, once de-registered, shall be denied

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