PUNE, Feb 15: Should banks, which are presently saddled with surplus funds, be encouraged to lend to non-banking finance companies (NBFCs)? While opinion is divided over this matter, sources believe NBFCs should be allowed to borrow from banks, who are well-equipped to monitor the borrowers' business and ensure safe end use of funds."While the merger route is the only alternative for smaller NBFCs, the fate of the surviving companies depends on access to commercial banks' funds," said DA Gadgil, managing director, Shriram Investment Services Ltd. He expressed the need to reverse the present trend, wherein commercial banks were reluctant to lend to NBFCs.
Gadgil said the survival of NBFCs depended on clearly assigned roles. Emphasising the need to prevent overlap in the banks' and NBFCs' line of business, he suggested "activities of NBFCs should be restricted to retail financing alone, with a permission to access bank funds for the next five years at least. Subsequently, they may be permitted to mobilisepublic deposits, provided they are able to create a track record in the ensuing period."
Industry watchers have, however, sounded a note of caution as the level of non-performing assets (NPAs) of both, banks and NBFCs exceed safe limits.Even the present level of NPAs in the banking system (at an average of 17 per cent) is believed to be unsustainable. S Haribhakti, chartered accountant, strongly believes banks should desist from lending to NBFCs, who are strapped with NPAs in excess of 30 per cent. "The overall rise in non-productive assets may lead to collapse in the economy," he said.While clear roles have to be assigned to various players in the financial system, "the need of the hour," he contends, "is to revive the capital market by complete elimination of information assymetry and strengthening the role of regulatory authorities." Expressing concern over the growing level of NPAs in the economy, Haribhakti said reckless borrowings would lead to a situation similar to that in he South East Asiancountries. Drawing parallels, he said the dominance of family managed businesses and trend for over borrowing, common to India.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
