The sector has been driven into a comatose state by a RBI diktat in January 1998 which made it compulsory for finance companies to get credit ratings if they wanted to raise public deposits. The central bank linked the amount of deposits to ratings obtained. Any amount above the ceiling had to be repaid.There was a furore for a month or so, following which the RBI relaxed its guidelines to allow repayments spread over a few years.

Thousands of NBFCs were forced to repay large amounts to depositors, something which they found difficult because of the liquidity crunch caused by the sluggish economy and a slowdown in repayments byborrowers.

Most finance companies have barely been able to keep their heads above the water and a rash of bankruptcies and closures has been predicted. The sector sent an SOS to the finance minister several times and it now appears that Sinha has realised the dangers to the economy of a large number of NBFCs going belly up.

The full details of what exactly the Reserve Bank is going to do to pull the sector out of the mire are not known, but a few indications are available. At one end of the spectrum is the hope that the RBI will totally delink rating from the amount of deposits and go back to the system in force several years ago.

But this appears unlikely, especially since the RBI may not be enamoured of a total rollback. Rating should be mandatory for bigger NBFCs. But the rules fixing the amount of deposits that can be raised will be relaxed considerably. There is a strong school of thought that the minimum credit rating for larger firms to raise deposits will be fixed at A minus.