A meeting was held with Residuary Non-Banking Companies (RNBCs) today in the Reserve Bank of India. Dr. Y V Reddy, Governor, Reserve Bank chaired the meeting which was attended by Smt. K J Udeshi, Deputy Governor and Smt. Shyamala Gopinath, Executive Director along with other senior officials of the Reserve Bank. RNBCs were represented by Shri Subrata Roy, Managing Director, Sahara Indian Financial Corporation Limited, Shri S K Roy, Managing Director of Peerless General Finance and Investment Company Limited, Shri G Janardhan Reddy, Managing Director of Ennoble Savings and Investment Company Limited. Earlier, the Reserve Bank had held similar meetings with scheduled commercial banks and their industry association as also with urban cooperative banks.

The participants from RNBCs appreciated the opportunity to meet with the Reserve Bank officials and considered the gesture as a recognition of importance attached to RNBCs. They emphasised that they are reaching out to areas and people who are not usually covered by the financial system. They added that RNBCs play a very useful role by mobilising resources for the economy while providing employment on a large scale. They further added that while their performance has been good, the RBI Directions issued recently have made their functioning difficult.

They contended that restriction of discretionary investments will affect their survival. RNBCs also raised the issues relating to other stipulations, viz., additional investment in Government securities, risk weight on exposure to public financial institutions (PFIs) which are rated AA+ and above, permission to invest a part of the deposit funds in the equity oriented mutual fund schemes, capital charge on account of downgrading of rating of the debt instruments below AA+, etc.

The Governor noted the achievements made by RNBC, their current role and emerging issues, as presented by the participants. He explained the ongoing efforts of the Reserve Bank to strengthen regulatory framework and in this regard, he narrated the special features of RNBCs namely, the large size of deposits with systemic implications, the high concentration ratio with two RNBCs accounting for almost all of the deposits and a major part of all public deposits mobilised by non-banking finance companies in the country and the very high growth rates in public deposits in the RNBC sector relative to the financial system as a whole warranting close scrutiny. He assured that the Reserve Bank will examine various operational suggestions made in the meeting in regard to smoothening the transition to compliance with the Directions issued recently. He added that any modifications that are warranted would be considered on merit consistent with the basic objectives of such Directions. He added that the overall agenda for improvements in the financial system includes several aspects. In regard to RNBCs in particular, he reiterated the need for improvements in regard to transparency, especially the connected lending relationships, corporate governance standards including professionalisation of the Boards and ensuring “fit and proper” keeping in view the standards in banks with appropriate adaptation, avoidance of untenable rates of commission to agents, strict adherence to ‘know your customer’ rules through systems consistent with their business but subject to regulator’s close oversight, customer service in terms of clear indication of the identifiable contact with the field agents, the need to convince the regulator that appropriate systems are in place in all points of transaction between the depositor and the RNBC including intermediating agencies, exploring the other related matters, such as, unclaimed deposits. He noted with appreciation the assurance given by the RNBCs that all the operational issues will be resolved to the satisfaction of RBI. The Governor also noted the request of RNBCs to liberally permit discretionary investments and their offer to accept special guidelines as well as procedures in regard to approvals of such liberalised discretionary investments.