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Journalism of Courage
MUMBAI, July 19: The Reserve Bank of India has formulated a 3-tier framework for the regulation of non-banking finance companies. This will include off-site monitoring, on-site inspection and an expanded role of auditors in the supervision of NBFCs. It has also decided to set up a joint committee with the Institute of Chartered Accountants of India (ICAI) to suggest new formats of financial disclosures to indicate the true financial health of NBFCs.
Disclosing this to the officers’ incharge of the financial companies wing of the 15 regional offices of the Department of Supervision, the RBI governor Dr C Rangarajan admitted that “the present balance sheets and profit and loss accounts of NBFCs do not indicate the true health of the NBFCs and also their compliance with the financial norms of RBI.”
“A dialogue has been initiated with the ICAI and a committee will devise a format of report, on the pattern of the long form of audit reports in the case of banks, in which the auditor of an NBFC will be required to give his opinion on certain specific aspects,” he said.
That apart, the RBI would ask all the auditors of NBFC to certify important returns from NBFCs. “To carry out specific inspection of NBFCs, we are considering to engage firms of chartered accoutants to carry out inspections,” he said.
The RBI has decided to regulate NBFCs on the basis of their size, nature of operations and acceptance of public deposits. Rangarajan said that the main thrust of supervision of NBFCs will henceforth be through an appropriate mechanism of off-site monitoring. He said that the formats of the annual returns have been revised to provide for certain data regarding the core assets and income of a company. In order to make the data furnished more acceptable and free from the errors noticed earlier, these returns would now have to be certified by auditors of the NBFC.
Companies with an asset size of over Rs 100 crore have already been asked to furnish an annual return giving the comparative position of their operational data for three years in regard to certain items in their balance sheets, profit & loss accounts and key ratios.
“Till recently the supervisory mechanism was minimal and confined to finding out whether the companies were complying with the directions issued with regard to their deposit acceptance activities,” Rangarajan said.
Stating that the NBFCs were not a homogenous group, Rangarajan said since the NBFCs’ operations were different besides size variations, one could not have a uniform prudential regulation and place a fixed limit on raising public deposits.
As per the new RBI regulatory framework, those companies which were registered under the earlier scheme and those which will be issued registration certificates will be required to furnish a half-yearly return on the prudential norms, certified by their auditors. A proper analysis of the data contained in these returns will provide valuable information as to the working of the companies and their financial health which will also trigger off on-site inspections of some of the companies. "It is recognised that the receipt of returns and their prompt and effective scrutiny would be the means to exercise effective off-site surveillance over the NBFCs," said Rangarajan.
Since a system of computer processing and analysis of the data would be required towards this end, the central bank will soon appoint an information technology firm to develop an appropriate software package, select necessary hardware and train the bank staff.
NBFCs that have sizeable assets and also those NBFCs whose off-site monitoring throws up signals of unhealthy financial position or non-compliance with the prudential norms will be inspected periodically by the RBI. The emphasis on on-site inspection will be directed towards the examination of quality of assets, besides checking if the NBFCs are complying with the regulatory and supervisory stipulations.
Rangarajan said that decisions on issue or refusal of registration certificates, issue of prohibitory order and initiation of winding up proceedings will be taken on the basis of the inspection reports.
Based on the recommendations of the Shah and Khanna Committees, the RBI has decided to expand the role of the auditors in the supervision of NBFCs."In view of the urgent needs to carry out inspections of some of the NBFCs, a proposal ius under consideration to engagage firms of chartered accountants to carry out a round of special examination of these NBFCs," said the governor.
He however added that the reports will be further examined and scrutinised by the Department of Supervision and the auditors will be used only as special vehicles.
Over 37,000 firms seek registration
MUMBAI: Over 37,000 non-banking finance companies (NBFCs) have applied for registration with the RBI in accordance with the recent amendments to the RBI Act, RBI Governor C Rangarajan said.
He said as at the end of March 1996, RBI had around 41,000 NBFCs on its mailing list and the total public deposits of the reporting NBFCs stood at Rs 17,883.50 crore, constituting 4.1 per cent of the aggregate deposits of the scheduled commercial banks.
