NEW DELHI, July 14: The Ministry of Finance (MoF) has shifted the onus of formulating an insurance scheme for public deposits in the non-banking finance companies (NBFCs) to the Reserve Bank of India (RBI).Highly-placed sources in the Finance Ministry pointed out that Government had not taken a view on the subject and referred the same to the RBI.Insurance on NBFC deposits, sources said, has been included as one of the terms of reference of the Sheri Committee.The Committee, it was pointed out, was likely to submit its report by the end of July and would pave the way for taming the erring NBFCs and checking the mushrooming growth of such companies. It will also give its verdict on the feasibility of an insurance scheme to protect the interest of depositors.The idea of having some sort of insurance cover on the public deposits with the NBFCs assumed significance with the collapse of the CRB Caps in which a large number of depositors lost huge amounts. Despite all the assurance given by Prime Minister I K Gujral and the protest launched by the Bhartiya Janata Party (BJP), it was unlikely that investors would get anything from the liquidation of the CRB group of companies.According to sources in the Finance Minister, as per the liquidation procedure, the first charge would be that of the Government. The Central Board of Direct Taxes (CBDT) had to recover the arrears of taxes and would be given the first priority. The second charge would be that of secured debtors which mostly include public and private sector banks. Thereafter the claims of unsecured debtors, which include common investors would be settled. It was unlikely that any amount would be left after settlement of claims of the banks. Even if the Government wants, it cannot bypass the liquidation procedure to compensate the common depositors, sources said.With a view to provide some security cover to the depositors, Prime Minister Gujral urged the Finance Ministry to explore the possibility of an insurance cover. The suggestion evoked mixed response from the industry. The NBFCs, initially, did not favour insurance cover as the same would increase the cost of deposits and lower the returns for the depositors. Such deposits, by nature, were risky and the depositors were compensated with higher returns.Of late, the NBFCs were having second thoughts. According to Ministry sources, the CRB fiasco has started taking its toll on the deposits being mobilised by the NBFCs. The dwindling deposit base has threatened the very existence of a large number of NBFCs. A significant number of them might go out of business following withdrawal of support by the public. Under these circumstances it might be in the interest of the NBFCs themselves to plead for an insurance.
