ICSI seeks simple NBFC norms for smoother functioning

The Institute of Company Secretaries of India (ICSI) is lobbying for the simplification of the regulatory framework for non banking finance companies (NBFCs), with a view to bring about more efficacy in its functioning at a time when the country's borrowing needs are on a higher scale.

Ashok Pareek, ICSI chairman for eastern India regional council (EIRC), told FE that the regional councils are deliberating over the issue and the headquarters might take it up with the ministry of corporate affairs.

Anjan Kumar Roy, ICSI's secretary and treasurer for EIRC, said, "NBFCs, a major constituent of the Indian financial domain, are pestered by the Reserve Bank of India, Securities and Exchange Board of India and the Foreign Investment Promotion Board with plethora of laws, bylaws, rules and regulations which seem absurd at times." "Any form of rationalisation and simplification of the regulatory framework would be welcome by the industry,' Roy added.

He said decline in interest rates and credit deposit ratios and improvement in credit quality have prompted banks to lend to NBFCs at competitive rates. Mutual funds with a rapid growth in fixed income corpuses have proved to be a competitive source and securitisation has emerged as an attractive and sizeable source of funds as well.

Even distribution channels of NBFCs have proved to be more effective than many banks. "So NBFCs, being a major funding source, should come under a more rationalised regulatory framework," Roy said.

According to Pareek, the cost of fund for NBFCs is now at par with the cost of funds for banks and even the government considers external commercial borrowing for NBFCs on a case-to-case basis. NBFCs are now more integrated with the financial system than ever before, he pointed out.

Also, the RBI has identified as many as twelve categories of NBFCs, five of which are regulated by the RBI itself. According to an ICSI member, the corporate affairs ministry should constitute a single and an independent regulator for NBFCs and bring it under stricter monitoring. Shekhar Bhatnagar, general manager, department of non-banking finance supervision, admitted that NBFCs generally have a higher risk appetite and such companies are often prompted to finance grey area activities.