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VOLUME - 1 NO. - 3OCTOBER-NOVEMBER 2 0 0 9 F O R P R I VAT E C I R C UL AT I O N
T. T. SRINIVASARAGHAVAN, Chairman
E D I TOR I AL C OM MI T T E E
M R . M U KE S H G A N D HI
M R . N M M U K H I, E d i t or
MR. T. T. SRINIVASARAGHAVAN, Chairman
MR. RAMAN AGGARWAL, Co-Chairman
MR. MAHESH THAKKAR, Director General
MR. SRINIVAS ACHARYA
AT A G L AN C EPrudent Regulation
Regulatory Perimeter
H a p p y d a y s a r e h er e f o r N B F C s e c t o r
NBFCs-Regulatory and Legislative Gaps
Profile of Asset Financing Companies [AFCs]
P er is co pe : E xp er ts st re ss ne ed to se t u p a ut ho ri ty f or NB FC s
: E L AI a ss u me s n e w r o le t o r e pr e se n t N B FC s
: A m en d Mo t or Ve h ic l es A c t, 1 98 8 s ay s F I DC
L eg al E ag le : Ar bi tr at ion C os t :
: S i gn e d me a ns - r ea d a nd s i gn e d
: B o u nc e d c he q u e: N o c a se i f b or r o w er h a s n t
issued it
F I DC I n A c ti o n : M e et i ng o f Ma n ag i ng C o mm i tt e e of F I DC a t
Ahmedabad
: F ID C A ct io ns
: F I DC r e co m me n ds c ha n ge s i n MV A c t, 1 98 8
: G uj ar at i C op y of F I DC H an db oo k on
Repossession unveiled
1
F i n a n c e
I n d u s t r y
D e v e l o p m e n t
C o u n c i l
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Pre s e rv ation Pe riod of Re c ords unde r PML Ac t
E C B f o r t h e N BF C S e ct o r
RBI h a s d ire cte d th e NBFCs[ in clu d in g RNBCs] vid e circu la r No. DNBS(PD). CC 1 6 4 /0 3 .1 0.0 4 2 / 2 0 0 9 - 1 0 d a te d No v.1 3 ,2 0 0 9 to ma in ta in a ll re co rd s o f tra n sa ctio n s b e twe e n NBFCs/RNBCs a n d a clie n t fo r a t le a st 1 0 ye a rs fro m th e d a te o f at r a ns a c t io n . T h i s w i l l p e r mi t r e c o n s tr u c t io n o f i n d i v i d ua ltransactions so as to provide, if necessary, evidence for p ro se cu tio n o f p e rson s in vo lve d in crimin a l a ctivity. Re co rd sp e rta in in g to th e id e n tifica tio n o f th e cu sto me r a n d h isa d d re ss (e .g . co p ie s o f d o cu me n ts like p a ssp o rts, id e n tityca rd s, d rivin g lice nse s, PAN ca rd , u tility b ills e tc.) o b ta in e dwhile opening the account and during the course of businessre la tio n sh ip , wo u ld co n tin u e to b e p re se rve d fo r a t le a st te n
ye a rs a fte r th e b usin e ss re la tio nsh ip is e n de d a s re q uire du n d e r Ru le 1 0 o f th e PML ARu le s .
As p e r th e cu rre n t ECB n o rms, No n -Ba n kin g Fin a n ceCo mp a n ie s (NBFCs), wh ich a re e xclu sive ly in vo lve d in th efin a n cin g o f th e in fra stru ctu re se cto r, a re p e rmitte d to a va il o f E C Bs f r om mu l ti l at e ra l / r eg i on al f i na nc i al i n st i tu t io ns an dGo ve rn men t o wn e d d e ve lo p me n t fin a n cia l in stitu tio n s fo r o n -le n d in g to th e b o rro we rs in th e in fra stru ctu re se cto r u n d e r th ea p p ro va l ro u te . In vie w o f th e th ru st g ive n to d e ve lo p men t o f
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T h e wo r l d w e a re l i v in g i n t o da y i s d ra ma t ic a ll y d i ff e r en t f ro m
e v e n t h e o n e t h a t we s a w i n 1 9 9 8 . T h e e ve n t s o f t he l a s t 1 2 m o n t h s
have destroyed many myths, notably, that size gave you immunity
f r o m e v e ry t h i n g. T h a t i s o n e o f t h e b i g m y th s w h i c h w as d e s t r oy e dby the recent economic melt down.
What the financial melt down has shown, if we really cut through
the details and get to the heart of the matter, is that a combination
o f a r r o ga n c e a nd g r e e d h a s l an d e d t h e g lo b a l fi n a n c ia l s y s te m i n
t h e m e s s t h a t i t f i n d s i t se l f i n t o d ay .
Not surprisingly, everybody now craves for more regulation; the
G -2 0 n at io ns ar e a tt em pt in g t o c om e u p w it h a f r am ew or k t ha t
c a n g o v er n t h e f i n a n ci a l s e c t o r a l l a c ro s s t h e w o r l d . H a pp i l y , I n d i a
h a s c om e o u t s hi n in g i n t e r ms o f i t s r e g ul a to r y f r am ew or k a n d w e
m u s t i n m a ny w ay s g i v e t h an k s t o t h e p e o pl e w h o h a v e s t e e r ed t h e
s h ip o f t he I n di an e co no my b o th i n t he g ov er n me nt a nd i n t he R BI ,
notably, Dr YV Reddy who was till recently the Governor. His visiona n d u n d e r s ta n d i n g o f w h a t t h e c h a ll e n ge s w e re f o r a c o u n t ry l i k e
I nd ia , t he f ac t t ha t w e w er e ve ry d if f er en t f ro m w es te r n
economies, are perspectives that really helped to steer India
t h r ou g h a v e r y t ur b u l e nt t i m e . We w e r e p e r h a ps t h e o n l y f i na n c i a l
s y st e m o t he r t h a n C h in a t h at w a s l e ft r e l a ti v el y u n to u c h ed by t h i s
global melt down. It is not to say that we did not feel pain, but our
f i na n ci a l s y s te m wa s ro c k s o li d . T h at wa s l ar g el y d u e to t h e
p r u de n ce of t he pe o pl e w h o h a ve s te e re d r e gu l at i on i n t h is
country.
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infrastructure sector, it has been decided with immediatee ffe ct to a llow NBFCs e xclu sively in vo lve d in fina n cin g th ei n f r as t r u ct u r e p r oj e c t s t o a va i l o f E C B f r o m t h e r ec o g ni z e dl e n de r c a t eg o r y i n c l ud i n g i n t er n a ti o n al b a nk s u n de r t h ea p p ro va l ro u te , sub je ct to co mp lyin g with th e p ru d e n tials t a nd a r ds p r es c r i be d by t h e R e s er v e B an k a n d t h e
b o rro win g e n titie s fu lly h e d g in g th e ir cu rre n cy risk. Th e ADCa te g o ry-I b a n k sh o u ld ce rtify th e co mp lia n ce with th ep ru d e n tia l n o rms b y th e b o rro wing NBFCs.[Se e RBI/2 0 0 9 -1 0 /2 5 2 A.P. (DIR Se rie s) Circu la r No .1 9 d a te d De c. 9 , 2 0 0 9 .]
The Reserve Bank of India has cautioned non-bankingfinance companies that in the event of an existing customer o r th e b e n e ficia l o wn e r o f a n e xistin g a cco u n t su b se q ue n tlybecoming a politically exposed person (PEP) then theco mp a n ies sh o u ld ob ta in se nio r ma n a ge me n t a p pro va l tocontinue the business relationship. Further, the account hasto be subjected to customer due diligence measures as
a p pl i c a bl e t o c u s t om e r s i n t h e P E P c a t eg o r y i n cl u d in genhanced monitoring on an ongoing basis. The RBIsa d v is o r y t o N BF C s a nd r e s i du a r y N BF C s o n P EP s i ssig n ifica n t in the co n te xt o f g ro win g co n ce rn s a b o u t mo ne ylaundering.
PEPs are individuals who are or have been entrusted withprominent public functions in foreign country. These includeh e a d s o f Sta te s o r o f Go ve rn me n ts, se n io r p o liticia n s, se n io r g o ve rn me nt/ju d icia l/military o ffice rs, se n io r e xe cu tive s o f sta te -o wn e d co rp o ra tio n s, imp o rta n t po litica l p a rty o fficials,e tc. Acco rd in g to th e RBI, NBFCs/RNBCs sh o u ld g a th e r s u f f i c i e n t i n f o r m a t i o n , i n c l u d i n g b y c h e c k i n g a l l t h einformation available on the person in the public domain, ona n y p er s o n/ c u s to m er f a l l i ng i n t h e P E P c a t e go r y a n di n t en d i ng t o e s t ab l i s h a b u s i n es s r e l a ti o n sh i p . T h ey s h o ul dve rify th e id e n tity o f th e p e rso n a n d se e k in fo rma tio n a b o u tth e so u rce s o f fu n ds b e fo re a cce p ting th e PEP a s a cu sto me r.Th e d e cisio n to o p e n a n a ccou n t fo r PEP sh o u ld b e ta ke n a t asenior level.
With a vie w to e n a b le the Prin cip a l Office r o f a n NBFC/RNBCto d isch a rg e h is re sp o n sib ilitie s, th e RBI sa id th e Office r a n do t h er a p p ro p r i at e s t a ff s h o ul d h a ve t i m el y a c c es s t ocustomer identification data and other customer dued ilig e n ce in fo rma tio n , tra n sa ctio n re co rd s a n d o th e r re le va n tin fo rma tio n . Fu rth e r, NBFCs (in clu d in g RNBCs) sh o u ld
e n su re th a t th e Prin cipa l Office r is a b le to a ct in d e pe n d e n tlya n d re p o rt d ire ctly to th e se n io r ma n a g e me n t o r to th e Bo a rd
o f D i r e c t o r s . [ S e e R B I c i r c u l a r D N B S ( P D ) . C C163/03.10.042/ 2009- 10 dated Nov. 13, 2009].
Eve ry NBFC h a s to sub mit a Certifica te fro m its Sta tu to ryAu d ito r th a t it is e n g a g e d in th e b u sin e ss o f n o n -b a n kingf i n a nc i a l i n s t it u t i on r e q u ir i n g i t t o h o ld a C e r t i f ic a t e o f Re g istra tio n un d e r Se ctio n 4 5 -IA o f th e RBI Act. A ce rtifica tefro m th e Sta tu to ry Au d ito r in th is re g a rd with re fe re n ce to th ep o sitio n o f th e co mp a ny a s a t e n d o f th e fin a n cia l ye a r e n d e d
Ma rch 3 1 h a s to b e su b mitte d to th e Re g io na l Office o f th eD N B S l a t es t b y Ju n e 3 0 , ev e r y y e a r. R B I ha s d e c id e d t h a tth e NBFCs ma y su b mit th e ce rtifica te with in o n e mo n th fro m
RBI cautions NBFCs on politically exposed persons
Submis s ion of c e rtific a te from Sta tutory Auditor to theRBI
the date of finalization of the balance sheet and in any casenot later than December 30th of that year. [See Notification-No . 2 0 9 a n d 2 1 0 da te d 2 2 -1 0 -2 00 9 a n d circu la r: DNBS (PD)CC. No. 162/03.05.002/2009-2010 dated October 22, 2009].
Re se rve Ba n k o f In d ias se co n d q u arte r re vie w o f mo n e ta rypolicy announced on October 27 covers following measuresf o r N B F C s e c t or :
NBFCs-ND-SI e n g a g e d p re d o min a n tly in th e in fra stru ctu refin a n cin g h a ve re p re se n te d to th e Re se rve Ba n k th a t th e resh o u ld b e a se p a ra te ca te g o ry o f in fra stru ctu re fin a n cin gN B F Cs i n v i e w o f t h e c r i t i ca l r o l e p l ay e d b y t h e m i n p r ov i d i ngcredit to the infrastructure sector. Currently, the ReserveBa n k cla ssifie s NBFCs u n d e r th ree ca te g o ries, viz., a sse tfin a n ce co mp a n ie s, lo a n co mp a n ie s a n d in ve stme n t
co mp a n ies. It h as n o w b e e n d e cid e d to intro d u ce a fou rthca te g o ry o f NBFCs a s in fra stru ctu re NBFCs, d e fin e d a sentities which hold minimum of 75 per cent of their totala s s e t s f o r f i n a n c i n g i n f r a s t r u c t u r e p r o j e c t s . D e t a i l e din stru ctio n s, in clu din g e lig ib ility crite ria will b e issu e d b y RBIseparately.
Th e An n u a l Po licy Sta te men t o f Ap ril 2 0 0 9 h ad e mp h asise dth a t NBFCs sh o u ld h a ve a b u ilt-in re p o sse ssio n cla u se (inre sp e ct o f re p o sse ssio n o f ve h icle s) a n d a lso d e ta ile dp ro visio n s with re g a rd to te rms a n d co n d itio n s fo r e n su rin gtra n sp a re n cy in th e co n tra ct/lo a n a g re e me n t with th e
b o rro we r wh ich will b e le ga lly e n force a b le . Acco rd in g ly,NBFCs we re a d vise d th e b ro a d fra me wo rk in re sp e ct o f te rms a n d co n d itio n s o f th e co n tra ct/lo a n a g re e me n t, viz., (i)n o tice p erio d b e fore ta kin g p o sse ssio n; (ii) circu msta n cesu n d e r wh ich th e n o tice p e rio d ca n b e wa ive d ; (iii) th ep ro ce d u re fo r ta kin g p o sse ssio n o f th e se cu rity; (iv) ap ro visio n re g a rd ing fin a l ch a n ce to b e g iven to th e b o rro we r fo r re p a yme n t o f lo a n b e fo re th e sa le /a u ctio n o f th e p ro p e rty;(v) th e p ro ce d u re fo r g ivin g re p o sse ssio n to th e b o rro we r;and (vi) the procedure for sale/auction of the property.Furthermore, NBFCs were urged to make available a copy of su ch te rms a n d co n d itio n s to th e b o rro we rs a t th e time o f sa n ctio n /d isb u rse me n t o f lo a n s, wh ich ma y fo rm a ke y
component of such contracts/loan agreements.
T h e I D B I SA S F s S P V w i l l c e a se t o m a k e f r e s h p u r c ha s e sa fte r De ce mb e r 3 1 , 2 0 0 9 an d will re co ve r a ll d u e s b y Ma rch3 1 , 2 0 1 0. Th e fa cility wa s a va ile d o f to th e e xte n t o f Rs.7 5 0cro re a n d wa s re p a id fu lly b y Ju ly 7 , 2 0 0 9 .
At p re se n t, th e risk we ig h t fo r b a n ks e xp o su re tosyste mica lly imp o rta n t n o n -d e p o sit ta kin g NBFCs (NBFCs-ND-SI) is 100 per cent. However, asset finance companies
(AFCs) with in th e NBFCs-ND-SI ca te g o ry ca rry a risk we ig h tbased on credit ratings. NBFCs engaged in financing of in fra stru ctu re wo u ld h e n ce fo rth b e cla ssifie d in a n e w
RBI 2 -Q Mone ta ry Polic y me a s ure s for NBFCs
1 . C l a s s i f i c a t i o n o f N B F C s - N D - S I : I n f r a s t r u c t u r eCompa nie s
2. Repossession of Vehicles by NBFCs
3 . Spe c ia l Liquidity Fa c ility for Eligible NBFCs -ND-SI
4 . Ba nk s Ex pos ure to NBFCs Enga ge d in Infra s truc tureFinancing: Review of Risk Weights
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H a p p y da y s a r e he r e f or N B F C s e c t orShri Umesh Agrawal, Vice- President , Ambit Corporat e Finance Pt e Lt d
T h e N B F C s e c t o r, l i k e m o s t o t h e r b u s i n es s e s , w a s a v i c t i m o f t h e g l o b a l c r e d i t c r is i s i nOctober 2008. RBI adopted a positive and inclusive approach towards the sector and
introduced several measures to improve credit flow. Among various sources of credit to
the sector, banks and financial institutions have since increased their share significantlywhereas mutual funds and public deposits have taken a backseat. Borrowings from banksand financial institutions surged 29.3% during FY09 whereas bonds and debentures
remained flat and public deposits declined 4.9%. Foreign borrowings continue to have as m a l l s h a r e .
Supply of credit to the sector has improved significantly in the past three quarters. Thesector has since focused on increasing proportion of long-term funds and has beensuccessful, too. While every NBFC needs to play the ALM (asset liability management) to
a certain extent for superior returns, the sector has scaled down its ambitions and focusedmore on maintaining stability.
T h e s e c t o r h a s a l so b e e n s u c c e ss f u l i n c u r t a i li n g c r e d it l o s s e s 0 . 9 % a s o n J u n e 3 0 ,2009, as against 1.6% as on March 31, 2008. While disbursement growth has slowed,
overall, the sector has demonstrated strong resilience during the global downturn. Withr e v i v al o f f i n an c i a l m a r k e ts o v e r th e p a s t f e w m o n t h s, m u t u a l f u n d s ha v e s ta r t e d s ee i n g
fresh inflows and their risk appetite has increased.
M u t u a l f u n d e x po s u r e to N B F C c o n s e qu e n t l y we n t u p o ve r 2 0 % d u ri n g A p r i l t o Au g u s t
2009. Due to a decline in deposit rates in the banking system, NBFCs like ShriramTransport and L&T Finance have successfully raised non-convertible debentures longtenor at fine rates in the public market. Some have also used innovative instruments
like equity-linked bonds which offer superior returns linked to equity indices. Flow of creditt o t h e s e c t o r i s e x p e c t e d t o i m p r o ve f u r t h e r. S e v e r a l N B F C s w i l l a l s o r a i s e e q u i ty f u n d s
through capital market and strengthen their balance sheets in coming months.
With the revival, business has begun to pick up. Disbursement growth in the past two
quarters is encouraging. NBFCs are now making aggressive plans to grow their business.They are re-launching high-yield products like IPO & margin funding, promoter financing
and the like. Loan against gold is emerging as the next big thing. Among traditionalproducts, secured lending is growing whereas unsecured lending, particularly to retail(personal loans), has not revived and is unlikely to revive in the near future.
NBFCs are also investing in new businesses such as distribution of MFs, insurancebroking, asset management and insurance to leverage on their strong distribution and
customer relationships and thereby, diversify revenue streams. They have begun todevelop unique competitive advantages for themselves in the form of product categories,
under-banked segments, geography, lower operational costs and strong collections,among other things.
Several banks have begun exiting some products/geographies and are showing greater willingness to partner with NBFCs rather than compete, recognising that some productsand segments of customers are better serviced by the latter. NBFCs have begun buying
portfolios of standard and non-standard assets from banks at discounts to take advantage
of their low-cost infrastructure and strong collection set-up. The debate as to which of thebanks and NBFCs are more competitive will continue. At different points of time, differentc om po ne nt s o f th e b us in es s m od el w il l h av e a n up pe r h an d w hi ch w i ll d ri ve
competitiveness at that point in time. NBFCs, therefore, need to continue to strengthentheir niche positioning.
NBFCs will, more often than not, find it difficult to compete with banks on the liability side f u n d s a v a i l ab i l i t y a n d c o s t. T h e n e e d f o r l o n g - te r m f u n d s w i l l r e m a i n. W h i l e t h eavailability has improved currently, the need for further deepening the debt market in India
has only been further highlighted by the credit crisis.
The monetary policy statement announced recently signals the end of easy liquidity and it
is likely that over the next 3-6 months, RBI will take measures to control liquidity. However,i n v i e w o f R B I s u p p o rt t o N B F C s o v e r t h e p a s t 1 2 m o nt h s a n d t h e p a r t ne r s h i p r ol e
e m e r g in g b e t w e e n N B FC s a n d b a n k s , t h e N B F C s e c t o r w i ll c o n t i nu e t o h a v e a c c e s s t o
a d e q u at e c r e di t . T he o n l y q u e s t io n w i l l b e q u a n tu m o f l on g - t e nu r e f u n ds . [Cour tesy:Economic Times,Nov. 18]
c a t e g o r y c a l l e d i n f r a s t r u c t u r eNBFCs. Sin ce fin a n cin g b y su chNBFCs wo u ld e sse n tia lly re su lt int h e c r e a t i o n o f p h y s i c a lin fra stru ctu re , it is p ro p o se d to lin kt h e r i s k w e i g h t s o f b a n k s
e xp o su re to su ch NBFCs to th ecre d it ra tin g a ssig n e d to th eN B F C b y e x t e r n a l c r e d i ta sse ssme n t in stitu tio n s (ECAIs).Th is is like ly to e a se liq u id ity fo r su ch NBFCs.
Th e Re se rve Ba n k o f In d ia (RBI)on Nov.3 came up with draftguidelines for the issuance of non-co n ve rtib le d e b e n tu re s (NCDs) o f
maturity less than one year. Itsta te s th a t th e NCDs, a d e b ti n s t r u m e n t t h r o u g h w h i c hco mp a n ies ra ise ca p ita l, sh all n o tb e issu e d fo r ma tu ritie s o f le ssthan 90 days from the issuanced a t e a n d t h e m i n i m u mdenomination has been fixed atRs 5 la kh . On th e e lig ib ilitycriterion of the issuer, RBI hasfixe d Rs 4 cro re , a s p e r th e la te staudited balance sheet, as the
t a n g i b l e n e t w o r t h o f a n yco rp o ra te willin g to issu e su chNCDs. Th e exe rcise da te o f p u to r c al l o pt i on a t ta c he d to t h eN C D s s h a ll n o t f a l l w i t h in t he 90 -day period from the date of issue.Th e ma tu rity d ate o f th e NCD sh a llco -te rmin a te with th e d a te u p towh ich th e cre d it ra tin g o f th ei s s ue r i s v a l i d, t h e c e nt r a l b a n ksa id . [FinancialExpr ess, N ov 04, 2009]
Th e Re se rve Ba n k o f In d ia (RBI)has set up a group to look into then o rms fo r cre d it-d e fa u lt swa p( C D S ) , w h i c h w i l l r e v i s i tg u id e lin e s a lre a d y issu e d , RBID e p u t y G o v e r n o r S h y a m a l aG op i na t h s a id in Mu mb ai o n
N o v . 2 5 . G o p i n a t h s a i d c r e d i td e riva tive s we re n o t like o th e r d e riva tive s lin ke d to ma cro fa cto rsa n d ca rrie d id io syn cra tic risks.He n ce , we h a ve to fin d wa ys to
sta n d a rd ise th e se p ro d u cts, sh eadded. [Business Standard, Nov.26]
R BI w an ts N CD i ss ue s no tbelow 90 days
RBI to fine -tune norms onc re dit de fa ult s wa ps
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F I DC N e ws 4
In the R B I there w as a
v e ry c l ea r a p pr e ci a ti o n
for the role played by the
NB F Cs and that NB F Cs
w e re d e fi n it e ly c o ns i de r ed
a s a n i n t e gr a l p a r t of t h e
financial system.
But unfortunately, in ourc o un t ry i n ea r ly s t ag e i t se l f,
b e c a us e o f l a ck o f
appreciation of what
l e a s in g i s , a nd w h a t
l e a s in g c a n a c h ie v e ,
systematically, this line of
financing was decimated
first through lease tax,
t h e n t h r ou g h a s a l e s t a x , a
v a l ue a d d e d t a x ,
m i s un d e r st a n d in g s o ni n co me t a x.
T T S r i n iv a s ar a g hv a nMD, Sundaram F inancLtd.
& Chairman - F IDC
T T S r in i va s ar a gh v an
Fo r e ve ryo n e in th e fin a n cia l se cto r, e sp e cia lly fo r th o se o f u s in th e n o n -b a n king fin a n cia l
sector, regulation is something that is omnipresent. It has always been the case, going
b a ck to o u r d e p o sit gu id e lin e s, which a re mo re th a n 3 0 ye a rs o ld . But we n e e d to
understand regulation in the context of what happened in those turbulent times of the late
9 0 s. It wa s in Se p te mb e r 1 9 9 6 , th a t RBI first ca me o u t with th e co n ce p t o f ce rtifica te o f re g istra tio n a n d d id a wa y with th e ce ilin g o n in te re st ra te s fo r d e p o sits. Th e e ve n ts th a t
fo llo we d in 1 9 9 7 wh ich le d to th a t ve ry frig h te n in g p a ssa g e fo r o u r in d u stry a re to o we ll
kn o wn to b e re p e a te d. Ha p p ily o f co u rse , 1 0 ye a rs o n , we h a ve re a ch ed a p o in t wh e re
th o se o f u s wh o a re still a ctive in th e in d u stry, th o se o f u s wh o co n tin u e to p la y o u r
d e sig n a ted ro le s in th e in d ustry ca n lo o k b a ck with so me p rid e, th a t n o twith sta nd in g th e
turbulence, notwithstanding the various challenges thrown at us, we were able to not only
adapt but become far more mature, more responsible and more solid entities in the
fin a n cia l se cto r o f th is co u n try.
We mu st n ece ssa rily fu n n e l d o wn to wh a t re gu la tio n s h ave me a n t in o ur o wn co n te xt a s
th e NBFC se cto r. We h a ve a ll live d th ro u g h so me o f th e ch a lle n g es a n d th e p a in s o f wh a t
h a s n o t a lwa ys b e e n a frie n d ly a n d e n co u ra g in g re g u lato ry e n viro n me n t a n d ye t, we h a veadapted, coped, changed and most importantly, we have remained relevant. Today, we
have to grapple with the reality, of more regulation and not less, because in an
environment where everyone is running scared, where the biggest of names have been
h a mme red , cle a rly th e te n d en cy will b e to wa rd s mo re re g u la tio n . The re is n o thin g we ca n
do to prevent or change that. What we can and must do is to try and engage with the
la wma ke rs, with th e re g u lato rs a n d ma ke su re th a t o ur p o in ts o f vie w a re h e a rd , tha t a ll o u r
le g itima te co n ce rn s a n d d e ma n ds a re p ro p e rly u n d e rstoo d a n d fin d a rticu la tio n in th e
policy framework that comes out from the RBI and the government.
Th is se ssio n is ca lle d Re g ula to ry Ga p s. I will e xp a n d th is to Re g u la to ry an d L e g isla tive
Gaps. We are governed as much by regulation which is RBIs domain, as by legislation,
wh ich is mo re th e Go ve rn me n t, th e Fin a n ce Ministry. Ou r live s a re b y a n d la rg e d icta te d b y
wh a t th e se two ma jo r e n titie s d o. On e o f th e th in g s th a t we p rima rily n e ed to n o w p u t fo rth
a n d wh ich we h a ve b e e n do in g o ve r th e la st co u p le o f ye a rs, is to first o f a ll g a in p ro p e r
re co g n itio n o f th e ro le th a t th e NBFCs h a ve p la ye d .INBFC itse lf h a s b e e n a d e fin itio n
wh ich h a s d o n e ve ry little ju stice to u s a n d it is th ro ug h th e u n tirin g effo rts o f th e in d u stry,
th ro u g h a ll o u r in d u stry b o d ie s th a t we fina lly a t le a st h a ve reco g n itio n fo r a sset fin a n cin g
NBFCs. Th a t itse lf was a ma jo r mile sto n e for u s b e ca u se till th e n , we we re lu mp e d
to g e th e r with p e o p le wh o a re e n g a ge d in a n y ma n n e r o f fin a n cia l a ctivity . Th a t d id a g re a t
dis-service to the asset financing NBFCs, who have been the backbone of this industry. If
yo u g o b a ck h isto rica lly, it is th e h ire p u rcha se co mp a nie s o f th e 1 9 4 0s a n d 5 0 s, wh ich
e xp a n d e d in to e q u ip me n t fin a n cin g , a u to fin a n cin g , e tc. a n d o ve ra ll in to se cu re d le n d in g -
b a cke d b y a sse ts. Th at is th e g ro u p all o f u s re p re se nt, re g a rd le ss o f b ig o r sma ll, n o rth ,
west, south or east. We are a homogeneous group of companies called asset financingNBFC. Th e fa ct th a t we h a ve g a in e d re co g n itio n fo r th is g ro u p is a ma jo r ste p fo rwa rd .
Ho we ve r, th a t is o n ly th e b e g in nin g . Wh a t we still fa ce b o th in te rms o f re g u lato ry a n d
le g isla tive imp e d ime n ts is th e fa ct th a t we a re b u n ch e d to g e th e r wh e n it co me s to a n y
re g u la to ry n o rms th a t a re a p p lie d .
Taxation: the chairman referred to it briefly. This is an area where we have cried for parity
with th e re st o f th e fin a n cial se cto r fo r th e la st 1 5 ye a rs. It is in d e ed a tra ve sty th a t o n th e
o n e h a n d we a re re g u la te d e xa ctly like th e b a n kin g syste m, in te rms o f p ru d e n tia l n o rms,
n o n p e rfo rming a sse ts, re co g n itio n of in co me , p ro visio nin g - a ll o f th e se th in g s we a re
more or less identically placed with the banking sector. However, when it comes to
ta xa tio n , the ta x d e p a rtme nt ta ke s th e vie w th a t NBFCs a re n o t on le ve l with b a n ks a n d th e
sta tu te d o e s n o t in a n ywa y a d mit o f a n e n tity ca lle d NBFC. Tha t is re a lly
wh e re o u r woe s b e g in . It e ffe ctive ly me an s th a t we p rese n t a se t o f b o o ks to o ur
Pains of Regulation:
Re c ognition of AFC -a ma jor mile s tone :
Taxation of NBFCs- a double whammy:
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sh a re h o ld e rs wh e re o u r p ro fits a re u n d e rsta te d to th e e xte n t
o f th e u n reco g n ise d inco me a n d p ro visio n s re la tin g to ou r
non performing loans, which is the prudent to do. But the
taxman is indifferent to what we have told our shareholders.
Fro m th e ir, a ll o f th is is in co me , th e y do n o t re co g n ize ou r
p ro visio n s, a n d re q u ire u s to p a y ta x o n th e e n tire th in g . Th is
is called a double whammy.
Bu t it d o e s n o t sto p the re . L o o k a t in dire ct ta xa tio n a s we ll. I
fe lt sa d wh e n re fe re n ce s we re ma d e to th e fa ct th a t le a sin g is
n o w d e a d o r n e a rly de a d . It is a tra g e d y in man y wa ys. If yo u
lo o k a t mo st d e ve lop e d e co n omie s in th e wo rld to d ay th e ir
g ro wth wa s fu e lled b y le a sin g . L e a sin g is a n e xce lle n t
f i n a n c i a l t o o l w h i c h h a s h e l p e d e c o n o m i e s , h e l p e d
co mp a n ie s, b ig a n d sma ll, wh o fo u n d sca rcity o f ca p ita l, g ro w
in a sig n ifica n t way. Bu t u nfo rtu n a te ly, in o ur co u n try ,
because of the lack of appreciation of what leasing is, and
w h a t le a s in g c a n a c h ie v e , t hi s l i n e of f i n an c i ng w a s
syste ma tica lly, d e cima te d , first th ro u g h a le a se ta x, th e n
t h r o u g h a s a l e s t a x , a v a l u e a d d e d t a x a n d
misunderstandings on income tax. Through every device
available to them they actually destroyed, what is even today,
p e rh a p s o n e o f th e b e st fin a n cia l in stru me n ts to a id e co n o mic
g ro wth in co u n trie s like o u rs. I co n tin u e to h o p e th a t,
so me wh e re in th e la rg e r sche me o f th in gs, le g isla to rs a n d
re g u la to rs a like se e th e imp orta n ce o f le a sing . It is a b su rd
e ve n fo r a ll o f u s wh e n we fin a n ce a tru ck, o r a p ie ce o f
e q u ip men t if we ca ll it a lo a n or a h yp o th eca tio n , th e tax
treatment is one way. But the same transaction, the same
borrower, the same lender, it has a different tax treatment. I
c a n no t un d er s t a nd w ha t t he b as i s o f t hi s i s , bu t t ha t i s t h ere a lity u n d e r wh ich we co n tin u e to fu n ctio n . Th e h o p e is th a t
wh e n th e GST re g ime co mes a n d wh e n the mu ltip licity o f
ta xe s g o es a wa y, th is will g e t a d d resse d a n d we will in d e e d
g o b a ck to a p o in t wh e re re g a rd le ss o f th e typ e o f p ro d u ct yo u
o ffe r th e su b sta n ce o f th e tra n sa ctio n is wh a t is lo o ke d a t.
Th a t is a d re am fo r me a n d h o p e we will o n e d a y se e th e
reality.
N o w m o v in g a w ay f r o m s p ec i f i c s, l e t s l oo k a t t h e r ol e t h a t
NBFCs play. An earlier speaker talked about micro finance. I
fe e l a mix o f jo y a nd so rro w. It is ve ry g o o d th a t we h a ve MFIs.
It is g re a t th a t p e o p le a re ta lkin g a b o u t fin a n cia l in clu sio n , th a t
attempts are being made to reach the under-served sections
o f so cie ty. Bu t I ca n n o t he lp fe e l th a t th e 4 5 ,00 0 NBFCs th a t
e xiste d p rio r to 1 9 9 8 we re a lso ve ry mu ch in th e b u sin e ss o f
fin a n cia l in clu sio n . Th e y to o we re d e live rin g cre d it to th e
under-served sections of the society. They too were doing
la st mile cre d it d e live ry. Bu t th e se rvice th a t th e se NBFCs-b ig
and small- rendered across the length and breadth of this
country has neither been documented nor acknowledged. To
th a t e xte n t, e ve n to d a y th e re is a n e e d o n the p a rt o f th e
p o we rs th a t b e to mo b ilize th e e xtra -o rd in a ry kn o wle d g e a n d
re a ch o f th e n o n b a n kin g fina n cia l co mp a n ies to d e live r la st
mile cre d it. It d o e s n o t matte r wh a t la b e ls yo u p u t o n th e m,wh a t we re a lly sh o u ld b e co n ce rn e d with is th e fa ct th a t th e se
Le a s ing is not ple a s ing!
NBFCs : e x c lude d or inc lude d in Fina nc ia l Inc lus ion?
companies have an encyclopedic knowledge of their
co n stitu e n cie s; in o u r o wn b a ckya rd , in Ch e n n a i, o r in
Vijayawada or Jalandhar. There are so many different
pockets in this country, where the knowledge base of our
fra te rn ity is so imme n se ,th e ir a b ility to a sse ss cre d it, to le n d
a n d co lle ct is so me th in g ve ry u n iq u e a n d th a t h a rd ly a n yo n e
ca n re p lica te . We d o o u rse lve s a d is-se rvice in n o trecognizing the strength and the importance of this large
fra te rn ity o f fin a n cie rs we h a ve with in o u r syste m. Wh a te ve r
re g u la to ry a n d le g isla tive fra me wo rk th a t is p u t in p la ce to
a d d re ss fin a n cial in clu sio n mu st d efin ite ly e n su re th e a ctive
p a rticip a tio n o f NBFCs .
L a st we e k wh e n we h a d th e cu sto ma ry in te ra ctio n with th e
Go ve rn o r o f th e RBI, re p re se n tin g FIDC, we ma d e th is p o in t
th a t so me time s tho u g h th e re is a ta lk o f fin an cia l in clu sio n ,
we as NBFCs felt more excluded than included. The
Go ve rn o r re spo n d e d sa ying th a t it wa s n o t at a ll th e ca se ,
a n d in th e RBI th e re wa s a ve ry cle a r a p p re cia tio n o f th e ro le
played by the NBFCs and that NBFCs were definitelyc o n si d e re d a n i n te g r al p a r t o f t he f i n a nc i a l s y s t em . I t w a s
ve ry re a ssu rin g to h e a r th is fro m th e Go ve rn o r h imse lf.
While it is not possible to address every single demand that
we may have as an industry, RBI was certainly open and
extremely sympathetic to the genuine demands of the
industry. We have our on-going needs under various heads.
N o t a l l o f t h em a r e s t r i ct l y r e g ul a t io n , b u t as w e a l l k n o w o n e
o f o u r ke y ch a lle n g e s, th e ke y co n stra in t th a t we fa ce g o in g
fo rwa rd , is fu n d in g . De fin itely, me a n in g fu l in te rve n tio n fro m
th e re g u la to r a n d th e g o ve rn me n t is ve ry critica l. Th is is wh a t
we are continuously placing before the powers that be in
te rms o f se ttin g u p a lo n g te rm fu n d in g fra me wo rk. Wh a t we
seek is not an instruction to banks to lend to NBFCs. We are
o n ly ta lkin g a bo u t a n in stitu tio na l fra me wo rk - fo r e xa mp le,
th e n a tion a l h o u sin g b a n k p ro vide s lo n g te rm fu n d ing to
housing finance companies. We have talked about a long
term funding framework which Mr. Ananda also addressed
b rie fly in te rms o f co rp o ra te d eb t. Co rp o ra te d e b t is on e
aspect but it goes beyond that.
T h e se c o nd i s t h e l e g al f r a m ew o r k . We a r e al l a w a r e o f
SARFAESI and Debt Recovery Act. Again, we are the onlye n titie s in th e fin a n cia l se cto r th a t are e xclu d ed fro m th eambit of SARFAESI and Debt Recovery Act; housingcompanies have access to SARFAESI; banks have accessto SARFAESI, NBFCs dont. That is the second area. Theth ird a re a is ta xa tio n - b o th d ire ct a n d in d ire ct. Wh y a re weplaced on a footing that is less advantageous than our b r o th e r s i n t h e f i na n c ia l s e r v ic e s s e c t or ? T h e r e ce n t lyin tro d u ce d d ire ct ta x co d e [DTC], th o u g h it h a s a lo t o f sca ryp ro visio n s, h a s o n e in te re stin g co n stru ct ca lle d p e rmitte df i n a n c i a l i n s t i t u t i o n s [ P F I s ] . T h e r e i s a r e f e r e n c eco n tin u o usly in th e DTC to so me th in g ca lle d p e rmitte df i n an c i al i n s t it u t i on s . U n d er t h e d e f i n it i o n o f p e rm i t t ed
f i n an c i al i n s t it u t i on s , t h e r e a r e b an k s , h o us i n g f i na n c eco mp a n ie s a n d NBFCs. Fo r th e first time th is co d e ta lks
Long term Funding framework
Legal Framework:
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G r os s N PA s
( a s p e rc e nt a ge o f gr o s s
advances) of asset finance
c o m p an i e s , e q u i p me n t
l e a s i ng c o m pa n i e s a n d
investment companies
a n d h i r e p u r c h as e
c o m p an i e s d e c l i ne d during 2008-09.
Asset F inancing
C o m p an i e s d o m i n at e d t h e
scene in NBFCs-D
segment in respect of
n u m b er , s i z e o f l i a b i l it y
and borrow ings.
Re se rve Ba n k o f In d ia re -cla ssifie d NBFCs in De ce mb e r 2 0 0 6 . The co mp a n ie s fin a n cingre a l/p h ysica l a sse ts fo r p ro d u ctive / e co n o mic a ctivity we re cla ssifie d a s Asse t Fin a n ceC o m pa n y ( A FC ) . A FC w e r e d ef i n e d as a n y c o m pa n y w h ic h i s a f i n a nc i a l i n s t it u t i onca rryin g o n a s its p rin cip a l b u sin e ss th e fin a n cin g o f ph ysica l a sse ts su p p ortin g p ro d u ctive/ e co n o mic a ctivity, su ch a s a u to mo b ile s, tra cto rs, la th e ma ch in e s, g e n e ra to r se ts, e a rthmo vin g a nd ma te ria l h a n d lin g e q u ip me nts, mo vin g o n o wn p o we r an d g e n era l p u rp o sein d u stria l ma ch in e s. Prin cip a l b u sin e ss fo r th is p u rp o se wa s d efin e d as a g gre g a te o f fin a n cin g re a l/p hysica l a sse ts su p p o rtin g e co n o mic a ctivity a n d in co me a risin g th e re fro mis n o t le ss th a n 6 0 % o f its to ta l a sse ts a n d to ta l in co me re spe ctive ly. Th e ch a n g e incla ssifica tio n is to b e in co rp o rate d in th e Ce rtifica te o f Re g istra tio n issu e d b y th e Re se rveB a n k a s N B F C- A s s et F i n a n c e C o mp a n y; N B F C - D - AF C i f a c c e p t in g d e p os i t s a n d N B F C-
ND-AFC, if n o t a cce p tin g d e p o sits.To t a l n u mb e r o f N B FC s r e g is t e r ed w i t h t h e R es e r v e Ba n k , c on s i s ti n g o f N B FC s - D(d e p o sit-ta king NBFCs), RNBCs, mu tu a l b e n e fit co mp a n ies (MBCs), misce lla n e o u s n o n -b a n kin g co mp an ie s (MNBCs) a n d Nid h i co mp a n ie s, d e cline d fro m 1 2 ,8 0 9 a t e n d -Ju n e2 0 0 8 to 1 2 ,7 4 0 a t e n d -Ju n e 2 0 0 9 . Th e n u mb er o f NBFCs-D a lso d e clin e d fro m 3 6 4 a t e n d -June 2008 to 336 at end-June 2009, mainly due to the exit of many NBFCs from depositta kin g a ctivity. Th u s th e co n so lid a tion p ro ce ss in NBFC se cto r co n tin u e d.
Asse t Fin a n cin g Co mp a n ie s [AFCs] d o min a ted th e sce n e in NBFCs-D se g me n t in re sp e ctof number, size of liability and borrowings. Their number in 2007-08 was 185 who hada sse ts o f Rs. 5 0 ,99 8 cro re an d b o rro wing o f Rs. 34 ,0 9 3 cro re. Alth o u g h , th e n u mbe r o f re p o rtin g AFCs d e clin e d to 1 4 7 * in F Y 2 0 0 8 -0 9 th e ir a sse ts mo ved u p to Rs. 4 0 ,2 3 2 cro reand borrowing went up to Rs. 40,232 crore.
Amo n g NBFC g ro u p s, a sse t fin a n ce co mp a n ies (AFCs) h e ld th e la rg e st sh a re in to ta la sse ts/lia b ilitie s (7 0 .3 p e r ce n t), fo llo we d b y lo a n co mp a n ie s (2 8 .9 p e r ce n t), h ire p u rch a se
a b o u t ma n y o f th e p ro visio n s in th e d ire ct ta xe s co d e b e in gapplicable to the entire gamut of PFIs. Incidentally, even thisissu e we a re ra isin g a b ou t th e ta x pro visio n s a n d in co mer e c og n i ti o n , w i ll a c t ua l l y g et r e d r es s e d, s h o ul d t h e D T C b eimplemented .
Principally, PFI is a concept we must welcome , because ap e r mi t t e d f i n an c i al i n s t it u t i on m ea n s a n y c o n st i t u en t of t h ef i n an c i al s e c t or , w hi c h i s a p pr o p r ia t e ly g o v e rn e d a ndregulated, should be treated on the same footing. Bankshave a much larger role to play. We understand that theinsurance companies have a much larger role to play.Th e re fo re , th e y h a ve d e d ica te d re g u la to rs a n d th e ir fra me wo rk is d iffe re n t. We a re n o t b e in g a rro g a n t to sa y th a twe b e e q u a ted with b a n ks. Ou r ca se is th a t a lo t o f wh a t we d ois simila r to wh at b a n ks d o . A lo t o f re g u latio n th a t a pp lie s tou s is simila r to wh a t a p p lie s to th e b a n kin g syste m. Th e re fo re ,a s th e n e xt tie r o f fina n cia l in te rme d ia ries- h o u sin g fin an cec o m p a n i e s , n o n - b a n k i n g f i n a n c e c o m p a n i e s , a s s e t
financing companies and MFIs- we have an important role top la y in Fina n cia l in clu sio n . If we h a ve to p lay o u r ro le ind e l iv e r i ng f i n an c i al i n c lu s i on , i f w e h av e t o p la y o ur me a n in gfu l ro le in re a ch in g cre d it to th e la st villa g e, to th e la stmile o f th is co u n try, th e o n ly wa y th a t ca n h a p p e n is if we h a vep a rity in e ve ry
o th e r re g a rd . Wh at we h a ve rig h t n o w is a situ a tio n wh ich ca n
be described as having to fight with one hand tied behindyour back, because we are expected to do what the other
p la ye rs in th e fin a ncia l syste m a re d o in g , b ut we d o n t e n jo y
th e rig h ts a n d th e p rivile g e s th a t th e y h a ve . Eve n fro m th ep o in t o f vie w o f d e p o sit ta kin g co mpa n ie s we h a ve o fte n sa id
th is: wh e n we a sk fo r p rivile g e s like SARFAESI, it is n o t aselfish demand we make. It is not saying that we want
SARFAESI to protect our asset, because in protecting our
a s s et s w e a r e a ct u a ll y p r o te c t i ng t h e d e po s i t s of o u r
d e p o sito rs. It is syste mic. It is th a t a p p re cia tio n wh ich n e e d sto come. This point we have made to the government and to
th e RBI a like .
Th e re is n o e n tity, to my kn o wle d g e , in th e NBFC se cto r to d a y
which is opposed to regulation. None of us is questioning then e e d fo r re g u la tio n . We a re n o t co mp la in in g a b o u t
re g u la tio n . We a re re sp o n sib le , ma tu re , co n stitu e n ts o f th is
industry. After 1998, the not-so-serious people have gone
away. But those of us who have remained, are people whoa re co mmitte d to th is b u sin e ss, we u n d e rsta n d o u r
re sp o n sib ilitie s to o u r cu sto me rs, to o u r d e p o sito rs, to so cie ty
a t la rg e . We are mo re th a n willing to fu lfil th a t re sp o n siblero le . Th is is n o t fo r a skin g co n ce ssio n s, n o t a skin g fo r
fa vo u rs, n o t fo r so me sp e cia l p rivile g e . We wa nt to b e tre a te d
o n p a r with e ve ry o th e r co n stitu e n t th a t is re g u la te d b y th e
RBI o r b y like a u th o ritie s, a n d fo r u s to b e e mp o we re d to p la your given role in the development of this great country. There
a re n o n -b a n ks e lse wh e re in th e wo rld b u t I b e lie ve th a t th e
construct of small, medium and large non-banking financeco mp a n ie s se rvin g the No n Ba n ka b le se g me n ts o f th e
economy, that we have in this country, is truly unique. We
should encourage these companies to regain their rightful
place. [Excerpts from Talk delivered at Silver Jubilee seminar of Equipment Leasing Association [India] on October 24, 2009 at Chennai] .Sub- headingsar e added.
NBFC-AFCs - Unique ly India n
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co mp a n ie s (0 .6 p e r ce n t) a n dequipment leasing (0.3 per cent)a s s h o w n i n t a b l e - 1 . T h ein cre a se in a sse ts/lia b ilitie s o f
AFCs wa s ma in ly o n a cco u n t o fre cla ssifica tio n o f NBFCs, wh ich
wa s in itia te d in De ce mb e r 2 0 0 6a n d th e p ro ce ss o f wh ich is stillc o n t i n u i n g . T h e s h a r e o f equipment leasing companiesd ec l in ed t o be l ow 1 p er c e nts u b s e q u e n t u p o n t h e r e -cla ssifica tio n o f NBFCs in 2 0 0 6 -0 7 .
Assets of AFCs :
Sources of Borrowings by AFCs:
Th e to ta l a sse ts o f d e p osit-ta kin g NBFCs re g iste re d a ma rg in a l g ro wth o f 1 .3 p e r ce n t d u ring 2 0 0 8 -0 9 ma in ly o n a cco u n t o f d e clin e in a sse ts o f lo a n comp a n ie s L o a n s a n d a d va n ce s (7 .3 p e r ce n t) a s we ll a s in ve stme n ts (3 2 .1 p er ce n t) o f NBFCs a lsoin cre a se d d u ring th e ye a r. At e n d -Ma rch 2 0 0 9 , 7 3 .0 p er ce n t o f to ta l a sse ts, 7 5 .4 p e r ce n t o f to ta l lo a n s a n d a d va nce s a n d 2 3 .9p e r ce n t o f to ta l in ve stme n ts b y all NBFCs we re h e ld by AFCs. Th e a sse ts o f AFCg re w 6 p e rce n t in 2 00 8 -0 9 o ve r p re viou s ye a r.
Th e re la tive sign ifica n ce o f va rio u s NBFC g ro u p s re fle cte d la rg e ly th e p atte rn o f th e ir b orro win g s as d e p osits co n stitu ted as m a ll s h a re ( 2 . 6 p e r c e n t) o f t h e i r t o t a l l i a bi l i t ie s . O f t h e t o t al d e po s i t s h e l d b y a l l N B F Cs , a s s e t f i na n c e c om p a ni e s h e l d t hela rg e st sh a re in to ta l d e p o sits o f NBFCs (7 0 .3 p e r ce n t), fo llo we d d ista n tly b y lo a n co mp a nie s with a 1 9 .9 p e r ce n t sh a re a n d b yhire purchase companies with a share of 9.6 per cent.
Th e o utsta n d in g b o rro win g s b y NBFCs in cre a se d b y 9 .3 p er ce n t du rin g 2 00 8 -0 9 . Borro win g s b y e q u ip men t le a sin gco mp a n ies a n d lo a n co mp a n ies d e clin e d , wh ile th o se b y a sse t fin a n ce co mp a n ie s a n d h ire p u rch a se co mp a n ie s in cre a se dd u rin g th e ye a r. AFCs co n tin u ed to h o ld th e la rg e st sh a re (7 2 .8 p e r ce n t) o f b o rro win g s o f a ll NBFCs, fo llo we d b y lo a n
companies (27.1 per cent).
Bo rro win g s b y NBFCs fro m b a n ks a n d fin a n cial in stitu tio n s in cre a sed sh a rp ly b y 2 9 .3 p e r ce n t wh ile b o rro win g s b y wa y o f b o n d s a n d d e b e n ture s re ma in e d a t th e sa me le ve l d u rin g 2 0 0 8 -0 9 . The b o rro win g s fro m Go ve rn me n t d e clin e d b y 2 1 .4 p e r ce n t d u rin g 2 0 0 8 -09 . Oth e r d e p o sits (wh ich in clu d e , in te r a lia , mo n e y b o rro we d fro m o th e r co mp a nie s, u n se cu re d lo a n s fro md ire cto rs/p ro mote rs, co mme rcia l p a p e r, b o rro win g s fro m mu tu a l fu n d s a n d a n y o th e r typ e o f fu n d s wh ich a re n ot tre a te d a s
p u b lic d e p o sits) a lso re g iste re d ad e clin e o f 2 .6 p e r ce n t d u rin g2008-09
AFCs b o rro win g fro m b a n ks a n df i na n ci a l i n st i t ut i o ns w e nt u psharply by 33.3 percent in F Y
2 0 0 8 -0 9 o ve r p re vio u s ye a r toRs. 21,775 crore. Money raisedb y w ay o f de b e nt u r es g r e w b y13.7 percent to Rs. 11,620 crore.T h e i r b o r r o w i n g s f r o m o t h e r s o u r c e s , a s m e n t i o n e d i npreceding para, declined by 10.6
percent [Table-2].
Net Owned Funds vis--vis Public Deposits:
NOF o f NBFCs is th e a g g re g a te o f p a id - u p ca p ita l a n d fre e re se rve s, n e tte d b y (i) th e a mo u n t o f a ccu mu la te d lo sse s; a n d (ii)
deferred revenue expenditure and other intangible assets, if any, and adjusted by investments in shares, and loans anda d va n ce s to (a ) su b sid ia rie s, (b ) co mp a n ie s in th e sa me g ro u p , a n d (c) o th e r NBFCs (in e xce ss o f 1 0 p e r ce n t o f o wn e d fu n d ).Information on NOF can complement the information on CRAR. The ratio of public deposits to NOF in the case of loan
P : P r o v i si o n a l. N ot e : Figures in parentheses are percentage shares in respective total. Source : A n n u al R e t u rn s .*Figures in first column in bracket show the number of companies in said activity in F Y 2007-08.
P : Pr o v is io n a l.@ : Co mp r is e s ( i) Fo r e ig n Go v e r n me n t, ( ii) Fo r e ig n Au th o r ity , a n d ( iii) Fo r e ig n Citiz e n o r Pe r s o nNot e : Fig u r e s in p a r e n th e s e s a r e p e r c e n ta g e v a r ia tio n s o v e r the previous year. Sour c e : A n n u a l R e t u rn s .
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( Amo u n t in Rs . c r o r e )
Tabl e - 3 : Net Owned Fund vi s--vi s Publ i c Deposi ts of NBFCs-D
Classification As at end- March
Net Owned Funds P ublic Deposit s
2008 2009 P 2008 2009 P
1 2 3 4 5
Asset Finance 6,939 7,632 1,161 1,364(0.2) (0.2)
Equipment Leasing -50 10 10 3
-(0.2) (0.3)
Hir e Pur chase -76 -72 169 186
-(2.2) -(2.6)
Investment 83 0 19 -
( 0.2)
Loan 3,306 4,018 682 388
(0.2) (0.1)
MNBC 1 - 1 -
Total 10,203 11,588 2,042 1,941
(0.2) (0.2)
Capital Adequacy Ratio
CRAR n o rms we re ma de a p p lica ble to NBFCs in 1 9 9 8, in te rms o f wh ich e ve ry d e po sit- ta kin g NBFC is re q u ire d to main ta in amin imu m ca p ital, co n sistin g o f Tie r-I a n d Tie r-II ca p ita l, o f n o t le ss th a n 1 2 p e r ce n t (1 5 p e r ce n t in th e ca se o f u n ra te d d e p o sitta kin g lo a n /in ve stme n t co mp a n ie s) o f its a g g re g a te risk-we ig h te d a sse ts a n d o f risk-a d ju ste d va lu e o f o ff-b a la n ce sh e e t ite ms.To ta l o f Tie r-II ca p ita l, a t a n y p o in t o f time , ca n n o t e xce e d 1 0 0 p e r ce n t o f Tie r-I ca p ita l. Th e n u mb e r o f NBFCs with le ss th a n th e
minimum regulatory CR AR of 12 per cent declined to 9 at end-March 2009 from 47 at end- March 2008 [Table-6]. At end-March2 0 0 9 , 1 9 8 o u t o f 2 0 7 NBFCs h a d CRAR o f 1 2 p e r ce n t o r mo re a s a g a in st 2 8 0 o u t o f 3 2 7 NBFCs a t e n d -Ma rch 2 00 8 . Th en u mb e r o f NBFCs with CRAR mo re th a n 3 0 a lso d e clin e d to 1 6 8 a t e n d - Ma rch 2 0 0 9 fro m 2 3 9 a t e n d -Ma rch 2 0 0 8 .
No twith sta n d in g th is, it is n o te wo rth y th a t th e NBFC se cto r i s w i t n es s i n g a co n s ol i d at i o n pr o c e ss i n t h e l as t f e w y e a r s,wh e re in the we a ke r NBFCs a re g ra du a lly e xitin g , p a vin gth e wa y fo r a stro n g er NBFC se cto r.
Asse t Fin a n cin g Co mp a n ie s g ro wth a p p e a rs to b e h e a lth yd e sp ite imp act o f g lo b a l me lt d o wn e xp erie n ce d b y In d ia neconomy. They hold dominant position in NBFCs-Dsegment.
*It may be due to less number of r eporting companies as only 275 NBFC-D
r epor ted in 2008- 09 compar ed to 350 in pr evious year .[ T hi s a r ti c l e i s b a se d o n f a c t s p r e s e nt e d i n R e s er v e B a n k o f I n di a s R ep o rt o nTr e nd a n d P r o g re s s o f B a n ki n g i n I n di a 2 0 08 - 09 r e l e a se d o n O c t ob e r 2 2 . ]
companies and hire purchase declined during the year endedM a r ch 2 0 0 9, w h i l e th a t o f o th e r c at e g or y c o m pa n i eswitn e sse d a ma rg in a l in cre a se . Th e ra tio of h ire p u rch asecompanies continued to be negative because of negativeNOF. Th e ra tio o f p u b lic d e p o sits to NOF fo r a ll ca te g o rie s o f NBFCs ta ke n to g e th e r wa s u n ch a n g e d a t 0 .2 p e r ce n t a t e n d -
March 2009 [Table-3].
NOF o f NBFCs ra n g e fro m le ss th a n Rs.2 5 la kh to a b o veRs.500 crore. Public deposits, as ratio of NOF, held byNBFCs in the category of NOF of up to 25 lakh and more thanRs.2 5 la kh a n d a n d u p to Rs.2 cro re d e clin e d , wh ile th e ra tioo f mo re th a n 1 0 cro re u p to 50 cro re a n d mo re tha n 1 0 0cro re a n d u p to 5 00 cro re re g iste re d a rise . NBFCs in a ll o th e r ranges of NOF generally remained constant[Table-3].In caseof AFCs public deposits forms 17.67 percent of NOF at theend of June, 2009.
Gross NPAs (as percentage of gross advances) of assetf i n an c e c o m pa n i es , e q u i pm e n t l e as i n g c o mp a ni e s a n d
investment companies and hire purchase companiesd e clin e d d u rin g 2 0 08 -0 9 . Ne t NPAs (a s p e rce n ta g e o f n e ta d va n ce s) in cre a se d ma rg in a lly in ca se o f a sse t fin a n cecompanies and hire purchase companies, while those of equipment leasing companies and investment companiesd e cre a se d. NPAs o f lo a n co mp a nie s re ma in e d n e ga tiveduring 2008-09 also [Table-4].
Non-Pe rforming As s e ts : P : Provisional.Note : Figures in parentheses are ratio of public deposits to net owned fund.
Source : A n n u a l R e t u rn s .
As s e t Qua lity :
Asse t q u a lity o f va rio u s typ e s o f NBFCs a sreflected in various categories of NPAs(su b sta n d a rd, d o u b tfu l a n d lo ss) sh o ws th a tthere was sharp improvement in the assetquality of equipment leasing companiesa n d d e te rio ra tio n in th e a sse t q u a lity o f h irepurchase companies during 2008-09 over previous year [Table-5]
AFC : Asset Finance Company. P : Provisional S ou rc e : Half-Yearly Returns.
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Ex pe rts s tre ss ne e d to s e t up a uthority for NBFCs
ELAI assumes new role to represent NBFCs
M ajor role seen for the sector in inclusive financial system.
Va rio u s e xp e rts o f th e n o n-b a n kin g fin a nce co mp a n y [NBFC] in d u stry, wh o sp o ke a t a
seminar of the Equipment Leasing Association (India) at Chennai, stressed the relevanceand the indispensable role of NBFCs in the economy. Mr R. Thyagarajan, Chairman of the
Shriram group of companies and a doyen of the industry, called upon the Government to
set up an authority exclusively to take charge of the development of the industry, which he
te rme d a s p ra ctica lly n o n -e xiste nt to d a y. He sa id th a t a n e xclu sive a u th o rity wo u ld imp a rt
re sp e cta b ility a n d cre d ib ility to th e in d u stry a n d a lso e n su re o rd e rly g ro wth o f it. Th e
a u th o rity co u ld se t itself a s a n o b je ctive th a t o ve r a spe cifie d p e riod o f time , (sa y) te n p e r
ce n t o f fin a n cia l a sse ts (wh ich to d a y wou ld b e Rs 4 la kh cro re ) sh ou ld b e u n d er th e
management of NBFCs.
Wh ile Mr T B Ka p a li, Vice -Pre sid e n t, Sh rira m Ca p ital, p itch e d for fo ste rin g o f th e NBFC
fro m a risk-mitig a tio n pe rsp e ctive , Mr Thya g a ra ja n said th a t in clu sive fin an cia l syste m
would be impossible to achieve without NBFCs. Pointing out that 85 per cent of the
f i n a nc i a l a s s et s i n t he c o un t r y a r e wi t h t he b an k s an d ab o u t 8 0 pe r c en t o f t h a t i s
co n ce n tra te d in o n ly a b o u t 30 g e o g rap h ica l ce n tre s in the co u n try, Mr Ka p a li sa id , it is a
p o te n tia l syste mic risk. NBFCs h a ve a ro le in disp e rsin g th is risk, h e sa id.
Mr Th ya g ara ja n sa id th a t th e NBFC in d u stry is to d a y minu scu le , la rg e ly b e ca u se o f
regulatory constrictions. He said this should change and there should emerge an
environment conducive for encouraging entrepreneurs into the industry. Noting that the
ro le s o f b a n ks an d NBFCs a re co mp leme n ta ry, Mr Thya g a ra ja n sa id th a t wh ile b a nks
o u g h t to fo cus o n mo b ilising p u b lic re so u rce s a nd se rvin g th e n e e d s o f larg e cu sto me rs,
th e NBFCs ca n re a ch o ut to th e ma sse s a n d e nsu re fin a n cia l in clu sio n . An swe rin g a
q u e stio n in th is co n n e ctio n , h e sa id th a t th e ro le o f micro fin a n ce in stitu tio n s co u ld o n ly b e
limite d . Mirco fin a n ce h a s d on e we ll u p to a p o in t, b u t wh e n th e sca lin g -u p ha p p e n s a t a
le ve l se e n in the la st fe w ye a rs, it will b e co me risky, h e sa id . Mr Th ya g ara ja n a lso wa n te dth o se in th e NBFC in d u stry to se t u p a we ll-fu n d ed lo b b y to a rg u e its ca se b e fore th e
government.
Th e se min a r wa s h e ld to o cca sio n a lise Eq uip me n t L e a sin g Asso cia tio n (In d ia )s Silve r
Ju b ile e ce le b ra tion s. Th e Ch a irma n o f th e Silve r Ju b ile e Co mmitte e , Mr R An a n d , Pa rtn e r
Ern st & Yo u n g , a lso o b se rve d th a t b a n ks a n d NBFCs we re p a rtn e rs in th e fin a n cia l
inclusion agenda of the nation.
Mr M An a n d a n , fo rme r Ma n a g ing Dire cto r o f Ch o la ma nd a la m DBS Fin a n ce L td , sa id th a t
funding is not a big issue for NBFCs today. [Business Line, Oct. 25]
The 25 year old Equipment Leasing Association ( India), which played a dominant role in
representi ng the cause of NBFCs primarily engaged in the business of hire purchasefin a n cin g , le a sing a n d h yp o th e catio n , h a s a ssu me d a n e w ro le with le a sin g b e comin g
a lmo st n o n -e xiste nt n o w. At th e silve r ju b ile e ce le b ra tio n o f EL AI in Ch e n n a i o n Oct. 2 4 , it
wa s re -ch riste n e d a s Fin a n ce co mpa n ie s a sso cia tio n ( In d ia ). Ba se d in Che n n a i, th e n e w
b o d y to o k o ff with th e e xistin g 4 0 me mb ers, mo stly co rp o ra te s.
Ma n a p p ura m g ro u p Ch a irma n a n d CEO, V P Na n d a ku mar, ch a irma n o f EL AI a n d th e n e w
association told ET, We want to broad base our membership to represent various NBFCs
registered with RBI and engaged in asset financing, mortgage finance, providing gold
l o an s a nd p e rs o na l l o an s . We w i ll n ot r e pr e se nt i n v es t me nt c o mp an i es . R A n an d ,
p a rtn e r- ta x & re g u la to ry se rvice s, Ern st & Yo u n g a n d Cha irma n of th e silve r ju b ilee
committee said of the estimated 300 active NBFCs in the country, the association would
like to co ve r in th e first p h a se 1 0 0 to 1 2 0 . In o rd e r to e ffe ctive ly ra ise th e vo ice o f th e
members before Government and regulators, it has been decided to create a Trust whichwill d o re se a rch o n th e NBFC se cto r a n d a n alyse th e imp act o f p o licy ch a n ge s. Th e in itial
While banks ought to focus on mobilising public resources and serving the needs of large
customers, the NBFCs can reach out to the masses and ensure financial inclusion."
Mr R. Thyagarajan
called upon the
Government to set up ana u th o ri t y e x cl u s iv e ly t o
t ak e c ha rg e o f t he
development of the
[NBF C ] industry, w hich
h e t e rm e d a s p r ac t ic a ll y
non-existent today. He
said that an exclusive
a u t h o ri t y w o u l d im p a r t
r e s p e ct a b i l it y a n d
c r ed i bi l i ty t o t h e i n du s t ry
a n d a l so e n s u r e o r d e r l y
grow th of it.
In order to have legal
c l a r i ty , a c l e a r p r o v i si o n
stating the financiers
Right to repossess vehicles
i n c a s e o f d e f a ul t s u b j ec t
t o te r ms a n d
c o n d it i o n s / g u i d e li n e s
prescribed by
Reserve B ank of India
b e i n c o r po r a t e d.
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co n trib u tio n o f Rs 1 0 lakh s will co me fro m EL AI. It is p ro p o se d
to ra ise mo re re so u rce s fro m co rp o ra te s a n d o th e r b o d ie s.
Th e Tru st will h a ve a n office a n d a re se a rch te a m to ca rry o u t
th e wo rks.
Co in cid in g with th e ce le b ra tio n , EL AI o rg a n ise d a se min a r to
d e lib e ra te on th e va rio us a sp e cts o f th e fin a n cia l se rvice s
s e c t or . I n au g u ra t e d b y R B I r e gi o n al d i r ec t o r, K R A n a nd a , i t
wa s a d d re sse d b y in d u stry e xp e rts like Su n d a ra m Fin a n ce
M a na g i ng d i r e c t or , T T S r i ni v a s ar a g ha v a n, S h r i r a m g r ou p
Ch a irma n R Th ya g a ra jan , Sh rira m Ca p ita l Vice Pre sid e n t, T
B Ka p a li, M An a n d a n, fo rme r MD, Ch o la ma n da la m DBS
F i na nc e an d P S B al a su br a ma ni a m, D i re c to r, H C K o th ar i
g ro u p firms.
Th e sp e a ke rs re ca lle d th e tu rb u le n t times in th e e a rly n in e tie s
a n d e xp lain e d h o w th e e xistin g p la ye rs h a d su rvived th o se
d a r k d a y s as w e ll a s t h e r e c e nt g l ob a l f i n an c i al m e l t do w n .
Th e y tra ce d th is to th e ro bu st In d ia n fin a n cia l syste m a n d th e
p r u de n t ia l n o r ms f o l l o we d b y R B I . W h i l e t h e r e gu l a t or y
syste m ha d a chie ve d its o ve ra ll o b je ctive , th e exp e rts u rg e d
RBI and Government to recognise the relevance of NBFCs in
the changing landscape. As they have deep knowledge of the
co u n trys fina n cia l syste m, th e y wou ld p la y a me a n in g ful ro le
like b a n ks a n d micro fin a n ce in stitu tio n s in th e fin a n cia l
in clu sio n a g e n d a a s we ll a s in th e o vera ll e co n o mic a g e n d a
o f Go ve rn me n t. Fo r th is, th e a u th o ritie s h a ve to tre a t th e m o n
p a r with o th e r p la ye rs in th e fina n cia l syste m wh e n it co me s to
ta xa tio n , a va ila b ility o f fu n d s, b ro a d b a sin g th e so u rce o f
fin a n ce , re co ve ry o f NPAs ( b y a p p lyin g th e Sa rfa si a ct) e tc.,
Bo th b a n ks a nd NBFCs sh o u ld b e viewe d a s p a rtn e rs in th e
fin a n cia l in clu sio n a g e n d a o f th e na tio n , Mr An a n d said
summing up the discussion on the occasion. [Economic Times ,25 Oct 2009]
In In d ia , th e tre me n d o u s g ro wth o f ro a d tra n sp o rt se cto r
became possible due to ready finance provided by NBFC-
AFCs a n d mo re re ce n tly b y b a n ks. Th e p rime se cu rity in a ll
finance agreements is the vehicle financed. As such, proper
and speedy procedures are must pertaining to vehicle
financing, specially, registration of the lien in the R.C. in
fa vo u r of th e fina n cie r, su fficien t sa fe g u a rd s to p re ven t
fra u d u le n t d e le tio n o f th e lie n a n d tra n sfe r o f th e R.C. in th e
name of the financier in case of repossessed vehicles, said
Mr. Raman Aggarwal, co-chairman before expert committeesetup by Ministry of Road transport and Highways on Nov.27.
Outlining the amendments required in Motor Vehicles Act,
1 9 88 M r . A g g ar w a l s u g ge s t ed t h a t S e c t io n 5 1 ( 2) n e e d s t o
address change in registered owner in case of amalgamation
of companies. The registered owner in the R.C. should be
c h a ng e d t o ne w c o m pa n y b as e d o n a l et t e r f r om t h e
transferee company along with a suitable proof and
f i n a nc i e r s N OC s h o ul d b e m a nd a t or y f o r m a k in g s u c h
changes. He added that change should be made without
disturbing the hypothecation endorsement in favour of the
financier.
Due to lack of safeguards in Section 51(3) to preventfraudulent cancellation of H.P./ Lease/ Hypothecation
Ame nd Motor Vehic le s Ac t, 1 9 8 8 s a y s FIDC
endorsement, this provision has been misused by theb o rro we rs i.e . re g iste re d o wn e rs in g e ttin g th e lie n d e le te d b ysu b mittin g NOC with fo rg e d sig na tu re s o f th e fin a ncie r. He
su g g e ste d in tro d u cin g syste m o f se e kin g co n firma tio n fro mth e fin a n cie r with in 7 d a ys.
Issu a n ce o f fre sh R.C. in th e n a me o f th e fin a n cie r in ca se o f Repossessed Vehicles provided under Section 51(5) is ap ro b le m d u e to re fu sa l b y RTAs a s th e y in sist o n fin a n cie rs to
pay Road Tax/ Permit Fee arrears payable by the registeredo wn e r o r in sist o n fin a n cie rs to su rre n d e r th e p e rmit in sp ite o f the fact that registered owner is the permit holder. Mr.
Ag g a rwa l fu rth e r p o in te d o u t th a t fru stra tin g d e la ys inissu a n ce o f fre sh R.C. in th e n a me o f fin a n cie r ta ke s p la ce o nfrivo lo u s g ro u n d s sin ce th e re is n o time limit p re scrib e d .
Re co mme nd in g re me d ia l me a su re s h e sta te d th at th e wo rdma y sh o u ld b e re p la ce d with th e wo rd sh a ll in se ctio n
5 1 (5 ). A cle a r p ro visio n e xe mp tin g the fin a n cie r fro m th elia b ility to p a y th e Ro a d Ta x a rre a rs a n d th e p e rmit fe e , [wh ich
should be recovered from the defaulting registered owner]and a provision exempting the financier from submission of th e p e rmit b e in co rp o rate d in th e a me n d men t Act. A n e wp ro visio n fo r re g istra tio n o f u n re g iste re d re p o sse sse d
ve h icle s d ire ctly in th e n a me o f fin a n cie r is a lso n e e d e d .
To o b via te d ila to ry p ro ce d u re , Mr. Ag g a rwa l su g g e ste d th a t
o n ly o n e n o tice to b e se n t b y RTA to th e d e fa u ltin g re g iste re downer by registered post with acknowledgement due at hisaddress entered in the R.C. and a maximum period of 30
d a ys sh o u ld b e p re scribe d fo r issu a n ce o f fre sh R.C. In ca seth e fin a n cier su b mits th e o rig ina l R.C., th e RTA sh o u ld issu efre sh R.C. in its n a me u n d e r in tima tio n to th e b o rro we r
with o u t g o ing th ro u g h the u su a l p ro ce ss, h e a dd e d . All o th e r o b je ctio n s ra ise d b y th e b o rro we r p e rta in in g to th e d isp u tewith th e fin a n cie r sh o u ld n o t b e e n te rta in e d a s RTA is n o t th ep ro p e r fo ru m fo r su ch d isp u te s. Un le ss th e re is a sp e cific
co u rt o rd e r a g a in st th e fin an cie r o r th e RTA fo r tra n sfe rrin gvehicles, such objections should not be entertained.
Trade Certificate is required under Chapter-III of The CentralMotor Vehicle Rules, 1989 by a dealer of motor vehicles for
e xe mp tio n fro m re g istra tio n o f n e w ve h icle s till th e time it issold and registered in the name of the owner. However, RTAsin sist o n fin a n cie r a lso to o b ta in & su b mit Tra d e Ce rtifica te fo r endorsement of Hypothecation in the financier name in the
R.C. a t th e time o f re g istra tio n o f a n e w ve h icle , Mr. Ag a rwa lpointed out. He insisted that Trade Certificate should not bema n d a to ry fo r RBI re g iste re d NBFC-AFCs . NBFC-AFCs
should be given the choice to get the Trade Certificate anda lso d e cid e th e n u mb e r o f ce rtifica te s re q u ire d .
In o rd e r to ha ve le g a l cla rity, a cle a r p rovisio n sta tin g th efin a n cie rs Rig h t to re p o sse ss ve h icle s in ca se o f d e fa u ltsu b je ct to te rms a n d co n d itio n s/ g u id e lin e s p re scrib e d b y
Re se rve Ba n k o f In d ia b e in co rp o ra te d. A syste m o f o n e timeRo a d Ta x (life time ta x) sh o u ld b e in tro d uce d fo r a ll cla ss o f ve h icle s. Th is sh all a d d re ss th e p ro b le m o f b acklo g o f Ro a d
Tax arrears due to which many cases are pending before
va rio u s co urts a ll o ve r th e cou n try. Th is me a su re will e n a b leth e g o ve rn men t to sa ve lo t o f time a n d re so u rce s in co lle ctio n
of Road Tax.
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Supreme C ourt has
observed that when a
person signs a document,
t h er e i s a pr e s um p ti o n
t ha t h e h as r ea d t he
d o c u m en t p r o pe r l y a n d
understood it and only
t h e n he a f f i xe d h is
signature thereon,
u nl es s t he re i s a p ro of
o f fo r ce o r f r au d.
Arbitra tion Cos t :
Signed means- read and signed
Bounc e d c he que : No c a s e if borrowe r ha s nt is s ue d it
On e o f th e d ifficu ltie s b e in g fa ce d b y th e p a rtie s to th e Arb itra tio n Ag re e me n t is h ig h co ststo wa rd s Arb itra to rs Fe e s. Wh e n a re tire d High Co u rt Ju d ge is a p p o inte d to a d jud ica teu p o n th e issu e a risin g be twe e n th e p a rtie s to th e Arb itra l Ag re e me nt, th e p a rtie s a reb u rd e n e d with h ig h Arb itra to rs fe e s. Ma n y o f th e Arb itra to rs fix th e fe e s pe r h e a rin g a ndp a rtie s a re fo rce d to p a y h ug e fe e s, wh e n th e sitting s a re d ra g g ed to ma n y h e a ring s. Th is
h a p p e n s fo r th e re a so n th a t th e co u rt a p po in tin g th e re tire d High Co u rt Ju d g e a s a nArb itra to r le a ve s th e fe e s a sp e ct to h im.
Taking into consideration of the above, Supreme Court in the case Union of India Vs SinghBuilders Syndicate suggested the following:
1 ) At th e time o f a p p o in tin g th e Arb itra to r, with th e co n se n t o f th e p a rtie s, th e Co u rt sh a ll fixsuitable fees. 2) Wherever necessary, the retired High Court Judge may also be interactedfo r fixin g th e fe e s. 3 ) The Co u rt ma y ma in ta in a p a n e l o f Arb itrato rs wh o o ffe re d th eir se rvice s to a ct a s Arb itra to rs a n d wh ile e mp a n e lling th e m, th e y ma y b e re q u ire d to fu rn ishth e fe e s stru ctu re to th e re g istry o f th e Hig h Co u rts. Th e p a rtie s ma y se le ct th e Arb itra to rso f th e ir ch o ice 4 ) To h a ve In stitu tio n a l Arb itra tio n wh ich stip u la te s u n ifo rm ra te to wa rd sfe e s.
Ad d e d to th e su g g e stio ns ma d e b y th e Su p re me Co u rt in th e a b o ve ca se , th e fo llo win gma y a lso b e co n sid e re d fo r a p p o in tme n t o f Arb itra to rs with a ffo rd a b le co sts;
1) To appoint Retired District Judges known for honesty and integrity; 2) To fix the fees onth e b a sis o f th e sch e d u le p re scrib e d by th e In d ian Co u n cil o f Arb itra tio n , Ne w De lh i a t th etime o f a p p o in tin g th e Arb itra to rs. [Co n trib u te d b y Mr.V Srin iva sa n , DGM [L e g a l], S. F. L .]
In ma jo rity o f Arb itra tio n Ca se s, th e re sp o n d e n ts u se d to ta ke d e fe n ce th a t th e y sig n e d th eb la n k d o cume n ts a n d h e n ce th ey a re n o t b ou n d b y th e te rms o f th e d o cu me n ts. No rma llywhen there is an executed and duly filled in document, the presumption is that thee xe cu ta n ts sig n e d th e d ocu me n ts a fte r h avin g re a d a n d u n d e rsto o d the te rms a n dco n d itio n s o f th e d o cu me n t b e fo re sig n in g th e m. Su p reme Co u rt h a s co n firme d th e a b o vep re su mp tio n in th e ca se o f Gra sim In du strie s L td an d a n o the r Vs Ag a rwa l Ste e l (Civil
Ap p e a l No .5 9 9 4 /20 0 4 with Civil Ap p e a l No s.7 4 7 7 /20 0 4 a n d 1 7 3 3 /2 0 05 ).The document in issue is a joint statement of account, bearing the signatures of theclaimant and the respondent. Th e Arb itra to r b e fo re wh o m th e d isp u te wa s re fe rre d to , h e ldthat the signature on behalf of the claimant - respondent was made under a mistake andth e sa me was n o t b in d ing . Th is issu e re a ch e d the Su p re me Co u rt in th e ab o ve a p p ea l a n dthe Supreme Court has observed that when a person signs a document, there is apresumption that he has read the document properly and understood it and only then heaffixed his signature thereon, unless there is a proof of force or fraud. Th e Su p re me Co u rth a s fu rth e r o bse rve d tha t u n le ss th e a b ove p re sump tio n is d ra wn , n o sig n a tu re o n adocument can ever be accepted . The above judgment can be made use of in cases wherethe Borrowers/Hirers dispute the claim on the ground mentioned above. [Contributed by Mr.V Srin iva sa n , DGM [L e g a l], S. F. L .]
While accepting a cheque from someone who owes you money, make sure that he himself or his authorised representative has signed it. Otherwise, in case the chequeb o u n ce s, yo u wo n t b e a b le to file crimina l ca se a g ain st th e a ctua l b o rro we r, a s p e r a
ju d g e men t o f th e Bo mb a y Hig h Co u rt. Vira l Fila me n ts b o rro we d ce rta in a mo u n t fro m o n eArvin d De g ve ka r so me time in 1 9 9 7 . Wh e n th e time to re tu rn th e mo n e y ca me , th ecompany gave him a cheque. The cheque was issued by one Balram, an associate of ViralFilaments and owner of another firm. It bounced, and even after Degvekar informed ViralFila me n ts a b o u t it, h e d id no t g e t h is mo ne y b ack. De g ve ka r file d crimin a l ca se a g a in stb o th Ba lra m a n d Vira l Fila me n ts u n d er Se ctio n 1 3 8 o f th e Ne g o tia b le In stru me n ts Act.Vira l Fila me n ts th e n mo ve d the h ig h co u rt, se e kin g to q u a sh th e comp la in t. In th e o rde r la st we e k, Ju stice R Kin g a o n kar n o te d th a t th e co mp a n y itse lf h a d n o t issu e d th e ch eq u e ,though it owed the money.
Un d e r th e p ro visio n s o f Se ctio n 1 3 8 , a ctio n co u ld b e in itia te d a g a in st th e d ra we r o f th echeque, Justice Kingaonkar observed, quashing the case against Viral. However,De g a o n kar wa s fre e to file a civil su it a g a in st th e co mp a ny, th e ju dg e a d d e d .
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F I DC N ew s 1 2
Me e ting of Ma na ging Committe e of FIDC a t Ahme da ba d
FIDC Ac tions :
FIDC re c omme nds c ha nges in MV Ac t, 1 9 8 8
Guja ra ti Copy of FIDC Ha ndbook on Re pos se s s ion unv e ile d:
Read the booklet
Me e tin g o f th e Me mb ers o f th e Ma n a g in g Co mmitte e o f FIDC wa s h e ld o n De ce mb e r 0 9 ,2009 at 3.00 p m at Ahmedabad-380006.Meeting was presided over by Co-chairman Mr.Raman Aggarwal.
o FIDC h a s se n t Rep re se n ta tion o n d ra ft Dire ct Ta x Co d e pro p o se d by Un io nGo ve rn me nt. a n d a lso h a d mee tin g s with Fin a n ce Ministe r a n d CBDT Ch a irma n .
o A me e tin g with Re se rve Ba n k Go ve rn o r Mr. D. Su b b a ra o a n d Dy Go ve rn o rs wa s h e ldo n
o A me e tin g o f FIDC Ch a irma n Mr.T T Srin iva sa ra g hva n with Mr. A. Na ra ya n a Ra o n e w
CGM-in -ch a rg e , DNBS, RBI wa s h e ld to b rie f h im o n th e issu e s o f NBFCs re la tin g toRBI.
Cops can get to know the legal aspect in fir m, client dispute
If p o lice re fu se to file a co mp la in t a g a in st th e se izu re o f ve h icle yo u to o k lo a n to b u y o r a n yo th e r a sse t, just a sk th e m to vie w th e Gu ja rati ve rsio n o f a bo o kle t-Va su la t ma tte milka t n oPh e r-Ka b jo (Ha n d b o o k on re p o sse ssio n) issu e d b y Fin a nce In d u stry De ve lop me n tC o u nc i l ( F I D C) .
The booklet is meant to resolve the disputes between the clients and finance companies. W e w il l p r o vi d e t h e bo o k le t t o a l l P o l ic e S t a ti o n s s o th a t i n c as e o f a n y ma t t er o f re p o sse ssio n b y a g en ts o f th e fin a n ce co mp a nie s, e xa ct le g a l a sp e cts ca n b e re fe rre d to ,Dire cto r Ge n e ral o f Po lice , Gu ja rat, SS Kh a n d wa wala to ld DNA
The booklet was unveiled by Mohan Jha, JCR Traffic, Ahmedabad city. We may also try toin tro d u ce the b o o k fo r tra in in g o f p o lice win g s d e a lin g in fin an cia l crime s, sa id Jh a a t
Ah me d a ba d o n De c.9 .
Th e b o o klet ma in ly fo cu se s o n le g a l a sp e cts, d o s a n d d o n ts fo r th e fin a ncia l co mp a n ies a sw e l l a s t h e l eg a l p r a ct i c e th a t ha s t o b e c o n du c t ed w h il e r ep o s se s s i ng t h e d e f au l t er sa sse ts.
Th e b o o kle t co nta in s g u id e lin es fo r th e re p o sse ssio n a n d the p ro to co l th a t h a s to b emaintained by the finance companies" Mukesh Gandhi, chairman of Gujarat FinanceCo mp a n ie s Asso cia tio n , to ld DNA.
To know about Dos and donts of repos s es s ion for financ e c om panies .
How to identify if agent is v alid one for firm ?G u i de l i n es f o r a g en t s f o r r e po s se i n g t h e a s se t s.
Responsibilities of financ e c om panies .
[D N A, D ec. 9, 2009]
15-10-09.
s s
A p re se n ta tio n wa s ma d e b y Mr. Ra ma n Ag g a rwa l, Co -ch a irma n, FIDC o n No v. 2 7 , 2 0 0 9a t Ne w De lh i b e fo re the Exp e rt Committe e set u p b y Min istry o f Ro a d Tra n sp o rt an dHighways to recommend amendments to the Motor Vehicles Act, 1988. The details are
given on page 10.
Views ex pres s ed herein are not nec es s arily the v iews of FIDC.
Published by :
T T S R I N IV AS A R A GH AV ANfor and on behalf of
Fina nc e Indus r y De v e lopme nt Counc il,
2 2 2 , As ho k a Sh o p p in g Ce ntr e , 2 n d Flo o r, L T Ro a d ,Ne a r G T Ho s p ita l, Mu mb ai- 4 0 0 0 0 1 , INDIA.P ho ne : 9 1- 22 22 67 5 50 0 / 91 9 82 00 3 55 53Fa x : 9 1- 22 22 67 56 00 ,
E -m ai l : F ID C : i nf o@f idc ind ia .co mD i r e ct o r G e n e r a l : m a h e sh t h ak k a r @v s n l .c o mW eb s it e : w w w. f id c in d ia . co m
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Pr in te d b y : Ad ity a Pr in t Sh op ( Ph .) 0 7 9- 2 6 5 7 9 9 5 9
DGP, Gujarat
We w i ll pr o vi d e t h e
b o o k l et ( F I D C H a n d bo o k )
t o a l l Po l i c e S t a t i o ns
T r affi c co n g esti o n an d p ay cu tsf o r ce d h i m t o s h i ft f r o m a 4 - wh e e le r
t o 3 - w he e l e r t o 2 - w h ee l e r t o t h i s .. .
( Court e s y : Time s of India )