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Thursday, June 19 1997

RBI tightens NBFC norms

ENS ECONOMIC BUREAU

MUMBAI, June 18: The Reserve Bank of India (RBI) today tightened the norms governing the operations of non-banking finance companies (NBFCs) by increasing the percentage of liquid assets (statutory liquidity ratio) to be maintained by them.

Accordingly, under the provisions of Section 45IB of the RBI Act, 1934 NBFCs viz unregistered loan/investment companies which are presently maintaining 5 % of their deposits in government securities/guaranteed bonds, should maintain 7.5 % and 10 % of the deposits in these securities with effect from January 1 and April 1, 1998.

This step is taken as the CRB fiasco exposed lack of proper regulation of NBFCs which flourished in the last five years. The step is also seen as a reversal of the recent concessions made by the RBI. The RBI has increased the liquid requirements for NBFCs in order to enhance the financial soundness of the NBFCs. ``It has been noticed that some of the NBFCs have in the past encumbered these securities and thereby defaulted in meeting the liquidity requirements,'' RBI said.

Such of other NBFCs as are presently required to maintain 10 % of the deposits in these assets will be required to maintain higher liquidity at 12.5 % and 15 % of the deposits in government securities or guaranteed bonds, with effect from January 1 and April 1, 1998 respectively. There will, however, be no change in the liquid assets requirement (10 %) for the residuary non-banking companies, said an RBI statement here.

The RBI has also stipulated that the government securities/guaranteed bonds held by them should be kept in the custody of one of the scheduled commercial banks at the place where the registered office of the company is located. These securities can be withdrawn by the NBFC only for repayment to the depositor or for substitution of these securities with matching value or in the case of a reduction in the deposit liabilities.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.

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