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Home » IANS » FIDC seeks exemption of NBFCs from restriction on opening of current accounts

FIDC seeks exemption of NBFCs from restriction on opening of current accounts

By IANS
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New Delhi, Aug 21 (IANS) The Finance Industry Development Council, an industry body of NBFCs, has urged the Reserve Bank of India to exempt NBFCs from the restriction imposed on opening of current accounts by banks.

In a bid to curb multiple operating accounts for loans and maintaining credit discipline, the RBI has taken additional measures wherein banks have been directed not to open current accounts for customers already availing credit in the form of cash or overdraft (OD)

In its letter to the central bank, the industry body has said that NBFCs borrow from banks mostly as term loans and the percentage of borrowing as cash credit is low.

An NBFC may operate its main collection or disbursement account with a bank from which it does not have a cash credit facility but only a term loan, for reasons of better service levels or branch strength in the geographical area served by the NBFC.

“Unlike manufacturing industry which borrows term loans for specific projects (and therefore direct disbursement to suppliers is possible), NBFCs create a loan portfolio and then avail of term loans for refinancing their existing loan portfolio. Direct disbursement to “suppliers” is not possible in such a scenario,” it said.

The FIDC noted that there are existing regulations governing borrowing and end use of funds by NBFCs which are practical and provide a strong framework of governance and control.

“All banks seek NOCs from existing banks while opening current accounts of NBFCs. We therefore request you to please exempt NBFCs from this regulation on restriction of opening of current accounts and on the stipulation of remitting term loans to ‘suppliers’,” said the letter from Mahesh Thakkar, Director General of FIDC.

Thakkar also noted that the RBI has recently permitted banks in India to increase the permissible loan-to-value ratio (LTV) for loans against the pledge of gold ornaments and jewellery for non-agricultural purposes from 75 per cent to 90 per cent and the relaxation is applicable for a limited time up to March 31, 2021.

He said that also the objective is to mitigate the negative economic impact of the Covid-19 pandemic on households, entrepreneurs and small businesses, gold loan NBFCs have been kept out of the purview of the relaxation.

Thakkar has sought reconsideration of the decision as these NBFCs cater mainly to the poor and marginalised customers, particularly in rural and semi urban areas, who otherwise depended on informal finance.

“By restricting the applicability of the measure to banks, a vulnerable section of the population is effectively punished by exclusion,” the letter said.

“We therefore request that the RBI extend the mitigation benefit to the customers of all the gold loan focused RBI Registered NBFCs too,” it said.

According to FIDC, it will benefit customers belonging to the marginalised and unbanked class who typically would lack documentary evidence to source credit from formal channels and therefore be at risk of reverting to informal lenders. Further, gold loan focused NBFCs with their specialized experience in the field would be well-placed to deal with the attendant risk involved, the letter said.

–IANS

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