NEW DELHI, May 27: The ministry of finance (MoF) is working on ways and means to raise the entry barrier for registered non-banking financial companies (NBFCs) to gain admission into the `low-risk category'. Companies in this category are eligible for greater operational freedom, and are supervised on an on-site basis once in three years.

The expert group (Khanna Committee), which chalked out a blueprint for providing a supervisory framework for NBFCs, had suggested that the top category ones should have net-owned funds of Rs 1 crore. But the RBI Act, which was amended earlier this year, had lowered the limit to Rs 25 lakh.

The ministry contended that the barrier would have to be increased in accordance with the expert group's suggestion. The regulatory framework should be `very tight' as a huge chunk of deposits is cornered by large companies. ``Entry into the select club should be resticted to the bluest of the blue-chip companies,'' a ministry official said. A lenient supervisory approach can be adopted for the very best, the ministry is believed to have told the Reserve Bank of India (RBI).

The ministry is concerned over the crisis of confidence that has afflicted NBFCs in the aftermath of CRB Caps' collapse. Top finance ministry officials are determined to find ways to `restore faith in the system'. At no cost can a run on finance companies be risked, a ministry official said. The 40,000-odd NBFCs in the country collectively have a deposit base of about Rs 70,0000 crore.

On the issue of monitoring NBFCs, the ministry holds a view that the department of supervision (DoS) in the Reserve Bank, which has been entrusted with the task, will have to get its act together. The ministry is not considering forming `a body corporate' to regulate NBFCs.

It has veered round to a view that RBI, which is in charge of credit management, should regulate NBFCs.

In the RBI governor's discussions with the ministry mandarins, the issue of training DoS officials was discussed. The fact that there is no dedicated DoS cadre trained in the art of on-site and off-site surveillance is a matter of concern .

The ministry reportedly has taken the view that CRB's credit rating agency, CARE, should not be hauled up. Credit rating of a company's fixed-deposit schemes is a snapshot of the safety at the time of their launch. The rating can by no means proffer a view about what kind of assets would be created weeks after the scheme is closed. RBI expects DoS to form a comprehensive database on NBFCs.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.