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Govt urged to extend Sarfaesi Act to NBFCs

Mohan Padmanabhan

Kolkata , Jan. 21

THE Finance Industry Development Council (FIDC), the newly formed self-regulatory organisation (SRO) of the RBI-registered non-banking finance companies (NBFCs), has sought a separate funding institution/fund for the NBFC sector along the lines of the National Housing Bank (NHB).

In a recent pre-Budget representation to the Union Finance Minister, Mr P. Chidambaram, FIDC has also sought extension of provisions of the Sarfaesi Act to registered NBFCs (to enable investor protection), and access to debt recovery tribunals.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act) was enacted to enable banks and FIs to realise long-term assets, manage problem of liquidity, asset-liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce NPAs by adopting measures for recovery or construction.

Talking to Business Line from his office in Mumbai, Mr Mahesh Thakkar, Director-General of FIDC, said the council has also represented certain taxation issues pertaining to NBFCs to the Government. These are deductibility of provisioning norms as per provisions of Sec. 36 (1) (Viia)/43D of the Income-tax Act, extension of I-T benefits for financing of infrastructure projects to NBFCs and exemption to NBFCs from TDS requirements u/s 194A (3)(iii) of I-T Act.

Citing a report of the Standing Committee of Parliament on Finance on the Financial Companies Regulation Bill, 2000, which likened the work of NBFCs to that of quasi banks, providing funds to sectors where a credit gap existed, the council has suggested that a "Transportation Financing Fund" be created by SIDBI to refinance NBFCs engaged in financing the road transport sector. Mr Thakkar said there was a crying need to provide adequate funding support to NBFCs, somewhat like that being provided by National Housing Bank to HFCs.

Pointing out that banks and FIs and some specified housing finance companies have been notified under the Sarfaesi Act, giving them the scope to move against defaulting borrowers and secure their assets, he said, "NBFCs are the only ones in the financial sector that have not been notified under the Act." He said as per the Act, the RBI could do this by way of a notification.

The FIDC has also urged the Government to consider DRT access for NBFCs. Suggesting that it would fulfil a long felt need of the NBFCs, Mr Thakkar said this will facilitate speedier realisation of their dues.

Mr Thakkar said some 350 `A' category (deposit-taking entities) registered NBFCs were already members of FIDC and a detailed Code of Conduct and Fair Business Practices has already been formulated.

Asked when it is likely to be adopted, he said it was still open for general comments, and was likely to be implemented with effect from April 1, after approval by members at the general body meeting in March.

On the immediate benefits of such a SRO, he said after all, it was human nature to accept self imposed rules more readily than those imposed by outsiders.

It is felt that such a body will enable official regulators to leverage their limited public resources effectively and focus on areas where the perceived risks are the greatest.

Besides ensuring fair and ethical practices among members, the FIDC is also expected to bring the NBFCs to the mainstream of the financial sector, he added.

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