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Recently there was news that RBI is not comfortable with Non Banking Finance Companies (NBFCs) since 1998. When NBFCs faced crisis the RBI was given a role of protector of public deposits which RBI did not want to be. During that time the apex bank had tightened regulatory norms for NBFCs and tried to limit access to fixed deposits window by introducing ratings and fixing the limits to such borrowings. And over the last decade these efforts has given good results.

Since then there has been fall down in the number of such deposit taking entities. Its have been more than five years, the entities have come down by half to about 401 as of March 2007. As of March 2007 even the volume of such deposits has also reduced from a little over Rs 5,000 crore to about Rs 2,000 crore. Due to these conditions the RBI has now planned to limit the public deposits window to banks alone.

Reacting to RBI’s plan of limiting the public deposits window to banks alone, a senior NBFC industry official said, “The Fixed Deposit as an instrument is dead. There was a time when it was very popular with retirees and those approaching superannuation. Now even if the Reserve Bank of India were to allow free access to such deposits, there won’t be too many takers. The stock market boom over the past few years, the dominance of mutual funds and ULIPs has almost eliminated this investment option.”

Will anyone be affected by this move of RBI comes through? NBFC industry officials believe that few small NBFCs will see rise in intermediation costs.

They will be helpless and have no other option but to approach banks who may charge higher rates. Some of the industry insiders feel that most of the companies have already diversified their funding sources so they will not face much problem.