The finance ministry is considering extending the scope of the Securitisation and Reconstruction of Financial Assets Bill, 2002 to registered non-banking finance companies.
Finance Minister Jaswant Singh is said to have given this assurance to a delegation of officials representing NBFCs and the Reserve Bank of India that met him last week.
While the Securitisation Bill enacted last year provides for financial institutions (including NBFCs) to use the provisions of the Act and recover their non-performing assets, thus far it has been applicable only to banks and FIs. Bringing the finance companies under its ambit will require a formal notification from the ministry.
The main reason why finance companies have not been allowed to take advantage of the Act is an apprehension in the minds of the authorities that it could be misused.
"Unlike banks, it is felt that sufficient safeguards have to be provided in case NBFCs are to be allowed to attach the assets of their borrowers," Mahesh Thakker, president of the Association of Leasing and Financial Services, said.
The Securitisation Bill essentially allows lenders to attach the assets of the defaulting borrowers and dispose them off as they wish to recover their dues.
Banks and FIs issue notices to defaulting clients to pay up the dues within 60 days, failing which the bank or FI can exercise its authority to attach the assets of the company.
NPAs of finance companies are around 8 to 10 per cent of their outstanding advances to the corporate sector while, for retail loans, they stand at around 6 to 8 per cent.
Advances under hire purchase and leasing is now at around Rs 15,000 crore (Rs 150 billion). Incidentally, there is very little data available on the loan activities of this sector since consolidation is still taking place.
At present there are around 780 registered NBFCs operating in the country which are allowed to accept public deposits. Out of this, there are only 20 which are in the top league.
Applications for registration of NBFCs are still pending approval with the RBI, while registrations of others are being withdrawn continually.