Business   

NBFCs: Jalan for stronger corporate governance

MUMBAI OCT. 18. The Reserve Bank of India today sought a `stronger' corporate governance (CG) code in the deposit taking non-banking finance companies (NBFCs) in order to safeguard the interests of small depositors.

"There is a need for a stronger CG code in deposit taking NBFCs. It is no longer a matter of choice for them as many small depositors have invested in these entities," the RBI governor, Bimal Jalan, said at a national conference of `NBFCs — Rejuvenating through corporate governance" here.

Referring to non-deposit taking NBFCs, he said in such entities most of the money involved came from the promoters themselves.

With liberalisation and deregulation, it has become necessary that CG becomes more stronger at the micro level for the public interest, Dr. Jalan added. Advocating the need and role for self-regulatory organisations (SROs), the RBI Governor said "Laid down regulations are not enough as no supervisor can look after the day to day management". He said there was a need to delineate interconnections between NBFCs, non-NBFCs, manufacturing and other related sectors and the SRO could play an important part here by developing guidelines and codes to be followed by them.

Failure of any NBFC to meet a commitment has a contagion effect and it also affects those who were directly or indirectly connected with the same, he said. Dr. Jalan said CG needed to have these three pillars — checks and balances, clear division of responsibility; and disclosure and transparency.

Referring to checks and balances, Dr. Jalan said these entities needed to have audit committees, which were separate from those making decisions.

A codified structure was necessary to have a clear division, both vertically and horizontally, of responsibility in an organisation, so as to avoid any debate on the decisions taken, he added.

The RBI Governor said there were two models for CG — outsider and insider. While the first deals with separation of ownership and management, the second had a small group of shareholders in the organisation handling CG, which was mostly prevalent in Asia.

International agencies like World Bank, International Monetary Fund and Bank for International Settlements were also involved in implementing the aspects of governance, he said adding, they were also studying the Indian financial sector in this aspect.

PTI

Printer friendly page  
Send this article to Friends by E-Mail

Business

News: Front Page | National | Southern States | Other States | International | Opinion | Business | Sport | Miscellaneous |
Advts: Classifieds | Employment | Obituary |

Stories in this Section

• Wipro revenue up 21 p.c. in Q2
• HDFC Bank Q2 net rises 29 p.c.
• NBFCs: Jalan for stronger corporate governance
• SBI's retailing, IT initiatives
• Knocked off the pedestal
• HSBC to tread organic growth path in India, says David Eldon
• TVSE's improved performance
• Auto, IT stocks fare well on hectic buying
• Grasim arm picks up small stake in L&T
• Stock Market Index
• Exchange rates
• Bullion rates

Copyright © 2002, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu