Saturday, Oct 19, 2002
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"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.
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