Kabhi Khushi, Kabhi Gham!

Non Banking Financing Companies in India

Ever since India has embarked on the Economic Reforms and Banking Sector Reforms in 1991/1998 (thanks to Mr Narasimham, ex-Governor of RBI who headed two important Committees), there have been encouraging news in the media about working of banks and improvement of health of the financial system.  Inspite of several changes in Governments / Political Parties in Power, introduction of several reforms in various fields simultaneous with removal of licence-raj scenario, Banks and Non-Banking Financial Companies (NBFCs) have been facing the brunt.  Much can be said about the phenomenal changes in the working of banking system - be it in Balance Sheet Management, Technology like ATMs, e-Banking, Dematerialisation, Core Banking Solution, SWIFT, Asset Liability Management (ALM) or Risk Management, Prudential Norms (like changes in CRR, SLR, introduction of CAR) and so on. 

The country cousin of banks (Public, Private - Old & New, Foreign, Cooperative, Regional Rural and Local Area Banks) are the Non Banking Financing Companies (NBFCs) popularly known as private finance companies.  No doubt they are ancient and have been playing a very responsible role in the Financial System by offering para-banking facilities.  Unfortunately, during the period when Commercial Banks were undergoing health-check up, there was an unhealthy mushrooming of NBFCs in early nineties. These could be listed as Companies engaged in Chit Funds, Nidhis, Investment, Leasing, Hire Purchase, Housing Finance, Credit Cards, Locker Facilities, Mutual Funds and Asset Management, Venture Capital and Private Equity, Merchant or Investment Banking, Asset Reconstruction, Credit Rating, Credit Information Bureaus and so on. 

But, for some interesting reasons and thanks to the Grand Scam by Mr CR Bhansali in late nineties, RBI and Government of India had appointed Vasudev Committee to enquire into their working and streamline the system to clean up the mess.  Around that time NBFC became a dirty word.  A clear picture emerged then as to registration, credit rating and regulation of NBFCs by RBI and SEBI.  Prudential Norms and guidelines similar to Commercial Banks were also prescribed for NBFCs.  With such a move, the large number of over 45,000 NBFCs got checked both by RBI and SEBI in respective zones of control and the number now is around one thousand.  Of course, lakhs of gullible and innocent investors got cheated in the decade of nineties by investing their hard-earned savings in high-interest bearing fixed deposits or pseudo or junk-stocks.  It is interesting to read in the news that RBI has withdrawn licences to 5 NBFCs in Bangalore, Chennai and Mumbai.  Investing public should note these developments and be cautioned to deal with them.

BSE, NSE and now USE?

Regional Stock Exchanges in India

During the interviews for Admissions 2010 for TAPMI's 27th PGP, a question was asked by me to many candidates about the Regional Stock Exchanges.   Most of them are aware of only Bombay (interestingly not Mumbai) Stock Exchange and National Stock Exchange - both located in Mumbai.  (Unfortunately, before NSE could shape up, the Big Bull - Mr Harshad Mehta played with all the Brokers, Investors, Bankers, with a huge Stock Market Scam in 1991-92.) The daily newspapers, TV Channels like CNBC-TV18 or NDTV Profit or Bloomberg and Internet sites also prominently quote about the movements in these two exchanges only.  They also quote the trading in Dow Jones, Hang Seng, FTSE, etc. One more reason could be that they have terminals for these two exchanges all over the country with the local brokers or their outlets. 

But, why do people forget the other three metros - Delhi, Kolkata (Calcutta) and Chennai (Madras)?  And what about Ahmedabad, Hyderabad, Bangalore, Baroda, Coimbatore, Cochin, Magadh, Mangalore, and other regional stock exchanges?  All these are also actively working.  And there was a OCTEI (Over The Counter Exchange of India) for small companies as also Inter-Connected Stock Exchange  ( ICSE for all the regional exchanges). SEBI is the regulator for all these exchanges.  Please visit :SEBI for details.  And then, SAT (Securities Appellate Tribunal) is the appellate authority for redressal of any grievances.

I give here a link to Business Line (daily of Hindu group) net page on Regional Stock Exchanges. http://www.blonnet.com/mentor/2010/01/25/stories/2010012550331101.htm A simple question was asked by a reader and it was replied saying that these Regional Exchanges are continuing to operate to cater to the requirements of those investors and players who are not so net-savvy.  In fact, Bombay Stock Exchange is over 130 years old but only during the early nineties (post economic reforms) the new National Stock Exchange was born - totally electronic simultaneous with the Dematerialisation and birth of NSDL / CDSL.

And now we are hearing about United Stock Exchange of India Ltd (USE).  Please click here to read: United Stock Exchange of India Ltd.  This exchange is the newest on board to cater to the trading in currency derivatives. There are other exchanges in India for commodities trading... like MCX.SX, etc. Thanks to reforms, transparency in operations, and concepts like Corporate Social Responsibility and Corporate Governance, almost all the corporates and regulators like RBI, IRDA, SEBI, and others are regularly resorting to Investor Guidance through print media, seminars and Ombudsman scheme, etc.  Here is an example of what SEBI has done recently : http://www.thehindubusinessline.com/2010/05/07/stories/2010050754420100.htm