The Hindu Business Line : Nidhis want to be covered under Securitisation Act

FOR more than a century-and-a-half, the `Nidhi' non-banking finance companies, had been doing geography-specific lending, against the security of property and jewels.

Typically, repayments of loans against property were delayed, but recoveries were 100 per cent.

So far no problem. But in 2000, the Government made it mandatory for the nidhis to make provisions as per specified guidelines. Later, in deference to the representations from the Chamber of Nidhis, the provisioning requirement was made applicable from the year 2005. This has given the nidhis a breather, but the danger is just two years away.

For, about 75 per cent of the nidhi's lendings (of around Rs 1,500 crore) are against property. If reckoned according to the NPA norms, about 60 per cent of the property loans would need to be classified as NPAs, and appropriately provided for. This, it is feared, could have a disastrous effect on the balance sheets of some nidhis, although the recovery of the loans is a certainty.

Having thus been "pushed to the wall", the Chamber of Nidhis is now demanding the applicabiliy of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (or, the Securitisation Act).

"If you are asking us to make provisions just as the banks do, you must also empower us to recover the loans, as you have empowered the banks," Mr T.S. Gokilan, President, Chamber of Nidhis, said at a press conference here. But do not the Nidhi companies (unlike the banks) already have the power to seize the property and sell them off, without having to seek the Courts' permission? Well, it is true that they can do so, invoking the Section 69 of the Transfer of Property Act, but in practice, it does not work out well.

"The loanee just obtains a stay on the auction proceedings, and then begins a long protracted battle," Mr S.V. Madhusudhan, Secretary of the Chamber, said.

"After all, the Government loses nothing by just issuing a notification saying that the Securitisation Act is also applicable to the Nidhis," Mr Madhusudhan said, adding that such a measure would help the 150-year old tradition of Nidhi companies survive.

The nidhi companies (as well as the Chit Funds) are an innovation of southern India and are hence sometimes referred to as `dhoti-clad financial institutions'. Their operations are typically confined to a particular geography and are mutual in nature (i.e., both depositors and borrowers are shareholders). Lendings are necessarily against deposits, property and jewels. These financial companies are characterised by highly personalised operations, where the companies personally know the people they are transacting with.

However, in the late `90s, a few companies went wayward in their operations (lending to film making and industry) and vanished. This resulted in the RBI and the government tightening the screws on the companies that survived. There are about 192 of them in the country.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Nidhis want to be covered under Securitisation Act

There is hope for bonds

IDBI Bank eyes housing portfolio

Corpn Bank branch

Private life insurers active in gilts market

TU urges recap funds for primary co-op banks